Racial Disparities in Subprime Home Mortgage Lending: Can the Difference be Explained by Economic Factors?
The 2004 HMDA dataset contains new information on the interest rates of home mortgage loans. The fairness of assigned interest rates has long been disputed by fair-lending advocates, many of whom believe that racial discrimination plays a role in the interest rates lenders assign borrowers. Research suggests that the possibility of racial discrimination in home mortgage loan interest rates cannot be dismissed, but available evidence is weak and mired with a number of methodological and econometric issues. The current study uses the new information in the 2004 HMDA dataset to determine whether there are racial disparities in the likelihood that minorities receive a high-cost loan relative to whites. The present study finds that blacks are, on average, 13 percent more likely to receive a high-cost loan than whites are, when other borrower, lender, and neighborhood characteristics are held constant. The present study does not solve all methodological and econometric issues; therefore, results should be interpreted cautiously. Nevertheless, the gap between black and white borrowers should be further investigated in future research. The relationship between high-cost loans and predatory lending is discussed.
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