Search Results
Working Paper
Paying Too Much? Price Dispersion in the U.S. Mortgage Market
We document wide dispersion in the mortgage rates that households pay on identical loans, and show that borrowers' financial sophistication is an important determinant of the rates obtained. We estimate a gap between the 10th and 90th percentile mortgage rate that borrowers with the same characteristics obtain for identical loans, in the same market, on the same day, of 54 basis points|equivalent to about $6,500 in upfront costs (points) for the average loan. Time-invariant lender attributes explain little of this rate dispersion, and considerable dispersion remains even within loan officer. ...
Working Paper
Measuring Mortgage Credit Availability : A Frontier Estimation Approach
We construct a new measure of mortgage credit availability that describes the maximum amount obtainable by a borrower of given characteristics. We estimate this "loan frontier" using mortgage originations data from 2001 to 2014 and show that it reflects a binding borrowing constraint. Our estimates reveal that the expansion of mortgage credit during the housing boom was substantial for all borrowers, not only for low-score or low-income borrowers. The contraction was most pronounced for low-score borrowers. Using variation in the frontier across metropolitan areas over time, we show that ...
Working Paper
How Resilient Is Mortgage Credit Supply? Evidence from the COVID-19 Pandemic
We study the evolution of US mortgage credit supply during the COVID-19 pandemic. Although the mortgage market experienced a historic boom in 2020, we show there was also a large and sustained increase in intermediation markups that limited the pass-through of low rates to borrowers. Markups typically rise during periods of peak demand, but this historical relationship explains only part of the large increase during the pandemic. We present evidence that pandemic-related labor market frictions and operational bottlenecks contributed to unusually inelastic credit supply, and that ...
Working Paper
How Much Does Racial Bias Affect Mortgage Lending? Evidence from Human and Algorithmic Credit Decisions
We assess racial discrimination in mortgage approvals using confidential data on mortgage applications. Minority applicants tend to have significantly lower credit scores, higher leverage, and are less likely than White applicants to receive algorithmic approval from raceblind government-automated underwriting systems (AUS). Observable applicant-risk factors explain most of the racial disparities in lender denials. Further, we exploit the AUS data to show there are risk factors we do not directly observe, and our analysis indicates that these factors explain at least some of the residual 1-2 ...
Working Paper
Paying Too Much? Borrower Sophistication and Overpayment in the US Mortgage Market
Comparing mortgage rates that borrowers obtain to rates that lenders could offer for the same loan, we find that many homeowners significantly overpay for their mortgage, with overpayment varying across borrower types and with market interest rates. Survey data reveal that borrowers’ mortgage knowledge and shopping behavior strongly correlate with the rates they secure. We also document substantial variation in how expensive and profitable lenders are, without any evidence that expensive loans are associated with a better borrower experience. Despite many lenders operating in the US ...
Working Paper
How Much Does Racial Bias Affect Mortgage Lending? Evidence from Human and Algorithmic Credit Decisions
We assess racial discrimination in mortgage approvals using new data on mortgage applications. Minority applicants tend to have significantly lower credit scores, higher leverage, and are less likely than white applicants to receive algorithmic approval from race-blind government automated underwriting systems (AUS). Observable applicant- risk factors explain most of the racial disparities in lender denials. Further, we exploit the AUS data to show there are risk factors we do not directly observe, and our analysis indicates that these factors explain at least some of the residual 1-2 ...
Working Paper
Do Minorities Pay More for Mortgages?
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 ...