Racial Disparities in Mortgage Lending: New Evidence Based on Processing Time
Bin Wei and Feng Zhao
Working Paper 2022-1
Abstract: This paper examines racial disparities in mortgage processing time prior to the global financial crisis. We find that Black borrowers are underrepresented and experience a longer processing time than White borrowers among the mortgages securitized by government-sponsored enterprises. At the same time, Black borrowers are overrepresented and face a similar processing time among privately securitized mortgages. Additionally, Black borrowers are strongly associated with the faster segments of mortgage markets, faster lenders within each segment, and the types of loan products that are processed faster, all of which subsequently experienced higher defaults.
JEL classification: G01, G21, G23, R30
Key words: processing time, lending standards, racial disparities, mortgage loans
The authors thank Raphael Bostic, Toni Braun, Chris Cunningham, Andrew Ellul, Isil Erel, Kris Gerardi, Mark Jensen, Benjamin Keys (discussant), Camelia Kuhnen (editor), Uday Rajan (editor), Philipp Schnabl, James Vickery (discussant), Larry Wall, and Vincent Yao for very helpful comments. They also thank participants in the 2021 Review of Corporate Finance Studies winter conference and the 2021 Atlanta Fed conference "Racial Inequality and Disparities in Financial Markets" for very helpful comments. The views expressed here are those of the authors and not necessarily those of the Banks for International Settlements, the Federal Reserve Bank of Atlanta, or the Federal Reserve System. Any remaining errors are the authors' responsibility.
Please address questions regarding content to: Bin Wei, Research Department, Federal Reserve Bank of Atlanta, 404-498-8913, or Feng Zhao, Naveen Jindal School of Management, University of Texas at Dallas, 972-883-5815.
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