Title: Cross-Lender Variation in Home Mortgage Lending
Abstract: The Community Reinvestment Act of 1977 (CRA) requires depository institutions to help meet the credit needs of their communities, including low-and moderate-income neighborhoods, consistent with safe and sound lending practices.Despite the clear focus of CRA and other fair credit and housing legislation on individual lender responsibilities, consumer finance studies generally do not concede any differences in the mortgage lending activities of individual lenders; they consider variance among either individuals or neighborhoods.Virtually all of the studies draw inferences about the practices of some prototypical lender from data pooled across many lenders.Our strategy is to examine differences among individual lenders in the rates at which they receive applications fiom, and originate mortgage loans to, minority and low-income applicants.More specifically, we use the new applicant-level data gathered under the Home Mortgage Disclosure Act of 1975 -A) to examine differences in minority and low-income mortgage loan originations across the more than 8,600 U.S. lenders who received applications for single-family home purchase loans in 1990.We then allocate the variance in lender-specific credit originations into two components: differences among lenders in their application volumes from various population groups, and differences among lenders in the actions taken on applications they receive.Both the applications and their disposition are then examined firther for lender differences.Although our analysis reveals substantial differences in regard to lenders' housing market activities, we do not attempt to draw conclusions regarding discrimination.We emphasize that the HMDA data do not contain enough relevant information about the loan applicants to draw any firm conclusions regarding the reasons for observed variance in denial rates.Instead, we take up the broader issue of whether the substantial differences we observe in lenders' credit flows to minority and low-income households stem findamentally from differences in the volume of these applications received by lenders, or from differential actions taken on the applications.We conclude that for the United States as a whole, the variance across lenders in minority or lowincome loan originations, relative to total originations, is overwhelmingly accounted for by the variance in application rates to those lenders, as opposed to relative differences in the disposition of the applications after they are received.We also find that only a small portion of these differences result fiom application characteristics that may reflect the type of loan being applied for (loan size, FHANA or conventional loan, etc.).In addition, they cannot be accounted for solely by geographic differences in markets served by lenders: Lenders that receive a relatively large proportion of minority applications tend to draw applicants from many neighborhoods within their MSA, not just from a small number of predominantly minority census tracts; lenders that receive a relatively small proportion of minority applications fail to attract as many of the minority residents looking for homes in the neighborhoods they serve.