Explore This Section

Study Looks at the Role of Race in Subprime Lending

For immediate release
Contact: Katherine Dibling, E-mail senior media representative, (215) 574-4119

Bookmark and Share

Subprime Lending Over Time: The Role of Race, a discussion paper released today, analyzes the racial gap in subprime mortgages over time in Pennsylvania, New Jersey, and Delaware.

The study estimates a portion of the gap that cannot be attributed to such characteristics as income, credit score, loan amount, degree of documentation, denial rate, residence in a minority tract, and debt-to-income ratio. It concludes that the unexplained portion suggests that bias in mortgage lending cannot be ruled out.

The study was written by Marvin M. Smith, Ph.D., community development research advisor in the Bank's Community Affairs Department, and Christy Chung Hevener, a former Bank employee.

Subprime Lending Over Time: The Role of Race PDF (971 KB, 26 pages)

  • Highlights the influence of race in the allocation of mortgage capital between the prime and subprime markets.
  • Improves upon previous efforts by using a unique data set and by carrying out the analysis of the racial gap in subprime mortgages (1999 through 2007).
  • Uses an estimating procedure that allows racial differences in the probability of receiving a subprime loan to be separated into a portion that is attributable to risk factors and into another that is unexplained.
  • The authors find that credit scores and the denial rate for non-subprime conventional loans tend to be key factors in accounting for the difference in racial disparity in subprime rates. However, the influence of race remains contentious.
  • The statistically significant effect of race in the logistic regressions and the results of the decomposition of the African-American—white gap in subprime rates suggest a possible role played by race in who receives a subprime loan instead of a prime loan.
  • Authors: Marvin M. Smith, Ph.D., Federal Reserve Bank of Philadelphia, and Christy Chung Hevener, a former Bank employee.

The Community Affairs Department conducts research that examines issues of affordable housing, community and economic development, financial education, and consumer credit and payments that affect low- and moderate-income people and communities.

The Federal Reserve Bank of Philadelphia helps formulate and implement monetary policy, supervises banks and bank holding companies, and provides financial services to depository institutions and the federal government. It is one of the 12 regional Reserve Banks that, together with the Board of Governors in Washington, D.C., make up the Federal Reserve System. The Philadelphia Federal Reserve Bank serves eastern Pennsylvania, southern New Jersey, and Delaware.

Connect With Us

Media Contacts

Daneil Mazone E-mail
Manager, Media Relations
(215) 574-7163
(267) 535-1808 (cell)

Joey Lee E-mail
Media Relations Representative
(215) 574-3840
(215) 983-6820 (cell)