Annotated Bibliography on Homeownership
The Meaning of Home and Homeownership
Cuba, L & Hummon, D. (1993). A place to call home: Identification with dwelling, community and region. Sociological Quarterly, 34, 111-132.
(Empirical): Identification with place is a complex theory that describes how the self is situated in the social-spatial environment. Social factors such as quality of place, people’s interpretation of place, experiences with place, and a person’s demographic characteristics serve to mediate place identity. This research examined how individuals identify with places of different scales: dwelling, community and region. Responses from migrant Cape Cod residents who express feeling at home were analyzed to determine how participants develop a sense of home with respect to these different places. The researchers found that a sense of place identification does not appear to be contingent upon length of residence. Social participation was principally related to one’s sense of community identification. Women were more likely than men to report a dwelling-based place identity, and older participants were more likely to report that their place identity was grounded in self-related place affiliations. Finally, frequent residential change may intensify a person’s identification of their dwelling as home.
Feldman, R. (1996). Constancy and change in attachments to types of settlements. Environment and Behavior, 28, 419-446.
(Empirical): Place attachments are developed through an individual’s habitual and satisfying everyday experiences of the tangible surroundings of home place. Through these experiences the home becomes an enduring symbol of self, of the continuity of experiences, and of that which is significant and valued by the inhabitant. This study focuses on place attachments to a type of settlement and the effects of residential mobility on place attachment. Sixty-four adult residents in the Chicago area were interviewed in depth to examine constancy and change in attachments. Results suggest that residential mobility does not always mean a loss of people-place bonds, that it may be commonplace to develop attachments to types of settlements despite mobility and this bond is expressed by an individuals’ tendency to maintain residence in this type of locale. In addition, this research suggests that long-term residential experience does not necessarily indicate that place attachment will develop, even when experiences are positive ones.
Hughes, J. W. & Zimmerman, T. (1993). The dream is alive. American Demographics, 15, 32-38.
(Theoretical): This article summarizes the history of homeownership from the 1920’s to 1993 and explains how homeownership came to be at the core of American values. The authors refer to a Fannie Mae survey to measure attitudes about housing and homeownership which suggests that as of 1993, homeownership is valued as a source of financial and psychological security, with the value of homeownership being felt most acutely by those who have not yet achieved it.
Mesch, G. & Manor, O. (1998). Social ties, environmental perception, and local attachment. Environment and Behavior, 30, 504 -520.
(Empirical): This study investigates the determinants of place attachment in relation to two theories: 1) the community of limited liability theory, which suggests that residents’ feelings of attachment to the local neighborhood is determined by social and economic investments such as home ownership, length of residence, a person’s life-cycle stage and locally based social relationships and; 2) the liberated community model, which proposes that people have no attachment to place. This study did not support the latter theory. Taking pride in the neighborhood was found to have a positive effect an individual’s involvement in the neighborhood, with homeowners and the more educated taking more pride in the neighborhood. Locally based social relationships and neighborhood environment affected one’s pride in the neighborhood. The more satisfied individuals were with the physical and social characteristics of the neighborhood, the more likely was attachment to place. Socioeconomic status, as measured by education, was found to have a positive effect on local attachments. However, homeownership was found to have only an indirect relationship to an individual’s attachment to place.
Mirowsky, J. & Ross, C. (1999). Economic hardship across the life course. American Sociological Review, 64, 548-569.
(Empirical): This study tests two hypotheses regarding the relationship between age and financial difficulty: The affluence-trajectory hypothesis, which suggests that economic hardship declines in successively older age groups up to late middle-age and then rises; and the adequacy-gradient hypothesis, which suggests that economic hardship declines in successively older age groups. The results support the adequacy-gradient hypothesis. An important finding is that age may moderate the effects of economic hardship by reducing the association of low income with hardship and may provide one explanation for the negative association between age and economic hardship.
Page-Adams, D., & Sherraden, M. (1997). Asset building as a community revitalization strategy. Social Work, 42 (5), 423-434.
