Discriminating Risk: The U.S. Mortgage Lending Industry in the Twentieth Century [Hardcover]

Guy Stuart (Author)

Book Description

Publication Date: June 2003

The U.S. home mortgage industry first formalized risk criteria in the 1920s and 1930s to determine which applicants should receive funds. Over the past eighty years, these formulae have become more sophisticated. Guy Stuart demonstrates that the very concepts on which lenders base their decisions reflect a set of social and political values about "who deserves what." Stuart examines the fine line between licit choice and illicit discrimination, arguing that lenders, while eradicating blatantly discriminatory practices, have ignored the racial and economic-class biases that remain encoded in their decision processes. He explains why African Americans and Latinos continue to be at a disadvantage in gaining access to loans: discrimination, he finds, results from the interaction between the way lenders make decisions and the way they shape the social structure of the mortgage and housing markets.

Mortgage lenders, Stuart contends, are embedded in and shape a social context that can best be understood in terms of rules, networks, and the production of space. Stuart’s history of lenders’ risk criteria reveals that they were synthesized from rules of thumb, cultural norms, and untested theories. In addition, his interviews with real estate and lending professionals in the Chicago housing market show us how the criteria are implemented today. Drawing on census and Home Mortgage Disclosure Act data for quantitative support, Stuart concludes with concrete policy proposals that take into account the social structure in which lenders make decisions.

Editorial Reviews

From the Inside Flap

"In this fascinating book Guy Stuart takes a fresh new look at the way that the mortgage industry contributes to discrimination. Discriminating Risk is founded on solid empirical research and stands in the best tradition of political economy. It is a must-read for anyone who is interested in economic discrimination and the various social mechanisms through which it is maintained."—Richard Swedberg, Cornell University

"The unique contributions of Discriminating Risk are twofold. First, the book is the first to really go into the 'social construction' of the logic of appraising housing value in urban environments. The historical approach and rich use of sources provide a revelation for the reader: it brings into three dimensionality the oft-cited fact that 'FHA appraisals were discriminatory.' Second, the book provides substantial insights into actual loan approval processes; the author's interviews yield some rich quotations, which he uses to good advantage."—Gary Dymski, University of California, Riverside

"In his innovative book, with its high quality of writing, conception, and scope, Guy Stuart has created a well-reasoned and compelling argument. His introduction of the idea that there is always an audience to which decisionmakers are accountable sheds new light on the social construction of risk."—Mark Gottdiener, State University of New York at Buffalo

"Stuart takes a simple and powerful idea, that risk and value are both social constructions, and uses it to illuminate an institution that has played a central role in American race relations: the market for home mortgages. His analysis is provocative, insightful, richly documented and sure to generate debate among scholars and policymakers."—Bruce Carruthers, Northwestern University

About the Author

Guy Stuart is Lecturer in Public Policy at the Kennedy School of Government, Harvard University.

Product Details

• Hardcover: 248 pages
• Publisher: Cornell Univ Pr (June 2003)
• Language: English
• ISBN-10: 0801440661
• ISBN-13: 978-0801440663
• Product Dimensions: 9.2 x 6.4 x 1 inches
• Shipping Weight: 1.2 pounds (View shipping rates and policies)
• Average Customer Review: 5.0 out of 5 stars  See all reviews (1 customer review)
• Amazon Best Sellers Rank: #2,306,507 in Books (See Top 100 in Books)

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Customer Reviews

Most Helpful Customer Reviews

4 of 4 people found the following review helpful:

5.0 out of 5 stars Discriminating Risk Deserves a Closer Look, July 1, 2004

By 

Brian C. White (Chicago, IL United States) - See all my reviews

This review is from: Discriminating Risk: The U.S. Mortgage Lending Industry in the Twentieth Century (Hardcover)

Guy Stuart has presented in a very cogent and readable way some of the reasons why discrimination and segregation persist in U.S. housing markets and it may not be for the reasons most assume. Stuart illustrates how conceptions of "value", particularly in the process of property appraisals, risk estimation in underwriting, and lender-broker-realtor networks characterized by racial homogeneity all contribute to disparities in lending to minorities, particularly African Americans. Stuart illustrates how all of the participants in the process play a role, though none may be directly intending to encourage the negative consequences.

To break the cycle, Stuart correctly suggests that we need to hold GSEs, lenders, regulators, appraisers, and others responsible for correcting disparite EFFECTS, with or without assigning intent to discriminate to any specific actor or group. Whether or not such accountability can or will occur will depend on whether there is political will and a solid understanding of the issues. At least on the latter point, the public is well-served by this book.

The book is well-written in clear and direct prose. Stuart succeeds in avoiding confusing and jargon-laden descriptions. Given the subject matter, this is a real victory for the reader. The book also provides a very useful history of the mortgage lending industry and is recommended for students and activist alike trying to get their heads around a confusing and poorly understood field that has profound impacts on the persistence of racial segregation in the U.S.