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U.S. Department of Housing and Urban Development Office of Policy Development and Research Equal Credit Opportunity: Accessibility to l\/lortgage Funds by Women and by Minorities Summary of Results ir EQUAL CREDIT OPPORTUNITY ACCESSIBILITY TO MORTGAGE FUNDS BY WOMEN AND BY MINORITIES Summary of Results by Robert Schafer Helen F. Ladd Joint Center for Urban Studies of the Massachusetts Institute of Technology and Harvard University H-2879 This work was prepared 1n whole with Federal funds, and the author hereby grants the Federal Government an unlimited, free license to use and reproduce in whole or In part in any appropriate form this work and to have Federal agents use and reproduce in whole or in part this work, The contents of this report do not necessarily reflect the views or policies of the Department of Housing and Urban Development or the U.S. Government. FOREWORD When the Office of Policy Development and Research began its Women and Mortgage Credit Project, we were motivated by our awareness that, in the past, mortgage lenders had discriminated against women. Indeed, lenders themselves have acknowledged their past practice of discounting wives' incomes. In addition, research on homeownership had also indicated that women were much less likely to purchase homes than men with similar incomesWas this because women were being discriminated against? Until recently, i t was impossible to test directly for discrimination in the mortgage market because we did not have the necessary data. Then several states ~ among them, California and New York — began to require state-regulated lending institutions to maintain data, including rejected applications, that would permit monitoring of lending practices on the basis of both sex and race. (This happened even before the implementation of the reporting requirements of the Equal Credit Opportunity Act.) So while continuing to urge women and minorities to enter the mortgage market, we decided, as part of the research component of the Women and Mortgage Credit Project, to examine the newly available data. Note that only two states are involved. Note also that the study cannot t e l l us whether there is discrimination at the pre-application stage, with lenders discouraging women and minorities from even applying for a mortgage. But with these cautions observed, the study reveals l i t t l e evidence of discrimination against women in the mortgage market or of the discounting of wives' incomes. On the other hand, the study shows continued widespread discrimination against minorities and, to our surprise, some evidence of discrimination against "male-only" applicants. This two-volume report also puts the l i e to another assumption ~ that social science research only t e l l s you what you already know. I t does not. Read on. Donna E. Shalala Assistant Secretary for Policy Development and Research EQUAL CREDIT OPPORTUNITY: ACCESSIBILITY TO MORTGAGE FUNDS BY WOMEN AND BY MINORITIES by R o b e r t S c h a f e r and H e l e n F . Suinmary o f Ladd Results INTRODUCTION A v a r i e t y o f f e d e r a l and s t a t e s t a t u t e s c u r r e n t l y makes illegal f o r banking i n s t i t u t i o n s , when g r a n t i n g mortgage loans, t o d i s c r i m i n a t e a g a i n s t c e r t a i n b o r r o w e r s on t h e b a s i s o f sonal c h a r a c t e r i s t i c s such as r a c e , vidual two s o c i a l c o n c e r n s . location. One p e r t a i n s t o j u s t i c e and t h e o t h e r t o t h e v i a b i l i t y or characteristics o f t h e p r o p e r t y t h e y w i s h t o buy such as i t s age o r These laws r e f l e c t per- s e x , or m a r i t a l s t a t u s on t h e b a s i s o f t h e a r b i t r a r y use o f c e r t a i n it indi- o f urban n e i g h - borhoods . G e n e r a l l y a c c e p t e d c o n c e p t s o f j u s t i c e demand t h a t uals individ- n o t be t r e a t e d a d v e r s e l y j u s t because t h e y happen t o have certain characteristics i n common. Membership i n c e r t a i n e s p e c i a l l y t h o s e d e f i n e d by t h e c o l o r o f a p e r s o n ' s s k i n , the past r e s u l t e d i n d i f f e r e n t i a l treatment. groups, has T h i s concept o f j u s t i c e and i t s h i s t o r i c v i o l a t i o n s have l e d t o laws t h a t h i b i t discriminatory l e n d i n g on t h e b a s i s o f c e r t a i n pro- unaccept- a b l e c a t e g o r i e s w h i l e a l l o w i n g d i f f e r e n t i a t i o n based on o t h e r , more o b j e c t i v e , f a c t o r s r e l a t e d t o the r i s k i n e s s of t h e such as t h e income®of t h e a p p l i c a n t or t h e a p p l i c a n t ' s wealth. March 2 3 , The f e d e r a l E q u a l C r e d i t O p p o r t u n i t y A c t 1976) embodies t h i s c o n c e p t o f fairness: loan, net (as amended, in I t s h a l l be u n l a w f u l f o r any c r e d i t o r t o d i s c r i m i n a t e a g a i n s t any a p p l i c a n t , w i t h r e s p e c t t o any a s p e c t o f a credit transaction (1) on t h e b a s i s o f r a c e , c o l o r , r e l i g i o n , n a t i o n a l o r i g i n , s e x , o r m a r i t a l s t a t u s , or age ( p r o v i d e d t h e a p p l i c a n t has t h e c a p a c i t y t o c o n t r a c t ) ; (2) because a l l o r p a r t o f t h e a p p l i c a n t ' s income d e r i v e s from any p u b l i c a s s i s t a n c e program; o r (3) because t h e a p p l i c a n t has i n good f a i t h e x e r c i s e d any r i g h t under t h e Consumer C r e d i t P r o tection Act. Community a c t i v i s t groups have been i n s t r u m e n t a l i n t h e d e velopment o f laws t h a t r e q u i r e d i s c l o s u r e o f mortgage lending by census t r a c t or z i p code, t h a t encourage f i n a n c i a l institu- t i o n s t o " h e l p meet t h e c r e d i t needs o f t h e l o c a l communities i n which t h e y a r e c h a r t e r e d c o n s i s t e n t w i t h t h e s a f e and sound o p e r a t i o n o f such i n s t i t u t i o n s , " o r t h a t make d i s c r i m i n a t i o n on t h e b a s i s o f t h e age or l o c a t i o n o f a b u i l d i n g i l l e g a l . These groups b e l i e v e t h a t l e n d i n g i n s t i t u t i o n s c o n t r i b u t e t o t h e c l i n i n g q u a l i t y of l i f e i n c e r t a i n u r b a n neighborhoods by f u s i n g t o g r a n t mortgages even though demand e x i s t s , dere- or by g r a n t i n g mortgages w i t h l e s s f a v o r a b l e terms even though t h e e x p e c t e d y i e l d and r i s k o f l o s s a r e t h e same as i n o t h e r borhoods. They a l l e g e t h a t o l d e r or l a r g e l y m i n o r i t y neigh- neighbor- hoods a r e u s u a l l y t h e t a r g e t o f t h e s e p r a c t i c e s which a r e commonly known as "redlining." T h i s s t u d y uses mortgage a p p l i c a t i o n d a t a t o examine the e x t e n t t o w h i c h urban mortgage l e n d e r s d i s c r i m i n a t e on t h e of borrower c h a r a c t e r i s t i c s basis t h a t a r e i l l e g a l and t h e e x t e n t w h i c h a l l e g a t i o n s by a n t i - r e d l i n i n g groups a r e v a l i d . Its to focus on t h e l e n d e r ' s d e c i s i o n t o l e n d , r a t h e r t h a n on t h e aggregate volume o f l e n d i n g by g e o g r a p h i c a r e a , this differentiates study f r o m most p r e v i o u s studies. The b a n k e r ' s mortgage l e n d i n g d e c i s i o n i s o n l y one l i n k in a c h a i n o f d e c i s i o n s t h a t d e t e r m i n e s t h e e x t e n t t o which d e c e n t h o u s i n g i s a c c e s s i b l e t o women and m i n o r i t i e s . t h e u r b a n h o u s i n g m a r k e t have a m a j o r r o l e Other a c t o r s i n d e t e r m i n i n g whether o r n o t women and m i n o r i t i e s can buy homes. Among them a r e e s t a t e b r o k e r s who may s t e e r b u y e r s away f r o m or t o w a r d neighborhoods because o f t h e i r race, sex, or m a r i t a l real certain status; r e a l e s t a t e a p p r a i s e r s who may u n d e r a p p r a i s e c e r t a i n t y p e s property insurance t o c e r t a i n geographic o r c a t e g o r i e s o f homeowners. study. areas The a n a l y s i s o f t h e r o l e o f (with the exception of appraisers) of t h i s of f o r d i s c r i m i n a t o r y r e a s o n s ; or i n s u r a n c e companies who may r e f u s e t o s e l l f i r e actors One must keep t h e i r i s beyond t h e these scope i n t e r a c t i o n s w i t h mortgage l e n d e r s i n mind, however, when i n t e r p r e t i n g t h e r e s u l t s o f study. in For example, against minorities if banks do n o t appear t o i n making mortgage l o a n s , discriminate t h e i r a c t i o n s may o n l y be a r e s u l t o f advance s c r e e n i n g by r e a l e s t a t e who t e l l this brokers t h e i r m i n o r i t y c l i e n t s t h a t t h e y should n o t even a p p l y f o r a bank loan. THE NATURE OF THE STUDY Lenders may l i m i t o r r e s t r i c t d i t o f women, m i n o r i t i e s , t h e access t o mortgage the e l d e r l y , cre- and t h o s e t r y i n g t o pur- chase houses i n a l l e g e d l y r e d l i n e d a r e a s i n a t l e a s t f o u r ways. First, a l e n d e r may d i s c o u r a g e c e r t a i n p o t e n t i a l b o r r o w e r s s u b m i t t i n g a formal a p p l i c a t i o n f o r a mortgage. Second, from the person a u t h o r i z e d by t h e l e n d i n g i n s t i t u t i o n t o e s t i m a t e value o f , or a p p r a i s e , t h e p