One of my primary goals in establishing Cityscape has been to foster state-of-the-art re-search and commentary on critical policy issues in housing and community development. None could be more important than the question of whether racial discrimination persists within the home mortgage lending industry in the United States. Therefore, I am delighted to present this collection of essays, which comprises a colloquy among an eminent group of social scientists on the question: Does recent research on home mortgage default rates convincingly prove the absence of racial discrimination?
The dialogue begins with "Mortgage Discrimination and FHA Loan Performance," by
James Berkovec, Glenn Canner, Stuart Gabriel, and Tim Hannan (BCGH), who assert that if mortgage lenders were discriminating against qualified African Americans the default rate of the African Americans who did receive loans would be lower than that of whites. The authors, finding that default rate and default losses are slightly higher for African Americans than for whites, conclude that this difference evidences the absence of systematic discrimination against African Americans in home mortgage lending.
Because of the technical complexity of this research and its potential implications for fair lending policy and law enforcement, the U.S. Department of Housing and Urban Development (HUD) convened a panel of experts to examine it in February 1995. The critiques by John Yinger, Stephen Ross, and George Galster were presented as part of this forum. Drs. Yinger and Galster have been conducting research on issues related to fair housing for more than 20 years and, more recently, Dr. Ross has conducted a considerable amount of research on housing discrimination. Following these critiques, BCGH respond to criticisms of their research, and Ross, Galster, and Yinger then provide a rejoinder.
Next we solicited the opinions of several recognized experts in the areas of housing, mortgage market analysis, and FHA insurance. These commentators include John Quigley of the University of California at Berkeley; Jan Brueckner, editor of the Journal of Urban Economics and a professor at the University of Illinois at Urbana-Champaign; Anthony Yezer of the George Washington University; Anne Shlay of Temple University; Calvin Bradford of Community Reinvestment Associates; Brent Ambrose of the University of Wisconsin-Milwaukee; and Charles Capone of HUD's Office of Policy Development and Research. The commentators provide brief assessments of the merits of the dialogue, stepping back from the technical specifics to focus on broader theoretical and policy issues. James Berkovec provides a response to the commentaries.
Finally, Acting Assistant Secretary for Fair Housing and Equal Opportunity Elizabeth
Julian cites substantive limitations of the BCGH study to highlight her judgment that it is too inconclusive to serve as a basis for any change in HUD's fair lending enforcement policies.
This colloquy does not represent the final word about the way racial discrimination in home mortgage lending should be analyzed. In particular, the question of whether or not measures of loan performance contribute to our understanding of lending patterns and the potential for racial discrimination is far from established. The research by BCGH has initiated a useful discussion of the limitations of methods and data currently available to study discriminatory behavior and its effects on families, communities, and markets as a whole. There is much more to be learned about the behavior of lenders and borrowers in all phases of the homebuying process, and I welcome the careful and useful research done by Dr. Berkovec and his colleagues.
Nevertheless, the best available arguments and evidence warrant no other conclusion than that lending discrimination remains a serious problem in the home mortgage industry and a direct approach to the measurement of lending discrimination is far superior to an indirect, or default, approach. There is a continuing need for financial regulatory agencies to join with HUD and the U.S. Department of Justice in aggressively enforcing fair lending laws. Fair lending examinations will continue to rely on analysis of individual lenders and their acceptance or rejection of individual loan applications as the primary way of measuring the prevalence of lending discrimination.
Michael A. Stegman
Assistant Secretary for Policy
Development and Research
