Do mortgage rates vary based on household default characteristics? Evidence on rate sorting and credit rationing

John V. Duca, Stuart S. Rosenthal

Research output: Contribution to journalArticle

24 Scopus citations

Abstract

Credit "screening models" suggest that lenders vary loan rates and debt ceilings across applicants on the basis of credit risk. We argue that regulatory constraints such as Fair Lending Laws may preclude rate sorting while increasing lender use of debt ceilings to adjust for applicant credit risk. Using household data from the 1983 SCF, we find that mortgage rates do not vary with applicant credit risk whereas related studies find that debt ceilings vary with borrower risk attributes. Together, these findings support arguments that regulatory constraints reduce rate sorting while increasing the use of non-price terms in the mortgage contract.

Original languageEnglish (US)
Pages (from-to)99-113
Number of pages15
JournalThe Journal of Real Estate Finance and Economics
Volume8
Issue number2
DOIs
StatePublished - Mar 1 1994
Externally publishedYes

Keywords

  • Mortgage rates
  • credit rationing
  • discrimination

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics
  • Urban Studies

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