Year Published
2002
Abstract
This paper assess cultural affinity as a potential explanation for observed racial disparities
in mortgage rejection rates. Two formulations of the theory have evolved in the literature. The
taste-based cultural affinity hypothesis asserts that lenders have a blanket preference for
members of the same race, while the common bond hypothesis asserts that cultural affinity
allows lenders to better assess the credit quality of members of the same race. The analysis
involves tests that focus on the experiences of applicants with marginal credit quality, as the two
theories offer conflicting predictions regarding their application patterns and treatment by
lenders. The results of these tests provide weak support for the existence of taste-based cultural
affinity, but contradict the predictions of the common bond form of the theory.
in mortgage rejection rates. Two formulations of the theory have evolved in the literature. The
taste-based cultural affinity hypothesis asserts that lenders have a blanket preference for
members of the same race, while the common bond hypothesis asserts that cultural affinity
allows lenders to better assess the credit quality of members of the same race. The analysis
involves tests that focus on the experiences of applicants with marginal credit quality, as the two
theories offer conflicting predictions regarding their application patterns and treatment by
lenders. The results of these tests provide weak support for the existence of taste-based cultural
affinity, but contradict the predictions of the common bond form of the theory.
Research Category