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Subprime mortgage pricing: the impact of race, ethnicity, and gender on the cost of borrowing

  • Andrew Haughwout
  • Christopher Mayer
  • Joseph Tracy

Some observers have argued that minority borrowers and neighborhoods were targeted for expensive credit in 2004-06, the peak period for subprime lending. To investigate this claim, we take advantage of a new data set that merges demographic information on subprime borrowers with information on the mortgages they took out. In a sample of more than 75,000 adjustable-rate mortgages, we find no evidence of adverse pricing by race, ethnicity, or gender in either the initial rate or the reset margin. Indeed, if any pricing differential exists, minority borrowers appear to pay slightly lower rates, as do those borrowers in Zip codes with a larger percentage of black or Hispanic residents or a higher unemployment rate. Mortgage rates are also lower in locations that previously had higher rates of house price appreciation. These results suggest some economies of scale in subprime lending. Yet there are important caveats: we are unable to measure points and fees at loan origination, and the data do not indicate whether borrowers might have qualified for less expensive conforming mortgages.

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Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 368.

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Date of creation: 2009
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Handle: RePEc:fip:fednsr:368
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  1. Haughwout, Andrew & Peach, Richard & Tracy, Joseph, 2008. "Juvenile delinquent mortgages: Bad credit or bad economy?," Journal of Urban Economics, Elsevier, vol. 64(2), pages 246-257, September.
  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. Alicia H. Munnell, 1992. "Mortgage lending in Boston: interpreting HMDA data," Working Papers 92-7, Federal Reserve Bank of Boston.
  4. repec:fip:fedgws:v.93 is not listed on IDEAS
  5. Kerwin Kofi Charles & Erik Hurst, 2002. "The Transition To Home Ownership And The Black-White Wealth Gap," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 281-297, May.
  6. Robert B. Avery & Kenneth P. Brevoort & Glenn B. Canner, 2007. "The 2006 HMDA data," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Sep, pages A73-A109.
  7. Stuart A. Gabriel & Stuart S. Rosenthal, 2004. "Homeownership in the 1980s and 1990s: Aggregate Trends and Racial Gaps," Working Paper 8596, USC Lusk Center for Real Estate.
  8. repec:fip:fedgws:y:2007:i:sep:n:v.93 is not listed on IDEAS
  9. Kerwin Kofi Charles & Erik Hurst & Melvin Stephens, 2008. "Rates for Vehicle Loans: Race and Loan Source," American Economic Review, American Economic Association, vol. 98(2), pages 315-20, May.
  10. Bucks, Brian & Pence, Karen, 2008. "Do borrowers know their mortgage terms?," Journal of Urban Economics, Elsevier, vol. 64(2), pages 218-233, September.
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