A Study of Mortgage Lending Practices of Financial Institutions in Detroit.

This study was based on the notion that mortgage redlining is an activity of individuals, not a property of neighborhoods, and that to provide effective solutions to the redlining controversy a clarification of lender values and beliefs regarding mortgage underwriting is necessary. To address this need, the lending patterns and policies of the major savings and loan associations and commercial banks in Detroit, Michigan were analyzed. Multiple regression techniques were used to examine 1979 patterns of lending in Detroit within the context of neighborhood characteristics, such as racial composition, age of housing and income levels. In addition, interviews with loan officers were conducted to ascertain views on risks associated with mortgage lending and on the effects of organizational structure of lending institutions on loan underwriting. The results indicated that patterns of lending activity were related to neighborhood characteristics and that the loan review process was an ineffective mechanism to prevent unwarranted underwriting criteria from being incorporated into the individual loan decision. The loan review process was found to be comprised of a series of discrete decisions that prevented individual loan officers from realizing the cumulative impact of individual decisions. It was also found, however, that unwarranted views of individual loan officers could not entirely account for patterns of lending found in Detroit. Loan officers were found to have neither the motivation nor opportunity to systematically incorporate unwarranted views into their individual loan decision. The findings therefore indicate that the focus on individual behavior may be misplaced. Proposed instead was an "Individual/Organizational" perspective which emphasizes the fact that institutions or organizations have rules which must be adhered to by the lending staff. This was demonstrated by the difference in the beliefs and lending behavior of savings and loan associations and commercial banks.PhDUrban planningUniversity of Michiganhttp://deepblue.lib.umich.edu/bitstream/2027.42/158418/1/8125086.pd