Durable Inequality and Mechanisms of Mortgage Discrimination

• In Event: 150 - Regular Session. Housing Finance, Foreclosures and Evictions

Abstract

In the decade leading up to the housing crisis, black and Latino borrowers were disproportionately steered towards high-cost mortgage loans. The disparities in lending existed nationwide and across multiple lenders. How did lenders across the country come to charge black and Latino borrowers more for home loans? This paper analyzes depositions and declarations from bank employees, mortgage originators, and mortgagors produced in recent Fair Housing Act litigation to identify the recurrent social mechanisms through which: 1) investors encouraged the origination of high-cost loans that had a disparate impact on borrowers of color and 2) loan originators placed black and Latino borrowers into higher-cost loans than similarly situated white borrowers. The authors find that accounting structures encouraged investment banks to demand higher risk loans from mortgage originators and that internal organizational structures stifled dissent or criticism of risky or unethical practices. The authors also find that compensation structures for mortgage originators rewarded steering financially less sophisticated borrowers towards higher cost products and that originators identified trusted intermediaries within black and Laitno communities to gain the confidence of borrowers.

Authors

• Justin Steil, Columbia University

• Len Albright, Northeastern University

• Jacob S. Rugh, Brigham Young University