Racial, Economic, And Institutional Differences In Home Mortgage Loans: A Case Study Analysis Of St. Joseph County, Indiana

Numerous studies have documented racial and economic disparities in the home mortgage market. Almost all of these have been done in large urban areas, many of which have long histories of racial conflict and discrimination. Further, little attention has been paid to institutional disparities, i.e. the ways in which mortgage lenders differ among themselves in their community reinvestment performance. In this study, we profile the home mortgage lending of several institutions doing business in the medium-sized urban area of St. Joseph County, Indiana. We find tremendous differences between lenders, suggesting that bank practices and policies exert a great impact on how well low income and minority neighborhoods and individuals are served. Lender characteristics, such as the legal structure of the institution (e.g., commercial bank, credit union, savings and loan), branch locations, and other factors are associated with these disparities. We conclude by suggesting that several heretofore ignored variables need closer examination. Over the last decade, numerous authors have evaluated the existence and degree of racial and economic disparities occurring in the urban home mortgage market. From the early work done by Shlay (1987, a, b, c) and Dedman (1988) through the frequently cited study published by the Boston Fed (Munnell, Browne, McEneaney and Tootell, 1992) the results are virtually unanimous. Studies across the country show that blacks proportionally apply for fewer loans than whites, yet are rejected more often. Researchers consistently find that white neighborhoods receive many (three to four) times more loans per 1,000 mortgageable structures than do minority neighborhoods. Regression analyses, using various model specifications and data sets, agree that redlining and racial variables show consistent, significant and negative associations with home mortgage lending. This is true even after applying controls for obligation ratios, credit history, loan to value ratios, and property characteristics. In this study, we make three important contributions to the literature on residential mortgage patterns: First, almost all studies have focused on aggregate bank 1 performance, i.e., how well do all the lending institutions in an area do at serving the community. Very little attention has been paid to institutional disparities (i.e. the ways in which banks differ among themselves in their community reinvestment performance). Or, as Kim and Squires (1995) put it, most studies of mortgage lending have focused on the demand side (characteristics of borrowers, the properties 1 Throughout this manuscript " banks " refers generically to banks, savings & loans, savings banks, …