Mortgage Prepayment, Race, and Monetary Policy

81 Pages Posted: 9 Feb 2021

See all articles by Kristopher Gerardi

Kristopher Gerardi

Federal Reserve Bank of Atlanta

Paul Willen

Federal Reserve Bank of Boston - Research Department; National Bureau of Economic Research (NBER)

David Hao Zhang

Harvard University; Harvard University, Harvard Business School, Students

Multiple version iconThere are 2 versions of this paper

Date Written: December 1, 2020

Abstract

Over the period 2005 to 2015, Black borrowers paid more than 40 basis points higher mortgage interest rates than Non-Hispanic white borrowers. We show that the main reason is that Non-Hispanic white borrowers are much more likely to exploit periods of falling interest rates by refinancing their mortgages or moving. Black and Hispanic white borrowers face challenges refinancing because, on average, they have lower credit scores, equity and income. But even holding those factors constant, Blacks and Hispanic white borrowers refinance less suggesting that other social factors are at play. Because they are more likely to exploit lower interest rates, white borrowers benefit more from monetary expansions. Policies that reduce barriers to refinancing for minority borrowers and alternative mortgage contract designs can significantly reduce racial mortgage rate inequality.

Suggested Citation

Gerardi, Kristopher S. and Willen, Paul S. and Zhang, David Hao, Mortgage Prepayment, Race, and Monetary Policy (December 1, 2020). Available at SSRN: https://ssrn.com/abstract=3697625 or http://dx.doi.org/10.2139/ssrn.3697625

Kristopher S. Gerardi

Federal Reserve Bank of Atlanta ( email )

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HOME PAGE: http://sites.google.com/site/kristophergerardishomepage/

Paul S. Willen

Federal Reserve Bank of Boston - Research Department ( email )

600 Atlantic Avenue
Boston, MA 02210
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National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
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David Hao Zhang (Contact Author)

Harvard University ( email )

Cambridge, MA
United States

Harvard University, Harvard Business School, Students ( email )

Cambridge, MA
United States

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