Did Minority Applicants Experience Worse Lending Outcomes in the Mortgage Market? A Study Using 2020 Expanded HMDA Data

Abstract

Before 2018, Home Mortgage Disclosure Act (HMDA) data did not include credit factors, such as credit score, debt-to-income ratio, or loan-to-value ratio, typically used by lenders to make loan decisions. HMDA data also did not include important pricing information, such as discount points and lender credits. Starting in 2018, qualifying lenders report these variables, which allow researchers to account for differences in credit risk when modeling mortgage underwriting and loan pricing. In addition, several new variables (final interest rate, total loan costs, discount points paid, and lender credits) allow researchers to study the simultaneous determinants of mortgage pricing. Using 2020 HMDA data, this paper finds that group-level differences persist between minority applicants and non-Hispanic White borrowers in both underwriting and pricing outcomes after accounting for credit risk factors available in HMDA data. Further, group-level differences are generally higher for borrowers in lower credit score ranges for conventional purchase and conventional refinance lending.

Keywords: Discrimination, Fair Lending, Mortgage, Denial, Interest Rate, Points, Fees, Conventional, FHA, Consumer Protection

JEL Classification: G21, G28, R51