Assuming a Can Opener: Economic Theory’s Failure To Explain Discrimination in FHA Lending MarketsAbstractThis article addresses the fundamental problems created by engaging in research in a veritable vacuum that ignores experience and literature. It does this by assessing the plausibility of the basic assumptions of the BCGH study against other models of discriminatory processes, the history of FHA practices in the single-family housing market, and an empirical case study of FHA lending patterns and defaults in Chicago. This analysis shows that the assumptions of BCGH are inappropriate, arguing that discrimination is not necessarily economically motivated and that the policies governing the FHA lending market neither correspond with free market principles nor support normal market mechanisms. The conclusion is that the BCGH analysis of discrimination in FHA lending was ill conceived from the outset. The BCGH study does not expand the contemporary knowledge of lending discrimination and is instead an unfortunate distraction from the pressing issues related to this topic.Assuming a Can Opener: Economic Theory’s Failure To Explain Discrimination in FHA Lending Markets (*.pdf, 88 KB)
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