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Spring 2002, A Test of Cultural Affinity in Home Mortgage Lending

Raphael W. Bostic
National data on the disposition of applications for home mortgages reveal wide disparities in rejection rates among racial and ethnic groups. Some have advanced race-based cultural affinity as a possible explanation for these disparities. The literature has developed two related, yet distinct, versions of cultural affinity. In the taste-based form of the theory, lenders have a preference, or “taste,” for members of their group. In the common bond formulation, the affinity allows lenders to better assess the quality of members of their group.