Subprime Mortgage Pricing: The Impact of Race, Ethnicity, and Gender on the Cost of Borrowing

The subprime lending boom increased the ability of many Americans to get credit to purchase a house. Yet concerns persist that not all borrowers have been treated equally. Previous research suggests that subprime loans were particularly concentrated in neighborhoods with a high concentration of black and Hispanic residents (Mayer and Pence 2007). Some commentators have been concerned that minority borrowers were steered into subprime loans in some cases when they might have qualified for cheaper conforming loans or that minority borrowers were given subprime loans that had fees or rates that were too high. Previous research on housing markets suggests that such concerns might be warranted. Beginning in the early 1990s, data collected from lenders through the Home Mortgage Disclosure Act (HMDA) indicate that black or Hispanic applicants were more likely to be rejected for a mortgage relative to a white applicant, even when controlling for credit scores or other observable individual risk factors (Munnell and others 1996). Subsequent research showed that minority borrowers might also have been more likely to default on loans, but these findings were less clear in that they did not control for basic exante risk factors (Ladd 1998). Even controlling for the likelihood of default, Canner,