Mortgage Foreclosures, Race, and Postrecession Lending

Abstract

This article examines the effect of high foreclosure rates on postrecession lending. Our hypothesis is that high neighborhood foreclosure rates will have a significant and positive effect on the likelihood of mortgage loan denial. In a case study on Toledo, Ohio, we explore the role of foreclosure activity, race, and racial disparities in lending practices and how they differ across neighborhoods. Our results suggest that applicants in high-foreclosure neighborhoods have a greater likelihood of loan denial (ceteris paribus). We also find that minority applicants face a higher probability of loan denial in high-foreclosure minority neighborhoods. Overall, the results depict highly variable lending practices where race seems to make a difference albeit in a small subset of neighborhoods deeply affected by the foreclosure crisis. There is also some indication of a chilling effect on minority loan applicants in Toledo during the postrecession period. Key Words: foreclosure, logistic regression, mortgage lending, neighborhood contingency, race discrimination.