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Do Lenders Discriminate in Processing Defaults?

Brent W. Ambrose and Charles A. Capone, Jr.
Cityscape
Vol. 2, No. 1, Race and Default in Credit Markets: A Colloquy (February 1996), pp. 89-98
Stable URL: http://www.jstor.org/stable/20868399
Page Count: 10
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Do Lenders Discriminate in Processing Defaults?
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Abstract

A major criticism leveled against the Berkovec, Canner, Gabriel, and Hannan (BCGH) study of potential lending discrimination is that there are significant unobservable influences that could bias their results against a finding of discriminatory behavior. Two of the three critics maintain that, among these unobservable influences should be a higher incidence of foreclosure for minorities, conditional on loan default, which would explain the BCGH findings. This article examines that question in detail and finds that the postdefault foreclosure experience of minorities is very similar to that of nonminorities, and that lenders tend to give minorities more (rather than less) time to work out their situation before commencing foreclosure. These findings are robust across a number of dimensions, nullifying the above-mentioned critiques of BCGH. However, the article also points out methodological weaknesses that still leave doubts as to the validity of the BCGH results.

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