r o p e r t y may d i f f e r e n t i a l l y t e m a t i c a l l y underappraise c e r t a i n types of p r o p e r t i e s to others. the and s y s relative ( U n d e r a p p r a i s a l o f t h i s t y p e reduces t h e maximum l o a n amount below what i t would be w i t h n o n - d i s c r i m i n a t o r y praisal.) Third, t h e l e n d e r may use c r i t e r i a ap- to evaluate a p p l i c a t i o n s t h a t r e s u l t i n systematic d i s c r i m i n a t i o n loan against c e r t a i n t y p e s o f a p p l i c a n t s w i t h t h e r e s u l t t h a t such a p p l i c a n t s f a c e h i g h e r p r o b a b i l i t i e s o f l o a n d e n i a l or a d v e r s e m o d i f i c a t i o n than other a p p l i c a n t s . trarily rates, Fourth, impose h a r s h e r mortgage terms shorter maturity periods, a p p l i c a n t s t h a n on o t h e r s . a f f o r d the harsher terms, o u t r i g h t d e n i a l of the If t h e l e n d e r may a r b i - (e.g., higher interest or h i g h e r l o a n f e e s ) on some the p o t e n t i a l borrower cannot t h i s p r a c t i c e i s tantamount t o the loan. T h i s study d e a l s w i t h t h r e e o f t h e s e f o u r ways t h a t e r s may l i m i t t h e access t o mortgage c r e d i t . base i n c l u d e s o n l y f o r m a l a p p l i c a t i o n s , S i n c e our data we a r e u n a b l e t o mine t h e f i r s t method, p r e - s c r e e n i n g by l e n d e r s . fortunate; lend- many a l l e g e t h a t p r e - s c r e e n i n g , This i s although i s a w i d e l y used way f o r l e n d e r s t o p r a c t i c e illegal, discrimina- t i o n a t t h e subsequent s t a g e s o f t h e l e n d i n g p r o c e s s , they g e s t t h a t d i s c r i m i n a t o r y p r e - s c r e e n i n g may e x i s t as w e l l . however; absence o f e v i d e n c e sugThe supporting charges o f d i s c r i m i n a t i o n r e l a t e d to formal a p p l i c a t i o n s not imply a lack of d i s c r i m i n a t i o n a t the p r e - a p p l i c a t i o n un- discrimination. To t h e e x t e n t t h a t our r e s u l t s p r o v i d e e v i d e n c e o f reverse i s not t r u e , exa- does stage, This lender summary r e p o r t s on t h e e x a m i n a t i o n o f d i s c r i m i n a t i o n on t h e b a s i s o f one o r more o f ing prohibited - sex o f - race of - age o f applicant; - age o f neighborhood; - racial composition of - l o c a t i o n of loss applicant; the neighborhood; property. control security to the lender, decision to approve, for the creditworthiness o f f e r e d by t h e p r o p e r t y , we t e s t in connection w i t h the following - follow- applicant; the applicant, of the of criteria: By e s t i m a t i n g models t h a t risk allegations for discriminatory types of modify, and lender of the behavior practices: o r deny a m o r t g a g e application; - s e t t i n g of mortgage terms period, - loan-to-value appraisal (i.e., ratio, interest rate, maturity and l o a n f e e s ) ; practices. L e n d e r s h a v e s e v e r a l o p t i o n s when t h e y r e c e i v e a m o r t g a g e application. They c a n a p p r o v e t h e a p p l i c a t i o n w i t h t h e r e q u e s t e d by t h e a p p l i c a n t , the terms, take they can approve i t o r t h e y c a n deny i t several forms. altogether. t h e y can i n c r e a s e t h e the requested value, or t h e y can s h o r t e n or period. likelihood We a n a l y z e that modifying Modifications can L e n d e r s c a n r e d u c e t h e l o a n amount b e l o w the requested value, rity after terms l o a n amount lengthen the l e n d i n g d e c i s i o n s by e x a m i n i n g lenders w i l l above deny o r m o d i f y a l o a n matuthe application given i t s c h a r a c t e r i s t i c s . H i g h e r chances t h a t applications from women or m i n o r i t i e s w i l l be d e n i e d or approved w i t h a l o a n amount below t h e r e q u e s t e d amount i n d i c a t e discrimination a g a i n s t t h e s e groups. We use s e v e r a l approaches i n a n a l y s i n g mortgage terms. First, terest rate, credit we study t h e terms o f t h e mortgage c o n t r a c t maturity period, and l o a n - t o - v a l u e r a t i o ) . (in- Since b o r r o w e r s p r e f e r lower i n t e r e s t r a t e s and l e n d e r s p r e f e r higher r a t e s f o r any g i v e n c o m b i n a t i o n o f t h e o t h e r t e r m s , our summary focuses on t h e r e s u l t s w i t h r e g a r d t o i n t e r e s t r a t e tion. Higher i n t e r e s t r a t e s are evidence of a g a i n s t women and m i n o r i t i e s . discrimination Second, we a n a l y z e t h e amount o f t h e r e d u c t i o n s i n r e q u e s t e d l o a n amounts modifications)• discrimina- (downward Above a v e r a g e r e d u c t i o n s i n r e q u e s t e d amounts a r e a n o t h e r p i e c e o f e v i d e n c e c o n s i s t e n t w i t h nation. dollar loan discrimi- T h i r d , we examine t h e v a r i a t i o n i n t h e l o a n f e e s ers charge f o r processing l o a n s . Disproportionately high f e e s f o r women or r a c i a l m i n o r i t i e s indicate lendloan discrimination a g a i n s t members o f t h e s e g r o u p s . Finally, we a n a l y z e t h e f a i r n e s s o f a p p r a i s a l Underappraisal of properties practices. i n c e r t a i n locations or of t i e s b e i n g purchased by women o r r a c i a l m i n o r i t i e s o f d i s c r i m i n a t i o n a g a i n s t these l o c a t i o n s or is proper- evidence persons. STUDY AREAS A n a l y s i s o f d i s c r i m i n a t i o n i n mortgage l e n d i n g r e q u i r e s det a i l e d i n f o r m a t i o n on t h e o b j e c t i v e f a c t o r s such as t h e credit- w o r t h i n e s s o f i n d i v i d u a l a p p l i c a n t s and t h e s e c u r i t y v a l u e of t h e p r o p e r t y t h a t l e g i t i m a t e l y a f f e c t t h e mortgage l e n d i n g d e cision, and i n f o r m a t i o n on t h o s e c h a r a c t e r i s t i c s cant or the property t h a t c o n s t i t u t e Fortunately, illegal of the appli- discrimination. because C a l i f o r n i a and New York s t a t e laws require s t a t e - r e g u l a t e d banks t o m a i n t a i n d e t a i l e d i n f o r m a t i o n on a l l mortgage a p p l i c a t i o n s , we were a b l e t o o b t a i n t h e d a t a from s t a t e - r e g u l a t e d i f o r n i a and a l l s a v i n g s and l o a n a s s o c i a t i o n s in Cal- s t a t e - r e g u l a t e d l e n d e r s i n New York s t a t e . New York r e g u l a t e s t h r e e t y p e s o f l e n d e r s : tual necessary savings banks, and s a v i n g s and l o a n commercial b a n k s , muassociations. We s t u d y mortgage l e n d i n g s e p a r a t e l y f o r each t y p e o f lender ifornia i n each m e t r o p o l i t a n a r e a . state-chartered we examine C a l - s a v i n g s and l o a n a s s o c i a t i o n s f o r metropolitan area separately 1978. In addition, for each each o f t h e y e a r s 1977 and The New York i n f o r m a t i o n c o v e r s t h e p e r i o d from May 1977 t o October 1978 f o r c o m m e r c i a l banks and s a v i n g s and l o a n a s s o - ciations. The m u t u a l s a v i n g s bank d a t a a r e from an earlier s t u d y c o v e r i n g t h e p e r i o d May 1976 t o October 1 9 7 7 . Tables 1 and 2 summarize t h e number o f mortgage a p p l i c a t i o n s a n a l y z e d each s t u d y area. The C a l i f o r n i a and New York d a t a s e t s a r e n o t each has i t s own s t r e n g t h s and weaknesses. cording form i n c l u d e s , for the C a l i f o r n i a form. However, identical; The New York example, m a r i t a l s t a t u s , and y e a r s a t p r e s e n t o c c u p a t i o n , net rewealth, a l l of which a r e o m i t t e d from t h e New York f o r m r e c o r d s house p u r c h a s e p r i c e and income i n i n t e r v a l f o r m o n l y , w h i l e in California Table 1 Number of M o r t g a g e A p p l i c a t i o n s by M e t r o p o l i t a n and Y e a r ; study California Area S a v i n g s and Loan A s s o c i a t i o n s Area 1977 1978 16,672 12,542 Bakersfield 1,722 1,646 Fresno 3,173 2,850 38,398 34,792 Modesto 1,885 1,558 Oxnard-Ventura 4, 631 3,970 Sacramento 5,163 4,884 Salinas-Monterey 1,860 1,530 San 2,606 2,038 7,628 7,508 24,766 21,608 San J o s e 9,887 7,691 Santa 1,401 1,254 S a n t a Rosa 3,419 3,307 Stockton 2,432 2,381 Vallejo-Napa 1,884 1,866 A n a h e i m - S a n t a Ana-Garden Grove Los A n g e l e s - L o n g Beach Bernardino-Riverside-Ontario San Diego San Francisco-Oakland Barbara 9 Table 4 Number o f Mortgage A p p l i c a t i o n s by Bank Type and Metropolitan Area; New York Study Area State^ Number A l b a n y - S c h e n e c t a d y - T r o y SMSA M u t u a l Savings Banks 6,173 Albany-Schenectady-Troy ^ Rochester, and Syracuse S ^ A s Commercial Banks 2,586 B u f f a l o SMSA Commercial Banks 1 , 4 34 M u t u a l Savings Banks 7,408 New York and N a s s a u - S u f f o l k SMSAs Commercial Banks M u t u a l S a v i n g s Banks L a r g e sample w i t h o u t sex and m a r i t a l status S m a l l sample w i t h sex and marital status Savings and Loan A s s o c i a t i o n s 4,919 18,696 4,131 2,170 R o c h e s t e r SMSA M u t u a l S a v i n g s Banks 3,047 S a v i n g s and Loan A s s o c i a t i o n s 1,304 S y r a c u s e SMSA M u t u a l Savings Banks a) 2,695 Sex and m a r i t a l s t a t u s i n f o r m a t i o n i s a v a i l a b l e f o r a s u f f i c i e n t number o f a p p l i c a t i o n s a t a l l commercial banks and s a v i n g s and l o a n a s s o c i a t i o n s , b u t a t o n l y t h e m u t u a l s a v i n g s banks i n t h e New Y o r k - N a s s a u - S u f f o l k m e t r o p o l i t a n a r e a . 