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The study, published as a Working Paper, analyzes mortgage loan applications from the nation's major metropolitan areas for the years 1990 and 1991. It looks at both loan application and loan denial rates across census tracts. Among the the study's findings:
Census tracts with median incomes of $20,000 or less, regardless of their location or racial composition, show significantly higher denial rates than other tracts.
Median tract income also appears to be closely related to application rates, especially for home purchase and refinance loans.
While the racial composition of a census tract doesn't appear to affect loan denial rates, the race of an individual applicant has a large impact, with black applicants having unexplainably high denial rates.
Based on these and other findings in the study, the authors observe that a census tract's location--whether or not it is in a central city--may not, by itself, be the most effective way of deciding if it should be targeted for special assistance by Fannie Mae and Freddie Mac. A more effective way, the study suggests, would be to target such help according to a broader set of characteristics, such as race and median income, in conjunction with location.
Working Paper 9421, "Underserved Mortgage Markets: Evidence from HMDA Data," was written by Robert B. Avery, a professor in the Department of Consumer Economics and Housing at Cornell University; Patricia E. Beeson, associate professor of economics at the University of Pittsburgh; and Mark S. Sniderman, senior vice president and director of Research at the Federal Reserve Bank of Cleveland. For a copy, contact the Federal Reserve Bank of Cleveland's Corporate Communications Department at (216) 579-3079.
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