Glenn B. Canner

Race, Redlining, and Residential Mortgage Loan Performance

Theories of discrimination in credit markets suggest that under certain circumstances systematic lender bias may result in creditors holding minority applicants or applicants from minority neighborhoods to higher standards of creditworthiness than other borrowers. This implies lower default rates or smaller dollar losses on loans to marginally qualified minority borrowers or borrowers from minority neighborhoods, compared to loans extended to other similarly qualified borrowers. This study seeks to test this prediction by examining the default-risk characteristics of FHA-insured single-family residential mortgages. All things equal, empirical findings fail to support the theoretical predictions that observed default rates are relatively lower among minority borrowers or neighborhoods.

Discrimination, Competition, and Loan Performance in FHA Mortgage Lending

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.

Consolidation and bank branching patterns

Abstract This paper examines the association between consolidation and changes in levels of bank branching as measured by changes in the number of bank branches per capita. Using a specially-constructed data set, we address this issue as well as how this relationship varies with the type of consolidation and initial regulatory, competitive, and market conditions. We find that merges where merging institutions have branch networks which overlap within a ZIP code (within-ZIP merger) are strongly associated with a reduction in offices per capita in that ZIP code. This result is robust across time and holds in both rural and urban areas. The findings also suggest that, contrary to popularly held views, consolidation is not unambiguously negatively associated with changes in the number of banking offices per capita. Neither within-market-but-not-within-ZIP mergers nor out-of-market mergers consistently show such a relationship. We also find that the relationships between within-ZIP and within-market-but-not-within-ZIP mergers and changes in the number of bank offices per capita are more negative in low-income neighborhoods than in other neighborhoods. However, because most states now have unrestricted branching and because savings associations are less prevalent and financially healthier than in the past, these findings may not be indicative of future branching patterns.

Credit Scoring: Statistical Issues and Evidence from Credit-Bureau Files

Although credit scoring offers benefits to lenders and borrowers, its use raises important statistical issues that may affect the ability of scoring systems to accurately quantify an individuals credit risk. The evidence from a national sample of credit-bureau records suggests that concerns about omitted-variable bias may be justified, as local economic factors show significant correlations with credit scores. Copyright American Real Estate and Urban Economics Association.

Market segmentation and lender specialization in the primary and secondary mortgage markets

Abstract This paper provides a comprehensive evaluation of market segmentation and lender/purchaser specialization in the primary and secondary mortgage markets. It describes and assesses the 1990 Home Mortgage Disclosure Act (HMDA) data, which for the first time provide detailed information on the borrower and neighborhood racial and income characteristics of mortgage loan originations and securitizations in the primary and secondary mortgage markets. Evidence presented in the paper indicates that home purchase loan origination rates for black applicants—and, to a lesser degree, Hispanic applicants—appear to be significantly lower than those of other racial or ethnic groups. Similarly, the HMDA data reveal that home purchase mortgage origination rates in predominantly minority census tracts are significantly lower than those in predominantly white neighborhoods. The HMDA data also indicate a striking reliance of black borrowers on government‐backed forms of mortgage credit. The paper further reveals that...

Assessing the Necessity and Efficiency of the Community Reinvestment Act

Abstract A number of researchers have recently questioned whether the Community Reinvestment Act (CRA) is still needed. In addition, economic analysis has explored the efficiency of many regulations, but not the CRA. This article seeks to address both issues to shed light on the necessity and efficiency of the CRA. On the basis of data from a survey on the performance and profitability of CRA‐related lending activities, we reach three main conclusions. First, consistent with the view that the CRA is needed, we find evidence that the majority of surveyed institutions engaged in some lending activities that they would not otherwise have done in the absence of the law. Second, in terms of efficiency, the results are mixed: The vast majority of institutions increased credit flows profitably, but a significant minority incurred costs, albeit small ones. Third, quantitative evidence suggests that marginal CRA‐related lending tended to be small.