Language Frictions in Consumer Credit

132 Pages Posted: 11 Jul 2023 Last revised: 13 Jan 2024

Date Written: November 20, 2023


This paper studies how language barriers between lenders and borrowers translate into differences in borrower outcomes in the U.S. mortgage market. I use survey data to infer and machine learning techniques to predict borrowers' English proficiency. I document significant descriptive differences in perceptions of mortgages, application experiences, and mortgage rates between limited English proficient (LEP) and non-LEP borrowers. To measure the causal effects of language frictions, I exploit a Federal Housing Finance Agency policy that provided translated mortgage documents in Spanish to mortgage lenders. After the policy change, LEP Hispanic borrowers had a streamlined application process, contacted more lenders, understood mortgage contracts better, and enjoyed lower borrowing costs. Reducing language frictions also led to expanded access to credit for LEP borrowers. Overall, my findings highlight a cost-effective way to create a responsible inclusion of well-qualified LEP borrowers in the mortgage market.

Keywords: Mortgage Markets, Limited English Proficiency, Mortgage Document Translations, Credit Access

JEL Classification: G18, G51, G53, D14, D18

Suggested Citation

Liu, Chao, Language Frictions in Consumer Credit (November 20, 2023). Available at SSRN: or

Chao Liu (Contact Author)

Northwestern University - Kellogg School of Management ( email )

Evanston, IL
United States

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