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Mortgage lending in Boston: a response to the critics

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  • Lynn Elaine Browne
  • Geoffrey M.B. Tootell

Abstract

Three years ago, the Federal Reserve Bank of Boston released an examination of racial patterns in mortgage denial rates in the Boston area. The study was motivated by newly available data on mortgage applications, showing that black and Hispanic applicants were two to three times as likely to be turned down for mortgages as white applicants. The study gathered all the variables thought to be missing from the HMDA analysis, such as the applicants' debt burdens and credit histories, to see whether these economic factors explained the racial difference in denial rates. Although the additional information did explain much of the difference, after taking account of economic factors the applicant's race still significantly affected the probability of getting a mortgage.> The study has been influential and has caused many institutions to review their lending practices and supervisory agencies to alter their examination procedures. The study has also drawn criticism, with critics claiming that variables have been omitted, the model misspecified, errors made in the data, and information about racial differences in foreclosures ignored. This article provides a detailed rebuttal to these criticisms and shows that even after incorporating the concerns of some of the study's strongest critics, applicants' race as well as economic characteristics affected the probability of getting a mortgage in 1990.

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Bibliographic Info

Article provided by Federal Reserve Bank of Boston in its journal New England Economic Review.

Volume (Year): (1995)
Issue (Month): Sep ()
Pages: 53-78

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Handle: RePEc:fip:fedbne:y:1995:i:sep:p:53-78

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Keywords: Boston (Mass.) ; Mortgages ; Discrimination in mortgage loans;

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Cited by:
  1. Michael Hout & Harvey S. Rosen, 1999. "Self-Employment, Family Background, and Race," NBER Working Papers 7344, National Bureau of Economic Research, Inc.
  2. Stephen L. Ross, 2003. "What Is Known about Testing for Discrimination: Lessons Learned by Comparing across Different Markets," Working papers 2003-21, University of Connecticut, Department of Economics, revised Nov 2003.
  3. Stephen L. Ross, 2005. "The Continuing Practice and Impact of Discrimination," Working papers 2005-19, University of Connecticut, Department of Economics, revised Jul 2006.
  4. Judith Robinson, 2002. "Race, Gender, and Familial Status: Discrimination in One US Mortgage Lending Market," Feminist Economics, Taylor & Francis Journals, vol. 8(2), pages 63-85.
  5. Helen F. Ladd, 1998. "Evidence on Discrimination in Mortgage Lending," Journal of Economic Perspectives, American Economic Association, vol. 12(2), pages 41-62, Spring.
  6. Paul S. Calem & Stanley D. Longhofer, 2000. "Anatomy of a fair-lending exam: the uses and limitations of statistics," Finance and Economics Discussion Series 2000-15, Board of Governors of the Federal Reserve System (U.S.).
  7. David G. Blanchflower & Phillip B. Levine & David J. Zimmerman, 1998. "Discrimination in the Small Business Credit Market," NBER Working Papers 6840, National Bureau of Economic Research, Inc.
  8. Cullen Goenner, 2010. "Discrimination and Mortgage Lending in Boston: The Effects of Model Uncertainty," The Journal of Real Estate Finance and Economics, Springer, vol. 40(3), pages 260-285, April.
  9. Judith A. Clarke & Marsha J. Courchane & Nilanjana Roy, 2005. "On the Robustness of Racial Discrimination Findings in Mortgage Lending Studies," Econometrics Working Papers 0516, Department of Economics, University of Victoria.
  10. HAROLD Black & M. Collins & Ken Cyree, 1997. "Do Black-Owned Banks Discriminate against Black Borrowers?," Journal of Financial Services Research, Springer, vol. 11(1), pages 189-204, February.
  11. McKinley Blackburn & Todd Vermilyea, 2006. "A Comparison of Unexplained Racial Disparities in Bank-Level and Market-Level Models of Mortgage Lending," Journal of Financial Services Research, Springer, vol. 29(2), pages 125-147, April.
  12. Jason Dietrich, 2005. "Under-specified Models and Detection of Discrimination: A Case Study of Mortgage Lending," The Journal of Real Estate Finance and Economics, Springer, vol. 31(1), pages 83-105, August.
  13. Stanley D. Longhofer, 1996. "Cultural affinity and mortgage discrimination," Economic Review, Federal Reserve Bank of Cleveland, issue Q III, pages 12-24.
  14. Douglas D. Evanoff & Lewis M. Segal, 1996. "CRA and fair lending regulations: resulting trends in mortgage lending," Economic Perspectives, Federal Reserve Bank of Chicago, issue Nov, pages 19-46.
  15. Paul S. Calem & Stanley D. Longhofer, 2000. "Anatomy of a fair-lending exam: the uses and limitations of statistics," Working Paper 0003R, Federal Reserve Bank of Cleveland.
  16. Stanley D. Longhofer & Stephen R. Peters, 1998. "Beneath the rhetoric: clarifying the debate on mortgage lending discrimination," Economic Review, Federal Reserve Bank of Cleveland, issue Q IV, pages 2-13.
  17. Block, Walter & Snow, Nicholas & Stringham, Edward, 2008. "Banks, insurance companies, and discrimination," MPRA Paper 26035, University Library of Munich, Germany.

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