Mortgage prepayment, race, and monetary policy

Kristopher Gerardi, Paul Willen and David Hao Zhang

Journal of Financial Economics, 2023, vol. 147, issue 3, 498-524

Abstract: Black and Hispanic homeowners pay significantly higher mortgage interest rates than white and Asian homeowners. We show that the main reason is that white and Asian borrowers are much more likely to exploit periods of falling interest rates by refinancing their mortgages or moving. Black and Hispanic borrowers face challenges refinancing because, on average, they have lower credit scores, equity and income. But even holding those factors constant, Black and Hispanic borrowers refinance less, suggesting that other factors are at play. Because they are more likely to exploit lower interest rates, white borrowers benefit more from monetary expansions. Policies that reduce barriers to refinancing for minority borrowers and alternative mortgage contract designs can reduce racial mortgage pricing inequality.

Keywords: Mortgage; Refinance; Race; Monetary policy; Interest rate (search for similar items in EconPapers)
JEL-codes: D14 E52 G51 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (6)

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Related works:
Working Paper: Mortgage Prepayment, Race, and Monetary Policy (2020)
Working Paper: Mortgage Prepayment, Race, and Monetary Policy (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:147:y:2023:i:3:p:498-524

DOI: 10.1016/j.jfineco.2022.12.001

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