RACE, REDLINING, AND RESIDENTIAL MORTGAGE LOAN PERFORMANCE

Theories of discrimination in credit markets suggest that under certai n circumstances systematic lender bias may result in creditors holding minority applicants or applicants from minority neighborhoods to high er standards of creditworthiness than other borrowers. This implies lo wer default rates or smaller dollar losses on loans to marginally qual ified minority borrowers or borrowers from minority neighborhoods, com pared to loans extended to other similarly qualified borrowers. This s tudy seeks to test this prediction by examining the default-risk chara cteristics of FHA-insured single-family residential mortgages. All thi ngs equal, empirical findings fail to support the theoretical predicti ons that observed default rates are relatively lower among minority bo rrowers or neighborhoods.