Academic journal article ABA Banking Journal

Au Contraire: Study Suggests Absence of Home-Loan Bias

Academic journal article ABA Banking Journal

Au Contraire: Study Suggests Absence of Home-Loan Bias

Article excerpt

Between the Boston Federal Reserve Bank study of a couple of years ago and the annual release of Home Mortgage Disclosure Act numbers, banks and other housing lenders have been taking a drubbing. Though the statistical basis of some of these works has been questioned. and the verity of some of the conclusions drawn has raised objections, it's fair to say that lenders have not been winning the numbers game. And that loss has helped fuel the ongoing scrutiny of bank fair-lending records and efforts.

A new study, "Discrimination, Default, and Loss in FHA Mortgage Lending," questions the widespread conclusion that mortgage lenders are discriminating against minorities. As far as it goes, it appears to support the claim of many banks and other lenders that they are being accused of discrimination when credit factors not typically included in statistical studies are the real explanation behind apparently discriminatory behavior.

The study was performed by economists from the Federal Reserve Board, the Federal Home Loan Mortgage Corp., and the University of Southern California. The economists relied on data about the experiences under the Federal Housing Administration's single-family mortgage insurance program. The data were provided by FHA's parent, the Department of Housing and Urban Development and were supplemented with 1980 and 1990 Census data.

The key conclusion

The study's authors note that most statistical work done on perceived discrimination has held either that (a) lenders hold minority applicants, or people applying for mortgages in mostly minority neighborhoods, to higher credit standards than prudent regard for the possibility of default would dictate, or (b) that lenders hold nonminority applicants to easier standards than prudence would dictate, or work harder to help them overcome difficulties in meeting credit standards than they work for minorities. …

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