Racial Animus and the Racial Gap in Subprime Lending During the Great Recession

Racial disparities in mortgage lending were a defining feature of the housing boom that preceded the Great Recession. Black borrowers were disproportionately likely to receive high-cost subprime loans and subsequently experienced higher rates of foreclosure. Prior research has documented these disparities and traced them to historical patterns of discrimination in housing and credit markets, including redlining and the later emergence of reverse redlining. However, while structural explanations are well established, less is known about the role that underlying racial attitudes may have played in shaping lending outcomes during this period.
This thesis examines whether geographic variation in racial animus is associated with racial differences in the likelihood of receiving subprime mortgage loans. The analysis combines loan-level data from the Home Mortgage Disclosure Act (HMDA) with a measure of racial animus developed by Stephens-Davidowitz (2014), which uses racially charged internet search behavior to capture local variation in racial attitudes across media markets in the United States. By linking these measures to mortgage lending outcomes, the study evaluates whether areas with higher levels of racial animus experienced larger racial disparities in subprime lending.
The empirical strategy analyzes variation across media markets while controlling for borrower characteristics, loan attributes, and local economic conditions. The results suggest that higher levels of racial animus are associated with an increased probability that Black borrowers receive subprime loans relative to comparable White borrowers. These findings contribute to the literature on discrimination in credit markets by providing evidence that local racial attitudes may have influenced mortgage lending patterns during the housing boom. More broadly, the study highlights how social attitudes can shape economic behavior in financial markets and contribute to persistent racial inequality in wealth accumulation.