10 p r o v i d e s much more p r e c i s e and d e t a i l e d i n f o r m a t i o n on t h e s e items^ i n c l u d i n g t h e s e p a r a t e incomes o f t h e a p p l i c a n t and c o - applicant. In addition, the C a l i f o r n i a t i o n on t h e b u i l d i n g ' s age and t h e f i n a l c o n t r a c t which, form p r o v i d e s terms o f t h e mortgage except f o r the l o a n - t o - v a l u e r a t i o , a v a i l a b l e i n New Y o r k . informa- are not By r e l y i n g on b o t h d a t a s o u r c e s , this study can focus on a broader range o f i s s u e s t h a n would be p o s s i b l e w i t h a single data set. In particular, t h e New York f o r m a t i o n makes p o s s i b l e a t e s t o f d i s c r i m i n a t i o n on t h e in- basis o f m a r i t a l s t a t u s w h i l e t h e C a l i f o r n i a d a t a s e t p e r m i t s an e x a mination of d i s c r i m i n a t o r y behavior i n the treatment secondary income, t h e s e t t i n g of mortgage t e r m s , accorded and a p p r a i s a l practices. O t h e r major advantages d e r i v e f r o m t h e use o f two data sets. First, separate t h e d a t a cover a wide v a r i e t y of l e n d i n g in- stitutions. Second, t h e d a t a cover a wide range o f economic conditions. The r a p i d economic growth and booming h o u s i n g m a r - k e t i n C a l i f o r n i a c o n t r a s t s h a r p l y w i t h t h e s i t u a t i o n i n New York s t a t e . In addition, t h e d a t a a l l o w a wide v a r i e t y o f r o p o l i t a n a r e a s t o be s t u d i e d i n b o t h s t a t e s , allowing large a r e a s t o be compared w i t h s m a l l and r a p i d l y growing a r e a s those t h a t are growing s l o w l y . Califor- n i a because o f t h e i n f l u x o f h i g h t e c h n o l o g y f i r m s i n t h e ter off I n New Y o r k , with For example, t h e San Jose metro- p o l i t a n a r e a s i s growing more r a p i d l y t h a n t h e r e s t o f con V a l l e y . " met- t h e R o c h e s t e r a r e a ' s economy i s than t h a t of the r e s t of the "Silibet- state. A n o t h e r i m p o r t a n t consequence o f t h e v a r i e t y o f banks and 11 economic c o n d i t i o n s c o v e r e d by t h e two d a t a sources i s t h e potential g e n e r a l i z a b i l i t y of the r e s u l t s . R e s u l t s t h a t a r e con- s i s t e n t a c r o s s such a w i d e v a r i e t y o f c i r c u m s t a n c e s w i l l a f i r m foundation for the f o r m u l a t i o n of n a t i o n a l provide policy. The number o f s e p a r a t e s t u d y a r e a s we a n a l y z e v a r i e s t h e l e n d e r p r a c t i c e b e i n g examined. ability ample^ I n some cases d a t a l i m i t a t i o n s reduce t h e number o f study a r e a s . with availFor ex- i n a d e q u a t e sample s i z e s keep us from s e p a r a t i n g downward and upward m o d i f i c a t i o n s i n some study a r e a s , t h e number o f C a l i f o r n i a s t u d y a r e a s from 32 a r e a s each f o r 1977 and 1978) ward m o d i f i c a t i o n models. (16 reducing geographic t o 22 between t h e d e n i a l and down- In addition, l e c t e d four metropolitan areas San F r a n c i s c o - O a k l a n d , thereby i n C a l i f o r n i a we s e - ( F r e s n o , Los A n g e l e s - L o n g Beach, and San Jose) for i n t e n s i v e study. Only i n t h e s e f o u r a r e a s do we a n a l y z e mortgage c r e d i t terms and appraisal practices. S i n c e we s e p a r a t e l y study two y e a r s i n e a c h , t h e c r e d i t terms and a p p r a i s a l model r e s u l t s a r e based on a t o t a l of 8 study areas. FINDINGS The a n a l y s i s i n d i c a t e s t h a t , as e x p e c t e d , o b j e c t i v e factors such as t h e r a t i o s o f r e q u e s t e d l o a n amount t o income and t o praised value explain the vast majority of lending A p p l i c a t i o n s a r e more l i k e l y decisions. t o be d e n i e d o r m o d i f i e d downward as e i t h e r or b o t h o f t h e s e r a t i o s i n c r e a s e . c a n t s w i t h more income or more n e t w e a l t h , c a t e d i n r e l a t i v e l y r i s k - f r e e neighborhoods ap- Similarly, appli- and p r o p e r t i e s (e.g., with lolittle 12 l i k e l i h o o d of being adjacent to vacant buildings) likely t o be a p p r o v e d . several of basis of A t t h e same t i m e , the allegations the race, sex, the evidence o r age o f t h e a p p l i c a n t , the property. supports t h a t l e n d e r s d i s c r i m i n a t e on t h e r a c i a l composition of the neighborhood, cation of a r e more t h e age o r and t h e g e o g r a p h i c The r e m a i n d e r o f t h i s summary d e s c r i b e s our f i n d i n g s on t h e e x t e n t t o w h i c h l e n d e r s i n C a l i f o r n i a New Y o r k p r o v i d e e q u a l o p p o r t u n i t y Sex and M a r i t a l i n mortgage c a t e d by t h e f a c t t h a t lending. lenders, sex i s t o the extent they For e x a m p l e , particular t h e y may d i s c r i m i n a t e a g a i n s t f e m a l e c a n t s who a r e o f c h i l d b e a r i n g age indicate compli- discriminate, may n o t d i s c r i m i n a t e e q u a l l y a g a i n s t a l l members o f a male a p p l i c a n t s . and Status T e s t i n g f o r d i s c r i m i n a t i o n on t h e b a s i s o f sex. lo- (under 35) appli- but not other The a l l e g a t i o n s r e l a t i n g t o sex fe- discrimination t h a t t h e p r e f e r a b l e method o f a n a l y s i s w o u l d i n c l u d e d e t a i l e d breakdown o f h o u s e h o l d c a t e g o r i e s t h a t t a k e s i n t o ac- count whether or not the female a p p l i c a n t i s of c h i l d b e a r i n g or i s employed. the a l l e g a t i o n that lenders n a t e a g a i n s t a p p l i c a t i o n s where a t l e a s t p a r t o f t h e comes f r o m a s u p p o s e d l y u n r e l i a b l e source, discrimi- income the earnings of the w o r k i n g woman. The breakdown b e t w e e n women o f c h i l d b e a r i n g nonchildbearing age c a p t u r e s a p o t e n t i a l d i s t i n c t i o n made by l e n d e r s who b e l i e v e t h a t p o s s i b l e p r e g n a n c y i n c r e a s e s t h e t h a t a woman w i l l age The d i s t i n c t i o n between w o r k i n g and n o n w o r k i n g female applicants r e f l e c t s ability a leave the labor f o r c e or w i l l and prob^ incur 13 additional expenses. V a r i o u s o r g a n i z a t i o n s a l s o a l l e g e t h a t l e n d e r s use m a r i t a l s t a t u s as a b a s i s f o r d i s c r i m i n a t i o n . To t e s t whether lenders treat marital s t a t u s d i f f e r e n t l y depending on t h e sex o f applicant, i s i m p o r t a n t t o examine t h e sex and m a r i t a l it tus of the applicant simultaneously. Unfortunately, the sta- marital s t a t u s i n f o r m a t i o n i s o n l y a v a i l a b l e i n our New York d a t a In general, we compare v a r i o u s t y p e s o f a p p l i c a n t s t o a t y p e t h a t i s l e a s t l i k e l y t o be d i s c r i m i n a t e d a g a i n s t ; case, it in this i s the j o i n t a p p l i c a t i o n of a male-female couple w i t h t h e woman beyond c h i l d b e a r i n g a g e . The employment s t a t u s women a p p l i c a n t s i s t r e a t e d d i f f e r e n t l y C a l i f o r n i a data sets. of i n t h e New York and I n New Y o r k , we know o n l y whether or t h e f e m a l e a p p l i c a n t works; not i n C a l i f o r n i a we know t h e a c t u a l come e a r n e d by b o t h t h e a p p l i c a n t and t h e c o - a p p l i c a n t . fore, set. in- There- i n New York we a n a l y z e t h e w o r k i n g s t a t u s o f women by add- ing t h i s f a c t to the d e s c r i p t i o n of the types of applicants; t h e base f o r comparison becomes a j o i n t a p p l i c a t i o n from a m a l e f e m a l e c o u p l e w i t h a nonworking woman beyond c h i l d b e a r i n g age. The a l l e g a t i o n o f income d i s c o u n t i n g can be t e s t e d more explicitly i n C a l i f o r n i a where i n f o r m a t i o n on t h e s e p a r a t e comes o f t h e a p p l i c a n t and t h e c o - a p p l i c a n t i s a v a i l a b l e . such d a t a , we can a l l o w e x p l i c i t l y for d i f f e r e n t i a l inWith treatment o f t h e income o f t h e p r i m a r y and secondary w o r k e r s i n each household. I n a d d i t i o n , ^ we can t e s t t h e h y p o t h e s i s t h a t lenders t r e a t t h e income o f secondary f e m a l e w o r k e r s d i f f e r e n t l y s e c o n d a r y male w o r k e r s . from 14 The C a l i f o r n i a ferences and New York a n a l y s e s have s u f f i c i e n t i n t h e d e f i n i t i o n o f t h e sex v a r i a b l e s t h a t we summa- r i z e t h e r e s u l t s o f each California, gories of separately. In California, we d e f i n e t h e f o l l o w i n g (base f o r - f e m a l e - o n l y households w i t h - f e m a l e - o n l y h o u s e h o l d s w i t h a t l e a s t one woman o f for these categories h o l d s w i t h o n l y one w o r k e r and f o r i n g e q u a l incomes. age; child- of d i s c r i m i n a t i o n separately for t h o s e w i t h two w o r k e r s f o r each o f findings consistent with s i x measures o f l i m i t e d evidence of earn- We siimmarize f i r s t