Lending by banks for home mortgages varies greatly across neighborhoods. Do neighborhoods in which mortgage lending is high, or in which lending is low, have anything in common? Several studies done in metropolitan areas, such as St. Louis and Baltimore, have found a relationship between lending for mortgages and the demographic and socioeconomic characteristics of the neighborhood in which the house is located. This study uses two different multiple regression techniques to see if demographic and socioeconomic characteristics of the neighborhood in which the house is located in the Hartford Metropolitan Area are significant in explaining the variation in home mortgages approvals. First, we use regression analysis to see if the variation in loan approvals in a neighborhood depends upon the demographic and socioeconomic characteristic of that neighborhood, controlling for other factors that might affect loan approval. We find that neighborhoods with a high number of owner occupied dwelling, a low percentage of poverty, and a high neighborhood income (relative to the region) have more loan approvals (per dwellings). This led us to ask if when a lender is making the decision to approve or deny a loan, the characteristics of the neighborhood in which the house is located matters in their decision. We used logistic regression analysis to see if the probability of an individual’s loan being approved depends upon neighborhood, controlling for other factors that may influence the lender’s decision. We found that at the individual level, neighborhood does not matter. Therefore, we conclude that the real reason there are more approvals in “better” neighborhoods is that there are more applications in those neighborhoods. The next step is to discover why.
Branchina, Nick; Clark, Jack; Scheffers, Kyle; and Pham, Nhat, "Applying for a Mortage in the Hartford MDSA: Does Neighborhood Matter?" (2017). Community Learning Research Fellows. 32.