Do Lenders Discriminate in Processing Defaults?AbstractA major criticism leveled against the Berkovec, Canner, Gabriel, and Hannan (BCGH) study of potential lending discrimination is that there are significant unobservable influences that could bias their results against a finding of discriminatory behavior. Two of the three critics maintain that, among these unobservable influences should be a higher incidence of foreclosure for minorities, conditional on loan default, which would explain the BCGH findings. This article examines that question in detail and finds that the postdefault foreclosure experience of minorities is very similar to that of nonminorities, and that lenders tend to give minorities more (rather than less) time to work out their situation before commencing foreclosure. These findings are robust across a number of dimensions, nullifying the above mentioned critiques of BCGH. However, the article also points out methodological weaknesses that still leave doubts as to the validity of the BCGH results.Do Lenders Discriminate in Processing Defaults? (*.pdf, 83 KB)
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