Mortgage Characteristics and the Racial Incidence of Default

51 Pages Posted: 13 Mar 2017

See all articles by Phillip Li

Phillip Li

Federal Deposit Insurance Corporation

Tom Mayock

UNC Charlotte

Date Written: February 10, 2017


Previous research has shown that relative to White borrowers, Black and Hispanic borrowers taking out mortgages at the height of the early-2000s housing boom experienced significantly higher delinquency rates. In this paper we attempt to gain a better understanding of the mechanisms that gave rise to these racial differences in mortgage delinquency. Using a database of nearly 9 million mortgages originated between 2005 and 2009, we find that minority borrowers were significantly more likely to have mortgages with high-risk contract characteristics, such as prepayment penalties, variable interest rates, balloon structures, and negative amortization periods. Results from mortgage default models and a decomposition exercise show that the concentration of minority buyers in such loans explains a significant fraction of the difference in default rates between racial groups. The totality of our results suggest that exotic loan characteristics acted as mortgage default accelerants for many minority homeowners that experienced significant income and equity shocks during the Great Recession.

Keywords: Inequality, Mortgage Choice, Foreclosure, Mortgage Delinquency

Suggested Citation

Li, Phillip and Mayock, Tom, Mortgage Characteristics and the Racial Incidence of Default (February 10, 2017). Available at SSRN: or

Phillip Li

Federal Deposit Insurance Corporation ( email )

550 17th Street NW
Washington, DC 20429
United States
202-898-3501 (Phone)
202-898-3500 (Fax)

HOME PAGE: http://

Tom Mayock (Contact Author)

UNC Charlotte ( email )

Charlotte, NC 28223
United States

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