IDEAS home Printed from https://ideas.repec.org/p/fip/fedawp/2001-4.html
   My bibliography  Save this paper

Is there discrimination in mortgage pricing? the case of overages

Author

Listed:
  • Harold A. Black
  • Thomas P. Boehm
  • Ramon P. DeGennaro

Abstract

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.

Suggested Citation

  • Harold A. Black & Thomas P. Boehm & Ramon P. DeGennaro, 2001. "Is there discrimination in mortgage pricing? the case of overages," FRB Atlanta Working Paper 2001-4, Federal Reserve Bank of Atlanta.
  • Handle: RePEc:fip:fedawp:2001-4
    as

    Download full text from publisher

    File URL: https://www.atlantafed.org/-/media/documents/research/publications/wp/2001/wp0104a.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. 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.
    2. 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.
    3. 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.
    4. 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.
    5. Stanley D. Longhofer, 1996. "Discrimination in mortgage lending: what have we learned?," Economic Commentary, Federal Reserve Bank of Cleveland, issue Aug.
    6. 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.
    7. 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.
    8. 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.
    9. Harold A. Black & Thomas P. Boehm & Ramon P. DeGennaro, 1999. "Overages in mortgage pricing," Proceedings 651, Federal Reserve Bank of Chicago.
    10. 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.
    11. 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.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Stephen L. Ross, 2003. "What Is Known about Testing for Discrimination: Lessons Learned by Comparing across Different Markets," Working papers 2003-21, University of Connecticut, Department of Economics, revised Nov 2003.
    2. Yan Zhang, 2013. "Fair Lending Analysis of Mortgage Pricing: Does Underwriting Matter?," The Journal of Real Estate Finance and Economics, Springer, vol. 46(1), pages 131-151, January.
    3. Song Han, 2011. "Creditor Learning and Discrimination in Lending," Journal of Financial Services Research, Springer;Western Finance Association, vol. 40(1), pages 1-27, October.
    4. Stephen L. Ross, 2005. "The Continuing Practice and Impact of Discrimination," Working papers 2005-19, University of Connecticut, Department of Economics, revised Jul 2006.
    5. Alper Kara & Philip Molyneux, 2017. "Household Access to Mortgages in the UK," Journal of Financial Services Research, Springer;Western Finance Association, vol. 52(3), pages 253-275, December.
    6. Solomon Y. Deku & Alper Kara & Philip Molyneux, 2016. "Access to consumer credit in the UK," The European Journal of Finance, Taylor & Francis Journals, vol. 22(10), pages 941-964, August.
    7. Nothaft, Frank E. & Perry, Vanessa G., 2002. "Do mortgage rates vary by neighborhood? Implications for loan pricing and redlining," Journal of Housing Economics, Elsevier, vol. 11(3), pages 244-265, September.
    8. Stanley D. Longhofer & Stephen R. Peters, 1998. "Self-selection and discrimination in credit markets," Working Papers (Old Series) 9809, Federal Reserve Bank of Cleveland.
    9. Song Han, 2001. "On the Economics of Discrimination in Credit Markets," Finance and Economics Discussion Series 2002-02, Board of Governors of the Federal Reserve System (U.S.).
    10. Song Han, 2004. "Discrimination in Lending: Theory and Evidence," The Journal of Real Estate Finance and Economics, Springer, vol. 29(1), pages 5-46, July.
    11. Wheeler, Christopher H. & Olson, Luke M., 2015. "Racial differences in mortgage denials over the housing cycle: Evidence from U.S. metropolitan areas," Journal of Housing Economics, Elsevier, vol. 30(C), pages 33-49.
    12. Ping Cheng & Zhenguo Lin & Yingchun Liu, 2015. "Racial Discrepancy in Mortgage Interest Rates," The Journal of Real Estate Finance and Economics, Springer, vol. 51(1), pages 101-120, July.
    13. Wendy Edelberg, 2007. "Racial dispersion in consumer credit interest rates," Finance and Economics Discussion Series 2007-28, Board of Governors of the Federal Reserve System (U.S.).
    14. Paul S. Calem & Stanley D. Longhofer, 2000. "Anatomy of a fair-lending exam: the uses and limitations of statistics," Working Papers (Old Series) 0003R, Federal Reserve Bank of Cleveland.
    15. James B. Kau & Lu Fang & Henry J. Munneke, 2019. "An Unintended Consequence of Mortgage Financing Regulation – a Racial Disparity," The Journal of Real Estate Finance and Economics, Springer, vol. 59(4), pages 549-588, November.
    16. Bartlett, Robert & Morse, Adair & Stanton, Richard & Wallace, Nancy, 2022. "Consumer-lending discrimination in the FinTech Era," Journal of Financial Economics, Elsevier, vol. 143(1), pages 30-56.
    17. Yan Zhang, 2018. "Assessing Fair Lending Risks Using Race/Ethnicity Proxies," Management Science, INFORMS, vol. 64(1), pages 178-197, January.
    18. Dawkins, Mark C., 2002. "Simultaneity bias in mortgage lending: A test of simultaneous equations models on bank-specific data," Journal of Banking & Finance, Elsevier, vol. 26(8), pages 1593-1613, August.
    19. Black, Harold A. & Robinson, Breck L. & Schweitzer, Robert L., 2001. "Comparing lending decisions of minority-owned and White-owned banks: Is there discrimination in mortgage lending?," Review of Financial Economics, Elsevier, vol. 10(1), pages 23-39.
    20. Diaz-Serrano, Luis & Raya, Josep M., 2011. "Is there Discriminatory Mortgage Pricing against Immigrants in the Spanish Lending Market?," IZA Discussion Papers 5578, Institute of Labor Economics (IZA).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedawp:2001-4. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Rob Sarwark (email available below). General contact details of provider: https://edirc.repec.org/data/frbatus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.