Hispanic brokers and borrowers: The effect of language affinity on the price of home mortgages

• Areas where Hispanics are predominantly Limited English proficient (LEP) is associated with a higher APR, on average.
• APR is lower for Hispanic borrowers in LEP areas that use a Hispanic broker than non-Hispanic broker.
• Results consistent for alternative definitions of English Proficiency.
• Results are consistent with model predictions that are based on the need of language services.

Our study focuses on whether mortgage prices for Hispanic borrowers in areas of limited English fluency depend on the broker's ethnicity. While we find that Hispanic borrowers in areas where the majority of Hispanics are not fluent in English pay higher prices overall, mortgage prices are lower if the loans are originated by Hispanic brokers relative to non-Hispanic white brokers. This effect is found only in fixed-rate mortgage loans and for low/no-documentation loans. Nevertheless, our results cannot be easily explained by different levels of market competition or borrower characteristics. Our results are consistent with other empirical studies that find that language barriers carry additional costs. We note that our conclusions may be affected by the accuracy of our proxy measurements of English and Spanish fluency.