Do mortgage rates vary based on household default characteristics? Evidence on rate sorting and credit rationing

  • John V. Duca
  • Stuart S. Rosenthal
Article

Abstract

Credit “screening models” suggest that lenders vary loan rates and debt ceilings across applicants on the basis of credit risk. We argue that regulatory constraints such as Fair Lending Laws may preclude rate sorting while increasing lender use of debt ceilings to adjust for applicant credit risk. Using household data from the 1983 SCF, we find that mortgage rates do not vary with applicant credit risk whereas related studies find that debt ceilings vary with borrower risk attributes. Together, these findings support arguments that regulatory constraints reduce rate sorting while increasing the use of non-price terms in the mortgage contract.

Key words

Mortgage rates credit rationing discrimination 
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Copyright information

© Kluwer Academic Publishers 1994

Authors and Affiliations

  • John V. Duca
    • 1
  • Stuart S. Rosenthal
    • 2
  1. 1.Research DepartmentFederal Reserve Bank of DallasDallas
  2. 2.Faculty of Commerce and Business AdministrationUniversity of British ColumbiaVancouverCanada

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