DISCRIMINATION, COMPETITION, AND LOAN PERFORMANCE IN FHA MORTGAGE LENDING

This study tests for the presence of prejudicial or ''noneconomic'' di scrimination on the part of mortgage lenders by evaluating the perform ance of home mortgage loans. The approach differs from that of previou s studies of loan performance in that it is based on the proposition t hat noneconomic discrimination should be more pronounced in less compe titive lending environments, while statistical discrimination should n ot. Using a rich set of FHA-insured loan records and measures of local market concentration to proxy the competitive environment, we test fo r the prediction of better loan performance by minority borrowers rela tive to white borrowers in more concentrated markets. We argue that th is approach substantially reduces the potential for omitted-variable b ias that has cast a shadow on previous studies of lending discriminati on. Results fail to reject the null hypothesis of no noneconomic discr imination.