Default less likely at local banks.

• Position: Home Mortgages

While the nation's foreclosure crisis has focused blame on bad loan practices by various lenders, research shows how some banks actually may have reduced the default risk of their homebuyers. Researchers found that low-income homeowners who receive a mortgage from a local lender are less likely to default on their loans than are those who borrow from a more distant bank or mortgage company. Even if two similar homeowners receive the same home loan, with the same interest rate, the one who gets the loan at a local lender may be better off in the long run.

"The door you walk into when you're looking for a loan matters a lot," declares Stephanie Moulton, assistant professor in the School of Public Affairs at Ohio State University, Columbus. "Local banks seem to offer some protection to homebuyers, particularly those with low incomes who may be seen as risky borrowers."

A few other studies have found that borrowers who get mortgages from banks rather than mortgage brokers are less likely to default on their loans, but Moulton indicates this research is among the first to find that bank location is a key.

What is it about local banks that make them better choices for many low-income borrowers? Moulton believes it has to do with the type of information banks collect on potential borrowers, and the support they offer...