Preferential Treatment in Financial Contracts: Does Borrower and Broker Race Affect Mortgage Prices?

80 Pages Posted: 25 Jul 2017 Last revised: 29 Mar 2019

See all articles by Brent W. Ambrose

Brent W. Ambrose

Pennsylvania State University

James Conklin

University of Georgia

Luis A. Lopez

Pennsylvania State University

Date Written: May 22, 2018

Abstract

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

Ambrose, Brent W. and Conklin, James and Lopez, Luis A., Preferential Treatment in Financial Contracts: Does Borrower and Broker Race Affect Mortgage Prices? (May 22, 2018). Available at SSRN: https://ssrn.com/abstract=3006793 or http://dx.doi.org/10.2139/ssrn.3006793

Brent W. Ambrose

Pennsylvania State University ( email )

University Park, PA 16802-3306
United States
814-867-0066 (Phone)
814-865-6284 (Fax)

James Conklin (Contact Author)

University of Georgia ( email )

Athens, GA 30602-6254
United States

Luis A. Lopez

Pennsylvania State University ( email )

University Park
State College, PA 16802
United States

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