How do mortgage lenders influence neighbourhood dynamics?

Manuel B. Aalbers


University of Amsterdam, Department of Geography.

Mortgage lenders can provide the essential underpinning for positive social development, but they can also have destructive power: the power to deny credit loans. Mortgage lenders have many ideas about what constitutes a good borrower, but they also have many ideas about what constitutes a good neighbourhood. After discussing how the ideas of financial institutions influence urban form and development, I will look at two examples from mortgage markets in the US and the Netherlands: (1) the redlining of neighbourhoods and (2) the geographical concentration of sub-prime and predatory lending. How do these patterns of exclusion and overinclusion affect the neighbourhood? How do redlining and predatory lending relate to other processes of neighbourhood change?
These processes of place-based exclusion and overinclusion in the mortgage market constitute neighbourhood effects as location plays a role crucial who can obtain a mortgage and under which conditions. This decision may very well be a result of a relatively large share of high-risk borrowers in a certain neighbourhood, but since exclusion is performed both on an individual basis and on a neighbourhood basis, the neighbourhood may be the decisive factor in the rejection of a mortgage loan application. It may come as no surprise that the type of neighbourhoods that were once faced with redlining are often the neighbourhoods that are also faced with high concentrations of sub-prime and predatory lending. These exclusionary processes are, at least in part, caused by other processes located at the level of the neighbourhood, but also give further shape to evolving patterns of neighbourhood change.