The always worth-reading Adam Levitin has an excellent piece in @TheProspect on risk-based-pricing in mortgage market and its strong impact on #RacialWealthGap. It's super. But I would also add some things I don't think he emphasizes enough. A thread. 1/7 https://prospect.org/economy/how-to-start-closing-the-racial-wealth-gap/

Risk-based pricing is when folks w/lower credit scores & smaller down payments pay higher interest rates. This makes loans both harder to get & more expansive for folks with lower credit scores and less wealth. The higher rate is called a loan-level pricing adjustment (LLPA): 2/7

A big issue here is that this practice, required since 2007 by the GSEs (& their regulator) has a LARGE disparate racial impact. Blacks and other POC tend to pay higher LLPAs. This is the disparate impact of risk-based pricing. 3/7

So as Levitin says, risk-based pricing depresses Black homeownership rates by making loans more expensive for Blacks relative to Whites, on average, because increasing the cost of the loan makes it more difficulty to qualify for the loan. But there are other effects that... 4/7

...increase #RacialWealthGap. By making loans more expensive for folks w/less wealth & lower credit scores, risk-based pricing *also* 1) reduces financial benefits & wealth gain due to homeownership and 2) increases the risk of the loans, including the risk of foreclosure. 5/7

And since Black homebuyers are more likely to see higher LLPAs, they will 1) have harder time buying home; 2) pay higher rate when they do & so see less financial return; & 3) end up with riskier loans. The cost of a mortgage is key determinant of benefit of homeownership. 6/7

Finally, Levitin does not address an elephant in room regarding risk-based pricing, and that's GSE "Reform". If Trump admin's plan to privatize GSEs go through, risk-based pricing could get much worse, and the govt's ability to control it will disappear. This is huge issue. 7/7

cc: @ddayen