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Do Women Pay More for Mortgages?

DOI:10.1007/s11146-009-9214-y
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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... Although there is literature discussing unequal opportunities in the housing market (Clark et al., 2021;Niu & Zhao, 2021) or the unequal status of women in the housing or loan market (Goldsmith-Pinkham & Shue, 2020;Chen, Huang, et al., 2020;Chen, Pinar, et al., 2020), research on the topic of discrimination against women in the housing market is scarce, 1 and the existing literature has provided inconsistent results. Cheng et al. (2011) documented that women on average pay more for mortgages than men, and the disparity cannot be fully explained by traditional variables such as mortgage features, borrower characteristics, and market conditions. However, Cheng et al. (2011) did not refer to the persistence of gender disparity as discrimination, and proposed that women pay higher rates because they are more likely to choose lenders by recommendation while men tend to search for the lowest rate. ...
... Cheng et al. (2011) documented that women on average pay more for mortgages than men, and the disparity cannot be fully explained by traditional variables such as mortgage features, borrower characteristics, and market conditions. However, Cheng et al. (2011) did not refer to the persistence of gender disparity as discrimination, and proposed that women pay higher rates because they are more likely to choose lenders by recommendation while men tend to search for the lowest rate. Fang and Munneke (2020) used a sample of 30 − year fixed − rate subprime mortgage loans to discuss gender equality in mortgage lending, found that, after controlling for the probability of a borrower defaulting or prepaying, female borrowers pay higher contract rates in the subprime mortgage market over the study period. ...
... Compared with past research (Cheng et al., 2011), a study conducted by Fang and Munneke in 2020 unexpectedly obtained more significant evidence of the discrimination against women. The different results might be due to the use of different periods of the data. ...
Have men and women become equal in the housing market? effects of gender on mortgage rate
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This study employed data on US mortgage rates from 2009 to 2017 to study the effect of gender on the mortgage rate. Preliminary examination revealed that women faced a comparatively high mortgage rate. This condition was most severe during 2012–2014, when female borrowers must pay an average of 0.1 percentage points higher rates than male peers. However, regression analysis indicated that income might exert diverse effects on the interest rates received by women. In terms of default risk assessment, lenders may distinguish between female borrowers with different incomes, causing income to become the key factor determining the interest rate received by female borrowers. This study adopted income as a threshold condition to estimate the effect of various default risk factors on mortgage rates. The obtained result indicated that during 2009–2017, women’s status shifted from disadvantageous to advantageous in the mortgage market. Female borrowers who belonged to the highest income group received their lowest interest rates in 2015–2017, which were 0.026 percentage points lower than those faced by male peers in the same financial position. Based on relevant behavioral differences between men and women proposed in literature, reasons for this phenomenon are proposed.
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... financial services: They pay higher interest rates on loans, they are more frequently underinsured, their loan applications are more likely to be rejected, and they often have suboptimal retirement plans (Cheng et al. 2011;Gray 2012;Heim et al. 2012). Given the central role that finance plays in human lives, these are serious concerns that are studied under rubrics such as gender disparity and racial disparity. ...
... There is broad agreement among economists about the existence and scale of racial and gender disparity in financial markets (Ladd 1998). Female borrowers pay higher interest rates on their loans than male borrowers (Cheng et al. 2011); they get loans with less favourable conditions (Carter et al. 2007); their loan applications are more frequently rejected (Gray 2012); and they face less favourable treatment in case of defaulting on a loan (Dymski et al. 2013). Very similar observations hold for people of colour. ...
... Emerging research in economics suggests, however, that a considerable part of gender disparity must be attributed to demand-side factors. A study by Cheng et al. (2011) considers gender disparity in mortgage lending. While the data they collect unequivocally show that women pay higher interest rates on their mortgages than men (even controlled for relevant variables), there is no evidence that this happens as a result of testimonial injustice on the part of loan officers. ...
