Racial Ethnic differences in Household Loan Delinquency Rate in recent financial crisis: Evidence from 2007 and 2010 Survey of Consumer Finances

This study examines the differences in household loan delinquency rates of the racial/ethnic groups. The study uses combined data from 2007 and 2010 SCF. The study employed Oaxaca decomposition analysis to investigate the source of differences in loan delinquency rates of the racial/ethnic groups. Our results show that 67.33% of the differences in loan delinquency between whites and African Americans is due to differences in endowments while 33.08% is unexplained or due to discrimination. The study also found that credit constrained, income, unemployment, and payday loan are the major source of explained differences in delinquency between whites and African-Americans. Also, the study found that 93.03% of the differences between whites and Hispanics is explained by differences in endowments while 7.36% is unexplained or due to discrimination. Similarly, income, credit constrained, unemployment, and college graduate are the major source of explained differences in delinquency between whites and Hispanics. The study shows that credit constrained households for all races have high risk of being delinquent. Similarly, households with high debt service ratios with the exception of Hispanics where the result is not significant are more likely to be delinquent on their loans.JEL classification numbers: D12, D14, G00, J15Keywords: Loan Delinquency Rates, Payday loan, Oaxaca decomposition, Race and Ethnicity, Survey of Consumer Finances, and Logistic Regression.