PLACE-BASED AND RACE-BASED EXCLUSION FROM MORTGAGE LOANS: EVIDENCE FROM THREE CITIES IN THE NETHERLANDS MANUEL B. AALBERS University of Amsterdam/Columbia University ABSTRACT: Do place and race matter in mortgage loan applications? This article presents evi- dence from mortgage markets in the Dutch cities of Arnhem, The Hague, and Rotterdam, suggesting that place, and to a lesser extent also race, do matter. In general, race and place are not factors of direct exclusion, but (1) zip codes are included in credit scoring systems, and (2) both place and race are significant factors in the assessments by loan officers because applicants who do not meet all formal criteria are more often accepted (“overrides”) for indigenous Dutch and low-risk neighbor- hoods than for ethnic minorities and high-risk neighborhoods. In addition, a “national mortgage guarantee” is compulsory for loan applications in high-risk neighborhoods and thereby used as a substitute for redlining, comparable to the compulsoriness of private mortgage insurance in the United States. Some lenders also engage in direct redlining by rejecting low-risk “national mortgage guarantee” loans in high-risk neighborhoods, a practice potentially explained by transaction cost economizing. Since the high-risk neighborhoods in all three cities accommodate relatively large shares of ethnic minority groups, they are hit twice: through place-based and through race-based exclusion. In other words, place-based disparate treatment results in race-based disparate impact. The neighborhood does matter; place-based exclusion in the mortgage market has a neighborhood effect. In society people are not only excluded on the basis of race, but also on the basis of place (Aalbers, 2005b; Kasinitz, 2000). The mortgage market is no different; in fact, it is exactly highly developed and institutionalized markets like the mortgage market that have a tendency to exclude (Engelen, 2001). In this article I answer the question to what extent place-based and race-based exclusion take place in the Dutch mortgage market, and I relate these findings to the debate on the importance of the neighborhood in exclusion processes. My primary interest is in place-based exclusion, but since place-based and race-based forms of exclusion tend to interact, it is important to discuss both forms. Race-based exclusion is clearly related to debates about racial discrimination, while place-based exclusion is more related to debates about segregation and neighborhood effects. Place-based exclusion in the mortgage market often takes the form of redlining. Therefore, in Direct Correspondence to: Manuel B. Aalbers, University of Amsterdam, AMIDSt, Nieuwe Prinsengracht 130, 1018 VZ Amsterdam, Netherlands. E-mail: m.b.aalbers@uva.nl. JOURNAL OF URBAN AFFAIRS, Volume 29, Number 1, pages 1–29. Copyright C  2007 Urban Affairs Association All rights of reproduction in any form reserved. ISSN: 0735-2166.