What Drives Racial and Ethnic Differences in High Cost Mortgages? The Role of High Risk Lenders

Patrick Bayer, Fernando Ferreira and Stephen Ross

No 2016-005, Working Papers from Human Capital and Economic Opportunity Working Group

Abstract: 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.

Keywords: mortgage lender; cost of credit; race; ethnicity; ratespread loans; foreclosure risk; delinquency risk; subprime; credit score; loan to value ratio; disadvantaged neighborhood (search for similar items in EconPapers)
JEL-codes: G21 I28 J15 J71 R21 (search for similar items in EconPapers)
Date: 2016-02
New Economics Papers: this item is included in nep-ure
Note: MIP
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Citations: View citations in EconPapers (8)

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http://humcap.uchicago.edu/RePEc/hka/wpaper/Bayer_ ... gh-cost-mortgage.pdf First version, February, 2016 (application/pdf)

Related works:
Journal Article: What Drives Racial and Ethnic Differences in High-Cost Mortgages? The Role of High-Risk Lenders (2018)
Working Paper: What Drives Racial and Ethnic Differences in High Cost Mortgages? The Role of High Risk Lenders (2016)
Working Paper: What Drives Racial and Ethnic Differences in High Cost Mortgages? The Role of High Risk Lenders (2016)
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