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Differences in subprime loan pricing across races and neighborhoods

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Author Info

  • Ghent, Andra C.

    (Arizona State University)

  • Hernández-Murillo, Rubén

    (Federal Reserve Bank of St. Louis)

  • Owyang, Michael T.

    (Federal Reserve Bank of St. Louis)

Abstract

We investigate whether race and ethnicity influenced subprime loan pricing during 2005, the peak of the subprime mortgage expansion. We combine loan-level data on the performance of non-prime securitized mortgages with individual- and neighborhood- level data on racial and ethnic characteristics for metropolitan areas in California and Florida. Using a model of rate determination that accounts for predicted loan performance, we evaluate the differences in subprime mortgage rates in terms of racial and ethnic groups and neighborhood characteristics. We find evidence of adverse pricing for blacks and Hispanics. The evidence of adverse pricing is strongest for purchase mortgages and mortgages originated by non-depository institutions.

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Bibliographic Info

Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2011-033.

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Length: 55 pages
Date of creation: 2011
Date of revision: 05 Mar 2014
Handle: RePEc:fip:fedlwp:2011-033

Note: Originally submitted as “Race, Redlining, and Subprime Loan Pricing.”
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Keywords: Subprime mortgage; Housing policy; Discrimination in mortgage loans;

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References

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  1. Joseph Nichols & Anthony Pennington-Cross & Anthony Yezer, 2004. "Borrower Self-Selection, Underwriting Costs, and Subprime Mortgage Credit Supply," The Journal of Real Estate Finance and Economics, Springer, vol. 30(2), pages 197-219, November.
  2. Stephen L. Ross & Geoffrey M. B. Tootell, 2000. "Redlining, the Community Reinvestment Act, and Private Mortgage Insurance," Working papers 2000-04, University of Connecticut, Department of Economics.
  3. Stephen L. Ross & John Yinger, 2002. "The Color of Credit: Mortgage Discrimination, Research Methodology, and Fair-Lending Enforcement," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262182289, December.
  4. Yuliya Demyanyk, 2009. "Quick exits of subprime mortgages," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 79-94.
  5. Helen F. Ladd, 1998. "Evidence on Discrimination in Mortgage Lending," Journal of Economic Perspectives, American Economic Association, vol. 12(2), pages 41-62, Spring.
  6. Lutz Kilian, 1998. "Small-Sample Confidence Intervals For Impulse Response Functions," The Review of Economics and Statistics, MIT Press, vol. 80(2), pages 218-230, May.
  7. Christopher J. Mayer & Karen Pence, 2008. "Subprime Mortgages: What, Where, and to Whom?," NBER Working Papers 14083, National Bureau of Economic Research, Inc.
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Cited by:
  1. Rubén Hernández-Murillo & Andra C. Ghent & Michael T. Owyang, 2012. "Did affordable housing legislation contribute to the subprime securities boom?," Working Papers 2012-005, Federal Reserve Bank of St. Louis.

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