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Discrimination, Competition, And Loan Performance In Fha Mortgage Lending

Author

Listed:
  • 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

Suggested Citation

  • James A. Berkovec & Glenn B. Canner & Stuart A. Gabriel & Timothy H. Hannan, 1998. "Discrimination, Competition, And Loan Performance In Fha Mortgage Lending," The Review of Economics and Statistics, MIT Press, vol. 80(2), pages 241-250, May.
  • Handle: RePEc:tpr:restat:v:80:y:1998:i:2:p:241-250
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    Citations

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    Cited by:

    1. James Kau & Donald Keenan & Henry Munneke, 2012. "Racial Discrimination and Mortgage Lending," The Journal of Real Estate Finance and Economics, Springer, vol. 45(2), pages 289-304, August.
    2. Robert Gary-Bobo & Sophie Larribeau, 2002. "A Structural Econometric Model of Price Discrimination in the Mortgage Lending Industry," CESifo Working Paper Series 739, CESifo Group Munich.
    3. Smriti Rao & Hazel Malapit, 2015. "Gender, Household Structure and Financial Participation in the United States," Journal of Family and Economic Issues, Springer, vol. 36(4), pages 606-620, December.
    4. Roberto G. Quercia & Anthony Pennington-Cross & Chao Yue Tian, 2016. "Differential Impacts of Structural and Cyclical Unemployment on Mortgage Default and Prepayment," The Journal of Real Estate Finance and Economics, Springer, vol. 53(3), pages 346-367, October.
    5. Gary-Bobo, Robert J. & Larribeau, Sophie, 2003. "The Bank's Market Power and the Interest Rate Elasticity of Demand for Housing: An Econometric Study of Discrimination on French Mortgage Data," CEPR Discussion Papers 3745, C.E.P.R. Discussion Papers.
    6. Dawkins, Mark C., 2002. "Simultaneity bias in mortgage lending: A test of simultaneous equations models on bank-specific data," Journal of Banking & Finance, Elsevier, vol. 26(8), pages 1593-1613, August.
    7. Christopher Henderson, 2002. "Asymmetric Information in Community Banking and Its Relationship to Credit-Market Discrimination," American Economic Review, American Economic Association, vol. 92(2), pages 315-319, May.
    8. 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, vol. 22(1), pages 101-134, January.
    9. Helen F. Ladd, 1998. "Evidence on Discrimination in Mortgage Lending," Journal of Economic Perspectives, American Economic Association, vol. 12(2), pages 41-62, Spring.
    10. Elizabeth Laderman & Wayne Passmore, 1998. "Is mortgage lending by savings associations special?," Economic Review, Federal Reserve Bank of San Francisco, pages 30-46.
    11. Andrew, Mark & Haurin, Donald & Munasib, Abdul, 2006. "Explaining the route to owner-occupation: A transatlantic comparison," Journal of Housing Economics, Elsevier, vol. 15(3), pages 189-216, September.
    12. 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.
    13. Wendy Edelberg, 2007. "Racial dispersion in consumer credit interest rates," Finance and Economics Discussion Series 2007-28, Board of Governors of the Federal Reserve System (U.S.).
    14. 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.).
    15. Thorsten Beck & Patrick Behr & Andreas Madestam, 2011. "Sex and Credit: Is There a Gender Bias in Lending?," Working Papers 411, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    16. Saty Patrabansh, 2015. "The Marginal Effect of First-Time Homebuyer Status on Mortgage Default and Prepayment," Staff Working Papers 15-02, Federal Housing Finance Agency.
    17. 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.
    18. Solomon Y. Deku & Alper Kara & Phil Molyneux, 2014. "Access to Consumer Credit in the UK," Working Papers 14004, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
    19. Gabriel, Stuart A. & Rosenthal, Stuart S., 2013. "Urbanization, agglomeration economies, and access to mortgage credit," Regional Science and Urban Economics, Elsevier, vol. 43(1), pages 42-50.
    20. Beck, T.H.L. & Behr, P. & Madestam, A., 2011. "Sex and Credit : Is There a Gender Bias in Microfinance?," Discussion Paper 2011-101, Tilburg University, Center for Economic Research.
    21. repec:eee:jbfina:v:87:y:2018:i:c:p:380-396 is not listed on IDEAS
    22. Song Han, 2011. "Creditor Learning and Discrimination in Lending," Journal of Financial Services Research, Springer;Western Finance Association, vol. 40(1), pages 1-27, October.

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