The Conditional Spatial Correlations between Racial Prejudice and Racial Disparities in the Market for Home Loans

Abstract

Many studies have shown the existence of disparities in loan denial rates between blacks and whites that cannot be accounted for by observable applicant characteristics. Examining the link between racial gaps in home loan denial rates and prejudicial attitudes toward blacks measured by questions in the General Social Survey, this article shows that blacks are not only more likely to be denied conventional home mortgages but that denial rates among blacks for these loans are also geographically correlated with racial prejudice, particularly among first-lien home purchase loans and loans from depository lenders. However, among Federal Housing Administration-insured loans guaranteed by the government in the event of borrower default, this study finds no evidence of a statistical relationship between racial prejudice and loan denials among black applicants. Results are consistent with taste-based discrimination by discriminatory lenders, however one cannot rule out that statistical discrimination is at least partially driving the results.