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

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Bayer, P; Ferreira, F; Ross, S
Published in: Economic Research Initiatives at Duke (ERID)
February 1, 2016

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 lender can be explained by a single measure of the lender’s foreclosure risk and most of the within-lender 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.

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Published In

Economic Research Initiatives at Duke (ERID)

Publication Date

February 1, 2016

Issue

206
 

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Bayer, P., Ferreira, F., & Ross, S. (2016). What Drives Racial and Ethnic Differences in High Cost Mortgages? The Role of High Risk Lenders. Economic Research Initiatives at Duke (ERID).
Bayer, P., F. Ferreira, and S. Ross. “What Drives Racial and Ethnic Differences in High Cost Mortgages? The Role of High Risk Lenders.” Economic Research Initiatives at Duke (ERID), February 1, 2016.
Bayer P, Ferreira F, Ross S. What Drives Racial and Ethnic Differences in High Cost Mortgages? The Role of High Risk Lenders. Economic Research Initiatives at Duke (ERID). 2016.
Bayer, P., et al. “What Drives Racial and Ethnic Differences in High Cost Mortgages? The Role of High Risk Lenders.” Economic Research Initiatives at Duke (ERID), no. 206, 1 Feb. 2016.
Bayer P, Ferreira F, Ross S. What Drives Racial and Ethnic Differences in High Cost Mortgages? The Role of High Risk Lenders. Economic Research Initiatives at Duke (ERID). 2016.

Published In

Economic Research Initiatives at Duke (ERID)

Publication Date

February 1, 2016

Issue

206