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Discrimination, Competition, And Loan Performance In Fha Mortgage Lending

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  • James A. Berkovec
  • Glenn B. Canner
  • Stuart A. Gabriel
  • Timothy H. Hannan

Abstract

This study tests for the presence of prejudicial or "noneconomic" discrimination on the part of mortgage lenders by evaluating the performance of home mortgage loans. The approach differs from that of previous studies of loan performance in that it is based on the proposition that noneconomic discrimination should be more pronounced in less competitive lending environments, while statistical discrimination should not. Using a rich set of FHA-insured loan records and measures of local market concentration to proxy the competitive environment, we test for the prediction of better loan performance by minority borrowers relative to white borrowers in more concentrated markets. We argue that this approach substantially reduces the potential for omitted-variable bias that has cast a shadow on previous studies of lending discrimination. Results fail to reject the null hypothesis of no noneconomic discrimination. © 1998 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology

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Bibliographic Info

Article provided by MIT Press in its journal The Review of Economics and Statistics.

Volume (Year): 80 (1998)
Issue (Month): 2 (May)
Pages: 241-250

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Handle: RePEc:tpr:restat:v:80:y:1998:i:2:p:241-250

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Web page: http://mitpress.mit.edu/journals/

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Cited by:
  1. Wendy Edelberg, 2007. "Racial dispersion in consumer credit interest rates," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2007-28, Board of Governors of the Federal Reserve System (U.S.).
  2. Gary-Bobo, Robert J. & Larribeau, Sophie, 2004. "A structural econometric model of price discrimination in the French mortgage lending industry," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 22(1), pages 101-134, January.
  3. Judith Robinson, 2002. "Race, Gender, and Familial Status: Discrimination in One US Mortgage Lending Market," Feminist Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 8(2), pages 63-85.
  4. Beck, T.H.L. & Behr, P. & Madestam, A., 2012. "Sex and Credit: Is there a Gender Bias in Lending?," Discussion Paper, Tilburg University, Center for Economic Research 2012-062, Tilburg University, Center for Economic Research.
  5. Helen F. Ladd, 1998. "Evidence on Discrimination in Mortgage Lending," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 12(2), pages 41-62, Spring.
  6. Robert J. GARY-BOBO & Sophie LARRIBEAU, 2003. "The Bank's Market Power and the Interest-Rate Elasticity of Demand for Housing: An Econometric Study of Discrimination on French Mortgage Data," Annales d'Economie et de Statistique, ENSAE, ENSAE, issue 71-72, pages 377-398.
  7. Stephen L. Ross, 2003. "What Is Known about Testing for Discrimination: Lessons Learned by Comparing across Different Markets," Working papers, University of Connecticut, Department of Economics 2003-21, University of Connecticut, Department of Economics, revised Nov 2003.
  8. Christopher Henderson, 2002. "Asymmetric Information in Community Banking and Its Relationship to Credit-Market Discrimination," American Economic Review, American Economic Association, American Economic Association, vol. 92(2), pages 315-319, May.
  9. Gary-Bobo, Robert J. & Larribeau, Sophie, 2002. "A Structural Econometric Model of Price Discrimination in the Mortgage Lending Industry," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3302, C.E.P.R. Discussion Papers.
  10. James Kau & Donald Keenan & Henry Munneke, 2012. "Racial Discrimination and Mortgage Lending," The Journal of Real Estate Finance and Economics, Springer, Springer, vol. 45(2), pages 289-304, August.
  11. Elizabeth Laderman & Wayne Passmore, 1998. "Is mortgage lending by savings associations special?," Economic Review, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco, pages 30-46.
  12. Dawkins, Mark C., 2002. "Simultaneity bias in mortgage lending: A test of simultaneous equations models on bank-specific data," Journal of Banking & Finance, Elsevier, Elsevier, vol. 26(8), pages 1593-1613, August.
  13. Song Han, 2011. "Creditor Learning and Discrimination in Lending," Journal of Financial Services Research, Springer, Springer, vol. 40(1), pages 1-27, October.
  14. Gabriel, Stuart A. & Rosenthal, Stuart S., 2013. "Urbanization, agglomeration economies, and access to mortgage credit," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 43(1), pages 42-50.
  15. Andrew, Mark & Haurin, Donald & Munasib, Abdul, 2006. "Explaining the route to owner-occupation: A transatlantic comparison," Journal of Housing Economics, Elsevier, Elsevier, vol. 15(3), pages 189-216, September.

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