Discrimination and Racial Differences in Home Mortgage Interest Rates
Posted: 3 May 1998
Date Written: May 1995
This paper estimates the possible yield premia paid by Asians, Hispanics, and African Americans borrowers to a national home mortgage lender in the years 1988-1989. The calculated premia are defined to hold daily market rates, rate lock protection, and borrower risk factors constant. Conventional loan interest rates are almost perfectly race- neutral. However, government (FHA and VA) credit models show significant, but very small premia paid by Hispanics and African Americans. The estimated premium for Hispanic borrowers is not robust to some reasonable alternative specifications. The differential for African American borrowers is more robust, but may be explained by the inability of African Americans to find alternatives to their rate commitments when rates fall.
JEL Classification: G1, J7
Suggested Citation: Suggested Citation