A Model of Redlining

Lang, William W.; Nakamura, Leonard I.

doi:10.1006/juec.1993.1014

Cited by 135 publications

(76 citation statements)

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“…Lank and Nakamura [11,12] suggest that assessment risk may play an important role in explaining redlining. Property assessments may be inaccurate in neighborhoods with low loan volumes leading to lower willingness of lenders to approve mortgages in these neighborhoods.…”

Section: Discussionmentioning

confidence: 99%

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Redlining, the Community Reinvestment Act, and private mortgage insurance

Ross

Tootell

2004

Journal of Urban Economics

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This paper examines whether neighborhood racial or income composition influences a lender's treatment of mortgage applications. Recent studies have found little evidence of differential treatment based on either the racial or income composition of the neighborhood, once the specification accounts for neighborhood risk factors. This paper suggests that lenders may favor applicants from CRAprotected neighborhoods if they obtain Private Mortgage Insurance (PMI) and that this behavior may mask lender redlining of low income and minority neighborhoods. For loan applicants who are not covered by PMI, this paper finds strong evidence that applications for units in low-income neighborhoods are less likely to be approved, and some evidence that applications for units in minority neighborhoods are less likey to be approved, regardless of the race of the applicant. This pattern is not visible in earlier studies because lenders appear to treat applications from these neighborhoods more favorably when the applicant obtains PMI.Journal of Economic Literature Classification: R38, G12, G28, J71

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Section: Discussionmentioning

confidence: 99%

“…12 Finally, the specification controls for detailed loan and borrower characteristics. The loan variables include whether a gift was provided for the downpayment, whether the loan was cosigned, whether the interest rate was adjustable, 13 and whether private mortgage insurance was obtained.…”

Section: Data and Model Specificationmentioning

confidence: 99%

Redlining, the Community Reinvestment Act, and private mortgage insurance

Ross

Tootell

2004

Journal of Urban Economics

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“…In the urban literature, geographic redlining (see e.g. Ladd [11] and Lang and Nakamura [12]) involves di¤erentials in mortgage loan supply across neighborhoods or space. In other words, mortgage lenders discriminate on the basis of the location of the property so that people living in redlined areas …nd di¢culties in obtaining loans.…”

Section: Introductionmentioning

confidence: 99%

How do firms redline workers?

Zénou

2002

Journal of Urban Economics

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This Discussion Paper is issued within the framework of IZA's research area The Future of Labor. Any opinions expressed here are those of the author(s) and not those of the institute. Research disseminated by IZA may include views on policy, but the institute itself takes no institutional policy positions.The Institute for the Study of Labor (IZA) in Bonn is a local and virtual international research center and a place of communication between science, politics and business. IZA is an independent, nonprofit limited liability company (Gesellschaft mit beschränkter Haftung) supported by the Deutsche Post AG. The center is associated with the University of Bonn and offers a stimulating research environment through its research networks, research support, and visitors and doctoral programs. IZA engages in (i) original and internationally competitive research in all fields of labor economics, (ii) development of policy concepts, and (iii) dissemination of research results and concepts to the interested public. The current research program deals with (1) mobility and flexibility of labor, (2) internationalization of labor markets, (3) welfare state and labor market, (4) labor markets in transition countries, (5) the future of labor, (6) evaluation of labor market policies and projects and (7) general labor economics.IZA Discussion Papers often represent preliminary work and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. A revised version may be available on the IZA website (www.iza.org) or directly from the author. In a city where individuals endogenously choose their residential location, firms determine their spatial efficiency wage and a geographical red line beyond which they do not recruit workers. This is because workers experiencing longer commuting trips provide lower effort levels than those residing closer to jobs. By solving simultaneously for the land and labor market equilibrium, we show that there exists a unique market equilibrium that determines the location of all individuals in the city, the land rent, the efficiency wage, the recruitment area and the unemployment level in the economy. This model is able to provide a new mechanism for the spatial mismatch hypothesis by taking the firm's viewpoint. Distance to jobs is harmful not because workers have low information about jobs (search) or because commuting costs are too high but because firms do not hire remote workers. JEL Classification:J41, R14

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“…Relatively greater volatility in minority property prices arises from several sources, including relatively greater effects of the business cycle on labor income of minorities and disparities in the availability of mortgage credit and/or federal loan guarantees to low-income and minority borrowers (Grinstein-Weiss, Clinton, & Carrillo, 2015); a significantly higher rate of default arising from the concentration of alternative mortgage products and high LTV loans in minority neighborhoods (Brueckner, Calem, & Nakamura (2016); externalities on local home prices from the high incidence of default in such neighborhoods (Immergluck & Smith (2006); and cycles in the degree of appraisal bias toward properties in minority neighborhoods (Lang & Nakamura, 1993;Calem, Firestone, & Wachter, 2010).…”

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Property Risk, Foreclosure Costs and Rational Lending Discrimination

Nickerson

Scofield²

2017

IFB

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Observations of significant differences in access to credit, loan terms and the volume of lending between demographically distinct groups of borrowers are often interpreted as evidence of potential ethnic, racial or gender discrimination by lenders. The competitive structure of credit markets and the accuracy of measuring individual credit risk render extant models of lending discrimination based on assumptions of credit market inefficiencies, such as adverse selection, increasingly implausible. In stark contrast to existing models of demographic discrimination, we consider a model of mortgage lending in an economy having complete markets, common knowledge and arbitrage-free pricing. Market equilibria in this classical environment may exhibit discrimination even when borrowers, who are distinguished only by observable demographic traits, share an identical measure of individual credit risk. Relatively costlier loan terms, a higher frequency of loan denials, or a complete rationing of credit to a particular demographic class of borrowers may be a value-maximizing strategy when rational lenders perceive that one or more such traits are directly related to adverse features of the representative property securing the loan to a borrower in this class. Omitted from standard statistical underwriting and regulatory review procedures, these features reduce the value of the collateral available to the lender in the event of future default.International Finance and Banking ISSN 2374-2089 2017 When loans are secured by such properties and both lenders and borrowers act strategically, discrimination on this basis will be a property of all market equilibria and can be consistent with an efficient allocation of credit.

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A Model of Redlining

Cited by 135 publications

References 1 publication

Redlining, the Community Reinvestment Act, and private mortgage insurance

Redlining, the Community Reinvestment Act, and private mortgage insurance

How do firms redline workers?

Property Risk, Foreclosure Costs and Rational Lending Discrimination

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