Patrick Bayer, Francisco Ferreira, Stephen L. Ross

This paper examines how high cost mortgage lending varies by race and ethnicity. It uses a unique panel data that matches a representative sample of mortgages in seven large metropolitan markets between 2004 and 2008 to public records of housing transactions and proprietary credit reporting data. The results reveal a significantly higher incidence of high costs loans for African-American and Hispanic borrowers even after controlling for key mortgage risk factors: they have a 7.7 and 6.2 percentage-point-higher likelihood of a high cost loan, respectively, in the home purchase market relative to an overall incidence of 14.8 percent among all home purchase mortgages. Significant racial and ethnic differences are widespread throughout the market – they are present (i) in each metro area, (ii) across high and low risk borrowers, and (iii) regardless of the age of the borrower. These differences are reduced by 60 percent with the inclusion of lender fixed effects, implying that a significant portion of the estimated market-wide racial differences can be attributed to differential access to (or sorting across) mortgage lenders.

JEL Codes
G21: Banks; Depository Institutions; Micro Finance Institutions; Mortgages
I28: Education: Government Policy
J15: Economics of Minorities, Races, and Immigrants; Non-labor Discrimination
J71: Labor Discrimination
R21: Urban, Rural, Regional, Real Estate, and Transportation Economics: Housing Demand
cost of credit
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