Redlining and U.S. Residential Mortgage Market Pricing

Ellul, Andrew; Marques, David; Sapriza, Horacio; Sclip, Alex; Taylor, Jack

Briefing

Redlining and U.S. Residential Mortgage Market Pricing

Abstract: Does redlining have implications for mortgage pricing today? This article summarizes our research assessing long-lasting implications from the "residential security maps" developed by the Home Owners Loan Corp. in the 1930s that color/letter-coded U.S. neighborhoods. The study finds (1) that the average levels of mortgage rates and fees are modestly higher for all borrowers on the historically targeted (redlined, that is, C-coded or D-coded) side of a neighborhood color boundary; (2) that mortgage rates and fees are modestly higher for minorities on either side of the boundary; (3) that these higher rates and fees that minorities pay are even higher on the historically C-coded or D-coded side of the boundary; and (4) that the rejection rates for borrowers in targeted areas is larger. The pricing results are economically larger and more statistically significant for more segregated cities, for riskier borrowers and for mortgages issued by the shadow banking system.

Keywords: redlining; mortgages; lending;