A Test of Cultural Affinity in Home Mortgage Lending

Raphael Bostic

No 8624, Working Paper from USC Lusk Center for Real Estate

Abstract: This paper assess cultural affinity as a potential explanation for observed racial disparities in mortgage rejection rates. Two formulations of the theory have evolved in the literature. The taste-based cultural affinity hypothesis asserts that lenders have a blanket preference for members of the same race, while the common bond hypothesis asserts that cultural affinity allows lenders to better assess the credit quality of members of the same race. The analysis involves tests that focus on the experiences of applicants with marginal credit quality, as the two theories offer conflicting predictions regarding their application patterns and treatment by lenders. The results of these tests provide weak support for the existence of taste-based cultural affinity, but contradict the predictions of the common bond form of the theory.

Keywords: Mortgage Lending; Race; Cultural Affinity (search for similar items in EconPapers)
Date: 2002
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http://lusk.usc.edu/sites/default/files/working_papers/wp_2002-1006.pdf (application/pdf)

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Journal Article: A Test of Cultural Affinity in Home Mortgage Lending (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:luk:wpaper:8624

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