Racial and Ethnic Disparities in Mortgage Lending: New Evidence from Expanded HMDA Data

TL;DR

This study uses expanded HMDA data to analyze racial and ethnic disparities in mortgage approval and pricing, revealing that systemic barriers beyond creditworthiness contribute significantly to unequal access and costs.

Contribution

It provides new evidence on disparities using detailed borrower credit data, highlighting the persistent role of systemic barriers beyond credit scores.

Findings

Large approval and pricing disparities exist between groups.

Creditworthiness explains part of the disparities, but not all.

Systemic barriers significantly impact mortgage access and affordability.

Abstract

This paper investigates gaps in access to and the cost of housing credit by race and ethnicity using the near universe of U.S. mortgage applications. Our data contain borrower creditworthiness variables that have historically been absent from industry-wide application data and that are likely to affect application approval and loan pricing. We find large unconditional disparities in approval and pricing between racial and ethnic groups. After conditioning on key elements of observable borrower creditworthiness, these disparities are smaller but remain economically meaningful. Sensitivity analysis indicates that omitted factors as predictive of approval/pricing and race/ethnicity as credit score can explain some of the pricing disparities but cannot explain the approval disparities. Taken together, our results suggest that credit score, income, and down payment requirements significantly contribute to disparities in mortgage access and affordability but that other systemic barriers are also responsible for a large share of disparate outcomes in the mortgage market.