MORTGAGE LENDING IN BOSTON - A RESPONSE TO THE CRITICS

Three years ago, the Federal Reserve Bank of Boston released an examin ation of racial patterns in mortgage denial rates in the Boston area. The study was motivated by newly available data on mortgage applicants , showing that black and Hispanic applicants were two to three times a s likely to be turned down for mortgages as white applicants. The stud y gathered all the variables thought to be missing from the HMDA analy sis, such as the applicants' debt burdens and credit histories, to see whether these economic factors explained the racial difference in den ial rates. Although the additional information did explain much of the difference, after taking account of economic factors the applicant's race still significantly affected the probability of getting a mortgag e. The study has been influential and has caused many institutions to review their lending practices and supervisory agencies to alter their examination procedures. The study has also drawn criticism, with crit ics claiming that variables have been omitted, the model misspecified, errors made in the data, and information about racial differences in foreclosures ignored. This article provides a detailed rebuttal to the se criticisms and shows that even after incorporating the concerns of some of the study's strongest critics, applicants' race as well as eco nomic characteristics affected the probability of getting a mortgage i n 1990.