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

35 Pages Posted: 7 Apr 2009

See all articles by Andrew Haughwout

Andrew Haughwout

Federal Reserve Bank of New York

Christopher J. Mayer

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Joseph S. Tracy

Federal Reserve Bank of New York; National Bureau of Economic Research (NBER)

Date Written: April 2009

Abstract

Some 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.

Keywords: Subprime, Mortgages, HMDA

JEL Classification: G21, D40

Suggested Citation

Haughwout, Andrew F. and Mayer, Christopher J. and Tracy, Joseph, Subprime Mortgage Pricing: The Impact of Race, Ethnicity, and Gender on the Cost of Borrowing (April 2009). FRB of New York Staff Report No. 368. Available at SSRN: https://ssrn.com/abstract=1373931 or http://dx.doi.org/10.2139/ssrn.1373931

Andrew F. Haughwout (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States
212-720-2685 (Phone)
212-720-1844 (Fax)

Christopher J. Mayer

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Joseph Tracy

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States
212-720-6344 (Phone)
212-720-2630 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
129
Abstract Views
1,122
rank
219,245
PlumX Metrics