Patrick Bayer, Fernando Ferreira, Stephen L. Ross

This paper examines racial and ethnic differences in high cost mortgage lending in seven diverse metropolitan areas from 2004-2007. Even after controlling for credit score and other key risk factors, African-American and Hispanic home buyers are 105 and 78 percent more likely to have high cost mortgages for home purchases. The increased incidence of high cost mortgages is attributable to both sorting across lenders (60-65 percent) and differential treatment of equally qualified borrowers by lenders (35-40 percent). The vast majority of the racial and ethnic differences across lenders can be explained by a single measure of the lender's foreclosure risk and most within-lending differences are concentrated at high-risk lenders. Thus, differential exposure to high-risk lenders combined with the differential treatment by these lenders explains almost all of the racial and ethnic differences in high cost mortgage borrowing.

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
mortgage lender
cost of credit
ratespread loans
foreclosure risk
delinquency risk
credit score
loan to value ratio
disadvantaged neighborhood