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Race, redlining, and subprime loan pricing

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  • Andra C. Ghent
  • Rubén Hernández-Murillo
  • Michael T. Owyang

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 presence of statistical and taste-based discrimination, as well as disparate impact and disparate treatment discrimination, in mortgage rates. We find evidence of redlining as well as adverse pricing for blacks and Hispanics.

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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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Date of creation: 2011
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Handle: RePEc:fip:fedlwp:2011-033

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Related research

Keywords: Subprime mortgage ; Housing policy ; Discrimination in mortgage loans;

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References

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  1. Yuliya Demyanyk, 2009. "Quick exits of subprime mortgages," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 79-94.
  2. Ross, Stephen L. & Tootell, Geoffrey M. B., 2004. "Redlining, the Community Reinvestment Act, and private mortgage insurance," Journal of Urban Economics, Elsevier, vol. 55(2), pages 278-297, March.
  3. Helen F. Ladd, 1998. "Evidence on Discrimination in Mortgage Lending," Journal of Economic Perspectives, American Economic Association, vol. 12(2), pages 41-62, Spring.
  4. 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.
  5. 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.
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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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