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The Influence of Bureau Scores, Customized Scores and Judgmental Review on the Bank Underwriting Decision-Making Process

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Author Info

  • M. Cary Collins

    ()
    (University of Tennessee, Knoxville, Tennessee 37996)

  • Keith D. Harvey

    ()
    (Boise State University, Boise, Idaho 83706)

  • Peter J. Nigro

    ()
    (The Office of the Comptroller of the Currency, Washington, D.C. 20219)

Abstract

In recent years commercial banks have moved toward automated forms of underwriting. This study employs unique bank loan-level data from a scoring lender to determine whether automated underwriting exhibits a potential ‘‘disparate impact’’ across income strata. The findings indicate that strict application of this custom scoring model leads to higher denial rates for low- to moderate-income borrowers when compared with both a naý¨ve judgmental system and a bureau scoring approach. These results suggest that financial regulators should focus more resources on the evaluation and study of customized scoring models.

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Bibliographic Info

Article provided by American Real Estate Society in its journal Journal of Real Estate Research.

Volume (Year): 24 (2002)
Issue (Month): 2 ()
Pages: 129-152

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Handle: RePEc:jre:issued:v:24:n:2:2002:p:129-152

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Postal: American Real Estate Society Clemson University School of Business & Behavioral Science Department of Finance 401 Sirrine Hall Clemson, SC 29634-1323
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Postal: Diane Quarles American Real Estate Society Manager of Member Services Clemson University Box 341323 Clemson, SC 29634-1323
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Web: http://aux.zicklin.baruch.cuny.edu/jrer/about/get.htm

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Cited by:
  1. Danny Ben-Shahar, 2008. "Default, Credit Scoring, and Loan-to-Value: a Theoretical Analysis under Competitive and Non-Competitive Mortgage Markets," Journal of Real Estate Research, American Real Estate Society, vol. 30(2), pages 161-190.

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