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

See all articles by Andra C. Ghent

Andra C. Ghent

University of Utah - David Eccles School of Business

Ruben Hernandez-Murillo

KeyBank

Michael Owyang

Federal Reserve Bank of St. Louis - Research Division

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

Ghent, Andra C. and Hernandez-Murillo, Ruben and Owyang, Michael T., Differences in Subprime Loan Pricing Across Races and Neighborhoods (March 5, 2014). Federal Reserve Bank of St. Louis Working Paper No. 2011-033C, Available at SSRN: https://ssrn.com/abstract=2038634 or http://dx.doi.org/10.2139/ssrn.2038634

Andra C. Ghent

University of Utah - David Eccles School of Business ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States

Ruben Hernandez-Murillo (Contact Author)

KeyBank

Headquarters
127 Public Square 0403
Cleveland, OH 44114
United States

Michael T. Owyang

Federal Reserve Bank of St. Louis - Research Division ( email )

411 Locust St
Saint Louis, MO 63011
United States

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