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Do Women Pay More for Mortgages?

Authors:
Ping Cheng
Ping Cheng
Ping Cheng
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Zhenguo Len Lin at Florida International University
Zhenguo Len Lin
Yingchun Liu at Fujian Medical University
Yingchun Liu
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Abstract

This paper documents women on average pay more for mortgages than men. The disparity cannot be fully explained by traditional variables such as mortgage features, borrower characteristics, and market conditions. While the persistence of gender disparity may suggest discrimination, we offer a different explanation: women pay higher rates because they are more likely to choose lenders by recommendation while men tend to search for the lowest rate. Our empirical test confirms that search effort is rewarded in marketplace, and suggests that gender disparity in mortgage rates may be addressed by policies aimed at improving women’s financial literacy and search skills. KeywordsMortgage–Gender discrimination–Borrower behavior–Interest rates
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... The studies conducted by Mitchell (2007, 2011) also found that low financial literacy is more prevalent among women than men. Results of research conducted by Cheng et al. (2011) suggest that there are significant differences regarding the gender in preferences for the use of the loan and that women on average pay higher costs of loans than men. ...
... Hsu (2011) underlined that the aforementioned differences in financial literacy are caused by specialization within the household, so husbands specialize in the acquiring of financial knowledge and literacy, but women are forced to improve their attainment of financial literacy when it becomes pertinent, such as in case of their spouse's death. Cheng et al. (2011) and later Fonseca et al. (2012) concluded that the majority of gender differences regarding financial literacy are determined by the way it has been "created". One of the explanations is the division of household obligations where men specialize in financial matters and women in other functions in the household. ...
Social Exclusion and Private Over-indebtedness in the EU
Article
  • Sep 2024
  • REV SOC POLIT
Using the most recent available sources, primarily Eurofound (2020), Francis-Devine (2021), Kurowski (2021), Ferretti, and Vandone, (2019), and the European Commission (2013a,b), this paper discusses and analyses the effects of social exclusion and private over-indebtedness in the European Union (EU) over approximately last 10 years. There is no official common definition of private over-indebtedness in the EU, but conditionally, an over-indebted household can be deemed as one whose existing and foreseeable resources are insufficient to meet financial commitments without lowering its living standards, which has both social and policy implications if this means reducing them below what is regarded as the minimum acceptable in the country concerned. Thus, it is difficult to assess the exact number of over-indebted people, but without a doubt, this phenomenon is not trivial and is on the rise. Private over-indebtedness is an important factor of social exclusion which causes serious private and social problems, and, therefore, attracts considerable public interest. Debt problems can be a contributing factor to household tensions and their possible disintegration. The consequences can be as complex and dangerous as divorce and/or homelessness, and almost always lead to the social isolation of the affected person and members of their household. This is mostly triggered by insufficient financial literacy of the population but also due to an increased demand for new products and services that often exceed the personal financial capabilities of most people. The paper explains the situation and encompasses the conditions at the EU level, underlying the differences between old and new EU member states. While the differences between them are larger than the similarities, in most countries, total household debt grew faster than disposable income. This raised concerns about the potential adverse impact of an increased debt burden on financial stability. The article also provides measures for the prevention of private over-indebtedness at the international and national level, which can, with relatively slight adjustments, be implemented in various countries. If we simplify the Preliminary communication UDK: 336(4-67EU) doi: 10.3935/rsp.v31i1.20 Received: October 2023 ∗ This text is a part of the Project „ Partnership for prevention of over-indebtedness “, 101055238 - PPOI – SMP -CONS-2021-DA, financed by the European Commission. ∗∗ Predrag Bejaković, Independent researcher, Zagreb, Croatia, predrag.bejakovic@ijf.hr Rev. soc. polit., god. 31, br. 1, str. 29-51, Zagreb 2024 Bejaković P., Šimurina N., Babačić E.: Social Exclusion... 30 very complex analysis of the determinants of private over-indebtedness and the above-mentioned national differences, we can conclude that the majority of the over-indebted are women around 50 years of age as well as people with lower financial literacy, who are quite often of lower educational attainment. Cluster analysis conducted in this paper endorsed the notion that clusters that consist of more developed countries in the EU had higher levels of household debt, while clusters consisting of countries with the lowest real GDP per capita had the lowest levels of household debt as a percentage of GDP. Furthermore, the results of the research showed that financial freedom and income inequality were not exclusively linked to notably high or low household debt. The most obvious limitation of our paper is the complexity of the topic which required further scientific research, particularly regarding the conditions of COVID-19 and increased inflation rates around the world. Key words: over-indebtedness, personal finance, financial literacy, EU Member States.
