Stigmatized Borrowers: Identity-Based Markups in Mortgage Pricing

Abstract

We examine whether pandemic-induced anti-Asian animus generated non-fundamental pricing disparities in the U.S. mortgage market. In a difference-in-differences design, Asian borrowers experienced a 2.0-basis-point relative increase in rate spreads after the outbreak, while Chinese borrowers—the primary targets of stigmatization—faced a much larger increase of 11.3 basis points. For the broader Asian group, the disparity was confined to the markets most exposed to the pandemic and was accompanied by higher delinquency, consistent with rational pricing of fundamental credit risk or accurate statistical discrimination. The Chinese disparity, by contrast, was invariant to local pandemic exposure, was not accompanied by higher realized delinquency, and was amplified by lender market power and discretion, consistent with taste-based or inaccurate statistical discrimination. About one-third of it is a within-lender-month markup; the remaining two-thirds reflects a shift toward higher-rate lender-months, as the low-rate lenders that had served them before the outbreak became less accessible.

Keywords: Mortgage lending, Discrimination, Anti-Asian sentiment, COVID-19, Asian Americans

JEL Classification: G21, J15, R21, G28, D14