Conrad Ashby and Jacob S. Rugh, Sociology

Introduction

Disparities in mortgage lending have become a hot topic for debate in this century. Research has shown that among native-born households, non-white households are more likely than white households to experience foreclosure for both home purchase and refinance loans (Allen, 2011). Questions of how much the government should intervene in the housing-finance arena lead the debate, and it has been claimed that many problems may be solved through housing-finance intervention, such as 1) wealth inequality and poverty, 2) informational externalities, 3) banker and loan officer bigotry, and 4) racial discrimination (Calomiris, Kahn, Longhofer, 1994). The latter issue is an especially prevalent one in light of the recent housing crisis, and the suggested course of action against discrimination by lenders is to uncover their discriminatory practices and increase consumer and civil rights protections (Rugh and Massey 2010).

In the recent subprime mortgage crisis of 2007, extensive research has indicated that Latinos experienced the highest foreclosure rate. The foreclosure crisis especially affected Latinos because “existing disparities in high cost [sub-prime] lending were dramatically increased by rise of Latino homeownership and risky low/no documentation lending” (Rugh, 2014). Many theories have been proposed to explain this abnormality, including stratification in mortgage lending and the cultural affinity hypothesis: namely, that lending officers typically exhibit preferential treatment of borrowers of the same race/ethnicity. However, recent findings suggest that “Latino brokers and loan officers instead exploited their cultural affinity with Latino borrowers to extend subprime loans that ended in foreclosure” (Rugh et al., 2014). This contradicts both the cultural affinity hypothesis and the common bond hypothesis, which “asserts that cultural affinity allows lenders to better assess the credit quality of members of the same race” (Bostic, 2003).

In the 1950’s a new form of racial discrimination was institutionalized that created segregation in cities and in neighborhoods. This was called redlining. Companies would mark of specific sections of the city that were considered “racial” and would refuse to offer loans to these ethnic groups. This redlining affected many ethnic groups including African-Americans and Latinos. In recent years, a new form of racial profiling has emerged. This is called reverse-redlining (Squires 2003). Reverse-redlining is, in essence, the opposite of redlining. Instead of refusing to offer loans to specific ethnic groups/areas loan companies have began to target these groups and areas with what is called sub-prime or predatory lending (Andrews, 2009). Companies look for these areas because of the ability to institute higher interest rates and thus receive a potentially higher profit. Our study looked at the effects of sub-prime and other types of lending in Orange county Florida (other locations) in the form of foreclosures. We also will look at the effects that ethnicity between loan officer and customer has on the propensity to lend higher risk loans.

Methodology

To test our hypothesis I collected mortgage loan data from the Orange County Comptroller located at the website or.occompt.com, a public website which enables the viewing of mortgage loans in Orange County, Florida. I gathered data that was inputted to a Microsoft Excel Spreadsheet. I collected over 3184 individual records. Each data set consisted of loan date, officer name, loan amount, loan outcome, signer’s name, and other relevant information. The grant money enabled us to gather the information through paying for the time required to manually input each record.

Results

We found that a strong correlation between ethnicity and foreclosure rates. In the publication, the results of foreclosure rates among ethic groups have been presented as: Latinos (38%), Koreans (35%), and Vietnamese (38%). These results represent some of the first systematic set of estimated foreclosure rates across multiple cities and several Asian American/Pacific Islander groups along side other ethnic populations in the same cities. Our findings were presented at the Urban Affairs Association annual conference in April 2014 in Miami, Florida. Our findings have also been submitted to peer-reviewed journal in Sociology/Urban Studies.

Discussion

In our first paper, we found that Latino borrowers in the Sunbelt region were hit the hardest in the foreclosure crisis. As stated in our second paper, the experience of Vietnamese and Korean owners has diverged from national estimates for all Asians and from other Asian origin groups in the two Sunbelt regions. The trends support the hypotheses that Vietnamese and Korean borrowers would experience the most adverse consequences of the foreclosure crisis.

Conclusion

With our funding we were able to gather two sets of new data, prepare two separate papers for publication, and were able to gain insight into the link between ethnicity and foreclosure rate in the Sunbelt region.