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What Drives Racial and Ethnic Differences in High Cost Mortgages? The Role of High Risk Lenders

Listed author(s):
  • Patrick Bayer

    (Duke University)

  • Fernando V. Ferreira

    (University of Pennsylvania)

  • Stephen L. Ross

    (University of Connecticut)

This paper examines racial and ethnic differences in high cost mortgage lending in seven diverse metropolitan areas from 2004-2007. Even after controlling for credit score and other key risk factors, African-American and Hispanic home buyers are 105 and 78 percent more likely to have high cost mortgages for home purchases. The increased incidence of high cost mortgages is attributable both to sorting across lenders (60-65 percent) and to differential treatment of equally qualified borrowers by lenders (35-40 percent). The vast majority of the racial and ethnic differences across lender can be explained by a single measure of the lender’s foreclosure risk and most of the within-lender differences are concentrated at high-risk lenders. Thus, differential exposure to high-risk lenders combined with the differential treatment by these lenders explains almost all of the racial and ethnic differences in high cost mortgage borrowing.

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File URL: http://web2.uconn.edu/economics/working/2016-02.pdf
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Paper provided by University of Connecticut, Department of Economics in its series Working papers with number 2016-02.

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Length: 78 pages
Date of creation: Mar 2016
Handle: RePEc:uct:uconnp:2016-02
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Fax: (860) 486-4463
Web page: http://www.econ.uconn.edu/

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