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Borrower and neighborhood racial and income characteristics and financial institution mortgage application screening


Disparities in mortgage lending patterns between minority and nonminority neighborhoods have refocused attention on the Community Reinvestment Act (CRA), a statute designed to encourage lending by financial institutions to nearby lower income neighborhoods. Geographic disparities may derive from discrimination, neighborhood and borrower attributes, as well as regulation itself. This article examines possible spatial impacts of the CRA. Tests for differential lender screening across regulated and nonregulated institutions in five metropolitan areas provide no consistent findings of regulatory effects. The article also tests whether lower income and minority applicants are more likely to be accepted when they apply for loans in lower income and minority neighborhoods. Using data for Boston, evidence is found for concentration effects that may result from institutional factors, information economies, or regulation.

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Schill, M.H., Wachter, S.M. Borrower and neighborhood racial and income characteristics and financial institution mortgage application screening. J Real Estate Finan Econ 9, 223–239 (1994).

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Key words

  • Racial geographic disparities
  • mortgage screening
  • Community Reinvestment Act