Collateral Risk and Demographic Discrimination in Mortgage Market Equilibria
Journal Title: Review of Economics & Finance - Year 2017, Vol 9, Issue 3
Abstract
Observations of significant differences in loan terms between demographically distinct groups of borrowers are often interpreted as evidence of ethnic, racial or gender discrimination by lenders. We consider, in stark contrast to existing models of demographic discrimination, a model of mortgage lending in an economy having complete markets, common knowledge and arbitragefree pricing. Market equilibria in this classical environment may exhibit discriminatory loan pricing by lenders even when borrowers, distinguished only by differences in an observable demographic trait, share identical measures of individual credit risk. Such pricing will be observed if these traits are directly correlated with certain features of the property securing a mortgage loan which, while omitted from standard statistical underwriting and regulatory review procedures, reduce the value of the collateral to the lender in case of foreclosure. When loans are secured by such properties and both lenders and borrowers act strategically, discrimination on this basis maximizes mortgage returns to lenders and will invariably be observed in mortgage market equilibria.
Authors and Affiliations
David Nickerson, Robert Jones
Keywords
Related Articles
- EP ID EP258237
- DOI -
- Views 109
- Downloads 0
Job Search and Labor Market Outcomes of New Graduates in China: Using the Latest Available Survey Data
This is the first study that uses data collected after the new reform of the household registration system (hukou) on the topic of job search and labor market outcomes of new graduates in China. Data of recent years were...
Imprecision
This paper surveys the various modes of imprecision and seeks to clarify the concept of imprecision, to account for the pervasiveness of the phenomena, and to explain why we have to come to terms with it throughout our c...
Stock Market Integration and Financial Crises: Evidence from Chinese Sectoral Portfolios
This paper assesses China's integration with the global stock market during crisis and non-crisis periods within a two-beta Capital Asset Pricing Model framework. We obtain timevarying global and national systematic risk...
Collateral Risk and Demographic Discrimination in Mortgage Market Equilibria
Observations of significant differences in loan terms between demographically distinct groups of borrowers are often interpreted as evidence of ethnic, racial or gender discrimination by lenders. We consider, in stark co...
Operating Performance Evaluation Based on Z-score Model and Profitability between Cross-Straits Credit Cooperatives
This paper extends the literature evaluating credit cooperatives practices for two sides of Taiwan Strait. It finds evidence of different regulations and systems between cross-straits credit cooperatives resulting in the...