discrimination. sex d i s c r i m i n a t i o n the r e s u l t s s i n g l e wage-earner of allegations i n some b u t no p a t t e r n e x i s t s a c r o s s a l a r g e number those for house- T a b l e 3 c o n t a i n s a summary o f t h e number study a r e a s w i t h s i g n i f i c a n t 3, women o f c h i l d b e a r i n g households. We p r e s e n t t h e r e s u l t s study a r e a s , age; age; male-only There i s age comparison); m a l e - f e m a l e c o u p l e s w i t h a woman o f c h i l d b e a r i n g bearing Table woman o f c h i l d b e a r i n g - areas. cate- applications: - male-female couples w i t h ^ - dif- of i n t h e upper h a l f of households. M a l e - f e m a l e c o u p l e s w i t h a woman o f c h i l d b e a r i n g age h a v e h i g h e r chances o f d e n i a l o r downward m o d i f i c a t i o n t h a n m a l e f e m a l e c o u p l e s w i t h no woman o f c h i l d b e a r i n g age i n 2 o f 1 of 22 s t u d y a r e a s , cations 1.35 respectively. I n these t h r e e areas, f r o m c o u p l e s w i t h women o f c h i l d b e a r i n g age a r e t i m e s as l i k e l y 32 and t o r e s u l t ^in an a d v e r s e d e c i s i o n . appli- roughly These Table 19 Nuinber o f A r e a s w i t h a F i n d i n g C o n s i s t e n t w i t h Discrimination on t h e B a s i s o f Sex o r S e c o n d a r y Income S o u r c e s i n Higher Chance o f Denial O n l y one wage Higher Chance o f Downward Modification Higher Interest Rates California^ Larger Dollar Amount o f Downward Modification Higher Loan Fees Under Appraisal earner Male-female couples w i t h a woman o f c h i l d b e a r i n g age Female o n l y househ o l d s w i t h no women o f c h i l d b e a r i n g age ui Female o n l y households w i t h a t l e a s t one woman o f c h i l d b e a r i n g age 3 0 1 0 2 3 Male only 3 2 4 0 4 0 households Two wage e a r n e r s equal with income^ Male-female couples w i t h no woman o f c h i l d b e a r i n g age Male-female couples w i t h a woman o f c h i l d b e a r i n g age Table 3 (continued) Higher Chance o f Denial Higher Chance o f Downward Modification Higher Interest Rates Female o n l y househ o l d s w i t h no women o f c h i l d b e a r i n g age 4 4 0 Female o n l y households w i t h a t l e a s t one woman o f c h i l d b e a r i n g age 1 0 Male o n l y 2 32 households Number o f a r e a s studied Larger D o l l a r Amount o f Downward Modification Higher Loan Fees Under Appraisal 1 b b 0 0 b b 4 1 0 b b 22 8 8 8 8 a) A f i n d i n g i s v i e w e d as c o n s i s t e n t w i t h d i s c r i m i n a t o r y b e h a v i o r i f a p p l i c a n t s froift t h e i n d i c a t e d group have a s t a t i s t i c a l l y s i g n i f i c a n t l y h a r d e r t i m e r e c e i v i n g a mortgage or r e c e i v e mortgages t h a t have s t a t i s t i c a l l y s i g n i f i c a n t l y h a r s h e r t e r m s . The i n d i c a t e d groups o f a p p l i c a n t s a r e compared t o m a l e - f e m a l e c o u p l e s w i t h no woman o f c h i l d b e a r i n g age and o n l y one wage e a r n e r . b) The income s o u r c e v a r i a b l e d i d n o t have a r o l e i n t h e s e m o d e l s . c) We have s e l e c t e d two wage e a r n e r s w i t h e q u a l incomes t o i l l u s t r a t e our f i n d i n g s . The f i n d i n g s , h o w e v e r , a p p l y t o two-wage e a r n e r households w i t h a l l p o s s i b l e d i v i s i o n s o f income b e t w e e n t h e two w o r k e r s . m 17 same c o u p l e s pay h i g h e r l o a n f e e s i n 2 o f 8 study a r e a s , t h e f e e s a v e r a g e o n l y one p e r c e n t but higher. F e m a l e - o n l y households w i t h no women o f c h i l d b e a r i n g age f a c e h i g h e r chances o f d e n i a l and downward m o d i f i c a t i o n i n 4 o f 32 and 2 o f 22 study a r e a s , are large: respectively. The differentials a d v e r s e a c t i o n on t h e s e a p p l i c a t i o n s i s 2.5 t i m e s as l i k e l y as a d v e r s e a c t i o n on a p p l i c a t i o n s f e m a l e c o u p l e s w i t h no woman o f c h i l d b e a r i n g age. to from m a l e A l t h o u g h we f i n d no e v i d e n c e o f d i s c r i m i n a t i o n a g a i n s t f e m a l e - o n l y appli- c a n t s w i t h no women o f c h i l d b e a r i n g age w i t h r e s p e c t t o est r a t e s , dollar amount o f downward m o d i f i c a t i o n , we f i n d t h e p r o p e r t i e s o f t h e s e a p p l i c a n t s t o be i n 7 of 8 study a r e a s . 3.0 inter- or l o a n fees^r underappraised These u n d e r a p p r a i s a l s r e s u l t i n down- payments t h a t a r e as much as 6 . 4 p e r c e n t above n o r m a l , or an increase of $1000 i n t h e case o f a $ 6 0 , 0 0 0 mortgage w i t h an 80 percent loan-to-appraised value ratio. F e m a l e - o n l y households w i t h a t l e a s t one woman o f child- b e a r i n g age a r e d i s c r i m i n a t e d a g a i n s t l e s s f r e q u e n t l y and l e s s s e v e r e l y t h a n f e m a l e - o n l y households w i t h o u t women o f bearing child- age. M a l e - o n l y households f a c e d i s c r i m i n a t i o n t h r o u g h a h i g h e r chance o f d e n i a l and downward m o d i f i c a t i o n i n 3 o f 32 and 2 o f 22 s t u d y a r e a s . higher More s t r i k i n g i s t h e c o n c l u s i o n t h a t t h e y pay i n t e r e s t r a t e s and l o a n f e e s t h a n any o f t h e o t h e r categories. T h e i r h i g h e r i n t e r s t r a t e s add a b o u t $35 p e r t o t h e payments on a $ 6 0 , 0 0 0 mortgage w i t h a 9 . 7 5 p e r c e n t t e r e s t r a t e and a 30 y e a r m a t u r i t y p e r i o d . sex year in- Their fees are 2 18 t o 6 p e r c e n t above a v e r a g e . The l o w e r h a l f o f T a b l e 3 shows t h e r e s u l t s f o r applica- t i o n s w i t h two wage e a r n e r s w i t h e q u a l incomes compared w i t h t h e t r e a t m e n t r e c e i v e d by m a l e - f e m a l e couples h a v i n g no women o f c h i l d b e a r i n g age and o n l y one wage e a r n e r . s t a t e s a v i n g s and l o a n a s s o c i a t i o n s In general, in C a l i f o r n i a favor ondary income more o f t e n t h a n t h e y d i s f a v o r it. sec- Perhaps they b e l i e v e t h a t two sources o f income reduce t h e uncertainty a b o u t t h e c o n t i n u i t y o f f u t u r e income. treatment o f secondary income a l s o shows l i t t l e of the earner; Their v a r i a t i o n s with the t h e d i f f e r e n c e s t h a t do e x i s t a c r o s s sex g o r i e s a r e v e r y s i m i l a r t o those f o r one e a r n e r To summarize, two a p p a r e n t p a t t e r n s o f sex by C a l i f o r n i a sex cate- households. discrimination s a v i n g s and l o a n a s s o c i a t i o n s emerge: treatment of male-only applicants i n the s e t t i n g of one i s mortgage terms; the other i s the underappraisal of the p r o p e r t i e s of male-only applicants. A l t h o u g h we f i n d e v i d e n c e o f the fe- other i n s t a n c e s o f d i s c r i m i n a t i o n a g a i n s t f e m a l e - o n l y and c e r t a i n t y p e s of m a l e - f e m a l e h o u s e h o l d s , study no o t h e r p a t t e r n s e x i s t across areas. New Y o r k . I n New Y o r k , we can examine sex categories s e p a r a t e l y f o r t h e two m a r i t a l s t a t u s c a t e g o r i e s o f m a r r i e d and unmarried or separated. The c a t e g o r i e s o f m a r r i e d applicants are: - m a l e - f e m a l e c o u p l e s w i t h a nonworking woman beyond c h i l d b e a r i n g age - (base f o r comparison); m a l e - f e m a l e c o u p l e s w i t h a w o r k i n g woman beyond child- 19 bearing age; - m a l e - f e m a l e c o u p l e s w i t h a nonworking woman o f child- b e a r i n g age - m a l e - f e m a l e c o u p l e s w i t h a w o r k i n g woman o f childbearing age; - female-only - male-only households; households. The c a t e g o r i e s f o r u n m a r r i e d or s e p a r a t e d a p p l i c a n t s a r e lar e x c e p t f o r t h e d i v i s i o n o f t h e f e m a l e - o n l y households t h o s e w i t h no women o f c h i l d b e a r i n g age and t h o s e w i t h a t one woman o f c h i l d b e a r i n g a g e . simiinto least T a b l e 4 summarizes t h e New York results. We f i n d o n l y l i m i t e d e v i d e n c e o f d i s c r i m i n a t i o n m a r r i e d m a l e - f e m a l e c o u p l e s who d i f f e r solely against from t h e r e f e r e n c e i n terms o f t h e c h i l d b e a r i n g age o r w o r k i n g s t a t u s t h e woman. group of For t h e t h r e e m a r r i e d m a l e - f e m a l e c a t e g o r i e s , we f i n d e v i d e n c e o f a h i g h e r chance o f d e n i a l i n o n l y one study area: c o m m e r c i a l banks i n B u f f a l o a r e t w i c e as l i k e l y t o deny m a l e - f e m a l e c o u p l e s w i t h a w o r k i n g woman beyond childbearing age t h a n s i m i l a r households w i t h a nonworking woman. S t r o n g e r e v i d e n c e o f d i s c r i m i n a t o r y l e n d i n g emerges w i t h r e s p e c t t o t h e t r e a t m e n t o f u n m a r r i e d or s e p a r a t e d households. These a p p l i a n t s male-female f a c e chances o f mortgage denial 1 . 4 t o 3 . 