(Empirical) This article summarizes findings from various studies that address the effect of building assets (property and financial holdings) on personal well-being, economic security, civic behavior, women’s status and children’s well-being. Several studies have specifically linked home ownership with increases in: likelihood of savings, perception of economic security, likelihood of maintaining and improving one’s residence, and children staying in school. The positive impact of assets appears to be related to the fact that they create stability and a future orientation, and thus lead to more long-term planning and greater care in maintaining assets.
Rohe, W. & Stegman, M. (1994). The effects of homeownership on the self-esteem, perceived control and life satisfaction of low-income people. Journal of the American Planning Association, 60, 173-185.
(Empirical): Justification for programs that assist low-income families in purchasing homes is based on the idea that homeownership has a positive social and psychological impact on the homeowner. Homeowners are believed to feel more satisfied with their lives over all, experience a higher degree of self-esteem, feel more in control and are more socially involved as compared to low-income renters. Homeowners in this study were interviewed prior to home purchase and approximately one and one-half years following home purchase. Homeownership was found to have a significant effect on the overall life satisfaction. But there was no significant correlation between homeownership and the researchers’ main measures of self-esteem and perceived self-control on the low-income people in this study. However, when asked directly, 85% homeowners reported feeling an increase in their level of self-esteem and 71% reported that they felt more in control of their lives since purchasing their home. Housing condition was found to have important effects on self- esteem and life satisfaction regardless of ownership status.
Rohe, W & Basalo, V. (1997). Long-term effects of homeownership on the self-perceptions and social interaction of low-income people. Environment and Behavior, 29, 793-799.
(Empirical): This paper is an extension of Rohe and Stegman’s (1994) study of the impact of homeownership on low-income people as compared to low-income renters with similar demographic characteristics. Homeowners from the original study were interviewed approximately three years later to assess long-term effects of homeownership on life satisfaction; perceived control; self-esteem and social interaction. As with the previous study, homeownership was found to have a significant effect on the overall life satisfaction of homeowners as compared to renters. The lack of a significant relationship between homeownership and the measures of self-esteem and perceived control also persisted over time. Associations between housing tenure and social interaction were not statistically significant. However, the relationship between homeownership and informal socialization is of practical importance as informal neighborhood interaction increased over time for homeowners. Homeownership was found to have no effect on formal socialization such as neighborhood/association meetings, church, school, or other organizational meetings.
Homeownership and Disability
Balfour, D & Smith, J. (1996). Transforming lease-purchase housing programs for low-income families: Towards empowerment and engagement. Journal of Urban Affairs, 18, 173-189.
(Empirical): Individuals in the low- to-moderate income range who participated in a lease-purchase housing program conducted by the Cleveland Housing Authority were selected to participate in two focus groups. Data were analyzed using content analysis to create a picture of clients' experience with the lease-purchase program. Results suggest that disadvantaged populations like the families who participated in this study may benefit most from having stable long-term housing regardless of ownership status, as long as there is an active and supportive community network in place. The social and economic value of ownership was mitigated by the fact that ownership increases financial and psychological stress among families that live on the economic margin. The authors criticize programs that promote the notion that full community membership can only be achieved by owning one's own home.
Ball, M., Whittington, F., Perkins, M., Patterson, V., Hollingsworth, C., King, S. & Combs, B. (2000). Quality of life in assisted living facilities: Viewpoints of the residents. The Journal of Applied Gerontology, 19, 304-325.
(Empirical): A sample of primarily white, female elders with incomes in the moderate to high range was assessed for their views on quality of life in assisted living facilities. Data collected via structured interviews, observation and record reviews led to the identification of fourteen quality of life domains. On the "psychological well-being" domain, general attitudes toward the facility, residents who reported acceptance about their situation were more likely to be happy than those who were not able to accept their situation. However, residents who felt positive about the facility and the care that they received commonly expressed a longing to be in their own homes and feeling "homesick". On the "independence" domain, residents clearly indicated that independence and autonomy were important factors in how they perceived the quality of their lives. Residents missed controlling where they lived, their activities and schedules and their personal space. Loneliness and depression among residents were related to lack of meaningful choice. The meaning of choice was specific to each individual and related to established lifestyle patterns and interests.. Another important finding in this study was that interviewed residents were less impaired and required less assistance as compared with the providers’ estimation.
