Discrimination, Competition, and Loan Performance in FHA Mortgage Lending

Posted: 10 Mar 1998

See all articles by James A. Berkovec

James A. Berkovec

Federal Home Loan Mortgage Corporation (FHLMC)

Glenn B. Canner

Board of Governors of the Federal Reserve System

Stuart A. Gabriel

University of California, Los Angeles - Anderson School of Management

Timothy H. Hannan

Board of Governors of the Federal Reserve System

Abstract

This study tests for the presence of prejudicial or "noneconomic" discrimination on the part of mortgage lenders by evaluating the performance of home mortgage loans. The approach differs from that of previous studies of loan performance in that it is based on the proposition that noneconomic discrimination should be more pronounced in less competitive lending environments, while statistical discrimination should not. Using a rich set of FHA-insured loan records and measures of local market concentration to proxy the competitive environment, we test for the prediction of better loan performance by minority borrowers relative to white borrowers in more concentrated markets. We argue that this approach substantially reduces the potential for omitted-variable bias that has cast a shadow on previous studies of lending discrimination. Results fail to reject the null hypothesis of no noneconomic discrimination.

JEL Classification: G21, J15

Suggested Citation

Berkovec, James A. and Canner, Glenn B. and Gabriel, Stuart A. and Hannan, Timothy, Discrimination, Competition, and Loan Performance in FHA Mortgage Lending. Available at SSRN: https://ssrn.com/abstract=65882

James A. Berkovec

Federal Home Loan Mortgage Corporation (FHLMC) ( email )

8200 Jones Branch Drive
Mclean, VA 22102
United States
703-903-4356 (Phone)

Glenn B. Canner

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Stuart A. Gabriel (Contact Author)

University of California, Los Angeles - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States
310-825-2922 (Phone)
310-206-5455 (Fax)

HOME PAGE: http://www.anderson.ucla.edu

Timothy Hannan

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States
202-452-2919 (Phone)
202-452-3819 (Fax)

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