Not in that neighborhood: The effects of population and housing on the distribution of mortgage finance within the Chicago SMSA

Abstract

Understanding where housing finance flows helps explain the direction of neighborhood change, metropolitan expansion, central city deterioration, revitalization, and ghetto maintenance. Sustained credit flows support healthy housing markets while a lack of credit fosters housing abandonment and neighborhood decline. Designed to encourage housing finance institutions to invest in neighborhoods which had experienced disinvestment because of race, location, and the age of local housing stocks, community reinvestment policies render institutions' housing finance patterns accountable to federal regulators and the public. This research examines residential lending patterns across the Chicago SMSA from 1980 to 1983, several years after the enactment of community reinvestment policy. On the basis of lenders' reports of the location of their home mortgages, it examines the variation in census tract housing credit flows in the Chicago region and the neighborhood factors which influenced these patterns. Findings show that conventional credit flowed more to the suburbs and gentrified parts of the city. FHA finance, a small portion of all home mortgages, did not make up for areal losses in conventional finance. Conventional credit markets were segmented by race. Areas housing more black and hispanics received less conventional finance than comparable white neighborhoods, net of other factors. FHA finance did not flow more to minority suburban areas and only flowed slightly more to black city areas. Despite more favorable loan terms, FHA loans did not substitute for conventional finance; these government insured loans were more dominant among minority areas because these areas received less conventional finance. As outcomes of a myriad of housing market processes, these lending patterns indicate a legacy of discrimination. Community reinvestment policies have not eliminated market barriers in lending patterns.