American homeownership has long been characterized by racial, ethnic, and geographic inequality. In-equality in homeownership, in turn, has contributed to racial and class segregation and inequality in other aspects of American life. Recently, however, there have been signs of dramatic change, as minorities and low-income groups have achieved all-time record high rates of homeownership. To explain these developments, we compare and contrast neoclassical economic theory—which suggests that banking deregulation, increased competition, better information, and improved risk assessment reduce or eliminate mortgage market discrimination—with a sociological theory of networks—which argues industry restructuring can disrupt markets and social relationships and create new opportunities for exploitation. We argue that, as the old inequality in home mortgage lending has slowly diminished, a new inequality has emerged that is characterized by less favorable loan terms, sometimes-problematic forms of housing, and a lack of adequate consumer protection from predatory and abusive practices.

Specifically, we describe trends in subprime and manufactured housing lending in U.S. MSAs. Our study finds that such loans accounted for as much as half, or more, of the gains made by underserved markets between 1993 and 2000. Subprime lenders made particularly strong inroads among minority markets at all income levels. We discuss how the old inequality helped make the new inequality possible, and how the new inequality in home mortgage lending is part of a much larger phenomenon in which apparent gains made by minorities and low income groups have come at a far higher cost than have gains by other segments of society.