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Redlining, the Community Reinvestment Act, and Private Mortgage Insurance

Stephen Ross () and Geoffrey M. B. Tootell ()

No 2000-04, Working papers from University of Connecticut, Department of Economics

Abstract: 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 CRA-protected 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.

Keywords: Community Reinvestment Act; Private Mortgage Insurance; Mortgage Lending; Discrimination (search for similar items in EconPapers)
JEL-codes: R38 G12 G28 J71 (search for similar items in EconPapers)
Date: 2000
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Forthcoming in Journal of Urban Economics

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Persistent link: http://EconPapers.repec.org/RePEc:uct:uconnp:2000-04

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