Spatial and Temporal Patterns of Residential Loan Activity A Case Study of the Santa Barbara, California, Metropolitan Area, 1970-1978 Christopher Clayton, Nathan Gale, and Peter Burley* Introduction TV ifANY of the problems of inner city neighborhoods, both those LVl. with high proportions of minority residents and those which are predominantly white, are associated with an inability to acquire residential loans on terms that are on a par with those prevalent in other areas. Such mortgage-deficient areas are avoided by many financial institutions for reasons of economic profitability. These institutions and community groups and leaders exchange mutual recriminations: the institutions say they deny loans because of neighborhood deterioration; community leaders maintain that the withholding of loans initiates and certainly accelerates that decline process. This process of disinvestment in central·city neighborhoods is not unrelated to suburban investment: it is much more profitable for a bank to first finance the construction of single-family homes in the suburbs and then immediately after the construction finance * Dr. Clayton is an Assistant Professor of Geography at the University of California, Santa Cruz, where Mr. Gale and Mr. Burley are graduate students. This is a revised version of a paper presented at the annual conference in Santa Barbara, June 1979. 59 60ASSOCIATION OF PACIFIC COAST GEOGRAPHERS their sale to new homeowners than it is to write loans on an aging, depreciating housing stock.1 'Red-lining' is a term generally applied to a process whereby conventional residential mortgage funds are arbitrarily withheld from a specific geographical area; an identifiable racial, ethnic, or socio-economic population subgroup; or a particular type (usually age) of housing stock. Darden2 identifies a number of manifestations of red-lining. The major forms include the denial of residential real estate loans based on (1) location of the property in specific geographical areas and (2) race or ethnicity of an applicant, irrespective of the applicant's credit rating or the quality of the property. Minor forms of red-lining include: (1) higher down payments than for comparable properties in other areas, (2) shorter loan term requirements , and (3) higher loan interest rates. That 'red-lining' exists appears obvious to many people, but it is not always an easy task to demonstrate its existence empirically.3 Dingemans" has recently used information on mortgage loan disclosure in a study of lending activity in Sacramento, but he warns that "examination of Disclosure Act data alone may not be sufficient basis for making final conclusions about the processes and behaviors that underlie the patterns that are being found." The relationship between mortgage availability and race have been examined in several studies. Ahlbrandt5 demonstrates that 1CP Bradford, and L. S. Rubinowitz, "The Urban-Surburban InvestmentDisinvestment Process: Consequences for Older Neighborhoods," Annals, American Academy of Political and Social Science, Vol. 422 (1975), pp. 77-86. See also D. Harvey, "Class-Monopoly Rent, Finance Capital and the Urban Revolution," Regional Studies, Vol. 8 (1974), pp. 239-255. 2 J. T. Darden, "Redlining: A Concept for Study by Urban-Social Geographers ," in Applications of Geographic Research, edited by H. A. Winters and M. K. Winters, Department of Geography, Michigan State University, 1977. 3 See T. Taggart, "Red-Lining: How the Bankers Starve the Cities to Feed the Suburbs," Planning (December 1974), pp. 14-16; and E. M. Horwood and A. O. Sari, "Mortgage Lending Data and Urban Analysis," in URlSA '78, Urban and Regional Information Systems Association, pp. 404-417. 4 D. Dingemans, "Redlining and Mortgage Lending in Sacramento," Annals , Association of American Geographers, Vol. 69, No. 2 (1979), pp. 225-239. 5 R. S. Ahlbrandt, Jr., "Exploratory Research on the Redlining Phenomenon ," American Real Estate and Urban Economic Association Journal, Vol. 5, No. 4 (1977), pp. 473-481. YEARBOOK · VOLUME 42 · 198061 lenders are more conservative in extending credit in neighborhoods with more than 25 percent black population and that a marginally qualified borrower in a predominantly black area may be denied a loan that would otherwise be granted in a white area. In a similar vein, Hutchinson, Ostas, and Reed6 conclude from their study in Toledo that although the number of loans transacted in neighborhoods does not seem to be affected by the racial make-up...