Grader Instructions for Side-by-Side Comparison

Thank you for agreeing to help out with this research project. Your task is simple- to review a set of e- mail responses we received from mortgage lenders and compare them. We are interested to know if you feel the responses you read tend to be more favorable toward one set of recipients than another, or if they are treated approximately the same. Essentially, we want to know your opinion. Please use the format we’ve supplied by enabling external content in excel and simply clicking on the “Open Form” button. After entering the form, please start by typing your name in the ID box. Next, read both e-mails carefully. After reading both e-mails, please indicate if you thought the mortgage lender strongly preferred one, preferred the other, or treated the recipients neutrally using the check box indicator. If you thought that the mortgage lender expressed a preference, please use the next section of check boxes to indicate why you felt this way. Feel free to use the “other” check box in the event that your opinion does not match a reason listed, or if you can’t quite describe why you feel that way. You can also fill in a reason for “other” to describe your reasoning. Please use the following as guidance when checking boxes for your reasons:

More favorable terms (interest rate, etc.): Check this box if the lender replied with more favorable loan terms to one recipient than the other. This could be in a quoted or suggested interest rate, length of loan, type of loan, fees, or anything else that has to do with costs to the borrower.

Friendliness: Check this box if you feel the lender was more ‘friendly’ to one recipient than the other. Again, this is your opinion, we will not hold it against you.

Included more details: Check this box if you feel the lender gave a more detailed description of the products, application materials needed, or generally gave answers with more depth to one recipient than the other.

Explained the process: Check this box if you feel the lender offered more guidance on the lending process, the application process, or the home purchase process to one recipient than the other. This might include offers on how to improve credit, or necessary paper work to complete an application. Un-preferred email was more negative: Check this box if you thought that one of the e-mails was negative, even if the other e-mail was neutral. This might include negative language, unusually short replies (relative to the other), or a rude tone in writing.

Facilitated the transaction: Check this box if you feel the lender attempted to facilitate a successful transaction more with one recipient than the other. This might include offers for future communication, providing application materials, encouraging an application, or offering help with credit issues or home search.

Un-preferred email steered into a product or was pushy: Check this box if you feel the lender was being pushy about selling a loan, or suggested a specific product that was “right” for the recipient and not the other. Differentiating between this box and facilitating a transaction will largely depend on your interpretation of the language of the e-mail. Remember, this is your opinion.

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Conclusion

This work examines the effects of tax policy and institutions on behavior in the housing market. The first essay measures the sensitivity of consumers to the price of mortgage debt using state variation in the price of mortgage debt. By analyzing IRS data using weighted least squares and IV estimation we find that a one percentage point increase in the MID raises the amount of mortgage interest claimed by $303-590. This approach implicitly captures the variety of margins into which consumer choice runs with respect to mortgage finance, which in turn describes more completely the impact of MID policy on efficiency and tax expenditures than do single-choice measures. By highlighting the effect of the policy on tax expenditure by income class, we emphasize the distributional impact of each reform.

The second essay continues to examine the MID, but in this case for its impact on local home prices. I employ localized parameters across a variety of markets, including twenty-seven cities (and ZIP-code neighborhoods within a subset of those cities) to simulate changes to home price in a user cost model were the MID to be reformed. I show there is high spatial disparity in the impact of the MID, chiefly deriving from differing marginal tax rates, itemization rates and mortgage balances across space. Because the benefits of the MID vary by income, I present the policy as a potential reinforcement to income class sorting across space. I present suggestive evidence that MID reform could reduce the cost of mobility across neighborhoods of differing income class by reducing what I term the “affordability gap.”

This essay also explores an alternative to the traditional method of calibrating the user cost model, a need which became clear in the course of using it to investigate changes to local housing markets. I present a calibration technique to identify two parameters which have been taken on assumption in prior work. Rather than assuming key values in the model, I assume that

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imputed rents for owner-occupied housing are sufficiently related to actual market rents in order to estimate the degree to which property taxes and historic home price appreciation affect user cost. This change in paradigm deserves further investigation in future work.

The final essay describes a field experiment in which we test whether mortgage loan officers respond differently based on client race. The test involves an audit-pair technique borrowed from the literature on labor economics in which race is indicated by name in email inquiries about mortgage loans. We find that MLOs discriminate on net by 1.8 percentage points in favor of white clients. In addition, we test the marginal effect of low credit scores on response rate. MLOs discriminate on credit score, and direct comparison of the results suggests that the effect of being African American is equivalent to that of having a credit score that is 71 points lower.

Taken together, this work suggests that the impact of policies is not uniform, and policymakers could benefit from considering the differential impacts of public policy on different groups in these markets going forward. In the first two essays, this is seen in the distributional impacts of the MID; the market distortions introduced by the policy do not fall evenly across income class or space. This distribution of impacts may or may not be preferable to a policymaker, but awareness of that distribution is key to forming effective housing policy that do not produce unintended consequences. For example, if the MID is not meant to induce income sorting across neighborhoods, this work can help policymakers to consider the full impact of the existing policy and whether it achieves its goals.

In the third essay we see evidence that outcomes in the mortgage market may still differ by race despite strong public policy (in the form of legislative prohibitions) designed to eliminate such differences. Once again, the work presented here can serve to inform policy makers about

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the nature of the different outcomes experienced in the mortgage market so that future policy can be better aligned with policymakers’ goals.

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Vita

William Harold (Hal) Martin was born on March 7, 1981 in Nashville, TN. He attended Principia College in Elsah, IL, graduating in 2003 with a B.A. in Economics. He completed additional coursework at Principia College and at the University of Minnesota in Minneapolis.

Prior to his graduate studies, Hal worked in the private sector as a consultant to small- and medium-sized businesses. He also worked as an instructor of undergraduate economics.

Hal began his doctoral studies at the Andrew Young School of Policy Studies at Georgia State University in the fall of 2010. He worked as a research assistant for Dr. Andrew Hanson, with whom he collaborated in studying the effects of the mortgage interest deduction and racial discrimination in the mortgage market. He also performed research for Dr. Kurt Schnier and Dr. Spencer Banzhaf. His work was supported by the Dean’s Fellowship, the George J. Malanos Scholarship, the Jack Blicksilver Scholarship, and a University Fellowship award.

During his graduate studies, Hal presented papers on the topics of housing and public finance at the Urban Economics Association and the Southern Economic Association’s annual conferences. He also presented work several times to internal seminar audiences at the Andrew Young School. His work has been published in Public Finance Review. In addition to his research activities, he served as an instructor to an undergraduate economics course. He also served as president of the Graduate Student Association and as a volunteer with the non-profit program Banking on Our Future. He earned his M.A. in Economics from Georgia State University in 2013.

Hal was awarded a Ph.D. in Economics by Georgia State University in 2015. Upon