Beneke, K. (1999, April). Housing and independence: How innovative CILs are breaking down the barriers for housing for people with disabilities. ILRU/NCIL National Training and Technical Assistant Project: Readings in Independent Living. Retrieved November 11, 2000 from the World Wide Web: http://www.ilru.org/ilnet/files/reading.
(Theoretical): This author identified housing as one of the top three challenges currently facing people with disabilities. Four factors that contribute to the problem are: 1) lack of consumer awareness of their rights to housing; 2) difficulty in finding accessible housing; 3) difficulty in finding affordable housing and; 4) misconceptions about people with disabilities among members of the housing industry. In addition, the article compiles information from the four winning submissions to ILRU’s Innovative CILs competition. All four centers selected as innovative were highly creative in their approach to resolving housing problems and were successful in improving housing options for individuals with disabilities in their communities. Contact information about agencies and organizations that provide assistance and/or useful information related to housing for people with disabilities is included.
Carling, P. (1990). Supported housing: An evaluation agenda. Psychosocial Rehabilitation Journal, 13, 95-101.
(Theoretical). This article examines supported housing in the mental health system and issues involved in its evaluation. Supported housing has come to have a variety of different meanings and specification of the approach is needed for a careful evaluation. Recommended components of supported housing include (a) dispersal in the community – e.g. multi-unit dwellings not all occupied by individuals with disabilities, (b) consumers select their own housing from available options in the community, (c) consumers receive assistance in choosing their housing, and support services to maintain housing are provided flexibly in accordance with individual needs, and (d) there is no requirement of program participation to live in the residence or expectation that consumers move to a different residence if their ability to function increases or decreases. Consumer involvement in the process of evaluating supported housing is recommended.
Dickerson, F., Ringel, N. & Parente, F. (1999). Predictors of residential independence among outpatients with schizophrenia. Psychiatric Services, 50, 515-519.
(Empirical): Seventy-two individuals with Schizophrenia and living in an outpatient setting were assessed to determine predictors of residential independence. Participants were classified into three groups based on their level of residential independence. Members of Group 1, the most independent group, lived in their own residence with no supervision and were required to participate in constructive activities outside of the home for a minimum of twenty hours a week. Members of Group 3, the least independent group, resided in highly supervised settings where they received a minimum of 6 hours of direct, on-site supervision per week. Members of Group 2, the intermediate group, had living arrangements that fell between Group 1 and Group 3. In this study, the degree of residential independence of outpatients with Schizophrenia was related to frequency of family contact, competence in and frequency of activities of daily living, size of social network, participation in social and recreational activities, social acceptability and presence of negative symptoms.
Everson, J. & Wilson, P. (2000). What do homeowners with disabilities tell us about being homeowners? A qualitative report. Journal of Vocational Rehabilitation, 15, 121-129.
(Empirical): 7 homeowners with disabilities answered a brief survey and participated in a focus group. The average number of neighbors known by name increased from pre-ownership from 1.9 to 3.6, but the average number of community activities engaged in regularly decreased from 4.3 to 3.4. All homeowners reported being extraordinarily satisfied with their homes, neighborhoods, and status as homeowners. Several were pleased with the greater level of neighbor stability the experienced as an owner. Several also noted financial advantages in the form of payments below their previous level of rent and accumulation of equity. Participants differed in their degree of satisfaction with home maintenance responsibilities. Most made comments about increases in choice, control and the opportunity to plan for the future.
Hepp, E. & Soper, C. (2000). One family’s story of homeownership. Journal of Vocational Rehabilitation, 15, 79-80.
