Neighborhood Information and Home Mortgage Lending
Posted: 20 May 1998
We use individual-level mortgage application data to empirically test for scale economies in neighborhood lending, and find evidence of significant economies associated with the scale of operation of individual lenders in a neighborhood. The inability to exploit these economies of scale is found to explain a substantial portion of the higher denial rates observed in low income and minority neighborhoods, where the markets are generally thin. this is consistent with arguments that lenders rationally redline these neighborhoods, and suggest that policies that encourage lenders to share information, or to specialize in lending in these neighborhoods should increase credit flows to these neighborhoods.
JEL Classification: G21, G28, R31
Suggested Citation: Suggested Citation