Differences in Subprime Loan Pricing Across Races and Neighborhoods
Federal Reserve Bank of St. Louis Working Paper No. 2011-033C
55 Pages Posted: 12 Apr 2012 Last revised: 8 Aug 2014
Date Written: March 5, 2014
Abstract
We investigate whether race and ethnicity influenced subprime loan pricing during 2005, the peak of the subprime mortgage expansion. We combine loan-level data on the performance of non-prime securitized mortgages with individual- and neighborhood-level data on racial and ethnic characteristics for metropolitan areas in California and Florida. Using a model of rate determination that accounts for predicted loan performance, we evaluate the differences in subprime mortgage rates in terms of racial and ethnic groups and neighborhood characteristics. We find evidence of adverse pricing for blacks and Hispanics. The evidence of adverse pricing is strongest for purchase mortgages and mortgages originated by non-depository institutions.
Keywords: Fair Housing Act; Subprime Mortgages; Loan Performance; Discrimination
JEL Classification: G21, J15, R23, C11
Suggested Citation: Suggested Citation
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