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Overages in Mortgage Pricing

BANK STRUCTURE AND COMPETITION: GLOBAL FINANCIAL CRISES: IMPLICATIONS FOR BANKING AND REGULATION, Kluwer Academic Publishers, May 1999

Posted: 16 Jun 2003  

Harold A. Black

University of Tennessee, Knoxville - Department of Finance

Ramon P. DeGennaro

University of Tennessee, Knoxville - Department of Finance

Thomas P. Boehm

University of Tennessee, Knoxville - Department of Finance

Abstract

We conduct an empirical investigation of the relative importance of competing hypotheses that attempt to explain observed differentials in overage pricing. Our analysis makes several contributions. First, we use tobit techniques to estimate the parameters of the model. Second, we include a number of variables that are not available in previous analysis. Specifically, we use borrower and lender characteristics that go beyond gender and race. Third, we are able to consider the impact of the bargaining capabilities of individual loan officers on the overages paid by borrowers, including minorities and women.

Using proprietary data from different branches of a particular bank, this paper demonstrates that a large component of the explained variance in overages traces to variables proxying for the degree of competitiveness in the markets associated with these loans, and to differences in the bargaining power and expertise of both loan officers and borrowers. We find differences in overages collected from different ethnic groups, and though it is far too soon to conclude that this is due to bigotry, to the extent that our models are well-specified, this would probably constitute discrimination from a regulatory perspective. Variables controlling for risk prove less effective in explaining overages, perhaps because our sample includes only loans that were actually approved and made. Thus, they all represent relatively good risks, and might not display enough risk variation to detect.

Keywords: Overage, Mortgage, Discrimination, Lending, Race

JEL Classification: G21

Suggested Citation

Black, Harold A. and DeGennaro, Ramon P. and Boehm, Thomas P., Overages in Mortgage Pricing. BANK STRUCTURE AND COMPETITION: GLOBAL FINANCIAL CRISES: IMPLICATIONS FOR BANKING AND REGULATION, Kluwer Academic Publishers, May 1999. Available at SSRN: https://ssrn.com/abstract=411360

Harold A. Black

University of Tennessee, Knoxville - Department of Finance ( email )

Knoxville, TN 37996
United States
423-974-1721 (Phone)
423-974-1716 (Fax)

Ramon P. DeGennaro (Contact Author)

University of Tennessee, Knoxville - Department of Finance ( email )

423 Stokely Management Center
Knoxville, TN 37996
United States
865-974-1726 (Phone)
865-974-1716 (Fax)

Thomas P. Boehm

University of Tennessee, Knoxville - Department of Finance ( email )

Knoxville, TN 37996
United States
615-974-3216 (Phone)
615-974-1716 (Fax)

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