A Tale of Two Cities: Racial and Ethnic Geographic Disparities in Home Mortgage Lending in Boston and Philadelphia

Recent data released pursuant to the 1989 amendments to the Home Mortgage Disclosure Act (HMDA) show large disparities in mortgage lending between minority and nonminority neighborhoods and have refocused attention on possible racial discrimination in the home loan market. Methodological shortcomings of previous studies of redlining can be remedied by using post-1989 HMDA data to examine whether lender acceptance or rejection of mortgage applications is related to neighborhood racial and ethnic composition. We test two models of the lender’s decision to accept or reject loan applicants, one including and one without variables that proxy for neighborhood risk, using data for Boston and Philadelphia. With proxies for neighborhood risk included, the results do not support the hypothesis that financial institutions redline neighborhoods in these two cities. Any conclusions drawn from these results should be carefully interpreted, because the model fails to control for all neighborhood, property, and borrower risk characteristics.