The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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How Much Does Racial Bias Affect Mortgage Lending? Evidence from Human and Algorithmic Credit Decisions
Published: 04/09/2025 | DOI: 10.1111/jofi.13444
NEIL BHUTTA, AUREL HIZMO, DANIEL RINGO
We assess racial discrimination in mortgage approvals using confidential data on mortgage applications. Minority applicants tend to have lower credit scores and higher leverage, and are less likely to receive algorithmic approval from race‐blind automated underwriting systems (AUS). Observable applicant‐risk factors explain most of the racial disparities in lender denials. Further, exploiting the AUS data, we show there are risk factors we do not observe, and these factors at least partially explain the residual 1 to 2 percentage point denial gaps. We conclude that differential treatment plays a more limited role in generating denial disparities than previous research suggests.
Paying Too Much? Borrower Sophistication and Overpayment in the U.S. Mortgage Market
Published: 12/09/2025 | DOI: 10.1111/jofi.70001
NEIL BHUTTA, ANDREAS FUSTER, AUREL HIZMO
Comparing mortgage rates that borrowers obtain to rates that lenders could offer for the same loan, we find that many homeowners significantly overpay for their mortgage, with overpayment varying across borrower types and with market interest rates. Survey data reveal that borrowers' mortgage knowledge and shopping behavior strongly correlate with the rates they secure. We also document substantial variation in how expensive and profitable lenders are, without any evidence that expensive loans are associated with a better borrower experience. Despite many lenders operating in the U.S. mortgage market, limited borrower sophistication may provide lenders with market power.