A Model of Localized Mortgage Lending Behavior*

John Clapp ()

Real Estate Economics, 1980, vol. 8, issue 2, 229-246

Abstract: Loan administration costs and the costs of search for information about risk are found to be determinants of spatial interest rate differentials. These costs are independent of dollar loan size; therefore, rational lending policies can produce higher interest rates (or lower term to maturity) in low‐income communities. But the premium (lower maturity) should be related to lower loan size and risk differentials. Public policy should be directed toward compiling and verifying an information bank which would allow lenders to search efficiently for information about risk. An empirical methodology designed to test for mortgage deficiency in minority areas was developed through case studies. This indicated the utility of specifying the supply and demand for mortgages at the neighborhood level of aggregation. Trends in neighborhood property values were identified as important and overlooked measures of lending risk. Further exploration of the hypothesis that Spanish‐speaking areas are mortgage deficient is suggested by the cases.

Date: 1980
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