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A Test of Cultural Affinity in Home Mortgage Lending

  • Raphael Bostic
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    This paper assess cultural affinity as a potential explanation for observed racial disparities in mortgage rejection rates. Two formulations of the theory have evolved in the literature. The taste-based cultural affinity hypothesis asserts that lenders have a blanket preference for members of the same race, while the common bond hypothesis asserts that cultural affinity allows lenders to better assess the credit quality of members of the same race. The analysis involves tests that focus on the experiences of applicants with marginal credit quality, as the two theories offer conflicting predictions regarding their application patterns and treatment by lenders. The results of these tests provide weak support for the existence of taste-based cultural affinity, but contradict the predictions of the common bond form of the theory.

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    File URL: http://lusk.usc.edu/sites/default/files/working_papers/wp_2002-1006.pdf
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    Paper provided by USC Lusk Center for Real Estate in its series Working Paper with number 8624.

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    Date of creation: 2002
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    Handle: RePEc:luk:wpaper:8624
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    Web page: http://lusk.usc.edu/

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    1. James J. Heckman, 1976. "Introduction to "Annals of Economic and Social Measurement, Volume 5, number 4"," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 5, number 4 National Bureau of Economic Research, Inc.
    2. William C. Hunter & Mary Beth Walker, 1995. "The cultural affinity hypothesis and mortgage lending decisions," Working Paper Series, Issues in Financial Regulation 95-8, Federal Reserve Bank of Chicago.
    3. Calomiris, Charles W & Kahn, Charles M & Longhofer, Stanley D, 1994. "Housing-Finance Intervention and Private Incentives: Helping Minorities and the Poor," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 26(3), pages 634-74, August.
    4. 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.
    5. Richard L. Peterson, 1981. "An Investigation of Sex Discrimination in Commercial Banks' Direct Consumer Lending," Bell Journal of Economics, The RAND Corporation, vol. 12(2), pages 547-561, Autumn.
    6. Hunter, William C & Walker, Mary Beth, 1996. "The Cultural Affinity Hypothesis and Mortgage Lending Decisions," The Journal of Real Estate Finance and Economics, Springer, vol. 13(1), pages 57-70, July.
    7. Glenn B. Canner & Dolores S. Smith, 1991. "Home Mortgage Disclosure Act: expanded data on residential lending," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Nov, pages 859-881.
    8. Alicia H. Munnell, 1992. "Mortgage lending in Boston: interpreting HMDA data," Working Papers 92-7, Federal Reserve Bank of Boston.
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