Discriminating Risk: The U.S. Mortgage Lending Industry in the Twentieth Century (review)

In support of an agenda of reform, Guy Stuart, an associate professor of Public Policy at Harvard's Kennedy School of Government, develops a complex and counterintuitive sociological analysis of the role of race in mortgage lending in his monograph Discriminating Risk: The U.S. Mortgage Lending Industry in the Twentieth Century.

Despite being overloaded with theoretical discussion and prone to overreach—the introduction bravely advertises the work as "a complete reframing of the debate about racial discrimination and the definitiveness of economic reasoning in general"—the study opens a window onto the recent workings, and failings, of the mortgage lending market in a major (and perhaps representative) American city. More an in-depth case study than a history, it is nothing if not relevant to the present. In defiance of the book's expansive subtitle, earlier periods receive somewhat less attention. Historians may be forgiven if they feel mislead by the title.

Extensive research on lending practices in Chicago in the early-to-mid-1990s is at the heart of the work. Stuart develops a "constructivist" thesis to explain inequitable outcomes in terms other than those of widespread and overt discrimination, which he consigns to previous decades, ending around 1970. Instead, he propounds systemic explanations, in the form of rules, networks, and "the production of space"—the last term being a way of pointing out the arbitrariness of the neighborhood boundaries upon which real estate brokers, appraisers, and ultimately lenders rely.

Two early chapters cover mortgage lending from the 1920s through the 1980s. Even more than the rest of the volume, these chapters are noticeably informed by poststructuralist thought, privileging the industry's narratives and discourses over the usual preoccupations of business history, e.g., the workings of the firm. Similarly, the economic historian who hopes to discover the connections of the mortgage lending industry to the larger economy, or estimates of its profitability over time, will come away disappointed.

Chapter 1, entitled "The Meaning of Value," traces debates over the preferred method of valuation of property, describing especially the effects of the federal interventions of the New Deal era, notably including the establishment of the Federal Housing Administration. The author pointedly observes that for nearly all of the period under consideration, and regardless of other differences, assessors explicitly regarded a property owner's race, class, and country of origin as legitimate real estate valuation criteria. In the second chapter, "Rules for Assessing the Borrower and Managing Behavioral Risk," Stuart describes how lenders have assessed prospective borrowers' ability and willingness to pay. Here, Stuart emphasizes the emergence of consumer credit reporting and the accompanying "reconstruction of 'character,' " which he describes as a way of legitimizing creditworthiness within the framework of a "Victorian money ethic." Here he relies on Lendol Calder's Financing the American Dream: A Cultural History of Consumer Credit (1999).

These chapters function mainly as background, illuminating the concepts (and preconceptions) that inform current practices. They stand as useful references for historians, particularly of a cultural bent, but do not fully connect to surrounding bodies of work. The discussion of value and risk in mortgage lending, for example, might have benefited from comparison to their treatment in other financial service markets, such as commercial banking and property-casualty insurance. Consumer credit reporting, for example, has in commercial credit reporting a well-documented parallel and antecedent.

These shortcomings may be symptomatic of another apparent problem, limited contact with prior historical research. Directly relevant work by economic historians such as Kenneth Snowden is not in evidence. Nor is an extensive body of work on urbanization, migration, and race heard from. Yet by connecting race (and national origin) with business, and specifically with risk, Discriminating Risk invites a reexamination of their past relationship, not merely in the twentieth century, but even earlier.