Subprime Mortgage Pricing: The Impact of Race, Ethnicity, and Gender on the Cost of Borrowing

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractSome 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. The subprime lending boom increased the ability of many Americans to get credit to purchase a house. Yet concerns persist that not all borrowers have been treated equally.Previous research suggests that subprime loans were particularly concentrated in neighborhoods with a high concentration of black and Hispanic residents (Mayer and Pence, 2007). Some commentators have been concerned that minority borrowers were steered into subprime loans in some cases when they might have qualified for cheaper conforming loans, or that minority borrowers were given subprime loans that had fees or rates that were too high.Previous research on housing markets suggests that such concerns might be warranted.Beginning in the early 1990s, data collected from lenders through the Home Mortgage Disclosure Act (HMDA) indicate that black or Hispanic applicants were more likely to be rejected for a mortgage relative to a white applicant, even when controlling for credit scores or other observable individual risk factors (Munnell et al 1996). Subsequent research showed that minority borrowers might also have been more likely to default on loans, but these findings were less clear in that they did not control for basic ex-ante risk factors (Ladd, 1998 Despite the size of the mortgage market, as well as previous evidence on racial and ethnic differences in acc...

Do foreclosures cause crime?

“…Most notably, a growing number of papers study the impact of foreclosures on neighboring home values (Immergluck and Smith, 2006a;Schuetz, Been, and Ellen, 2008;Harding, Rosenblatt, and Yao, 2009;Haughwout, Mayer, and Tracy, 2009;Lin, Rosenblatt, and Yao, 2009;Rogers and Winter, 2009;Hartley, 2010;Wassmer, 2010;Campbell, Giglio and Pathak;Gerardi, Rosenblatt, Willen, and Yao, 2012). The papers vary in their methods but several use statistical techniques to demonstrate that foreclosures actually lead to reductions in with such reductions.…”

How Mortgage Finance Affects the Urban Landscape

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