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Race and Subprime Loan Pricing

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  • Ruben Hernandez

    ()

  • Michael Owyang

    ()

  • Andra Ghent

Abstract

In this paper 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 disparate impact and disparate treatment from race and ethnicity on rate-setting behavior across the most popular subprime mortgage products. In contrast with previous studies of the subprime market, we find evidence of adverse pricing effects for black and Hispanic borrowers.

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File URL: http://www-sre.wu.ac.at/ersa/ersaconfs/ersa11/e110830aFinal00923.pdf
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Bibliographic Info

Paper provided by European Regional Science Association in its series ERSA conference papers with number ersa11p923.

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Date of creation: Sep 2011
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Handle: RePEc:wiw:wiwrsa:ersa11p923

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  1. Helen F. Ladd, 1998. "Evidence on Discrimination in Mortgage Lending," Journal of Economic Perspectives, American Economic Association, vol. 12(2), pages 41-62, Spring.
  2. Christopher J. Mayer & Karen Pence, 2008. "Subprime Mortgages: What, Where, and to Whom?," NBER Working Papers 14083, National Bureau of Economic Research, Inc.
  3. Andrew Haughwout & Christopher Mayer & Joseph Tracy, 2009. "Subprime mortgage pricing: the impact of race, ethnicity, and gender on the cost of borrowing," Staff Reports 368, Federal Reserve Bank of New York.
  4. 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.
  5. 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.
  6. 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.
  7. Yuliya Demyanyk, 2009. "Quick exits of subprime mortgages," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 79-94.
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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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