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Defaults, denials, and discrimination in mortgage lending

Author

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  • Geoffrey M.B. Tootell

Abstract

The results of the study of discrimination in mortgage lending by Munnell, Browne, McEneaney, and Tootell (1992) have been questioned by some who claim that the authors failed to control adequately for the expected profitability of each loan. Critics assert that an examination of default rates for minorities and whites would explain the disparate treatment minorities received in obtaining mortgage loans. ; This article will demonstrate that studies of denials are a valid approach to testing for discrimination and that, in fact, examination of defaults cannot, in general, reveal much about the issue. Since studies of defaults leave out the observations that are most important to the examination of discrimination, denied applications, they cannot compare the profitability of rejected minority applications to accepted white ones. Only by including these observations, as is done in studies of denials, can definitive evidence about discrimination be found.

Suggested Citation

  • Geoffrey M.B. Tootell, 1993. "Defaults, denials, and discrimination in mortgage lending," New England Economic Review, Federal Reserve Bank of Boston, issue Sep, pages 45-51.
  • Handle: RePEc:fip:fedbne:y:1993:i:sep:p:45-51
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    File URL: http://www.bostonfed.org/economic/neer/neer1993/neer593d.pdf
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    Cited by:

    1. Song Han, 2001. "On the Economics of Discrimination in Credit Markets," Finance and Economics Discussion Series 2002-02, Board of Governors of the Federal Reserve System (U.S.).
    2. 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.).
    3. 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.
    4. Helen F. Ladd, 1998. "Evidence on Discrimination in Mortgage Lending," Journal of Economic Perspectives, American Economic Association, vol. 12(2), pages 41-62, Spring.
    5. 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.
    6. 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.
    7. Stanley D. Longhofer & Stephen R. Peters, 1998. "Self-selection and discrimination in credit markets," Working Paper 9809, Federal Reserve Bank of Cleveland.
    8. 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, revised 30 Jul 2000.

    More about this item

    Keywords

    Mortgages;

    Statistics

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