On the robustness of racial discrimination findings in mortgage lending studies

Abstract

That mortgage lenders have complex underwriting standards, often differing legitimately from one lender to another, implies that any statistical model estimated to approximate these standards, for use in fair lending determinations, must be misspecified. Exploration of the sensitivity of disparate treatment findings from such statistical models is, thus, imperative. We contribute to this goal. This article examines whether the conclusions from several bank-specific studies, undertaken by the Office of the Comptroller of the Currency, are robust to changes in the link function adopted to model the probability of loan approval and to the approach used to approximate the finite sample null distribution for the disparate treatment hypothesis test. Our evidence, of discrimination findings that are reasonably robust to the range of examined link functions, suggests that regulators and researchers can be reasonably comfortable with their current use of the logit link. Based on several features of our results, we advocate regular use of a resampling method to determine p-values.

Racial Discrepancy in Mortgage Interest Rates

“…Some of the more frequently cited papers in this area include Yinger (1996)), Ross and Yinger (1999) Ladd (1998) andBecker (1993). Data and methodological limitations of these studies are discussed in Ferguson and Peters (1995) and Clarke et al (2009) Compared to the large number of studies on mortgage rejection and default rates, fewer studies have analyzed racial disparities on interest rates. Courchane and Nickerson (1997) conducted a case study using data from the Office of the Comptroller of the Currency.…”

The Impact of Property Condition Disclosure Laws on Housing Prices: Evidence from an Event Study Using Propensity Scores

“…The fundamental assumption in logit and probit models that the probability approaches zero and one at the same rate is not tenable since the law has been adopted by different states in different time. According to Clarke, Courchane, and Roy (2005), use of a symmetric link function (i.e. inverse of the cumulative distribution function) like logit or probit would extend bias when such disparate treatment exists and is not capable of capturing the variations over time.…”

Discrimination Data Analysis: A Multi-disciplinary Bibliography

“…Empirical studies (Clarke et al, 2009;Dietrich, 2009;Dietrich & Johannsson, 2005;Goenner, 2010;Sanandaji, 2009) include the analysis of HMDA data at bank level (i.e., a model for each bank under analysis) or at a market level (i.e., a single model aggregating variables for several banks). An experimental comparison of the two approaches is reported in (Blackburn & Vermilyea, 2006).…”