Race, Ethnicity and High-Cost Mortgage Lending

36 Pages Posted: 22 Dec 2014 Last revised: 5 Jan 2015

See all articles by Patrick J. Bayer

Patrick J. Bayer

Duke University - Department of Economics; National Bureau of Economic Research (NBER)

Fernando V. Ferreira

University of Pennsylvania - The Wharton School

Stephen L. Ross

University of Connecticut - Department of Economics

Date Written: December 2014

Abstract

This paper examines how high cost mortgage lending varies by race and ethnicity. It uses a unique panel data that matches a representative sample of mortgages in seven large metropolitan markets between 2004 and 2008 to public records of housing transactions and proprietary credit reporting data. The results reveal a significantly higher incidence of high costs loans for African-American and Hispanic borrowers even after controlling for key mortgage risk factors: they have a 7.7 and 6.2 percentage point higher likelihood of a high cost loan, respectively, in the home purchase market relative to an overall incidence of 14.8 percent among all home purchase mortgages. Significant racial and ethnic differences are widespread throughout the market – they are present (i) in each metro area, (ii) across high and low risk borrowers, and (iii) regardless of the age of the borrower. These differences are reduced by 60 percent with the inclusion of lender fixed effects, implying that a significant portion of the estimated market-wide racial differences can be attributed to differential access to (or sorting across) mortgage lenders.

Suggested Citation

Bayer, Patrick J. and Ferreira, Fernando V. and Ross, Stephen L., Race, Ethnicity and High-Cost Mortgage Lending (December 2014). NBER Working Paper No. w20762, Available at SSRN: https://ssrn.com/abstract=2541538

Patrick J. Bayer (Contact Author)

Duke University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Fernando V. Ferreira

University of Pennsylvania - The Wharton School ( email )

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Philadelphia, PA 19104-6365
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215-573-2220 (Fax)

HOME PAGE: http://real.wharton.upenn.edu/~fferreir/

Stephen L. Ross

University of Connecticut - Department of Economics ( email )

365 Fairfield Way, U-1063
Storrs, CT 06269-1063
United States

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