Unintended Consequences of Risk Based Pricing: Racial Differences in Mortgage Costs

  • Brent C Smith
  • Kenneth N. Daniels


The following analysis focuses on the role that risk pricing has had in the allocation and access to mortgage funds, specifically how it results in cost differences by race. Using a sample of fixed-rate first lien mortgages, we control for the risk characteristics of borrowers and assets. We find that borrowers with comparable credit quality experience significantly higher costs for mortgages in neighborhoods with a high density of minority households. Further, when the pricing differential is controlled for in a model of mortgage default, there is no support for neighborhood price differences. This finding illustrates a potential inequity that results from efficient/risk pricing in mortgage underwriting.


Residential mortgage default Mortgage underwriting Consumer credit 


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Copyright information

© Springer Science+Business Media New York 2017

Authors and Affiliations

  1. 1.RichmondUSA

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