Riding the Stagecoach to Hell: A Qualitative Analysis of Racial Discrimination in Mortgage Lending

Abstract

Recent studies have used statistical methods to show that minorities were more likely than equally qualified whites to receive high-cost, high-risk loans during the U.S. housing boom, evidence taken to suggest widespread discrimination in the mortgage lending industry. The evidence, however, was indirect, being inferred from racial differentials that persisted after controlling for other factors known to affect the terms of lending. Here we assemble a qualitative database to generate direct evidence of discrimination. Using a sample of 220 statements randomly selected from documents assembled in the course of recent fair lending lawsuits, we code texts for evidence of individual discrimination, structural discrimination, and potential discrimination in mortgage lending practices. We find that 76 percent of the texts indicated the existence of structural discrimination, with only 11 percent suggesting individual discrimination alone. We then present a sample of texts that were coded as discriminatory to reveal the way in which racial discrimination was embedded within the social structure of U.S. mortgage lending, and to reveal the specific microsocial mechanisms by which this discrimination was effected.

Wealth Inequality and Accumulation

“…Although discrimination is notoriously difficult to identify in observational studies, prior research finds evidence consistent with discrimination against African-Americans in lending markets for homes, vehicles, and businesses (Blanchflower et al 2003, Cavalluzzo & Wolken 2005, Charles et al 2008, Charles & Hurst 2002, Oliver & Shapiro 2006), including disproportionate rates of subprime mortgage loans among black households leading up to the Great Recession (Massey et al 2016, Rugh 2015, Rugh et al 2015). Neighborhood segregation further intensified African-Americans’ vulnerability to subprime lending and home foreclosures (Hwang et al 2015, Rugh et al 2015, Rugh & Massey 2010).…”

The Raced–Space of Gentrification: “Reverse Blockbusting,” Home Selling, and Neighborhood Remake in North Nashville

“…In a recent study, Massey et al. () use a qualitative approach to supplement prior quantitative research that shows statistical evidence revealing the discriminatory subprime lending practices in communities of color leading up to the housing boom and crash of 2008. In their qualitative study, Massey et al () used samples of interviews, depositions, and statements made by various actors in the subprime lending industry to better understand the language used that reflects attitudes that could produce the racial disparities in subprime lending described above:

These mechanisms included deliberate deception and misrepresentation of lending terms; the falsification of loan documents; the recruitment of unwitting confederates within the social structure of minority communities; the use of “live draft checks” to ensnare unsuspecting consumers in high‐interest loans; the targeting of the elderly for deceptive, high‐pressure marketing; the encouragement of refinance borrowers to take out loans for more than their home's worth, thereby putting it automatically into the subprime category; using business records, church directories, and telephone exchanges to build lists of prospective borrowers for cold‐calling; and the organization of sales events in minority neighborhoods that were euphemistically labeled “wealth building seminars.”

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Immigrants and wealth attainment: migration, inequality, and integration

“…Chinese and South Asian immigrants in the U.S. have higher levels of wealth compared to all other immigrant groups, especially Mexicans, though wealth grows for all groups as tenure in the U.S. increases (Keister, Agius Vallejo, and Aronson 2016). A historical legacy of structural racism and discrimination in U.S. financial institutions and credit markets also hinders asset accumulation among immigrants and people of colour and contributes to racialized predadory lending (Massey et al 2016) and higher rates of denials for mortgage and commercial loans, as immigrants and people of colour pay higher interest rates and are more often denied loans than whites, even after controlling for creditworthiness (Cavalluzzo and Wolken 2005;Bates and Robb 2013). Skin tone is another important factor related to wealth accumulation, with darker-skinned immigrants exhibiting lower levels of wealth (Painter, Holmes, and Bateman 2016).…”