(Empirical): This is a personal account of the decision by an individual with a severe disability, assisted by his mother, to purchase a home. A key motivator was lack of housing stability in residential program. Joint purchase allowed access to lower interest because the son was a first-time low-income homeowner yet allowed the mother’s income to count. One noteworthy obstacle, a challenge to the mental competence of the son to execute the documents, was resolved with the help of the state Protection and Advocacy agency.
Galbraith, S. (2001). A home of one’s own. In. A. Tymchuck, K. C. Lakin, & R. Luckasson (Eds.) The forgotten generation: The status and challenges of adults with mild cognitive limitations (pp. 141-197). Baltimore MD: Brookes.
(Theoretical): This chapter summarizes the housing obstacles facing individuals with disabilities and reviews the advantages of homeownership. Key government programs assisting low income homeowners are outlined. The need for long-term assistance to maintain housing and home financing beyond the initial purchase is emphasized. Individual development accounts are introduced as an innovative financial mechanism. Advocates are encouraged to seek input into their local community Consolidated Plan.
Howe, J., Horner, R. & Newton, J. (1998). Comparison of supported living and traditional residential services in the state of Oregon. Mental Retardation, 36, 1-11.
(Empirical): Two groups of individuals with developmental disabilities were compared; a supported living group and a traditional services group, to test the assumption that supported living contributes to a higher quality of life than traditional services. A supported living group participant had to 1) own the home or have his/her name on the lease agreement if the residence was rented, 2) have housemates (or absence of housemates) consistent with his/her preference and, 3) have no "termination criteria" with the service agency. Statistically significant differences were found in the activities and social experiences of the two groups. The supported living group had a higher number of community and social interactions, a broader variety of types of activities, social interactions with a greater number of different people and the opportunity to participate in a higher number of preferred activities as compared to the traditional services group.
Jackson, L. (2001). Serving the housing needs of the disabled. Journal of Housing and Community Development, 58 (6), 32-35.
(Theoretical): Housing problems include an inadequate stock of accessible homes for individuals with physical disabilities and a perception on the part of service providers that many people with disabilities would not be able to care for themselves in their own homes. Community education is recommended to remedy these problems, and several model partnerships between housing authorities and disability organizations are presented.
Klein, J (2000). The history and development of a national homeownership initiative. Journal of Vocational Rehabilitation, 15, 59-66.
(Theoretical): This article traces the history of residential options leading to a recent emphasis on homeownership, and federal initiatives that have led to several statewide demonstration projects and policy reforms. Between 1993 and 1999 an estimated 900 individuals with developmental disabilities were assisted to become homeowners in the U.S. through these projects. Housing-related programs that have made a significant impact include FannieMae’s HomeChoice, the Federal Home Loan Bank, HUD’s HOME program, and state Housing Finance Agencies. Recent policy initiatives expected to expand opportunities even more include the HUD Consolidated Plan, Medicaid’s live-in-care provision, HUD Section 8(y) home ownershjp vouchers, and Individual Development Accounts.
Klein, J. & Black, M. (1995). Extending the American dream: Home ownership for people with disabilities. Durham NH: University of New Hampshire Institute on Disability
(Empirical): This monograph reports the findings of a three-year statewide homeownership demonstration project in New Hampshire. Adults with developmental disabilities were referred by each of 12 area agencies. Sixteen individuals, 9 men and 7 women, had closed on homes at the completion of the project. Participants’ ages ranged from 25 to 60. Prior living situations ranged from psychiatric hospitalization to living with parents and in one case, renting one’s own apartment. Collaboration with housing finance and other agencies was a key factor leading to successful home purchase. Lending organizations were asked to employ flexible and creative financing strategies. For example, many participants had to keep their finances within earnings and resource limitations in order to qualify for needed medical services. Extensive planning and education of lenders was required, and in addition personal relationships were cultivated with key individuals able to steer the process and interpret rules in flexible ways. Nine major sources of funding were used, but no two participants financed their home in exactly the same way. There was no substantial change in the cost of housing or home assistance for participants as a result of purchasing their home. Through home ownership, participants gained a greater degree of stability, control, independence and economic participation in their community.
