The Pricing of Home Mortgage Loans to Minority Borrowers: How Much of the APR Differential Can We Explain?

The public releases of the 2004 and 2005 HMDA data have engendered a lively debate over the pricing of mortgage credit and its implications regarding the treatment of minority mortgage borrowers. This research uses aggregated proprietary data provided by lenders and an endogenous switching regression model to estimate the probability of taking out a subprime mortgage, and annual percentage rate (APR) conditional on getting either a subprime or prime mortgage. The findings reveal that up to 90% of the African American APR gap, and 85% of the Hispanic APR gap, is attributable to observable differences in underwriting, costing, and market factors that appropriately explain mortgage pricing differentials. Although any potential discrimination is problematic and should be addressed, the analysis suggests that little of the aggregate differences in APRs paid by minority and non-minority borrowers are appropriately attributed to differential treatment.

Precommitment and random exchange rates in symmetric duopoly: a new theory of multinational production

Recent volatility in real exchange rates has renewed interest in the nature of multinational firms. One increasingly common phenomenon involves the foreign sourcing of production, in which certain domestic firms choose to produce part or all of their product abroad and then export the commodity for domestic sale. Multinational production has been rationalized on the basis of inherent asymmetries between firms, such as the possession of certain firm-specific assets or differences between firms in their perceptions of foreign production costs, access to foreign subsidy programs, and the possibility of tariff preemption. Such behavior has also been rationalized in terms of corporate risk-aversion and a desire to hedge real exchange rate risk through the diversification of production locations. This paper presents an entirely novel explanation for the existence of multinational firms and the foreign sourcing of production. Rather than relying on exogenous asymmetries between firms or on assumptions about corporate aversion to risk, this explanation recognizes that exchange rate uncertainty may offer a purely strategic motive for symmetric and risk-neutral domestic oligopolists to precommit to foreign production in order to attain a position of industry leadership. This explanation is presented in the specific context of a two-period model of strategic foreign production by domestic duopolists. Strategically symmetric and risk-neutral firms are confronted by a unique source of uncertainty in the form of a randomly fluctuating exchange rate. Exchange rate uncertainty is resolved, for the purposes of current production decisions, between the two periods. Precommitted foreign production in the first period yields a leadership advantage relative to firms that do not precommit, but this decision must be evaluated against the value of the alternative of remaining flexible to adopt a production plan after the resolution of exchange rate uncertainty. A unique symmetric sequential equilibrium in mixed strategies is determined in this market, allowing a Stackelberg leader to endogenously emerge through a credible precommitment to the foreign sourcing of production.International business enterprises ; Foreign exchange rates

The CRA within a changing financial landscape

Community Reinvestment Act of 1977

Implications of Stratified Sampling for Fair Lending Binary Logit Models

We examine the effect of sample design on estimation and inference for disparate treatment in binary logistic models used to assess for fair lending. Our Monte Carlo experiments provide information on how sample design affects efficiency (in terms of mean squared error) of estimation of the disparate treatment parameter and power of a test for statistical insignificance of this parameter. The sample design requires two decision levels: first, the degree of stratification of the loan applicants (Level I Decision) and secondly, given a Level I Decision, how to allocate the sample across strata (Level II Decision). We examine four Level I stratification strategies: no stratification (simple random sampling), exogenously stratifying loan cases by race, endogenously stratifying cases by loan outcome (denied or approved), and stratifying exogenously by race and endogenously by outcome. Then, we consider five Level II methods: proportional, balanced, and three designs based on applied studies. Our results strongly support the use of stratifying by both race and loan outcome coupled with a balanced sample design when interest is in estimation of, or testing for statistical significance of, the disparate treatment parameter. Copyright Springer Science + Business Media, Inc. 2004logistic regression, stratified sampling, choice-based sampling, Monte Carlo experiment,