Differential Access in Mortgage Credit: The Role of Neighborhood Spatial and Racial Stratification

Abstract

Inequality in homeownership is a major component of ethno-racial stratification. Previous studies demonstrate large ethnoracial differences in access and outcomes throughout the home buying process at both the individual and neighborhood levels. An underlying assumption in these studies is that neighborhood ethno-racial disparities in lending are similar across neighborhood spatial types. However, mortgage lending disparities are unclear when examining the neighborhood's racial composition across urban, suburban, and rural communities. This paper draws on annual data from the American Housing Survey and the Home Mortgage Disclosure Act (HMDA) from 2018 and 2019 to assess loan outcome disparities by neighborhood type and racial composition. I show that applicant disparities in loan outcomes vary when factoring the neighborhood's spatial type and racial composition. Borrowers seeking a mortgage in predominantly minority rural communities are more likely to be denied a mortgage than borrowers applying across all other neighborhood type and racial composition. The trends for urban communities are similar to suburban communities across adverse loan outcomes. When comparing the community's racial composition and neighborhood type, the observed lending pattern provides evidence of constrained mortgage access in rural areas, especially among minority rural communities.Homeownership is a major component of financial stability and asset growth for most Americans, especially for minorities. Unequal access to homeownership across ethno-racial groups is a significant contributor to asset inequality (Oliver and Shapiro 2006), as minorities are unable to take advantage of the tax incentives that subsidize homeownership and increase wealth accumulation (Prasad 2012; Quinn 2019). In addition to economic benefits, owning a home is associated with positive neighborhood attributes such as lower crime rates, better public schools, and increased social networks (Charles 2003;Massey 2005;Sharkey and Faber 2014;Yinger 1998). Unequal access to homeownership remains for minorities, despite anti-discrimination laws. The homeownership rate in 2020 was about 74 percent for non-Hispanic whites (hereafter "whites"), 60 percent for Asians, and only 50 percent and 45 percent for Hispanics (hereafter "Latinos") and non-Hispanic blacks (hereafter "blacks") (United States Census Bureau 2021).