Economics, Econometrics and Finance
3 years ago

Mortgage lenders may discriminate based on property price volatility and foreclosure costs.

Book Publisher International (a part of SCIENCEDOMAIN International)
The Effects of Property Price Volatility, Rent Flows and Foreclosure Costs on Rational Discrimination in Mortgage Lending
David Nickerson

Paper Summary

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The study explores how lenders may discriminate in mortgage lending based on observable demographic traits, even when borrowers have the same credit risk. This discrimination can happen when lenders believe certain traits are linked to risky properties that may decrease the value of collateral in case of default. As a result, lenders may offer less favorable loan terms or deny loans to certain groups to protect their investment. This discrimination can be a part of how credit is allocated efficiently in the market.