Bias in estimates of discrimination and default in mortgage lending: The effects of simultaneity and self-selection

Yezer, Anthony M.; Phillips, Robert F.; Trost, Robert P.

doi:10.1007/bf01099273

Cited by 89 publications

(39 citation statements)

References 19 publications

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“…. consistent with the argument in Section 2 see Yezer, Phillips, and Trost 1994 that information is asymmetric, and riskier borrowers choose high LTV loans. The prepayment risk increases slightly as original LTV increases, except for the highest LTV category.…”

Section: Specifications and Resultssupporting

confidence: 83%

Mortgage Terminations, Heterogeneity and the Exercise of Mortgage Options

1999

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As applied to the behavior of homeowners with mortgages, option theory predicts that mortgage prepayment or default will be exercised if the call or put option is ''in the money'' by some specific amount. Our analysis: tests the extent to which the option approach can explain default and prepayment behavior; evaluates the practical importance of modeling both options simultaneously; and models the unobserved heterogeneity of borrowers in the home mortgage market. The paper presents a unified model of the competing risks of mortgage termination by prepayment and default, considering the two hazards as dependent competing risks that are estimated jointly. It also accounts for the unobserved heterogeneity among borrowers, and estimates the unobserved heterogeneity simultaneously with the parameters and baseline hazards associated with prepayment and default functions.Our results show that the option model, in its most straightforward version, does a good job of explaining default and prepayment, but it is not enough by itself. The simultaneity of the options is very important empirically in explaining behavior. The results also show that there exists significant heterogeneity among mortgage borrowers. Ignoring this heterogeneity results in serious errors in estimating the prepayment behavior of homeowners.

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Section: Specifications and Resultssupporting

confidence: 83%

Mortgage Terminations, Heterogeneity and the Exercise of Mortgage Options

1999

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“…Much like Tootell (1996), Campbell et al (2008), Cohen-Cole (2011), andBrevoort (2011), we are particularly interested in the impact of neighborhood racial characteristics on individuals' credit outcomes. Unlike the existing literature, however, we examine whether concerns that bankcard issuers make lending decisions based on the racial composition of the borrower's neighborhoodan act that would constitute "a clear violation of the Equal Credit Opportunity Act" (Brevoort 2011: 714) Rachlis and Yezer 1993, Yezer et al 1994, Dawkins 2002, Yezer 2010, Brevoort 2011, our findings cannot be viewed as conclusive evidence in support of the discrimination hypothesis. We explain why and how this important caveat applies in the context of our data and analysis.…”

Section: Groups Americanmentioning

confidence: 72%

Neighborhood Racial Characteristics, Credit History, and Bankcard Credit in Indian Country

et al. 2015

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. We examine whether concerns about lenders' discrimination based on community racial characteristics can be empirically substantiated in the context of neighborhoods on and near American Indian reservations. Drawing on a large-scale dataset consisting of individual-level credit bureau records, we find that residing in a predominantly American Indian neighborhood is ceteris paribus associated with worse bankcard credit outcomes than residing in a neighborhood where the share of American Indian residents is low. While these results are consistent with the possibility of lenders' discrimination based on community racial characteristics, we explain why our findings should not be readily interpreted as conclusive evidence thereof. We further find that consumer's credit history is a robust and quantitatively more important predictor of bankcard credit outcomes than racial composition of the consumer's neighborhood, and that the consumer's location vis-à-vis a reservation exhibits no effect on bankcard credit outcomes. JEL-Codes: G210, J150, P430, R110. Terms of use: Documents in

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“…For example, critics argue that creditors may use the rule of thumb rather than statistical models in their decisions (Bostic 1997), lending standards may vary widely across creditors (Stengel and Glennon 1999;Blackburn and Vermilyea 2006), and borrowers' application decisions may cause sample selection biases (Yezer et al 1994;Dawkins 2002). These issues, while important, are not entirely addressed in this paper and left for future research.…”

Section: Related Studiesmentioning

confidence: 79%

“…These factors may include culture affinity between creditors and borrowers (e.g., Darity and Williams 1985;Lang 1986;Cornell and Welch 1996;Hunter and Walker 1996;Ferguson and Peters 1997;Bostic 2003), borrower's self-selection of creditors (e.g., Yezer et al 1994;Longhofer and Peters 2005), and self-fulfilling equilibrium effects (e.g., Coate and Loury 1993;Lang and Nakamura 1993). See also Calomiris et al (1994), Ladd (1998), and Ross and Yinger (2002), among others, for other possibilities.…”

Section: Related Studiesmentioning

confidence: 95%