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Rotman Insights Hub | University of Toronto - Rotman School of Management

BLM protests moved the needle on the mortgage interest rate gap

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Scott Liao

For generations, owning a home has been central to the American dream. Today, it’s one of the only ways for middle-class citizens to accumulate wealth and pass it along to the next generation. Yet certain groups – particularly racialized Americans - tend to be excluded from this privilege.

In 2017, 30 per cent fewer Black Americans owned their homes compared with white Americans – roughly twice as large as the wealth gap between the two groups. One well-studied reason behind the ownership gap is mortgage interest rates, which tend to be higher for Black borrowers.

In a working paper, Scott Liao, a professor of accounting at the Rotman School of Management, and his co-authors investigated the effects of the 2020 Black Lives Matter (BLM) protests on discrimination in the American housing market. The researchers found that the gap in mortgage interest rates between Black and white borrowers declined in communities that hosted protests.

Liao and his collaborators sampled more than a million loans from more than 3,000 U.S. counties between 2018 to 2021. All loans in the sample were backed by the state-owned corporations Freddie Mac and Fannie Mae, which buy, package and resell mortgages from direct lenders like banks. The loans that go through these government-sponsored enterprises are effectively insured from default by the federal government, thus posing little risk to the banks. “The reason we looked at government-guaranteed loans is because the lenders then don’t have to worry about default risk [when setting the interest rates],” Liao says.

The researchers were able to get access to both demographic data and loans sold to Freddie and Fannie. “We can combine these two datasets due to enhanced HMDA (Home Mortgage Disclosure Act) disclosures in 2018 to really clearly identify discrimination and whether discrimination depends on race,” he says.  

Before 2020, Black borrowers in the researchers’ sample were offered an interest rate that was seven basis points higher on average than white borrowers. In the year following the summer 2020, when BLM protests were at their peak, this gap dropped to around four basis points in communities that hosted demonstrations.

The effect was even more pronounced in communities with local banks, which are more likely to offer face-to-face interactions. This suggests that the protests were effective at lessening interpersonal discrimination, resulting in lower rates, Liao says. “When you have this face-to-face interaction between borrowers and lenders, the lender might be more willing to investigate or reflect on whether they're discriminating against Black Americans.”

Liao and his colleagues also discovered another, less-direct effect of the BLM protests on the banking industry. Throughout the pandemic, banks shut down local branches at record rates resulting in an increase in “banking deserts” which disproportionately affected minority communities. However, the researchers found that branches in locations that hosted BLM protests were less likely to close their doors. Coupled with the decrease gap in mortgage interest rates, this suggests that the movement had the effect of keeping loan resources accessible and making them more equitable. 

Liao’s paper puts forth multiple threads of evidence suggesting that the BLM protests had a measurable, discernable impact on housing discrimination in communities across America. And this should be heartening for activists pushing for societal change, he says.

“The biggest takeaway is that social movements do lead to positive change, even when it's not immediately noticeable, and even when not directly tied to the origins of the protest,” Liao says. “A movement like this has social value because it leads to social awakening.”

According to Liao, research like his has recently become possible due to a change to the Home Mortgage Disclosure Act in 2018, which now allows researchers to merge it with additional data for federally backed loan applicants.

Now that loan and credit risk information can be paired with demographic data, Liao hopes that economists and social scientists will begin to conduct more research around housing discrimination. He also hopes that research like his will inspire further policy changes that make financial data available.

“We support more disclosure,” he says. “It helps to discipline discrimination.”


Scott Liao is vice dean, undergraduate and specialized programs and a professor of accounting at Rotman School of Management.