Do Lenders Still Discriminate? A Robust Approach for Assessing Differences in Menus

David Hao Zhang and Paul Willen

No 29142, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Motivated by the assessment of racial discrimination in mortgage pricing, we introduce a new methodology for comparing the menus of options borrowers face based on their choices. First, we show how standard regression-based approaches for assessing discrimination in the menus context can lead to misleading and contradictory results. Second, we propose a new methodology that is robust these problems based on relatively weak economic assumptions. More specifically, we use pairwise dominance relationships in choices supplemented by restrictions on the range of plausible menus to define (1) a test statistic for equality in menus and (2) a difference in menus (DIM) metric for assessing whether one group of borrowers would prefer to switch to another group's menus. Our statistics are robust to arbitrary heterogeneity in borrower preferences across racial groups, are sharp in terms of identification, and can be efficiently computed using Optimal Transport methods. Third, we devise a new approach for inference on the value of Optimal Transport problems based on directional differentiation. Fourth, we use our methodology to estimate mortgage pricing differentials by race on a novel data set linking 2018--2019 Home Mortgage Disclosure Act (HMDA) data to Optimal Blue rate locks. We find robust evidence for mortgage pricing differentials by race, particularly among Conforming mortgage borrowers who are relatively creditworthy.

JEL-codes: C12 G21 G51 (search for similar items in EconPapers)
Date: 2021-08
New Economics Papers: this item is included in nep-ban, nep-isf and nep-ure
Note: EFG IO ME
References: Add references at CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://www.nber.org/papers/w29142.pdf (application/pdf)

Related works:
Working Paper: Do Lenders Still Discriminate? A Robust Approach for Assessing Differences in Menus (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:29142

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w29142

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().