Penn State University researchers are exploring the rates of racial discrimination when it comes to delivering mortgages. Their research examines both the race of the broker and the borrower.
Brent Ambrose, the Jason and Julie Borrelli Faculty Chair in Real Estate in the Smeal College of Business at Penn State and director of the Penn State Institute for Real Estate Studies, recently collaborated on a research project to better understand pricing disparities in mortgage contracts. The paper — “Does Borrower and Broker Race Affect the Cost of Mortgage Credit
?” — has been accepted for publication in the Review of Financial Studies.
A Penn State report
says Ambrose and his coauthors studied both the race and ethnicity of brokers and borrowers that took part in obtaining a mortgage to see if brokers were potentially charging different fees to different borrowers.
“It’s a complicated contract, and the fees are often hidden, so we wanted to look at how brokers charge fees because many of these fees aren’t obvious to the borrower,” Ambrose said. “It would be quite easy for a broker to charge different fees for the same product to different borrowers.”
However, what makes this research particularly innovative, the article states, was a complex set of data that Ambrose acquired through the Institute for Real Estate Studies. The institute used funding from the Penn State Real Estate Advisory Board to buy the data, which makes this research a direct result of alumni engagement. “We realized we had really unique data here where we could actually map brokers’ names to their race or ethnicity,” Ambrose said.
Results of the research showed that Blacks, Hispanics, and Asians pay between 3 and 5% more in fees than similarly qualified whites when obtaining a loan through a white broker. A key innovation of the research, though, is showing that the premium paid by minorities depends on the race of the broker.