Measuring Risk and Access to Mortgage Credit with New Disclosure Data

Abstract

Female and minority borrowers have historically been denied equal access to credit markets. Yet conclusive evidence of discrimination is often hindered by limited availability of complete underwriting information. The recent expansion of data collected under the Home Mortgage Disclosure Act provides an unprecedented opportunity to examine disparities in access to mortgage credit in greater detail. The average female or minority applicant is associated with higher risk characteristics than the typical White male mortgage applicant. This greater risk explains some of but not all the differences in denial rates between groups. Statistically significant disparities persist after accounting for the predicted probability of loss. For example, Black applicants have a denial rate roughly 3 percentage points higher than White applicants with similar characteristics.

TOPICS: MBS and residential mortgage loans, information providers/credit ratings, credit risk management

Key Findings

• ▪ Female, minority, and same-sex applicants as groups are associated with higher than average predicted likelihood of loss.

• ▪ Female, minority, and same-sex applicants are more likely to be denied given their levels of predicted risk.

• ▪ Comparing default rates instead of denial rates will underestimate the prevalence of mortgage discrimination.