How Statistics Might Mess With Your Mortgage Fees

Congratulations: You've done it. You've bought a house. The nonsense of navigating the home-buying process is behind you. Now you get to pay a mortgage for 30 years. At last, you think. Something painful, but simple.

Researchers at Penn State University have some bad news about that. According to a new study, minority mortgage-seekers may face higher fees than white mortgage-seekers with similar qualifications. In a statistical analysis of a dataset containing more than 25,000 mortgage brokers, the team at Penn State found that minority borrowers pay about 8 percent more with white mortgage agents than white borrowers. That's a difference of around $400.

The obvious question is whether racism is directly responsible for this kind of gap. Real estate has always been used to enforce white supremacy, with mortgages in particular wielded as a tool of division and oppression. The Penn researchers did not find, however, that white mortgage brokers are especially racist. Instead, they suggest that the bias is much subtler and more systemic.

Statistical discrimination stems from a lack of data. It's an economic theory that when people don't have enough information about an individual or a group, they fall back on "easily observable characteristics," as the U.S. Bureau of Labor Statistics puts it. That's how years of education becomes a stand-in for conscientiousness, and other shorthands. Brokers overall have less data on minority borrowers; the data they have may also be less nuanced, due to its small size. This is still unfair profiling, but give it a name and it may be easier to call out — and hopefully correct.