Epistemic Injustice in Finance
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This article applies philosophical work on epistemic injustice and cognate concepts (such as epistemic self-confidence) to study gender and racial disparity in financial markets. Members of disadvantaged groups often receive inferior financial services (they pay higher interest rates on loans, their loan applications are more likely to be rejected, etc.). In most jurisdictions, it is illegal to provide discriminatorily disparate treatment to groups defined by gender and skin colour. Racial disparity in financial services is generally considered to be discriminatory (and therefore illegal). The standard view among most regulators is that gender disparity is not discriminatory, though. Through an analysis of various exemplary cases, I propose testimonial injustice as a candidate explanation for some of the existing forms of racial disparity found in financial services. I show how prejudices about gender and finance decrease epistemic self-confidence, and how this leads to gender disparity. And I consider particularly intractable forms of self-fulfilling testimonial injustice.
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... Although the effect of homeownership and housing quality on social and economic outcomes is well understood, few papers examine the difference of housing quality between homeowners and renters. Three papers similar to this study are Hilber and Liu (2008) and Cheng et al. (2011Cheng et al. ( , 2015; however, they focus on whether there are disparities in mortgage rates and homeownership. In particular, Hilber and Liu (2008) investigate homeownership disparity between Whites and African Americans. ...
... However, the black-white homeownership disparity disappears if differences in wealth and preferred location types are accounted for. Cheng et al. (2011) examine the rate disparity in mortgages between men and women. They find that there is gender disparity after controlling for traditional variables such as mortgage features, borrower characteristics, and market conditions. ...
Housing Disparity between Homeowners and Renters: Evidence from China
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This paper examines whether there is a housing disparity between homeowners and renters. Using data from the Chinese Urban Household Survey, we find that homeowners on average have much higher housing quality than renters after controlling for household characteristics, regional factors, location, and time fixed effects, and such disparity increases significantly over time. We also find that the disparity is mainly concentrated on the people who are disabled, divorced, and the people with low education or rural hukou. Furthermore, we investigate possible factors contributing to this increasing disparity. Our results suggest that the disparity is largely driven by increasingly home improvement for owner-occupied houses but not rental houses. In addition, we also find that the 1994-1998 housing reform has contributed to inequality in homeownership between state employees and other groups, especially the disadvantaged groups such as people with rural hukou who are completely excluded from the reform. With housing prices soaring in the past two decades, people who benefited from the housing reform in the 1990s have enjoyed enormous housing appreciation. However, the disadvantaged people who were excluded from the housing reform now live in bad housing conditions. Given the evidence that housing quality is key to both mental and physical health, our findings have important policy implications for the Chinese government.
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... Our research is also related to the large body of research that has documented gender differences in a number of different economic settings. Much of the research in this area has focused on outcomes in the labor market, most prominently the gender wage gap (see Blau and Kahn (2017) for a survey of the literature), and the mortgage market (Fishbein and Woodall, 2006;Cheng, Lin, and Liu, 2011;Goodman, Zhu, and Bai, 2016). Although studies in this literature have also examined gender differences in credit markets with respect to credit card interest rates (Mottola, 2013) and credit scores and credit use (Li, 2018), research on gender disparities in both credit use and credit score has received significantly less attention. ...
... In absolute terms, mean gender differences tend to be larger than median differences because gender differences tend to be larger in the upper percentiles of their respective distributions. For example, the difference in HMDA incomes 16 at the 75th percentile for men and women is $21,000, which is almost double the difference at the median, while 15 It is important to note that one limitation of our data is that we cannot identify different types of credit card that a consumer holds (general purpose, private label, small business, etc.). Therefore, we are unable to examine if females have more of one type of card in particular compared to males, or if the distribution of card types is similar among both genders. ...
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... One is that women are statistically-discriminated 1 against by sellers: women are less desirable buyers because sellers may find women to be less attractive including, but not limited to, the following reasons. It's harder for women to get loans (Ongena and Popov 2016) and when women do get loans they have to pay higher interest rates (Alesina, Lotti andMistrulli 2013, andCheng, Lin andLiu 2011). This explanation is consistent with our findings that in the past women's loan to price ratio is lower than men's. ...
