Working Paper: NBER ID: w20762
Authors: Patrick Bayer; Fernando Ferreira; Stephen L. Ross
Abstract: This paper examines how high cost mortgage lending varies by race and ethnicity. It uses a unique panel data that matches a representative sample of mortgages in seven large metropolitan markets between 2004 and 2008 to public records of housing transactions and proprietary credit reporting data. The results reveal a significantly higher incidence of high costs loans for African-American and Hispanic borrowers even after controlling for key mortgage risk factors: they have a 7.7 and 6.2 percentage point higher likelihood of a high cost loan, respectively, in the home purchase market relative to an overall incidence of 14.8 percent among all home purchase mortgages. Significant racial and ethnic differences are widespread throughout the market – they are present (i) in each metro area, (ii) across high and low risk borrowers, and (iii) regardless of the age of the borrower. These differences are reduced by 60 percent with the inclusion of lender fixed effects, implying that a significant portion of the estimated market-wide racial differences can be attributed to differential access to (or sorting across) mortgage lenders.
Keywords: Mortgage Lending; Race and Ethnicity; High-Cost Loans
JEL Codes: G0; G21; R21; R3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| differential access to lenders (G21) | racial disparities in high-cost loans (G51) |
| neighborhood poverty rates (R23) | incidence of high-cost loans (G51) |
| African American borrowers (G51) | higher likelihood of receiving high-cost loans (G51) |
| Hispanic borrowers (G51) | higher likelihood of receiving high-cost loans (G51) |
| lender fixed effects (C23) | reduction in observed racial differences (J79) |