Community socioeconomic status and disparities in mortgage lending: An analysis of Metropolitan Detroit

Abstract

This note examines the effects of community socioeconomic status on mortgage lending patterns in Metropolitan Detroit. Data from 2000 HMDA reports and the 2000 U.S. Census are analyzed using multiple regression. The results from this analysis have two important implications for research on mortgage lending. First, they indicate that the effects of variables linked to a community's socioeconomic status on mortgage lending patterns are highly intercorrelated. As a result, variations in mortgage lending appear to be the result of the combined effects of a number of socioeconomic variables acting together. Second, the results from this analysis indicate that the socioeconomic status of a community is positively correlated with mortgage lending activity. In other words, a decline in neighborhood socioeconomic status is significantly correlated with a decline in mortgage lending.

Notes

1 This research was supported by a Summer Faculty Research Support Award from the State Policy Center in the College of Urban Labor and Metropolitan Affairs at Wayne State University. Additional acknowledgments go to Jason Booza for GIS assistance and Lari Warren-Jeanpiere for assistance with database development.

2 The independent variables used in this analysis were selected in order to replicate multivariate models used in past research on mortgage discrimination.

3 This analysis focuses on loans originated rather than the total number of loans approved in order to discount the possible effects of double counting duplicate applications for the same property in the analysis. This decision was made in response to the organization of HMDA data, which includes categories for loans “approved but not accepted” and “applications withdrawn”.

4 The proportion of residents living in the same home since 1995 is used as a measure of residential stability in this analysis.

5 Since only one component was extracted with an eigenvalue greater than 1, verimax rotation could not be performed.