Racial Differences in Mortgage Lending in the Southeastern United States

Twenty to 30 years after passage of laws designed to eliminate racial discrimination and redlining on the part of mortgage lenders questions regarding race and lending persist. Studies regularly reveal that race and location do affect lending decisions. However, few studies examine variation in approval rates by city size, the impact of location on White and Black applicants, or racial lending patterns in a given region. The present study considers these elements of lending for one major region of the United States, the Southeast. Examination of more that 600,000 mortgage applications from 15 metropolitan areas throughout the Southeast reveals sharp disparities in mortgage approval rates between Black and White applicants. For all cities in the region Whites were more likely to gain lenders' approval than Black applicants, even when controlling for income and loan amount, although there is considerable variation among cities in the degree to which Whites fare better than Blacks. The data reveal that city size affects approval rates of Blacks but not of Whites. Furthermore, Whites seeking loans of up to $100,000 in minority areas are less likely to receive them than are Blacks requesting similar loan amounts. Also, lower-income Blacks requesting small loans for houses in minority areas are more successful than lower-income Blacks requesting small loans for dwellings in White neighborhoods. The results of the study point to a need for greater efforts on the part of the lending industry to invest in minority areas and to provide Blacks with increased opportunities for home ownership and the associated process of capital accumulation.