Is there discrimination in mortgage lending? What does the research tell us?

Nationwide mortgage rejection rates of blacks and Hispanics are almost three times that of whites (and Asians), therefore, many people argue that discrimination in mortgage lending must exist. The question is, if discrimination exists then why are there so few cases that document it? The essay, which is a selective literature review, attempts to shed light on this question. Redlining is lending discrimination against properties rather than individual applicants. The research on redlining has taken two approaches. The first is the survey method and the second is analysis of statistical data. The survey approach relies on reports of personal experiences of the respondents, which are seldom if ever verified. On the other hand, statistical studies of redlining have found little evidence that discrimination exists. However, the review on racial discrimination found that most data used do not contain information that is important in the lending decision making process. Since there is a lack of pertinent data to completely investigate racial discrimination, it has been suggested that the average default rates rather than the average rejection rates are used as a test of discrimination. If the average default rate on loans to black borrowers, the implication is that black borrowers are being held to a higher credit standard. Despite high rates of racial disparities in accept/reject decisions, when factors such as job stability and credit history are taken into account, most studies show little evidence of discrimination.