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Looking the Other Way: A Critique of the Fair-Lending Enforcement System and a Plan to Fix It



In 2001, the homeownership rate in the United States reached 67.8 percent--an all-time high. The benefits of homeownership were not evenly spread across ethnic groups, however. In fact, the homeownership rate was 74.3 percent for non-Hispanic whites, 48.4 percent for non-Hispanic blacks, and 47.3 percent for Hispanics (U.S. Department of Housing and Urban Development 2002, Table 29). These homeownership gaps undoubtedly have many causes, but one of the key suspects is discrimination in mortgage lending. The vast majority of households cannot buy a house without a mortgage loan, and discriminatory barriers to obtaining a mortgage could have a dramatic impact on homeownership. A hint about the possible role of discrimination in mortgage lending comes from dat collected under the Home Mortgage Disclosure Act (HMDA), which records the ethnicity of the applicant and the disposition of the application for virtually all the mortgage applications filed in the United States. In 2000, black applicants were twice as likely as white applicants to be turned down for a loan, and Hispanic applicants were 41 percent more likely to be turned down (FFIEC 2001b). These loan-approved disparities do not prove that blacks and Hispanics face discrimination in mortgage lending, because they do not account for possible differences in loan features or borrower creditworthiness across groups. Nevertheless, the differences are so dramatic that they focus attention on the possibility that this type of discrimination might exist. The purpose of this policy brief is to explore the possibility that mortgage lending discrimination contributes to ethnic disparities in homeownership, to evaluate the current fair-lending enforcement system, and to propose reforms in that system to make it more effective in uncovering--and, ultimately, eliminating--mortgage lending discrimination.

Suggested Citation

  • Stephen L. Ross & John Yinger, 2002. "Looking the Other Way: A Critique of the Fair-Lending Enforcement System and a Plan to Fix It," Center for Policy Research Policy Briefs 24, Center for Policy Research, Maxwell School, Syracuse University.
  • Handle: RePEc:max:cprpbr:24

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    References listed on IDEAS

    1. Shelly J. Lundberg, 1991. "The Enforcement of Equal Opportunity Laws Under Imperfect Information: Affirmative Action and Alternatives," The Quarterly Journal of Economics, Oxford University Press, vol. 106(1), pages 309-326.
    2. Ferguson, Michael F & Peters, Stephen R, 2000. "Is Lending Discrimination Always Costly?," The Journal of Real Estate Finance and Economics, Springer, vol. 21(1), pages 23-44, July.
    3. Stephen L. Ross & John Yinger, 2002. "The Color of Credit: Mortgage Discrimination, Research Methodology, and Fair-Lending Enforcement," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262182289, January.
    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. Mitchell Stengel & Dennis Glennon, 1999. "Evaluating Statistical Models of Mortgage Lending Discrimination: A Bank-Specific Analysis," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 27(2), pages 299-334.
    6. Gyourko, Joseph & Linneman, Peter & Wachter, Susan, 1999. "Analyzing the Relationships among Race, Wealth, and Home Ownership in America," Journal of Housing Economics, Elsevier, vol. 8(2), pages 63-89, June.
    7. Robert Avery & Patricia Beeson & Paul Calem, 1997. "Using HMDA Data as a Regulatory Screen for Fair Lending Compliance," Journal of Financial Services Research, Springer;Western Finance Association, vol. 11(1), pages 9-42, February.
    8. Robert B. Avery & Raphael W. Bostic & Paul S. Calem & Glenn B. Canner, 2000. "Credit Scoring: Statistical Issues and Evidence from Credit-Bureau Files," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 28(3), pages 523-547.
    9. Robert B. Avery & Raphael W. Bostic & Paul S. Calem & Glenn B. Canner, 1996. "Credit risk, credit scoring, and the performance of home mortgages," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jul, pages 621-648.
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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • J15 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Minorities, Races, Indigenous Peoples, and Immigrants; Non-labor Discrimination
    • J18 - Labor and Demographic Economics - - Demographic Economics - - - Public Policy


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