Paper Finds Evidence of Redlining and Race-Based Discrimination in Subprime Loan Pricing

Andra C. Ghent

 of Arizona State University (ASU) - Finance Department and

Ruben Hernandez-

Ruben Hernandez-

Murillo and

Michael Owyang

, both of the Federal Reserve Bank of St. Louis have written Race, Redlining, and Subprime Loan Pricing.  Here's the abstract:

We investigate whether race and ethnicity influenced subprime loan pricing during 2005, the peak of the subprime mortgage expansion. We combine loan-level data on the performance of non-prime securitized mortgages with individual- and neighborhood-level data on racial and ethnic characteristics for metropolitan areas in California and Florida. Using a model of rate determination that accounts for predicted loan performance, we evaluate the presence of statistical and taste-based discrimination, as well as disparate impact and disparate treatment discrimination, in mortgage rates. We find evidence of redlining as well as adverse pricing for blacks and Hispanics.