9 t i m e s as h i g h as t h o s e f a c e d by t h e m a r r i e d m a l e f e m a l e household w i t h a nonworking woman beyond age i n e i t h e r 2 o r 3 o f t h e 6 study a r e a s , depending on t h e w o r k i n g s t a t u s o r c h i l d b e a r i n g age o f t h e woman. childbearing Regardless 20 Table 4 Number o f A r e a s w i t h F i n d i n g s C o n s i s t e n t D i s c r i m i n a t i o n on t h e B a s i s o f Sex, with Marital Status and Work S t a t u s o f t h e Woman i n New York^ Larger D o l l a r Amount o f Downward Modification Higher Chance o f Denial Higher Chance o f Downward Modification 0 1 0 2 0 1 3 2 0 Married M a l e - f e m a l e couples w i t h a w o r k i n g woman beyond c h i l d b e a r i n g age M a l e - f e m a l e couples w i t h a n o n - w o r k i n g woman o f c h i l d b e a r i n g age M a l e - f e m a l e couples a w o r k i n g woman o f c h i l d b e a r i n g age Female o n l y Male o n l y Unmarried or with households households separated Male-female couples w i t h a n o n - w o r k i n g woman beyond c h i l d b e a r i n g age M a l e - f e m a l e couples w i t h a w o r k i n g woman beyond c h i l d b e a r i n g age M a l e - f e m a l e couples w i t h a n o n - w o r k i n g woman o f c h i l d b e a r i n g age M a l e - f e m a l e couples a w o r k i n g woman o f c h i l d b e a r i n g age with Female o n l y h o u s e h o l d s w i t h no women o f c h i l d b e a r i n g age 21 Table 4 (continued) Higher Chance of Denial Higher Chance o f Downward Modification Female o n l y households w i t h a t l e a s t one woman o f c h i l d b e a r i n g age 0 0 b Male o n l y 4 0 b 6 6 5 households Number o f a r e a s studied Larger D o l l a r Amount o f Downward Modification a) A f i n d i n g i s viewed as c o n s i s t e n t w i t h d i s c r i m i n a t o r y b e h a v i o r i f t h e a p p l i c a n t s from t h e i n d i c a t e d group h a v e ' a s t a t i s t i c a l l y s i g n i f i c a n t l y h a r d e r t i m e r e c e i v i n g a mortgage o r r e c e i v e m o r t gages t h a t have s t a t i s t i c a l l y s i g n i f i c a n t l y h a r s h e r t e r m s . The i n d i c a t e d groups o f a p p l i c a n t s a r e compared t o m a l e - f e m a l e marr i e d c o u p l e s w i t h a n o n - w o r k i n g woman beyond c h i l d b e a r i n g age. b) S m a l l sample s i z e p r e v e n t e d t h e e x a m i n a t i o n o f t h e same sex and m a r i t a l s t a t u s i n t e r a c t i o n s t h a t were p o s s i b l e f o r t h e chance o f d e n i a l and downward m o d i f i c a t i o n models. However, t h e a n a l y s i s we were a b l e t o conduct i n d i c a t e d t h a t s e p a r a t e d persons/ as opposed t o m a r r i e d or u n m a r r i e d h o u s e h o l d s , r e c e i v e s i g n i f i c a n t l y l a r g e r d o l l a r amounts o f downward m o d i f i c a t i o n s i n one of the f i v e areas. 22 of m a r i t a l status, m a l e - f e m a l e h o u s e h o l d s a r e more l i k e l y r e c e i v e m o d i f i e d a p p r o v a l s f r o m s a v i n g s and l o a n i n t h e New Y o r k m e t r o p o l i t a n ing or in the childbearing area i f associations t h e woman i s e i t h e r work- years. M a r r i e d f e m a l e - o n l y a p p l i c a n t s a r e more t h a n t w i c e likely to as t o be d e n i e d as m a r r i e d m a l e - f e m a l e a p p l i c a n t s w i t h a n o n w o r k i n g woman beyond t h e c h i l d b e a r i n g age i n 2 o f t h e 6 study a r e a s . In addition, downward m o d i f i c a t i o n s these applicants experience i n 1 of 5 study a r e a s . larger Unmarried s e p a r a t e d f e m a l e - o n l y h o u s e h o l d s w i t h no woman o f childbearing a g e e x p e r i e n c e h i g h e r chances o f downward m o d i f i c a t i o n s of 6 study the strongest evidence points to n a t i o n a g a i n s t male-only households, status. in 1 areas* Unexpectedly, tal or discrimi- regardless of t h e i r They a r e o v e r t w i c e as l i k e l y t o be d e n i e d marias t h e m a r r i e d m a l e - f e m a l e h o u s e h o l d w i t h a n o n w o r k i n g woman b e yond c h i l d b e a r i n g age i n t w o - t h i r d s o f I n siammary, our a n a l y s i s o f state provides only l i m i t e d discriminate against applicants. the study lending decisions support f o r all i n New Y o r k allegations that female-only or c e r t a i n types of In contrast, the r e s u l t s support the t h a t l e n d e r s i n many a r e a s d i s c r i m i n a t e against areas. lenders male-female hypothesis against male-only unmarried or separated m a l e - f e m a l e households. and Since b u t one o f t h e m u t u a l s a v i n g s banks samples e x c l u d e sex and marital status data, these findings r e l a t e t o New Y o r k commer- c i a l b a n k s and s a v i n g s and l o a n a s s o c i a t i o n s w i t h t h e exceptions. Married female-only and m a r r i e d , following unmarried, or 23 s e p a r a t e d m a l e - o n l y a p p l i c a n t s a r e more l i k e l y t o be d e n i e d by m u t u a l s a v i n g s banks i n t h e New Y o r k - N a s s a u - S u f f o l k area. In addition, t h e s e m u t u a l s a v i n g s banks a l s o e x a c t above-- a v e r a g e downward m o d i f i c a t i o n s less of t h e i r Race o f t h e metropolitan sex o r work from s e p a r a t e d a p p l i c a n t s regard- status. Applicant We study t h e t r e a t m e n t o f f o u r groups o f r a c i a l minorities and compare them w i t h t h e t r e a t m e n t o f w h i t e a p p l i c a n t s . groups are: - blacks; - S p a n i s h or - Asians - The other The r e s u l t s , Hispanics; (only i n California); minorities. w h i c h a r e summarized i n T a b l e 5 , crimination against r a c i a l minorities i s indicate that widespread. B l a c k a p p l i c a n t s have s i g n i f i c a n t l y h i g h e r chances o f n i a l than whites i n s i m i l a r fornia over, circumstances i n 1 8 , o f r e s p e c t t o l o a n m o d i f i c a t i o n s and i n t h e a p p r a i s a l and h i g h e r We f i n d , however, studied We emphasize we f i n d no e v i d e n c e t h a t New York commercial banks against blacks. with process, i n t e r e s t r a t e s i n 2 of 8 areas loan fees i n 5 of 8 areas studied. to appli- A l t h o u g h b l a c k s and w h i t e s a r e t r e a t e d s i m i l a r l y b l a c k s a r e charged h i g h e r More- black applicants are 1.58 7 . 8 2 t i m e s as l i k e l y t o be d e n i e d as a r e s i m i l a r w h i t e cants. de- t h e 32 C a l i - study a r e a s and 6 o f t h e 10 New York s t u d y a r e a s . the differences are large; dis- that discriminate t h a t they d i s c r i m i n a t e against Table 28 Nuniber o f Areas w i t h a F i n d i n g C o n s i s t e n t w i t h D i s c r i m i n a t i o n on t h e B a s i s o f Race o f t h e A p p l i c a n t ( s ) Higher Chance o f Denial CA NY Black 18 Spanish or Hispanic Asian Other Minority Number o f A r e a s Studied 6 10 in California Higher Chance o f Downward Modification CA NY 2 2 1 (CA) and New York Higher Interest Rates CA (NY)^ Larger D o l l a r Amount o f Downward Modification CA NY 2 0 6 0 0 Higher Loan Fees CA Under Appraisal CA 5 0 4 4 3 b 1 b 4 0 b 3 3 11 1 0 2 2 0 0 0 0 32 10 22 10 8 8 5 8 8 a) A f i n d i n g i s v i e w e d as c o n s i s t e n t w i t h d i s c r i m i n a t o r y b e h a v i o r i f a p p l i c a n t s f r o m t h e i n d i c a t e d group have a s t a t i s t i c a l l y s i g n i f i c a n t l y h a r d e r t i m e r e c e i v i n g a mortgage o r r e c e i v e mortgages t h a t have s t a t i s t i c a l l y s i g n i f i c a n t l y h a r s h e r t e r m s . The i n d i c a t e d groups o f a p p l i c a n t s a r e compared t o w h i t e a p p l i c a n t s . b) Included i n other minorities c) Due t o s m a l l sample s i z e s , S p a n i s h o r H i s p a n i c a p p l i c a n t s a r e grouped w i t h o t h e r m i n o r i t i e s i n 6 o f t h e 10 s t u d y a r e a s . T h e r e f o r e , t h e r e a r e o n l y f o u r New York s t u d y a r e a s where we could t e s t f o r d i s c r i m i n a t i o n a g a i n s t Spanish or H i s p a n i c a p p l i c a n t s . d) Due t o s m a l l s i z e s , S p a n i s h o r H i s p a n i c a p p l i c a n t s c o u l d o n l y be s e p a r a t e l y i d e n t i f i e d i n 3 o f t h e 5 study a r e a s . They a r e grouped w i t h o t h e r m i n o r i t i e s i n t h e 2 r e m a i n i n g a r e a s . i n New Y o r k due t o s m a l l sample size. NJ 25 m i n o r i t i e s o t h e r t h a n b l a c k s or In California, Hispanics. s a v i n g s and l o a n a s s o c i a t i o n s d i s c r i m i n a t e a g a i n s t Spanish a p p l i c a n t s . higher chances o f d e n i a l i n 10 o f est r a t e s i n 6 of 8 a r e a s , consistently These a p p l i c a n t s 32 study a r e a s , higher face inter- and h i g h e r l o a n f e e s i n 4 o f 8 a r e a s than whites i n s i m i l a r circumstances. In addition, their prop- e r t i e s t e n d t o be s y s t e m a t i c a l l y u n d e r a p p r a i s e d i n 4 o f 8 study areas. The e s t i m a t e d magnitudes suggest t h a t Spanish applicants a r e a b o u t t w i c e as l i k e l y t o be d e n i e d as a r e o t h e r w i s e white applicants, similar t h a t i n t e r e s t rates are s l i g h t l y higher (0.06 p e r c e n t a g e p o i n t s or l e s s t h a n $33 i n c r e a s e i n t h e a n n u a l p a y ments on a 9 . 