Racial/Ethnic Differences in Household Loan Delinquency Rate

Abstract

This study investigates the differences in household loan delinquency rates of racial/ethnic groups. The study examines the role of demographic and socioeconomic characteristics of households, financial buffers, economic and financial triggers, high debt service ratio, and credit constraint in household delinquency. The study uses combined data from 2001, 2004, 2007, and 2010 Surveys of Consumer Finances (SCF). Having combined data allowed the separation of African Americans from Hispanics in this study. We employed both logistic regression and Blinder-Oaxaca decomposition analysis. The use of combined data from four survey years ensures the robustness of statistical results and analysis. The findings show that events that constitute shocks or triggers to households have a more significant impact on delinquency rate. The study found that payday loan borrowers are 4.6 times more likely to be delinquent on their loans than non-payday loan borrowers between 2007 and 2010. Also, the study finds significant statistical difference of delinquency rates among the racial/ethnic groups. Our results show that high debt service ratio (DSR) and being credit constrained have significant impact on the delinquency rates for all races. The results obtained showed that 59.96 % of the difference in delinquency between Whites and African Americans is explained by endowments, while 40.04 % is unexplained. Similarly, 97.35 % of the difference in delinquency between Hispanics and whites is explained by endowments, while 2.65 % of the difference is unexplained or is attributable to discrimination.