Mortgage Pricing and Race: Evidence from the Northeast

The putative existence of race-based discrimination in mortgage pricing is both a scholarly and societal concern. Efforts to assess discrimination empirically, however, are typically plagued by omitted variables, which leave any evidence of discrimination open to interpretation. We take a two-pronged approach to the problem. First, we analyze a dataset comprising discretionary mortgage fees collected by brokers working for a brokerage company. Mortgage brokers are intermediaries between lenders and borrowers; they neither approve loans nor share in the risk of default. Variables that measure risk should therefore have no effect on these discretionary fees, and indeed, we show that default risk as measured by credit scores have no effect on discretionary pricing. Second, we perform a formal sensitivity analysis that quantifies the impact of potentially omitted variables. Our results suggest that minority borrowers pay more on average for mortgages than non-minorities, and that this effect persists even in the presence of unmeasured confounders.