7 5 p e r c e n t $ 6 0 , 0 0 0 mortgage w i t h a 30 y e a r period), and t h a t l o a n f e e s a r e 3 p e r c e n t maturity higher. I n New Y o r k , H i s p a n i c a p p l i c a n t s r e c e i v e a p p r o x i m a t e l y same t r e a t m e n t as w h i t e a p p l i c a n t s w i t h some i m p o r t a n t exceptions. H i s p a n i c s i n t h e New York C i t y m e t r o p o l i t a n a r e a a r e n e a r l y as l i k e l y the twice t o r e c e i v e m o d i f i c a t i o n s a t t h e hands o f s a v i n g s and l o a n a s s o c i a t i o n s as s i m i l a r w h i t e Lenders i n C a l i f o r n i a applicants. t r e a t A s i a n s a p p r o x i m a t e l y t h e same as w h i t e a p p l i c a n t s w i t h r e s p e c t t o l o a n d e n i a l s and downward modifications. A s i a n s have a h i g h e r chance o f d e n i a l i n o n l y 3 o f 32 s t u d y a r e a s , and h i g h e r chances o f downward m o d i f i c a t i o n i n o n l y 1 o f 22 s t u d y a r e a s . However, t h e i r mortgages s l i g h l y higher i n t e r e s t r a t e s ( 0 - 0 5 p e r c e n t a g e p o i n t s above norm) and a r e based on s m a l l of the (less than 0.2 percent) carry underappraisals property. The f i n a l c a t e g o r y c o n s i s t s p r i m a r i l y o f a p p l i c a n t s who 26 chose t o c l a s s i f y themselves as " o t h e r m i n o r i t i e s , " we i n c l u d e A s i a n s i n t h i s c a t e g o r y as w e l l tial I n New Y o r k , There i s substan- s u p p o r t f o r t h e view t h a t t h e s e o t h e r m i n o r i t i e s a r e criminated against in C a l i f o r n i a ; their higher than s i m i l a r white applicants The d i f f e r e n c e i s l a r g e , l i k e l y t o be d e n i e d . chances o f d e n i a l i n 11 o f 32 study are areas. r a n g i n g from 1 . 3 7 t o 5 . 9 5 t i m e s as T h i s group does n o t appear t o be d i s c r i m - i n a t e d a g a i n s t through l o a n m o d i f i c a t i o n , practices. dis- They do pay s l i g h t l y h i g h e r c e n t a g e p o i n t s above norm) loan fees, or interest rates i n 2 of 8 study appraisal (0.6 per- areas. I n New Y o r k , o t h e r m i n o r i t i e s r e c e i v e t r e a t m e n t s i m i l a r t h a t o f w h i t e s w i t h a few e x c e p t i o n s . New York C i t y to metropoli- t a n a r e a commmercial banks and B u f f a l o commercial and m u t u a l s a v i n g s banks a r e 1 . 8 0 t o 4 . 2 3 t i m e s as l i k e l y t o m o d i f y l o a n a p p l i c a t i o n s of t h e s e m i n o r i t i e s plicants Age o f in similar the t h a n those o f w h i t e ap- circumstances. Applicant A p p l i c a n t s a r e grouped i n t o one o f f i v e age c a t e g o r i e s test f o r d i s c r i m i n a t i o n on t h e b a s i s o f age. - under 25 y e a r s ; - 25 t o 34 y e a r s ; - 35 t o 44 y e a r s - 45 t o 54 y e a r s ; - 55 or more y e a r s . (base f o r We s e l e c t e d t h e m i d d l e age group comparison because a p p l i c a n t s to The c a t e g o r i e s are: comparison); (35 t o 44) as t h e b a s i s i n t h a t group a r e c o n s i d e r e d of least 27 likely t o be d i s c r i m i n a t e d a g a i n s t . i n Table 6. t o 44) half The r e s u l t s a r e C o n t r a r y t o our e x p e c t a t i o n s , t h e m i d d l e age a p p l i c a n t s have h i g h e r chances o f d e n i a l i n o f t h e 32 C a l i f o r n i a study a r e a s . summarized nearly I n a few a r e a s , a p p l i c a n t s under 35 or o v e r 44 have h i g h e r chances o f than 35-to 4 4 - y e a r - o l d a p p l i c a n t s . l o a n a s s o c i a t i o n s make i t likely however, denial New York s t a t e s a v i n g s and harder f o r 4 5 - t o 5 4 - y e a r - o l d cants t o o b t a i n a mortgage; (35 appli- t h e s e a p p l i c a n t s a r e 1 . 7 t i m e s as t o be d e n i e d by t h e s e l e n d e r s as a r e 3 5 - t o 44-year-old applicants. We have s u b s t a n t i a l e v i d e n c e t h a t o l d e r a p p l i c a n t s adverse treatment through the m o d i f i c a t i o n process. receive Although t h e summary o f r e s u l t s p r e s e n t e d i n T a b l e 6 i n d i c a t e s t h a t applicants ( o v e r 44) older have h i g h e r chances o f downward m o d i f i c a - t i o n t h a n 3 5 - t o 4 4 - y e a r - o l d a p p l i c a n t s i n o n l y 6 o f 22 C a l i f o r n i a study a r e a s , t h e y have s i g n i f i c a n t l y h i g h e r chances o f a d v e r s e a c t i o n t h a n t h e youngest a p p l i c a n t s t h e 22 a r e a s * (under 25) i n 15 of A p p l i c a n t s o v e r 54 a r e 1 , 2 5 t o 2 . 8 0 t i m e s as l i k e l y t o r e c e i v e downward m o d i f i c a t i o n s as a r e under 2 5 . Furthermore, applicants a p p l i c a n t s over 45 r e c e i v e l a r g e r amount r e d u c t i o n s i n t h e i r dollar r e q u e s t e d l o a n amounts when t h e y m o d i f i e d downward t h a n do s i m i l a r b u t younger a p p l i c a n t s ; d i f f e r e n c e s r a n g e f r o m 12 t o 163 percent. m o d i f y o l d e r t h a n younger a p p l i c a n t s , c a n t s who r e c e i v e t h e l a r g e r d o l l a r r e q u e s t e d l o a n amounts. are the New York s t a t e l e n d e r s seem o n l y s l i g h t l y more l i k e l y such but i t i s the older amount r e d u c t i o n s i n The d i f f e r e n c e i n r e d u c t i o n s to appli- their ranges T a b l e 32 Number o f Areas w i t h F i n d i n g s C o n s i s t e n t w i t h D i s c r i m i n a t i o n on t h e B a s i s o f Age o f t h e A p p l i c a n t Higher Chance o f Denial CA NY in California Higher Chance o f Downward Modification NY CA (CA) and New York Higher Interest Rates CA (NY)^ Larger D o l l a r Amount o f Downward Modification NY CA Higher Loan Fees CA Under Appraisal CA Under 25 y e a r s 0 0 0 1 4 0 0 5 2 25-34 2 0 1 1 0 1 0 1 1 45-54 2 2 3 2 4 5 2 0 3 0 0 3 1 2 2 2 1 3 32 6 22 6 8 8 5 8 8 to Over 54 Number o f A r e a s Studied a) A f i n d i n g i s v i e w e d as c o n s i s t e n t w i t h d i s c r i m i n a t o r y b e h a v i o r i f a p p l i c a n t s from t h e i n d i c a t e d group have a s t a t i s t i c a l l y s i g n i f i c a n t l y h a r d e r t i m e r e c e i v i n g a mortgage or r e c e i v e mortgages t h a t have s t a t i s t i c a l l y s i g n i f i c a n t l y h a r s h e r t e r m s . The i n d i c a t e d groups o f a p p l i c a n t s a r e compared t o 3 5 - 4 4 y e a r o l d a p p l i c a n t s . 00 29 f r o m 67 t o 146 percent. B o t h t h e young and t h e o l d a p p l i c a n t s r e c e i v e higher slightly i n t e r e s t r a t e s t h a n t h o s e i n t h e m i d d l e age r a n g e . The d i f f e r e n t i a l would add a b o u t $30 t o t h e a n n u a l payments on a $ 6 0 , 0 0 0 mortgage w i t h a 9 . 7 5 p e r c e n t i n t e r e s t r a t e and a 30 year m a t u r i t y period. Somewhat s u r p r i s i n g l y , highest loan fees. t h e youngest a p p l i c a n t s f a c e the A p p l i c a n t s under 25 pay l o a n f e e s t h a t 2 t o 3 p e r c e n t above t h o s e p a i d by 3 5 - t o - 4 4 - y e a r - o l d are applicants. The p r o p e r t i e s o f o l d e r a p p l i c a n t s a r e u n d e r a p p r a i s e d i n 3 of 8 study a r e a s , but the d i f f e r e n t i a l is small. The r e q u i r e d downpayment would r i s e by o n l y 0 . 8 t o 2 . 0 p e r c e n t on a mortgage w i t h an 80 p e r c e n t l o a n - t o ^ a p p r a i s e d v a l u e r a t i o . amount t o l e s s t h a n $300 w i t h a $ 6 0 , 0 0 0 T h i s would mortgage. Redlining Various organizations a l l e g e t h a t lenders discriminate a g a i n s t c e r t a i n mortgage a p p l i c a n t s because o f t h e neighborhood i n w h i c h t h e p r o p e r t y t h e y w i s h t o purchase i s l o c a t e d . Our a n a l y s i s f o c u s e s on t h r e e t y p e s o f neighborhoods a l l e g e d to r e c e i v e adverse - treatment: s p e c i f i c neighborhoods t h a t community groups have t o be redlined; - older neighborhoods; - largely minority neighborhoods. We summarize our f i n d i n g s w i t h r e s p e c t t o each t y p e o f alleged allegation 30 i n the following subsections• Property location. In a l l t h e New York and a few o f C a l i f o r n i a m e t r o p o l i t a n a r e a s , we a r e a b l e t o examine allegations the local t h a t c e r t a i n neighborhoods a r e r e d l i n e d by lenders. I n t h e o t h e r m e t r o p o l i t a n a r e a s i n C a l i f o r n i a , we a r e o n l y t o compare l e n d i n g d e c i s i o n s i n t h e c e n t r a l c i t y ( s ) i n t h e s u r r o u n d i n g suburbs. applications I n a l l cases, with those l e n d i n g d e c i s i o n s on f o r mortgages on p r o p e r t i e s i n a l l e g e d l y redlined neighborhoods or i n t h e c e n t r a l c i t y a r e compared w i t h on o t h e r w i s e s i m i l a r a p p l i c a t i o n s on suburban In California, able decisions properties. we have i n f o r m a t i o n c o n t a i n i n g allegations t h a t l e n d e r s r e d l i n e 12 neighborhoods i n Los Angeles C o u n t y , one i n t h e c i t y o f O a k l a n d , and one i n t h e c i t y o f The e v i d e n c e does n o t s u p p o r t t h e a l l e g a t i o n i n Sacramento. Sacramento. A l t h o u g h l e n d e r s a r e n o t more l i k e l y t o deny o r m o d i f y downward a p p l i c a t i o n s f o r mortgages on p r o p e r t i e s i n t h e Cen- t r a l Oakland neighborhood t h a n s i m i l a r a p p l i c a t i o n s on suburban San Mateo County p r o p e r t i e s , they tend to underappraise the p r o p e r t i e s and impose h i g h e r i n t e r e s t r a t e s on t h e m o r t g a g e s . The u n d e r a p p r a i s a l s i n c r e a s e t h e downpayment by 4 . 