Klein, J & Nelson, D. (2000). Homeownership for people with disabilities: The state of the states in 1999. Journal of Vocational Rehabilitation, 15, 67-77.
(Empirical): This article summarizes the activities and outcomes of 23 states participating in the National Home of Your Own Alliance from 1996-1998. Common features of each state coalition were (a) collaboration with key partners in both the disability and the banking and housing communities, (b) arranging creative financing options and blending funds from various sources, (c) individualized assistance to individuals based on a team approach, most often utilizing a person-centered planning format, (d) an emphasis on educating both home buyers and housing professionals. 481 individuals had closed on their own home. About 70% of these had previously lived in their own apartments or with their families. The overall average annual income was about $16,300. About 66% were sole owners and 25% were joint owners with a spouse or significant other. No foreclosure or refinancing was reported and in only two instances had mortgage payments been more than 30 days late. Nine barriers encountered by state coalitions and the most commonly used strategies to overcome those barriers are outlined.
Klein, J., Wilson. B. & Nelson, D. (2000). Postcards on the refrigerator: Changing the power dynamic in housing and assistance. In J. Nisbet & D,. Hagner (Eds.) Part of the community: Strategies for including everyone (pp. 177-202). Baltimore MD: Brookes.
(Empirical): This chapter discusses three barriers to ownership and control of housing: traditional service system designs, traditional mortgage lending practices, and limited financial resources available to individuals with disabilities. The process by which these barriers were overcome by the three-year Home of Your Own effort that assisted 20 individuals with developmental disabilities to purchase their own homes is described and illustrated with several success stories. Recommendations for expansion of this effort include (a) beginning with a small pilot program, (b) partnering with state finance authority and other key organizations, (c) developing personal relationships with individuals in these organizations, (d) emphasizing the connection between homeownership for individuals with disabilities and the mission and goals of each partner organization, (e) becoming familiar with banking and real estate practices, and (f) using one source of funds to match or leverage other funds.
McCarthy, M (2000). Finding the key: Using personal futures planning in the homeownership process. Journal of Vocational Rehabilitation, 15, 81-90.
(Theoretical): This article presents Personal Futures Planning as a tool particularly well suited to assisting an individual with a disability to achieve and maintain home ownership. Two key barriers experienced by many individuals -- limited financial resources and knowledge, and a perception of inability to make choices and exercise control -- are addressed by the process. Financial resources are maximized through networking with realtors and others and individualizing support budgets, and choice is maximized by ongoing assistance of the planning team with envisioning the goal, breaking implementation activities down, and providing supports for each activity. A detailed case study of the process for one individual is provided. As one noteworthy detail, the author recommends that individuals with disabilities select a "buyer’s broker" to assist with home selection, rather than the usual "seller’s broker" approach.
O’Brien, J. (1994). Down stairs that are never your own: Supporting people with developmental disabilities in their own homes. Mental Retardation, 32,1-6.
(Theoretical): The current standard for residential services for individuals with severe disabilities favors placing these individuals in a structured program with a small number of other people requiring similar levels of support in a residence owned or leased by the service agency. This model may increase a person’s skill level, but concerns around the level of independence and community involvement achieved have led to a call for a new standard of living for people with developmental disabilities. This new standard emphasizes supporting people to purchase and live in their own homes, and is based on the assumption that homeownership will increase a persons’ sense of place and personal control as well as increasing community involvement.
Ridgway, P. & Zipple, A. (1990). The paradigm shift in residential services: From the linear continuum to supported housing approaches. Psychosocial Rehabilitation Journal, 13 (4), 11-32.
