The Price of Mortgage Financing for Native Americans
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ORIGINAL ARTICLE
The Price of Mortgage Financing for Native Americans Laura Cattaneo1 · Donna Feir2,3 Received: 13 March 2020 / Revised: 19 October 2020 / Accepted: 21 October 2020 © Springer Nature Switzerland AG 2020
Abstract We demonstrate that mortgage loans made to Native American primary borrowers are systematically more likely to be higher-priced than other mortgage loans. This difference is pronounced for mortgage loans on reservations: 27% of mortgage loans for properties on reservation lands with Native Americans as the primary borrower are higher-priced, while only 8.7% of mortgage loans nearby reservations made to non-Native American borrowers are higher-priced. Conditional on having a higher-priced loan, the rate spread facing Native Americans is also higher than non-Native Americans. These findings come from the 2010 to 2017 Home Mortgage Disclosure Act Data which is the most comprehensive, consistent series of mortgage loan data in the USA. We discuss the factors that may drive these outcomes. Keywords Indigenous peoples · Native American · Mortgage financing · Home ownership · Capital access
Introduction Affordable access to capital has been a persistent concern for Native peoples.1 In this paper, we use data from the Home Mortgage Disclosure Act (HMDA) from 2010 to 2017 to examine whether Native Americans (including American Indians, Native Hawaiians, and Alaska Natives) are more likely than other populations to have “higherpriced” home loans2 and, if so, by how much. We also 1 See Community Development Financial Institutions Fund (2001), United States Congress House. Senate Committee on Indian Affairs (2015), Jorgensen (2016), Jorgensen and Akee (2017). 2 We use the standard definition of “higher-priced mortgage loans,” where higher-cost loans are loans that have an annual percentage rate (APR) that is 1.5 percentage points higher than the average prime offer rate (APOR) if it is a first-lien home purchase loan (Consumer Financial Protection Bureau 2017).
Donna Feir
[email protected] Laura Cattaneo [email protected] 1
Carlson Business School, University of Minnesota, Minneapolis, MN, USA
2
Department of Economics, University of Victoria, Minneapolis, MN Canada
3
Center for Indian Country Development, Federal Reserve Bank of Minneapolis, University of Victoria, Minneapolis, MN Canada
describe how this changes over time and how it varies by geography, including on reservation lands, nearby reservation lands, and in Hawaii and Alaska. We use the available data to determine the extent to which any differences can be accounted for by observable factors including gender, income, loan amount, loan-to-income ratio, bank branch presence, loan type,3 whether a loan is for a manufactured home, and other time-invariant, geographic unobservable characteristics. We find that first-lien home purchase loans are far more likely to be higher-priced if the primary borrower is identified as Native American and the property is in a census tract associated with a reservation. For example, in 2016, almost 30% of
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