5 percent w i t h a mortgage f o r 80 p e r c e n t o f t h e a p p r a i s e d v a l u e . higher The i n t e r e s t r a t e s r a i s e t h e a n n u a l payment by $116 on a $ 6 0 , 0 0 0 mortgage w i t h a 9 . 7 5 p e r c e n t i n t e r e s t r a t e and a 30 year m a t u r i t y period. I n Los A n g e l e s County, a t l e a s t one p i e c e o f e v i d e n c e consistent with the r e d l i n i n g allegations borhood. is i n a l l b u t one n e i g h - The r e s u l t s a r e summarized i n T a b l e 7 . T h e r e a r e two Table 35 Number o f A r e a s w i t h a F i n d i n g C o n s i s t e n t w i t h on t h e B a s i s o f P r o p e r t y L o c a t i o n ; Higher Chance o f Denial Compton Covina-Azusa East L.A.-Boyle Higher Interest Rates 0 1 Larger D o l l a r Amount o f Downward Modification Higher Loan Fees Under Appraisal 0 0 Heights- Echo Park 1 Highland Park 0 0 0 b 0 2 0 1 b 1 1 to 0 0 b 0 0 2 0 b 0 1 0 1 b 0 0 0 2 b 2 2 0 1 b 0 1 0 2 b 1 1 1 0 b 0 0 0 0 b c c NA NA NA 0 NA NA 2 2 2 2 2 2 Long B e a c h - S o u t h w e s t 0 Pacoima-San Fernando 0 Pasadena-North C e n t r a l 0 Pomona 0 San Pedro 1 South C e n t r a l L . A . 0 V e n i c e - S a n t a Monica 0 West C o v i n a 0 A ln l ea l ebgoer hdo ordesd l ti n ed i gl h og ether Number o f a r e a s s t u d i e d Los A n g e l e s - L o n g Beach SMSA' Higher Chance o f Downward Modification 0 Discrimination Table 7 (continued) a) A f i n d i n g i s v i e w e d as x n d i c a t e d group have a r e c e i v e mortgages t h a t property locations are b) Due t o i n s u f f i c i e n t o b s e r v a t i o n s , a l l t h e a l l e g e d l y r e d l i n e d neighborhoods had t o be grouped t o g e t h e r f o r t h e a n a l y s i s o f t h e d o l l a r amount o f downward m o d i f i c a t i o n s . c) I n t h e s e m o d e l s . West Covina was grouped w i t h c o n s i s t e n t w i t h d i s c r i m i n a t o r y b e h a v i o r i f a p p l i c a n t s from t h e s t a t i s t i c a l l y s i g n i f i c a n t l y h a r d e r t i m e r e c e i v i n g a mortgage o r have s t a t i s t i c a l l y s i g n i f i c a n t l y h a r s h e r t e r m s . The i n d i c a t e d compared t o t h e r e m a i n i n g p a r t o f suburban Los Angeles County. Covina-Azusa. to 33 study a r e a s f o r each t y p e o f p o t e n t i a l a d v e r s e a c t i o n because o f t h e s e p a r a t e a n a l y s i s o f t h e 1977 and 1978 d a t a . The i n g p a r a g r a p h s d e s c r i b e t h e c o n s i s t e n t f i n d i n g s i n more If followdetail. a p r o p e r t y i s l o c a t e d i n t h e E a s t Los A n g e l e s - B o y l e H e i g h t s - E c h o Park o r San Pedro neighborhoods, a p p l i c a t i o n has a h i g h e r chance o f d e n i a l as l i k e l y , respectively) t h e mortgage ( 1 . 6 8 and 2 . 0 0 times t h a n a s i m i l a r a p p l i c a t i o n on a p r o p - e r t y l o c a t e d i n t h e suburbs. In addition, properties i n these neighborhoods a r e u n d e r a p p r a i s e d so t h a t t h e downpayments a r e 3 to 6 percent higher than average. Mortgages on San Pedro p r o p e r t i e s a l s o have s u b s t a n t i a l l y h i g h e r i n t e r e s t r a t e s which add $327 t o t h e a n n u a l payments on a $ 6 0 , 0 0 0 mortgage w i t h a 9 . 7 5 p e r c e n t i n t e r e s t r a t e and a 30 y e a r m a t u r i t y A p p l i c a t i o n s on p r o p e r t i e s San F e r n a n d o , i n the Covina-Azusa, and V e n i c e - S a n t a Monica chances o f downward m o d i f i c a t i o n t o 2 . 6 2 t i m e s as l i k e l y ) . period. Pacoima- neighborhoods have h i g h e r (such m o d i f i c a t i o n s a r e A p p l i c a n t s w i s h i n g t o buy 1.58 properties i n t h e C o v i n a - A z u s a and West Covina neighborhoods combined a r e a d d i t i o n a l l y burdened by h a v i n g t o pay 22 p e r c e n t h i g h e r # fees than i f erties t h e p r o p e r t y were l o c a t e d i n t h e suburbs. i n t h e Pacoima-San Fernando neighborhood a r e loan Prop- slightly underappraised. Mortgages on Compton p r o p e r t i e s have h i g h e r interest t h a t add $500 t o t h e a n n u a l payments on a $ 6 0 , 0 0 0 mortgage a 9 . 7 5 p e r c e n t i n t e r e s t r a t e and a 30 y e a r m a t u r i t y . ties rates with Proper- i n Compton a r e a l s o u n d e r a p p r a i s e d so t h a t t h e downpayment i s 5 p e r c e n t above a v e r a g e . 34 Mortgages i n t h e H i g h l a n d P a r k , Pasadena-North Central, Pomona, and South C e n t r a l Los Angeles neighborhoods have h i g h e r i n t e r e s t r a t e s which add $63 t o $221 t o t h e annual payments on a $ 6 0 , 0 0 0 mortgage w i t h a 9 . 7 5 p e r c e n t i n t e r e s t r a t e and a 30 year m a t u r i t y period- The Pomona d i f f e r e n t i a l and i s p r e s e n t i n b o t h y e a r s . i n both years, (adding up t o 6 . 8 the evidence t h e a l l e g a t i o n t h a t Pomona i s r e d l i n e d . ties largest T o g e t h e r w i t h e v i d e n c e o f 20 p e r - c e n t h i g h e r l o a n f e e s and u n d e r a p p r a i s a l s c e n t t o t h e downpayment) i s the supports Applicants with i n t h e South C e n t r a l Los Angeles and H i g h l a n d Park properneigh- borhoods a l s o pay l o a n f e e s t h a t a r e about 5 p e r c e n t above age. In addition. H i g h l a n d Park p r o p e r t i e s a r e per- aver- sufficiently u n d e r a p p r a i s e d t o i n c r e a s e t h e downpayment by 5 . 2 p e r c e n t on average. I n summary, t h e f i n d i n g s w i t h r e s p e c t t o d i s c r i m i n a t i o n on t h e b a s i s o f p r o p e r t y l o c a t i o n i n t h e Los Angeles-Long Beach m e t r o p o l i t a n a r e a suggest t h a t one a r e a . r e c e i v e s no a d v e r s e t r e a t m e n t by l e n d e r s . Long B e a c h - S o u t h w e s t , Pomona, on t h e hand, r e c e i v e s s u b s t a n t i a l a d v e r s e t r e a t m e n t , other although not in t h e f o r m o f h i g h e r chances o f mortgage d e n i a l or downward m o d i fication. Many o f t h e a r e a s e x p e r i e n c e a d v e r s e t r e a t m e n t of more t h a n one t y p e . Community o r g a n i z a t i o n s a l l e g e t h a t l e n d e r s r e d l i n e 25 n e i g h b o r h o o d s i n t h e 5 l a r g e s t m e t r o p o l i t a n a r e a s i n New York state. The e v i d e n c e i s c o n s i s t e n t w i t h 9 o f t h e s e M u t u a l s a v i n g s banks a r e more l i k e l y tions i f allegations. t o deny mortgage t h e p r o p e r t y i s l o c a t e d i n t h e Hudson/Park applica- neighborhood 35 of Albany, t h e H i l l s i d e neighborhood i n T r o y , or t h e F o r t Greene and S o u t h e a s t Queens neighborhoods o f New York C i t y t h a n i n a suburb. The e v i d e n c e a l s o s u p p o r t s t h e c o n c l u s i o n t h a t commer- c i a l banks a r e more l i k e l y t o deny mortgage a p p l i c a t i o n s on p r o p erties f r o m t h e combined C e n t r a l B r o o k l y n and F o r t Greene n e i g h - borhoods t h a n on suburban p r o p e r t i e s . Evidence o f from t h e m o d i f i c a t i o n r e s u l t s a r e w e a k e r . redlining They i n d i c a t e m u t u a l s a v i n g s banks a r e more l i k e l y t o m o d i f y mortgage appli- c a t i o n s on p r o p e r t i e s i n t h e C e n t e r C i t y neighborhood i n and t h e C e n t r a l B r o o k l y n , F o r t Greene, Park S l o p e , properties However, Buffalo, Crown H e i g h t s , and E a s t F l a t b u s h neighborhoods i n New York C i t y t h a n t i o n s on suburban p r o p e r t i e s . that applica- s i n c e a p p l i c a t i o n s on i n New Y o r k - N a s s a u - S u f f o l k neighborhoods t h a t a r e n o t a l l e g e d t o be r e d l i n e d a r e a l s o more l i k e l y t o be m o d i f i e d , these modification results offer support f o r the r e d l i n i n g alle- T a b l e 8 summarizes t h e number o f areas g a t i o n s i n New York City. Age o f N e i g h b o r h o o d . with significant little f i n d i n g s consistent w i t h the a l l e g a t i o n that l e n d e r s d i s c r i m i n a t e a g a i n s t mortgage a p p l i c a t i o n s on p r o p e r t i e s i n o l d e r neighborhoods. I n New Y o r k , t h e r e s u l t s may be ambig- uous because t h e age o f neighborhood measure i s w i t h o b j e c t i v e measures o f t h e r i s k o f l o s s t i o n of s p e c i f i c property) quate i n f o r m a t i o n . (such as t h e condi- t h a t were e x c l u d e d because o f inade- Fortunately, t h e C a l i f o r n i a models t h e age o f t h e s p e c i f i c p r o p e r t y and, t h e r e f o r e , n e i g h b o r h o o d measure t e s t of include t h e age o f ( f r a c t i o n of housing b u i l t b e f o r e probably provides a reasonably clear associated 1940) discrimination the T a b l e 40 Number o f Areas w i t h F i n d i n g s C o n s i s t e n t w i t h Discrimination on t h e B a s i s o f t h e Age or R a c i a l C o m p o s i t i o n o f t h e Neighborhood in California Higher Chance o f Denial CA NY Older Neighborhoods Largely Black Neighborhoods (CA) and New York Higher Chance o f Downward Modification CA NY Higher Interest Rates CA (NY)^ Larger D o l l a r Amount o f Downward Modification CA NY Higher Loan Fees CA Under Appraisal CA 8/32 4/10 4/22 7/10 0 2 0 1 0 7/30 1/10 2/22 0/10 4 2 0 4 1 (jj L a r g e l y Spanish Neighborhoods 9/32 c 4/22 c 6 1 c 2 5 Largely Asian Neighborhoods 3/12 c 1/12 c 0 0 c 2 2 b 8 8 5 8 8 Number o f A r e a s Studied b b a) A f i n d i n g i s v i e w e d as c o n s i s t e n t c a t e d group have a s t a t i s t i c a l l y mortgages t h a t have s t a t i s t i c a l l y a p p l i c a n t s a r e compared t o w h i t e b w i t h d i s c r i m i n a t o r y b e h a v i o r i f a p p l i c a n t s from t h e i n d i s i g n i f i c a n t l y h a r d e r t i m e r e c e i v i n g a mortgage o r r e c e i v e s i g n i f i c a n t l y harsher terms. The i n d i c a t e d groups o f applicants. b) The number o f a r e a s s t u d i e d v a r i e s w i t h t h e v a r i a b l e because o f d a t a l i m i t a t i o n s , i n d i c a t e d a f t e r t h e s l a s h i n t h e s e f o u r columns. c) These t y p e s o f n e i g h b o r h o o d s were n o t s t u d i e d i n New York because o f d a t a and i s limitations. 