Association for Public Policy Analysis & Management

This paper provides evidence on the relationship between differential treatment of minority borrowers and differential loan outcomes in the mortgage market. Using data from a field experiment that identifies differential treatment matched to real borrower transactions in the Home Mortgage Disclosure Act (HMDA) data, we estimate difference-in-difference models between African American and white borrowers across lending institutions that display varying degrees of differential treatment. Our results show that African Americans are more likely to be in a high cost (sub-prime) loan when borrowing from lenders that are more responsive to them in the field experiment. We also show that net measures of differential treatment are not related to the probability of African American borrowers having a high cost loan. Our results suggest that differential outcomes are related to within institution factors like client steering, not just across institutional factors like access as previous studies find.