The Use of Social Capital in Borrower Decision-Making

W08-4: By looking beyond the financial characteristics of borrowers, this research brings to light the social factors that influence a borrower’s choice of a lender and mortgage product. Previous research has indicated that distinct channels exist that funnel borrowers into lower or higher cost loan products (Apgar, Bendimerad, and Essene 2007). But little is known as to how borrowers seek out or are directed to such channels. A particular concern that this paper hopes to address is why black borrowers disproportionately have higher priced products. Some research indicates that even when credit worthiness is controlled for, blacks are overrepresented in the subprime sector and in higher-cost products (Bocian, Ernst, and Li 2006). Through in-depth interviews with 32 borrowers, this research (1) highlights how borrowers seek mortgage credit and evaluate their mortgage options, and (2) demonstrates how borrowers make use of their social networks (friends and family) when making their decisions…