... One is that women are statistically-discriminated 1 against by sellers: women are less desirable buyers because sellers may find women to be less attractive including, but not limited to, the following reasons. It's harder for women to get loans (Ongena and Popov 2016) and when women do get loans they have to pay higher interest rates (Alesina, Lotti andMistrulli 2013, andCheng, Lin andLiu 2011). This explanation is consistent with our findings that in the past women's loan to price ratio is lower than men's. ...
Volume 39, Issue 2 I am Jane. Do I pay more in the housing market? Submission Number: EB-19-00346 I am Jane. Do I pay more in the housing market?
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  • Jun 2019
Do women pay more than men in the housing market? We utilize repeat-sales housing data from ZTRAX to examine if gender gaps exist in house purchase prices and loan-to-price ratios. We find that female homebuyers pay a 2% premium on average. In addition, female homebuyers' loan to price ratio is 3 percentage points lower than that of male buyers. We also show that female buyers pay less when the seller is female than when the seller is male. However, the gender price differentials and loan-to-price differentials are disappearing in more recent years. One possible explanation for the disappearing gender price differentials in house prices and loan-to-price ratios is the shrinking of the gender wage gap in recent years. We would like to thank the seminar participants at Abstract Do women pay more than men in the housing market? We utilize repeat-sales housing data from ZTRAX to examine if gender gaps exist in house purchase prices and loan-to-price ratios. We find that female homebuyers pay a 2% premium on average. In addition, female homebuyers' loan to price ratio is 3 percentage points lower than that of male buyers. We also show that female buyers pay less when the seller is female than when the seller is male. However, the gender price differentials and loan-to-price differentials are disappearing in more recent years. One possible explanation for the disappearing gender price differentials in house prices and loan-to-price ratios is the shrinking of the gender wage gap in recent years.
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... Further to this issue, many of the largest banks increased their retail lending footprint via said mergers and acquisitions, also reducing potential for borrowers to shop for competitive loans and thus driving up the monopolistic power of these larger originators. Cheng et al. (2011) conclude that women pay more for mortgages because they fail to shop for the lowest rate at the same frequency of their male counterparts. Ambrose and Conklin (2014) find that increased competition amongst mortgage brokers by metropolitan statistical area leads to lower fees in both brokered loans and retail originations thus supporting the notion that competition lowers rates and costs for the borrower. ...
Did Increased Large Bank Concentration of US Mortgage Loan Originations Explain Rising Originator Profits?
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Concentration amongst the top 100 mortgage originators rose substantially during the Great Recession. Furthermore, Originator Profits and Unmeasured Costs (OPUCs), a proxy measure of the profit from originating residential mortgage loans also rose over the same period. Recent studies suggest that these increases are only partially explained by rational factors such as rising costs from increased regulatory burdens and changes in risk. We find statistically significant evidence that increasing concentration raised loan costs by 97 basis points using Vector Autoregressive (VAR) models during the Great Recession. This finding suggests that banks are exploiting increasing monopolistic power to increase profits and as such, consumers face rising costs as competition amongst lenders declines. Further to this issue, this study suggests that mortgage markets are not fully competitive and that the rates and fees charged to borrowers are in fact impacted by the level of competition amongst lenders.
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... 2. Bienes y servicios sujetos a la discriminación de precios por género Cheng, Lin y Liu (2009) encontraron que las mujeres estadounidenses pagaban una media de 40 puntos base más en hipotecas que los hombres. Se encontró que el que las mujeres tuvieran menor nivel educativo y ganaran menos dinero, suponía una razón suficiente para pagar más por un crédito. ...
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საცხოვრისის ბაზარი და მისი განვითარების პერსპექტივები საქართველოში - Housing market and its development prospects in Georgia
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  • Dec 2020
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