Is there discrimination in mortgage pricing? the case of overages
We conduct an empirical investigation to explain observed differentials in mortgage overage pricing. Our analysis makes several contributions. First, we study an area of mortgage pricing that is little understood by consumers and has received little scrutiny in the literature. Second, we consider the impact of the market power of individual loan officers on overages paid by borrowers, particularly minorities. Third, we include a number of borrower and lender characteristics not available in previous analysis. ; Importantly, we introduce a new direct measure of the market power of individual loan officers. We also incorporate the interactive effects of loan officer market power and the race of the borrower in determining the rate of the mortgage loan. Through the use of these new variables and employing proprietary data from different branches of a nationwide mortgage lending institution, we conclude that the market power of the lender and the bargaining or negotiating ability of the borrower are important determinants of overages. We find that overages paid by minorities who purchase homes are larger than those paid by whites. Our evidence suggests that this is due to differences in the pools of borrowers rather than to racial discrimination. Indeed, tests show that the pool of refinancings is more homogeneous across races than the pool for purchases, and we find no differences by race for refinancings. We conclude that a more effective way to eliminate racial differences in overages is to pursue policies designed to increase the ability of minorities to bargain more effectively rather than to enact additional antidiscrimination laws.
|Date of creation:||2001|
|Contact details of provider:|| Postal: 1000 Peachtree St., N.E., Atlanta, Georgia 30309|
Web page: http://www.frbatlanta.org/
More information through EDIRC
|Order Information:|| Email: |
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- James J. Heckman, 1976. "The Common Structure of Statistical Models of Truncation, Sample Selection and Limited Dependent Variables and a Simple Estimator for Such Models," NBER Chapters,in: Annals of Economic and Social Measurement, Volume 5, number 4, pages 475-492 National Bureau of Economic Research, Inc.
- David Horne, 1997. "Mortgage Lending, Race, and Model Specification," Journal of Financial Services Research, Springer;Western Finance Association, vol. 11(1), pages 43-68, February.
- Stanley D. Longhofer, 1996. "Discrimination in mortgage lending: what have we learned?," Economic Commentary, Federal Reserve Bank of Cleveland, issue Aug.
- Munnell, Alicia H. & Geoffrey M. B. Tootell & Lynn E. Browne & James McEneaney, 1996.
"Mortgage Lending in Boston: Interpreting HMDA Data,"
American Economic Review,
American Economic Association, vol. 86(1), pages 25-53, March.
- Alicia H. Munnell, 1992. "Mortgage lending in Boston: interpreting HMDA data," Working Papers 92-7, Federal Reserve Bank of Boston.
- Calem Paul & Stutzer Michael, 1995. "The Simple Analytics of Observed Discrimination in Credit Markets," Journal of Financial Intermediation, Elsevier, vol. 4(3), pages 189-212, July.
- Marsha Courchane & David Nickerson, 1997. "Discrimination Resulting from Overage Practices," Journal of Financial Services Research, Springer;Western Finance Association, vol. 11(1), pages 133-151, February.
- Ayres, Ian & Siegelman, Peter, 1995. "Race and Gender Discrimination in Bargaining for a New Car," American Economic Review, American Economic Association, vol. 85(3), pages 304-321, June.
- Crawford, Gordon W & Rosenblatt, Eric, 1999. "Differences in the Cost of Mortgage Credit Implications for Discrimination," The Journal of Real Estate Finance and Economics, Springer, vol. 19(2), pages 147-159, September.
- Black, Harold & Schweitzer, Robert L & Mandell, Lewis, 1978. "Discrimination in Mortgage Lending," American Economic Review, American Economic Association, vol. 68(2), pages 186-191, May.
- Eric Rosenblatt, 1997. "A Reconsideration Of Discrimination In Mortgage Underwriting With Data From A National Mortgage Bank," Journal of Financial Services Research, Springer;Western Finance Association, vol. 11(1), pages 109-131, February.
- Paul S. Calem & Michael J. Stutzer, 1995. "The simple analytics of observed discrimination in credit markets," Working Papers 95-7, Federal Reserve Bank of Philadelphia. Full references (including those not matched with items on IDEAS)