Using High-Frequency Evaluations to Estimate Disparate Treatment: Evidence from Mortgage Loan Officers

Abstract

We examine the Black mortgage approval gap in the U.S., leveraging confidential HMDA data to uncover a novel pattern: The approval gap, 2.4 percentage points to start the month, reduces to approximately zero at month’s end. Exploring mechanisms, underperforming loan officers and lending institutions with more performance-induced turnover amplify the within-month approval gap decrease. Demand-side factors, such as borrower financial constraints, also increase month-end origination volume but explain less than half of the Black approval gap reduction. Our findings emphasize the role of commercial incentives in reducing disparate treatment, aligning with Becker’s “costs of discrimination” theory (1957).

Keywords: Performance Incentives, Lending Discrimination, Loan Officers, Mortgages, Shadow Banking