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The Drivers of Discrimination in Mortgage Lending

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  • Olayiwola Oladipo Oladiran

Abstract

Housing is indisputably a key need that man needs to and aims to satisfy. However, satisfying this core human need requires huge capital outflow. Thus, intending homeowners rely on mortgage finance which is a suitable and viable option for buying their homes by making installment payment over a long period of time. Based on the important role of mortgage finance in satisfying this need, it is logical to infer that any intentional or implicit action or inaction that prevents an individual or group from accessing mortgage facilities is tantamount to a denial of their civil right, social opportunity, and a preclusion from homeownership.There is, however, substantial evidence that discrimination exists in mortgage lending. Literature typically classifies discrimination in the mortgage market on the basis of gender, race, geographical location, and age and suggest that mortgage discrimination is driven by either intentional or instinctive factors. While traditional research describe mortgage lending discrimination using the Becker’s differential treatment or taste-based theory and Arrow and Phelps’s statistical discrimination theory, contemporary research appear to advocate that discrimination in mortgage lending is a product of disparate effect, thus suggesting that the disparate impact theory may provide the most suitable scope required for investigating this complex phenomenon. Despite the reinforcement of disparate impact theory by several scholars, research has found it difficult to totally disentangle these theories and there is no consensus yet as to which of these theories and adequately describe the factors that drive mortgage lending discrimination.This research, therefore, reviews theoretical and empirical literature in mortgage lending with the aim of developing models that can effectively describe and analyse factors that drive mortgage market discrimination. This analysis will entail the investigation of relationships between variables used in the mortgage application with the aim observing causal factors of mortgage discrimination from the application stage to the mortgage decision, underwriting and loan administration stages which scholars have identified as major stages of the mortgage process in which discrimination plays out.

Suggested Citation

  • Olayiwola Oladipo Oladiran, 2017. "The Drivers of Discrimination in Mortgage Lending," ERES eres2017_240, European Real Estate Society (ERES).
    • Handle: RePEc:arz:wpaper:eres2017_240
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    References listed on IDEAS

    as
    1. Hanson, Andrew & Hawley, Zackary, 2011. "Do landlords discriminate in the rental housing market? Evidence from an internet field experiment in US cities," Journal of Urban Economics, Elsevier, vol. 70(2-3), pages 99-114, September.
    2. Patrick Bayer & Stephen L. Ross & Giorgio Topa, 2008. "Place of Work and Place of Residence: Informal Hiring Networks and Labor Market Outcomes," Journal of Political Economy, University of Chicago Press, vol. 116(6), pages 1150-1196, December.
    3. Ashenfelter, Orley & Oaxaca, Ronald, 1987. "The Economics of Discrimination: Economists Enter the Courtroom," American Economic Review, American Economic Association, vol. 77(2), pages 321-325, May.
    4. Munnell, Alicia H. & Geoffrey M. B. Tootell & Lynn E. Browne & James McEneaney, 1996. "Mortgage Lending in Boston: Interpreting HMDA Data," American Economic Review, American Economic Association, vol. 86(1), pages 25-53, March.
    5. Jonathan Guryan & Kerwin Kofi Charles, 2013. "Taste‐based or Statistical Discrimination: The Economics of Discrimination Returns to its Roots," Economic Journal, Royal Economic Society, vol. 123(11), pages 417-432, November.
    6. Ross, Stephen & Yinger, John, 1999. "Sorting and voting: A review of the literature on urban public finance," Handbook of Regional and Urban Economics, in: P. C. Cheshire & E. S. Mills (ed.), Handbook of Regional and Urban Economics, edition 1, volume 3, chapter 47, pages 2001-2060, Elsevier.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Differntial treatment discrimination; Disparate impact theory; Mortgage Discrimination; Mortgage markets; Statistical discrimination;
    All these keywords.

    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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