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Advantage or Disadvantage? The Changing Institutional Landscape of Central-City Mortgage Markets Author: Philip S. Ashton Dissertation School: Rutgers University Pages: 427 Publication Date: May 2005 Availability: Access Number: 10804 Abstract: The resolution of the U.S. retail finance crisis in the post-1989 period altered the landscape of central city mortgage markets by spurring the growth of new financial actors while these developments are widely hailed as making mortgage markets more stable and efficient, there is now consensus on whether these changes have increased opportunities for "historically underserved markets" - low-income and minority households and the neighborhood where they are concentrated. I seek to address this question by examining the role of three key lender categories promoted out of the banking crisis: large financial conglomerates, lenders with community reinvestment agreements, and subprime lenders. Using a comparative case methodology focused on three markets - Chicago, Philadelphia, and San Francisco-Oakland - this research tests two hypotheses about the role key lenders could have played in expanding home mortgage lending in underserved markets. First, a Transformation Hypothesis examines the degree to which key lenders have increased access to credit within underserved markets. Second, an Isolation Hypothesis assesses whether reduced competitive barriers increased the range of credit alternatives in select central city neighborhoods. Employing multivariate analysis of home purchase lending from 1992-2000, this research finds evidence that key lenders are leading the way in expanding opportunities for underserved markets relative to all other lenders. At the same time, it identified the selectiveness of those advantages for different groups of borrowers in different places. For consolidating lenders in particular, the advantages afforded to borrowers in underserved market segments seems tied to signals from equity and capital markets. The leadership of key lenders also had a pronounced spatial component to it, as very few of the advantages transferred to borrowers in those tracts with the lowers incomes of the highest minority populations. Indeed, within the most challenging markets there is a compelling evidence of a structural shift toward market dominance by subprime lenders as the decade progressed. I conclude by arguing that these competitive patterns increase the isolation of borrowers in those areas in a way that actually reproduces or even deepens their risk profile, posing fundamental challenges to advocates and policymakers working on expanding housing and neighborhood opportunities in central cities. |
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