(Theoretical). This article examines the shift in residential services for individuals with psychiatric disabilities from the residential model to supported housing model. The important elements of the supported housing model include developing a home with the individual that reflects his or her own ideas, the development of a personalized set of support services and flexible delivery of these services. The challenges of this shift, which include resistance to change, competition among models, breakdown in old models and argument and debate within relevant communities, are discussed. The article recommends steps needed to implement a supported housing approach.
Robertson, N. & Dufresne, D (2000). Homeownership for individuals with disabilities: Defining professional knowledge, roles and responsibilities. Journal of Vocational Rehabilitation, 15, 91-100.
(Empirical): Based on experiences with a state home ownership coalition and focus groups with professionals and homeowners with disabilities, this article recommends a six step process, closely associated with person-centered planning. The steps include (a) establish an individualized support team, (b) develop a housing vision and financial profile, (c) access available affordable housing resources, (d) develop a home purchase action plan, (e) implement and monitor the plan, and (f) develop a homeownership support plan. Professional roles and functions at each step are outlined.
Robertson, N., Armand, C., Anderson, L. & Mee, S. (2000). Developing homeownership opportunities: The role of community partners. Journal of Vocational Rehabilitation, 15, 101-109.
(Theoretical): Some barriers to homeownership for individuals with disabilities are due to their low-income status, and others are specific to disability issues. Several home ownership programs for low-income individuals are described. Many banks have developed specialized portfolio mortgages, fee waivers or flexible credit standards to meet Community Reinvestment Act (CRA) obligations, and the article encourages community groups to participate in the regulatory process when banks are evaluated for CRA compliance. Nonprofit Community Housing Development organizations develop subsidy mechanisms (such as low interest loans and down payment grants) that allow them to sell or rent homes to low income individuals below market rates. In addition, these organizations may provide counseling, training, and/or renovation assistance in home purchase and maintenance, a service called "full cycle lending." State Housing Finance Agencies also develop programs to meet local needs for affordable housing using funds from three sources: federal HOME funds, Mortgage Revenue Bonds, and Community Development Block Grant funds. Partnerships with these organizations at the individual level, the organizational level and the multi-organizational level can help educate these resources and tailor their services to the specific needs and circumstances of individuals with disabilities. Several strategies for developing these relationships are presented.
Sapey, B. (1995). Disabling homes: A study of the housing needs of disabled people in Cornwall. Disability and Society, 10, 71-85.
(Empirical). A study evaluating the satisfaction of 31 individuals who use wheelchairs in the UK with their housing and home adaptations. About 77% of the respondents wanted to remain where they were and the remainder were undecided or wanted to move. A surprising finding was that there was a trend towards greater dissatisfaction among those who owned their homes. Some of the problems related to adaptations, with 62% of those with no home adaptations reporting that they would need less personal assistance if their home was designed better. In addition, several participants experienced difficulty getting the right advice about finances and state benefits and were uncertain about their financial situation. Study findings differed significantly from consumer needs as reported by public officials. The importance of assessing residents’ felt needs and personal preferences was emphasized.
Ware, N. (1999). Evolving consumer households: An experiment in community living for people with severe psychiatric disorders. Psychiatric Rehabilitation Journal, 23, 3-10.
(Empirical): This study examined the effects of a model called Evolving Consumer Households (ECHs) on the independence and perceived control of adults with severe psychiatric disorders. ECHs are an experimental group housing program designed to gradually transform the traditional group home from one in which residents have little control over the home, to one in which residents are empowered as individuals and functioning as an autonomous collective which serves to make decisions for the home. The empowerment process was eventually constructed. However, the process was uneven from group home to group home and it took much longer to complete the process than the 18 months that allotted to this study. Researchers concluded that one of the major difficulties facing ECHs is building an effective group process, with improving residents’ independence and self-reliance to be a less challenging venture. In addition, they concluded that the step-by-step approach used in the ECH model may not be the most effective way to improve the functioning of adults with severe mental disorders.
