Mortgage Discrimination and FHA Loan Performance

Many studies of mortgage lending activity have documented large and persistent racial disparities, including the provision of information to prospective home loan applicants, mortgage loan instrument selection, and the loan application decision process. This chapter seeks to evaluate discrimination in home mortgage originations by examining the performance of mortgage loan portfolios. It provides a description of the data used in the analysis and empirical specifications of the models. The theory predicts that this discrimination changes loan performance at the margin. The study employs a rich Federal Housing Administration (FHA) data set to evaluate the determinants of loan performance as measured by both the likelihood of default and the losses that occur in the event of default. In keeping with program objectives, the FHA program tends to serve relatively high-risk borrowers, and the vast majority of FHA-insured loans entail very high loan-to-value ratios. First-time homebuyers and moderate-income borrowers comprise a large proportion of all FHA borrowers.