To combat red-lining practices in the 1970's (specifically in the insurance industry, but also active in the banking industry), Congress passed the HMDA and CRA legislations. Since then, Federal Regulators have inspected bank data to see if banks are soliciting business (home mortgages) in all the Census Tracts where they are chartered to do business. They decided to focus primarily on two variables: relative income, and minority percentage (historically, areas of relatively-low income, and areas of relatively-high minority percentage were avoided by financial institutions).
Regulators decided to use the variable "Median Family Income". In every Census Tract that has "Families>0", the Median Family Income value is calculated so that 1/2 the families have income less than the Median, and 1/2 the families have income greater than the Median. Note: "the Median" is not "the Average", which is the "sum of the Incomes" divided by the "total number of Families".
To account for regional differences, the Regulators use the MSA Median Family Income to adjust each Census Tract's Income level. The Median Family Income for Cambridge, MA Metropolitan Division is $74,121; contrast that with the Median Family Income for Miami, FL Metropolitan Division - $40,266. A Census Tract with Median Family Income of $37,000 would be Low Income in Cambridge, MA, but would be Middle Income in Miami, FL.
This map shows the distribution of Census Tract Income Levels in the area of Lynn, MA:
Not surprisingly, the Census Tracts associated with downtown Lynn are all Low-Income or Moderate-Income. Next week we will see how a fictional bank has activity in this area.
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