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Race, Ethnicity and High Cost Mortgage Lending

Author

Listed:
  • Patrick Bayer

    (Duke University)

  • Fernando Ferreira

    (University of Pennsylvania)

  • Stephen L. Ross

    (University of Connecticut)

Abstract

This paper examines how high cost mortgage lending varies by race and ethnicity. It uses a unique panel data that matches a representative sample of mortgages in seven large metropolitan markets between 2004 and 2008 to public records of housing transactions and proprietary credit reporting data. The results reveal a significantly higher incidence of high costs loans for African-American and Hispanic borrowers even after controlling for key mortgage risk factors: they have a 7.7 and 6.2 percentage point higher likelihood of a high cost loan, respectively, in the home purchase market relative to an overall incidence of 14.8 percent among all home purchase mortgages. Significant racial and ethnic differences are widespread throughout the market – they are present (i) in each metro area, (ii) across high and low risk borrowers, and (iii) regardless of the age of the borrower. These differences are reduced by 60 percent with the inclusion of lender fixed effects, implying that a significant portion of the estimated market-wide racial differences can be attributed to differential access to (or sorting across) mortgage lenders.

Suggested Citation

  • Patrick Bayer & Fernando Ferreira & Stephen L. Ross, 2014. "Race, Ethnicity and High Cost Mortgage Lending," Working papers 2014-36, University of Connecticut, Department of Economics.
  • Handle: RePEc:uct:uconnp:2014-36
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    File URL: http://web2.uconn.edu/economics/working/2014-36.pdf
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    References listed on IDEAS

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    Cited by:

    1. Corrado Giulietti & Mirco Tonin & Michael Vlassopoulos, 2015. "Racial Discrimination in Local Public Services: A Field Experiment in the US," BEMPS - Bozen Economics & Management Paper Series BEMPS33, Faculty of Economics and Management at the Free University of Bozen.
    2. Chan, Sewin & Haughwout, Andrew & Tracy, Joseph, 2015. "How Mortgage Finance Affects the Urban Landscape," Handbook of Regional and Urban Economics, Elsevier.
    3. 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.

    More about this item

    Keywords

    Mortgage; Cost of Credit; Race; Ethnicity; Subprime; Credit Score; Neighborhood;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • I28 - Health, Education, and Welfare - - Education - - - Government Policy
    • J15 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Minorities, Races, Indigenous Peoples, and Immigrants; Non-labor Discrimination
    • J71 - Labor and Demographic Economics - - Labor Discrimination - - - Hiring and Firing
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand

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