Lending in the Modern Era: Does Racial Composition of Neighborhoods Matter When Individuals Seek Home Financing? A Pilot Study in New England

This article explores the relationship between racial composition of neighborhoods and approval and origination of mortgages. It measures independent neighborhood effects, above and beyond applicant race effects preceding the recent housing market crisis for rental and owner‐occupied homes. Mortgage applications are selected from the dozen most populated metropolitan areas in New England. Applications are linked to corresponding neighborhood data and generalized linear mixed modeling is applied. Data include prehousing market crash Housing Mortgage Disclosure Act data matched to American Community Survey 5‐year data for over one million applications. Findings indicate, although controlling for income, gender, and race of the applicant, poverty and tenure, and additional socioeconomic variables, neighborhood racial composition has a statistically significant effect on whether mortgages are approved and originated. Minority presence is correlated with a negative effect on mortgage origination regardless of race of the individual loan applicant. More specifically, whites’ applications are also turned down in minority neighborhoods, especially black neighborhoods.

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