Study by the New York Fed Finds No Evidence of Adverse Pricing by Race, Ethnicity, or Gender

The New York Fed released a study this week concluding there is no evidence of adverse pricing based on borrowers' race, ethnicity, or gender. While the study notes a couple of important caveats (including the inability to study points and fees), the core conclusion is remarkable in light of the "reverse redlining" and similar suits that have been filed.

Here is the complete text of the abstract from the study:

Some observers have argued that minority borrowers and neighborhoods were targeted for expensive credit in 2004-06, the peak period for subprime lending. To investigate this claim, we take advantage of a new data set that merges demographic information on subprime borrowers with information on the mortgages they took out. In a sample of more than 75,000 adjustable-rate mortgages, we find no evidence of adverse pricing by race, ethnicity, or gender in either the initial rate or the reset margin. Indeed, if any pricing differential exists, minority borrowers appear to pay slightly lower rates, as do those borrowers in Zip codes with a larger percentage of black or Hispanic residents or a higher unemployment rate. Mortgage rates are also lower in locations that previously had higher rates of house price appreciation. These results suggest some economies of scale in subprime lending. Yet there are important caveats: we are unable to measure points and fees at loan origination, and the data do not indicate whether borrowers might have qualified for less expensive conforming mortgages.

A pdf of the entire study can be found here.