Preferential Treatment in Financial Contracts: Does Broker Race Affect Mortgage Prices?
79 Pages Posted: 25 Jul 2017 Last revised: 25 May 2018
Date Written: May 22, 2018
We test for preferential treatment in financial contracts using data on mortgages that allow us to observe the race and ethnicity of both parties to the contract. We find that minorities pay over 8 percent (or $400) more in fees than similarly qualified whites when obtaining a loan through a white broker. Minorities, however, do not encounter preferential treatment from minority brokers. Furthermore, whites working with minority brokers pay fees similar to those of minorities. Recent changes in broker compensation rules due to the Dodd-Frank Act 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