37 a g a i n s t o l d neighborhoods. A t t h e same t i m e , o f t h e b u i l d i n g age r e s u l t s i s p r o b a b l y ambiguous because t h e y could represent r i s k crimination (e.g., factors a significant building condition) against old buildings). o f t h e b u i l d i n g age v a r i a b l e s are important; (e.g., their in California Tests of the effect indicate that they t o be d e n i e d i n 8 o f ( b u i l t b e f o r e 1940) In 32 percentage is 1.09 to 1.33 t o be d e n i e d i n t h e s e 8 study a r e a s . such a p p l i c a t i o n s thus findings. A neighborhood t h a t has 10 a d d i t i o n a l p o i n t s o f o l d housing more l i k e l y dis- a p p l i c a t i o n s f o r mortgages on p r o p e r t i e s i n o l d e r neighborhoods a r e more l i k e l y study a r e a s . or absence from t h e New York a n a l y s i s i s l i m i t a t i o n on t h e New York In California, t h e e x a c t meaning times addition, a r e 1 . 0 5 t o 1 . 2 0 t i m e s as l i k e l y t o be m o d i - f i e d downward i n 4 o f 22 C a l i f o r n i a study a r e a s . The s i z e of t h e downward m o d i f i c a t i o n a v e r a g e s 4 t o 5 p e r c e n t above r e d u c t i o n s i n a p p l i c a t i o n s on p r o p e r t i e s age p r o p o r t i o n s o f o l d h o u s i n g . gages on p r o p e r t i e s i n neighborhoods w i t h There i s no e v i d e n c e t h a t i n o l d e r neighborhoods have h i g h e r r a t e s or t h a t the p r o p e r t i e s are s y s t e m a t i c a l l y evidence t h a t a p p l i c a n t s f o r mortgages pay h i g h e r l o a n fees. interest such f o r mortgages on p r o p e r t i e s o l d e r neighborhoods a r e more l i k e l y t o be d e n i e d i n 4 o f study a r e a s . If in 10 t h e o l d e r neighborhood has 10 p e r c e n t a g e more o l d h o u s i n g t h a n a v e r a g e , mort- underappraised; there i s also very l i t t l e I n New Y o r k , a p p l i c a t i o n s aver- points t h e chance o f d e n i a l i s 1 . 0 8 1 . 1 7 t i m e s as l i k e l y t h a n i n t h e a v e r a g e n e i g h b o r h o o d . The chance o f m o d i f i c a t i o n i s h i g h e r i n o l d e r neighborhoods i n 7 to 38 o f 10 s t u d y a r e a s - If t h e d i f f e r e n c e i n age o f o l d housing b e - tween two neighborhoods i s 10 p e r c e n t a g e p o i n t s , t h e chance o f m o d i f i c a t i o n i s 6 t o 19 p e r c e n t h i g h e r i n t h e o l d e r hood- M u t u a l s a v i n g s banks a r e r e s p o n s i b l e f o r significant 6 of the f i n d i n g s t h a t a p p l i c a t i o n s on p r o p e r t i e s neighborhoods have h i g h e r chances of adverse R a c i a l Composition o f t h e Neighborhoodnificant neighbor- in 11 older action. The number o f findings consistent w i t h a l l e g a t i o n s that lenders criminate against applications sigdis- f o r mortgages on p r o p e r t i e s in l a r g e l y m i n o r i t y neighborhoods i s a l s o summarized i n T a b l e 8. The chances o f d e n i a l a r e h i g h e r i f i n a l a r g e l y b l a c k neighborhood i n 7 o f areas. the property i s 30 C a l i f o r n i a The d i f f e r e n c e s i n t h e s e 7 a r e a s a r e l a r g e ; located study applications a r e u s u a l l y more t h a n t w i c e as l i k e l y t o be d e n i e d compared w i t h similar applications i n a l a r g e l y w h i t e neighborhood- less evidence of d i s c r i m i n a t i o n against l a r g e l y black hoods t h r o u g h downward m o d i f i c a t i o n s . There neighbor- But mortgages i n these neighborhoods c a r r y i n t e r e s t r a t e s t h a t a r e 0 . 0 9 t o 0 . 2 4 age p o i n t s h i g h e r t h a n s i m i l a r mortgages i n l a r g e l y w h i t e borhoods i n 4 o f 8 study a r e a s . is percentneigh- These h i g h e r i n t e r e s t r a t e s add a b o u t $100 t o t h e a n n u a l payments on a $ 6 0 , 0 0 0 mortgage w i t h a 9.75 percent i n t e r e s t r a t e and a 30 y e a r m a t u r i t y p e r i o d . Appli- c a n t s f o r mortgages on p r o p e r t i e s i n l a r g e l y b l a c k a r e a s pay an extra $27 t o $50 i n l o a n f e e s , is l i t t l e about a 5 p e r c e n t markup. evidence t h a t p r o p e r t i e s i n l a r g e l y black a r e u n d e r a p p r a i s e d — t h e one s i g n i f i c a n t raise neighborhoods f i n d i n g would o n l y t h e downpayment by 0 - 2 p e r c e n t w i t h a mortgage f o r There 80 39 percent of the appraised value. I n New Y o r k I o n l y one f i n d i n g i s c o n s i s t e n t w i t h t h e alle- g a t i o n t h a t lenders r e d l i n e l a r g e l y black neighborhoods. Com- m e r c i a l banks i n t h e g r e a t e r New York C i t y a r e a a r e more likely t o deny a p p l i c a t i o n s f o r mortgages i n p r e d o m i n a t e l y b l a c k borhoods t h a n i n neighborhoods w i t h m o s t l y w h i t e In California, of the r a c i a l and l a r g e l y A s i a n . residents. we have f i n d i n g s on two a d d i t i o n a l composition of the neighborhood: Applications largely measures Spanish f o r mortgages on p r o p e r t i e s p r e d o m i n a n t l y S p a n i s h neighborhoods have h i g h e r chances o f nial than s i m i l a r neigh- de- a p p l i c a t i o n s i n m o s t l y w h i t e neighborhoods 9 o f 32 study a r e a s . The chances o f d e n i a l i n t h e s e i n the w h i t e neighborhoods. in Spanish neighborhoods a r e 1 . 2 7 t o 6 . 1 3 t i m e s t h e chances o f d e n i a l similar applications in for Furthermore, downward m o d i f i c a t i o n i s 1 . 2 5 t o 1 . 7 0 t i m e s more l i k e l y l a r g e l y Spanish neighborhoods i n 4 o f 22 s t u d y a r e a s . in Interest r a t e s a r e 0 . 1 2 t o 0 . 4 2 p e r c e n t a g e p o i n t s h i g h e r when t h e p r o p e r t y i s i n a l a r g e l y Spanish neighborhood i n 6 o f 8 study As a r e s u l t , areas. t h e a n n u a l payments on a $ 6 0 , 0 0 0 mortgage w i t h a 9 . 7 5 p e r c e n t i n t e r e s t r a t e and a 30 y e a r m a t u r i t y p e r i o d a r e as much as $220 h i g h e r t h a n a v e r a g e . The l o a n f e e s a r e a l s o 6 t o 11 p e r c e n t h i g h e r i n 2 of 8 study a r e a s . And f i n a l l y , t i e s a r e s y s t e m a t i c a l l y u n d e r a p p r a i s e d i n 5 o f 8 study but the differences are small. 80 p e r c e n t o f t h e v a l u e i n c r e a s e s by no more t h a n 1 . 2 p e r c e n t , $75,000. areas, For e x a m p l e , t h e downpayment r e q u i r e d t o accompany a mortgage f o r chase p r i c e o f proper- appraised o r $180 f o r a p u r - 40 The e v i d e n c e i s c o n s i s t e n t w i t h a l l e g a t i o n s o f discrimina- t i o n a g a i n s t l a r g e l y A s i a n neighborhoods i n o n l y a few study areas. A p p l i c a t i o n s on p r o p e r t i e s i n l a r g e l y A s i a n neighbor- hoods have a h i g h e r chance o f d e n i a l or downward m o d i f i c a t i o n i n 3 o f 12 and 1 o f 12 study a r e a s , respectively. Higher f e e s and u n d e r a p p r a i s a l s were found i n l a r g e l y A s i a n hoods i n 2 o f 8 study loan neighbor- areas. CONCLUSIONS Our m a j o r f i n d i n g s of mortgage l e n d i n g d i s c r i m i n a t i o n New York and C a l i f o r n i a in are: - We f i n d o n l y l i m i t e d e v i d e n c e o f d i s c r i m i n a t i o n on t h e b a s i s o f t h e sex or m a r i t a l s t a t u s o f t h e In particular, our f i n d i n g s do n o t s u p p o r t applicant. allegations o f widespread d i s c r i m i n a t i o n a g a i n s t f e m a l e - o n l y c a n t s or o f t h e w i d e s p r e a d d i s c o u n t i n g o f t h e of secondary w o r k e r s . The r e s u l t s appli- incomes support t h e v i e w lenders discriminate against male-only applicants a g a i n s t u n m a r r i e d or s e p a r a t e d applicant i s w i d e s p r e a d i n b o t h New York and C a l i f o r n i a . This c r i m i n a t i o n t a k e s many forms and has s u b s t a n t i a l S p a n i s h , and o t h e r m i n o r i t y - We f i n d some e v i d e n c e t h a t l e n d e r s t r e a t o l d e r a d v e r s e l y r e l a t i v e t o younger a p p l i c a n t s , connection w i t h loan - dis- adverse applicants. applicants especially modifications. The r e s u l t s a r e mixed w i t h r e g a r d t o a l l e g a t i o n s and applicants. - D i s c r i m i n a t i o n on t h e b a s i s o f t h e r a c e o f t h e i m p a c t s on b l a c k / that that in 41 lenders redline hoods a p p e a r tion, older neighborhoods; some neighbor- t o be r e d l i n e d and o t h e r s do n o t . some s u p p o r t i s redline specific found f o r allegations or l a r g e l y m i n o r i t y that neighborhoods. In addi- lenders
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