Wilson, P & Everson, J. (2000). Social validation of outcomes achieved by the Louisiana Home of My Own initiative. Journal of Vocational Rehabilitation, 15, 131-145.
(Empirical): This article presents the findings of four assessments of the outcomes of a statewide homeownership initiative. First, homeowners reported a close match of home features with desired home features as represented in person-centered plans. Second, community members were shown photographs of homes owned by project participants as well as other similarly priced homes in the same neighborhoods, and all but one of the participants’ homes were rated better than average, with no significant difference overall in ratings. Third, the financial impact before and after homeownership was assessed and homeowners paid an average of about $50 more per month after homeownership as a mortgage payment than before in rent. Because rent is likely to ride faster than mortgage payments in the future, considerable savings are likely over the term of most mortgages, in addition to the accumulation of equity. A survey of neighbor attitudes showed that about 76% approved of an individual with a disability living in the neighborhood.
Wisansky, D. & Wisansky M. (1996). Owning our own home: A new model for independent living. Exceptional Parent, 26 (12), 27-30.
(Empirical): This article describes a project in Brookline, Massachusetts, in which twenty-two units of condominium housing are available to adults with developmental disabilities. The units are located in two large houses and each resident owns their own unit. Even though a non-profit corporation oversees the building, each resident is financially responsible for their unit. The details of this model are described.
Discrimination in Lending and Housing
LaCour-Little, M. (1999). Discrimination in mortgage lending: A critical review of the literature. Journal of Real Estate Literature, 7, 15-49.
(Theoretical): Studies have demonstrated that discrimination against racial groups persists, although there has been some decline. Egregious discrimination has been replaced by more subtle forms, and research has to become correspondingly more complex. Two discrimination mechanisms are the "taste for discrimination" hypothesis and the "statistical discrimination" or "Arrow-Phelps theory" that discrimination occurs when proxy characteristics are used to fill in missing and costly to obtain information about individuals. The statistical explanation is thought to be most likely in the essentially binary process of mortgage underwriting decisions. Recommendations for research into statistical discrimination include using large samples and presenting borderline or marginal cases, since these are most subject to bias.
Ladd, H. (1998). Evidence on discrimination in mortgage lending. Journal of Economic Perspectives, 12 (2), 41-62.
(Theoretical): Two theories of discrimination have been proposed: That lenders are willing to directly forfeit income to exercise prejudice, and that lenders try to save costs by estimating creditworthiness from group membership rather than individual information about an applicant. Subtle forms of this second type of unfair treatment can occur in borderline cases because objective information tends to be evaluated according to "rules of thumb". For example, a situation one is less familiar with might be interpreted to be a less stable situation. Or an applicant about whom information is easier to obtain (because, for example, the individual has prepared more thoroughly) will tend to have a "thicker file" and thus become more likely to be approved.
Wachter, S. (1997). Discrimination in financial services: What do we know? Journal of Financial Services Research, 11, 205-208.
(Theoretical): Research has uncovered what appears to be a widespread practice of discriminatory lending in the housing market, although some argue that studies have ignored substantive differences in risk associated with borrowers who do and don't get loans, and that no real discrimination is occurring. This brief article summarizes the issues involved in understanding these findings, with racial discrimination as the focus. Discrimination can be directed against an individual applicant or against a geographical area (redlining). Discrimination against individuals can be either straight bigotry or can be "statistical discrimination." Statistical discrimination occurs when race or some other variable is used by lenders as a "cheap" signal for other hard-to-gather information. Another intriguing theory related to statistical discrimination is the "thicker file syndrome." Lenders have access, for one reason or another, to more or more detailed information about some applicants than others, and these thicker files are associated with more positive decisions. One "thicker file" mechanism may simply be that some applicants may be from the same schools, neighborhoods and social circles as the lender and this are perceived to be more creditworthy. Affordable lending programs, federal Community Reinvestment Act policies, and risk mitigation services such as credit counseling are positive developments that can be expected to reduce the level of discrimination over time.
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