Preferential Treatment in Financial Contracts: Does Borrower and Broker Race Affect Mortgage Prices?
80 Pages Posted: 25 Jul 2017 Last revised: 29 Mar 2019
Date Written: May 22, 2018
We test for preferential treatment in financial contracts using mortgage data that allows us to observe the race and ethnicity of both parties to the contract. We find that minorities pay over 7 percent ($400) more in fees than similarly qualified whites when obtaining a loan through a white broker. The premium is even larger (10 percent) when the broker is also a minority. We show that the results are consistent with statistical discrimination. We also examine recent policy changes regarding broker compensation rules that may reduce these price disparities, but may also limit access to credit for minorities.
Keywords: Discrimination, Credit Rationing, Regulations, Dodd-Frank Act, Mortgages
JEL Classification: J15, L85, R20
Suggested Citation: Suggested Citation