Working Paper: NBER ID: w22004
Authors: Patrick Bayer; Fernando Ferreira; Stephen L. Ross
Abstract: This paper examines racial and ethnic differences in high cost mortgage lending in seven diverse metropolitan areas from 2004-2007. Even after controlling for credit score and other key risk factors, African-American and Hispanic home buyers are 105 and 78 percent more likely to have high cost mortgages for home purchases. The increased incidence of high cost mortgages is attributable to both sorting across lenders (60-65 percent) and differential treatment of equally qualified borrowers by lenders (35-40 percent). The vast majority of the racial and ethnic differences across lender can be explained by a single measure of the lender’s foreclosure risk and most of the within-lender differences are concentrated at high-risk lenders. Thus, differential exposure to high-risk lenders combined with the differential treatment by these lenders explains almost all of the racial and ethnic differences in high cost mortgage borrowing.
Keywords: high-cost mortgages; racial differences; ethnic differences; high-risk lenders; mortgage lending
JEL Codes: G21; I28; J15; J71; R21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Sorting across lenders (G21) | Racial and ethnic differences in high-cost mortgage lending (J15) |
| Differential treatment by lenders (G21) | Racial and ethnic differences in high-cost mortgage lending (J15) |
| Lender fixed effects (C23) | Reduction in unexplained differences in high-cost mortgage lending (G21) |
| Lender foreclosure risk (G21) | High-cost mortgages for African American borrowers (G21) |
| Lender foreclosure risk (G21) | High-cost mortgages for Hispanic borrowers (G51) |
| High-risk lenders (G21) | High-cost loans for African American borrowers (G51) |
| High-risk lenders (G21) | High-cost loans for Hispanic borrowers (G51) |