Do Minorities Pay More for Mortgages?

Abstract

We test for racial discrimination in the prices charged by mortgage lenders. We construct a unique dataset where we observe all three dimensions of a mortgage's price: the interest rate, discount points, and fees. While we find statistically significant gaps by race and ethnicity in interest rates, these gaps are offset by differences in discount points. We trace out point-rate schedules and show that minorities and whites face identical schedules, but sort to different locations on the schedule. Such sorting may reflect systematic differences in liquidity or preferences. Finally, we find no differences in total fees by race or ethnicity.

Keywords: Discrimination; Fair lending; Mortgage; Points; Interest rate; FHA; Consumer protection; High-cost mortgage

JEL Classification: G21; G28; R51