Racial bias has played \”a limited role\” in recent years in generating disparities seen in mortgage lending denials, according to a recent study published by the government Reserve. The researchers used confidential supervisory data collected underneath the Mortgage Disclosure Act to estimate the extent to which racial and ethnic discrimination by mortgage lenders continues to generate disparities in denial rates. They figured bias still makes up about a number of that gap, but that \”racially biased credit decisions appear less frequent than has been suggested by previous research.\” However, they cautioned the paper's conclusions must be considered \”in the context of a big literature which has found proof of racial bias in other markets and settings.\”
The researchers acknowledged that like a self-reporting mechanism, HDMA reports might not reflect reality \”as a lender involved in illegal discrimination could be unlikely to explicitly admit this.\” Still, they said the reports ensured that they better understand how lenders justify excess denials. They then compared the data with other resources, such as the denial rates in different communities. They also examined denial rates among fintech lenders, saying that by automating more of the application process, fintech firms have the potential to lessen bigotry. Excess denials were higher at fintech lenders than at traditional lenders, \”the opposite result we'd expect if excess denials reflect racially biased human judgment.\”
Rather than differential treatment, the researchers figured group differences in risk characteristics drive the majority of the disparities in credit access. Black and Hispanic applicants tend to be leveraged and have much lower credit ratings, they said. Consequently, both of them are less likely to get algorithmic approval recommendations from government-automated underwriting systems than white applicants.
The researchers noted you will find potential gaps in the data used, such as lenders unfairly discouraging people from underrepresented groups from applying for mortgages. They also asserted the HDMA reports used were explicitly created like a tool to battle against mortgage discrimination. \”The discovering that this effort has been largely successful does not mean that individual racial prejudice has been eliminated, or that overt discrimination would not rear its head if fair lending enforcement were to be relaxed,\” i was told that.
