THE CULTURAL AFFINITY HYPOTHESIS AND MORTGAGE LENDING DECISIONS

This paper conducts an empirical analysis of the cultural affinity hyp othesis put forth by Calomiris, et al. (1994) in the mortgage lending market. This hypothesis implies that white loan officers, because of a lack of familiarity with minority applicants, will rely more heavily on characteristics that can be observed at low cost (e.g., objective l oan application measures) in evaluating the creditworthiness of minori ty applicants relative to white applicants. Using a cleansed sample of 1,991 loan applications drawn from data collected by the Federal Rese rve Bank of Boston, the results of the analysis were consistent with t he cultural affinity hypothesis. In particular, we found that marginal black and Hispanic applicants appeared to be held to higher quantitat ive standards on such objective factors as credit history and debt obl igation ratios than were similarly situated marginal white applicants.