Finance Seminar（2024 - 05）
Topic: Language Frictions in Consumer Credit
Speaker: Chao Liu, Northwestern University
Time: Tuesday, January 16, 9:00 – 10:30 a.m. Beijing time
Location: Room 217, Guanghua Building 2
Abstract
This paper studies how language barriers between lenders and borrowers translate into differences in borrower outcomes in the U.S. mortgage market. I use survey data to infer and machine learning techniques to predict borrowers’ English proficiency. I document significant descriptive differences in perceptions of mortgages, application experiences, and mortgage rates between limited English proficient (LEP) and non-LEP borrowers. To measure the causal effects of language frictions, I exploit a Federal Housing Finance Agency policy that provided translated mortgage documents in Spanish to mortgage lenders. After the policy change, LEP Hispanic borrowers had a streamlined application process, contacted more lenders, understood mortgage contracts better, and enjoyed lower borrowing costs. Reducing language frictions also led to expanded access to credit for LEP borrowers. Overall, my findings highlight a cost-effective way to create a responsible inclusion of well-qualified LEP borrowers in the mortgage market.
Bio
Chao Liu is a PhD Candidate in Finance at Northwestern University Kellogg School of Management. His research interests include household finance, real estate, development economics, and economic history. His recent work studies language frictions in the US mortgage market, the relationship between income inequality and the housing market, and the effect of mortgage broker licensing requirements.
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