Racial Disparities in Access to Mortgage Credit: Does Governance Matter?^*

Abstract

Objectives. This article examines the effect of community organizing on the likelihood that minority borrowers pursue home mortgage credit from regulated lenders. Methods. Governance perspectives suggest that community organizations exert significant influence on policy outcomes. We use logistic regression with interaction terms to test the effect of community organizing on the lending outcomes of minority borrowers. We use a matched control sample of cities, drawing on 2004 loan data from two midwestern cities similar in racial and economic composition but with different histories of organizing around the Community Reinvestment Act (CRA). Results. We find differential effects based on an applicant's race or ethnicity. Overall, African-American applicants are less likely to pursue mortgage credit for home ownership from regulated lenders than their white, non-Hispanic counterparts. However, African Americans seeking mortgage credit in a city with a history of CRA organizing are more likely to apply to regulated lenders than their racial counterparts in a city without CRA organizing. However, while organizing reduces the disparities between white and African-American applicants, a gap still remains. Conclusion. African-American borrowers living in cities with a history of community organizing around CRA appear more likely to pursue mortgage credit from traditional, regulated lenders, suggesting that governance matters.Economic theories largely rooted in public choice theory have been applied to analyze the impact of the Community Reinvestment Act (CRA) of 1977 (Barr, 2004), evaluate the ability of CRA to increase or decrease efficiency in lending markets (Benston, 1997;Lang and Nakamura, 1993), and its ability to increase access to credit from traditional lending institutions for historically disadvantaged borrowers. Although insight from these analyses provides relevant policy information, analyses rooted in these perspectives adopt a traditional approach to policy analysis, one that assumes policies are implemented by a neutral administrative state in line with static,

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Impacts of Owner Race and Geographic Context on Access to Small-Business Financing

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