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... In addition, we examine whether disadvantaged borrowers benefit more from disclosure simplification. Prior studies show that Black, Hispanic, and single female borrowers, on average, have less financial knowledge (Cheng, Lin, and Liu 2011, Lusardi and Mitchell 2007Lusardi 2011), so they are more likely to experience difficulty in understanding complex mortgage disclosures. We obtain the borrower's race, ethnicity, and gender from the Home Mortgage Disclosure Act (HMDA) data and find that the effect of disclosure simplification on borrowing costs is stronger for disadvantaged borrowers (i.e., Black, Hispanic, and single female borrowers). ...
... Following Dymski, Hernandez, and Mohanty (2013), we use Black, Hispanic, and single female borrowers to proxy for disadvantaged borrowers. Prior studies show that these borrowers, on average, have lower financial literacy and are more prone to accept high-cost mortgages (Lusardi and Tufano 2015;Bocian, Ernst, and Li 2008;Cheng et al. 2011). Because the Fannie Mae and Freddie Mac loan dataset does not contain variables on race, ethnicity, or gender, we merge our sample loans with the HMDA data to obtain these variables. ...
Simplifying Complex Disclosures: Evidence from Disclosure Regulation in the Mortgage Markets
Article
  • Nov 2022
Complex disclosures have long been a major source of borrowers’ poor understanding of mortgages. We examine the effect of simplifying mortgage disclosures in a difference-in-differences design around a significant disclosure rule mandated by the Consumer Financial Protection Bureau in 2015. We find that inexperienced borrowers (first-time home buyers) pay significantly lower interest rates after the disclosure regulation than experienced borrowers (repeat buyers), suggesting that simplifying these disclosures reduces mortgage interest costs. Additional tests show that the reduction in interest costs is not accompanied with more upfront noninterest costs paid by borrowers. Our cross-sectional analyses reveal two mechanisms through which simplifying disclosures lowers interest costs: curbing predatory lending and facilitating borrower shopping. We further find that disadvantaged borrowers (Black, Hispanic, and single female) benefit more from simplified disclosures. Last, we do not find that simplifying disclosures affects mortgage loan performance. JEL Classifications: G21; G5; G18; M4.
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... Our study builds upon the body of research that connects financial literacy with mortgage choice (Campbell 2006;Mitchell 2007a, 2007b). Related studies show that borrowers with higher financial literacy pay lower mortgage interest charges (Cheng et al. 2011;Courchane et al. 2008;Guiso et al. 2022;Huston 2012), avoid complex products and fees (Agarwal et al. 2017;Bergstresser and Beshears 2010;Gathergood and Weber 2017b), report their financial situation more accurately, thus presenting a lower risk of delinquency (Garmaise 2015), are less likely to withdraw home equity (Duca and Kumar 2014), have better operational knowledge of mortgage risks (Bucks and Pence 2008; Cox et al. 2015;Van Ooijen and van Rooij 2016), and make more efficient refinancing decisions (Bajo and Barbi 2018). By contrast, low financial literacy is a barrier to mortgage market participation (Gathergood and Weber 2017a) and predicts default (Gerardi et al. 2013). ...
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Article
Full-text available
  • Apr 2023
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Tax and Policy Drivers of Personal Overindebtedness in the European Union
Article
  • May 2024
This paper evaluates drivers of personal overindebtedness in the European Union. Overindebtedness gives rise to poverty, social exclusion, and other serious social problems. However, the European Union has not adopted a common definition of overindebtedness. This paper explores whether tax policy, indicators of economic freedom, and macroeconomic traits such as the debt to gross domestic product ratio can explain private indebtedness. Sparsity-inducing regression methods applied to data from 27 European Union countries from 2013 to 2020 isolated two predictors that reduce household debt and two predictors that increase it. The level of social contributions and the overall tax burden are associated with lower private debt. Financial freedom and the ratio of public debt to gross domestic product elevate private debt. These are the only four predictive variables among 17 to attain statistical significance under all four regression methods deployed in this study. Future research should expand the methodological toolkit and examine additional demographic factors such as sex and education.
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Article
Full-text available
  • Jun 1996
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Article
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  • Feb 2002
  • REV ECON STAT
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Article
Full-text available
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The Color of Credit: Mortgage Discrimination, Research Methodology, and Fair-Lending Enforcement
Book
  • Jan 2004
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