Quantifying Discrimination: The Role of Race and Gender in the Awarding of Subprime Mortgage Loans
38 Pages Posted: 21 Apr 2010 Last revised: 10 Dec 2012
Date Written: December 10, 2010
The recent subprime mortgage crisis has brought to the forefront the possibility of discriminatory lending on the basis of race or gender. I explore these claims using approximately 10 million observations collected by the federal government in 2006 through the Home Mortgage Disclosure Act. I address two possible theories of discrimination: (1) structural discrimination, which is that any discriminatory lending patterns are picking up the fact that minority borrowers went to different lenders, and (2) individual discrimination, which is the possibility that individual lenders discriminated against identically situated borrowers. The results provide some evidence of both. However, a sensitivity test to examine the effect of missing controls (such as credit score) finds that these racial differences could be explained by a 50% difference in negative credit attributes between blacks and whites under structural discrimination, and 17% difference under individual discrimination.
Keywords: subprime lending, discrimination
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