Discrimination in mortgage lending: Evidence from a correspondence experiment

Abstract

We design and implement an experimental test for differential response by mortgage loan originators (MLOs) to requests for information about loans. Our e-mail correspondence experiment is designed to analyze differential treatment by client race and credit score. Our results show net discrimination by 1.8% of MLOs through non-response. We also find that MLOs offer more details about loans and are more likely to send follow up correspondence to whites. The effect of being African American on MLO response is equivalent to the effect of having a credit score that is 71 points lower.

How Black Are Lakisha and Jamal? Racial Perceptions from Names Used in Correspondence Audit Studies

“…Originally developed in the 1960s to capture more elusive forms of racial discrimination in the post-Civil Rights era, modern audit studies have shifted from the in-person to the correspondence method, which uses names to signal the race of hypothetical subjects. With few exceptions, correspondence audits regularly find lower phone and/or email response rates for applications with black names compared to white names in both employment and housing (Gaddis 2015;Hanson et al 2016;Hogan and Berry 2011). Researchers have continued to find evidence of racial discrimination even as correspondence audits have expanded to include a broader domain of actors, such as politicians, prospective roommates, public officials, and health care professionals (Butler and Broockman 2011;Einstein and Glick 2017;Gaddis and Ghoshal 2017;Giulietti, Tonin, and Vlassopoulos 2015;Sharma, Mitra, and Stano 2015).…”

“…However, publicly available U.S. Census data show that only nine last names among the most frequently occurring 1,000 are majority black, with another 15 last names registering at 40 percent to 50 percent black (U.S. Census Bureau 2012). Earlier correspondence audits often mixed "black" first names with both predominantly black last names and predominantly white last names within a study (Hanson and Hawley 2011;Milkman, Akinola, and Chugh 2012), whereas more recent studies often match first and last names by race (Gaddis 2016;Hanson et al 2016). The effect of this selection on outcomes in correspondence audits is not only unknown but heretofore unquestioned.…”

An Introduction to Audit Studies in the Social Sciences

“…The outcomes may be an offer to interview for a job (Bertrand and Mullatinathan 2004;Darolia et al 2015;Deming et al 2016;, a job offer (Bendick, Jackson, and Reinoso 1994;Bendick, Rodriguez, and Jayaraman 2010;Pager, Western, and Bonikowski 2009;Turner, Fix, and Struyk 1991), the order in which applicants are contacted (Duguet et al 2015), a response to a housing inquiry (Ahmed and Hammarstedt 2008;Bengtsson, Iverman, and Hinnerich 2012;Carlsson and Eriksson 2014;Carpusor and Loges 2006;Ewens, Tomlin, and Wang 2014;Feldman and Weseley 2013;Hogan and Berry 2011;Van der Bracht, Coenen, and Van de Putte 2015), the types of housing shown (Galster 1990a;Turner et al 2002Turner et al , 2013, information about the availability of a house for purchase or rent (Galster 1990b, Turner et al 2002Yinger 1986), an offer of different housing than requested or racial steering (Galster and Godfrey 2005;Turner, Mikelsons and Edwards 1990), a response to a mortgage application or request for information (Hanson et al 2016;Smith and Cloud 1996;Smith and DeLair 1999), a response to a roommate request Ghoshal 2015, 2017;Ghoshal and Gaddis 2015), an offer to schedule a doctor's appointment (Kugelmass 2016;Sharma, Mitra, and Stano 2015), a response from a politician or other public official (Broockman 2013;Butler and Broockman 2011;Chen, Pan, and Xu 2016;Distelhorst and Hou 2014;…”

How Black Are Lakisha and Jamal? Racial Perceptions from Names Used in Correspondence Audit Studies

“…Originally developed in the 1960s to capture more elusive forms of racial discrimination in the post-Civil Rights era, modern audit studies have shifted from the in-person to the correspondence method, which uses names to signal the race of hypothetical subjects. With few exceptions, correspondence audits regularly find lower phone and/or email response rates for applications with black names compared to white names in both employment and housing (Gaddis 2015;Hanson et al 2016;Hogan and Berry 2011).…”

“…However, publicly available U.S. Census data show that only nine last names among the most frequently occurring 1,000 are majority black with another fifteen last names registering at 40% -50% black (U.S. Census Bureau 2008). Earlier correspondence audits often mixed "black" first names with both predominantly black last names and predominantly white last names within a study (Hanson and Hawley 2011;Milkman, Akinola, and Chugh 2012), while more recent studies often match first and last names by race (Hanson et al 2016;Gaddis 2016 Overall, a body of research suggests that further examination of racial perceptions from names will substantially improve our understanding of existing discrepancies in racial discrimination research and help lead to future lab, field, and survey experiments with higher internal validity. Unfortunately, few studies have examined different perceptions of race from names and none does so in an experimental framework.…”