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Under-specified Models and Detection of Discrimination: A Case Study of Mortgage Lending

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  • Jason Dietrich

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    Abstract

    This study examines how omitted variables affect underwriting models the OCC estimates during fair lending examinations. The purpose is to assess the effects of omitted variable bias common to most studies of discrimination in mortgage lending. The results show omitted variables have an important impact on both the estimate of the effect of race and on the identification of outliers for review. Further, there appears to be no consistent patterns to the direction of these impacts. This suggests that it is inappropriate to make generalizations concerning the direction of bias based on assumptions about correlations between omitted variables and race. Copyright Springer Science + Business Media, Inc. 2005

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    File URL: http://hdl.handle.net/10.1007/s11146-005-0995-3
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    Bibliographic Info

    Article provided by Springer in its journal The Journal of Real Estate Finance and Economics.

    Volume (Year): 31 (2005)
    Issue (Month): 1 (August)
    Pages: 83-105

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    Handle: RePEc:kap:jrefec:v:31:y:2005:i:1:p:83-105

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    Web page: http://www.springerlink.com/link.asp?id=102945

    Related research

    Keywords: mortgage lending; discrimination; omitted variable bias;

    References

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    1. King, Mervyn A., 1980. "An econometric model of tenure choice and demand for housing as a joint decision," Journal of Public Economics, Elsevier, vol. 14(2), pages 137-159, October.
    2. Black, Harold & Schweitzer, Robert L & Mandell, Lewis, 1978. "Discrimination in Mortgage Lending," American Economic Review, American Economic Association, vol. 68(2), pages 186-91, May.
    3. Day, Theodore E & Liebowitz, S J, 1998. "Mortgage Lending to Minorities: Where's the Bias?," Economic Inquiry, Western Economic Association International, vol. 36(1), pages 3-28, January.
    4. Lynn Elaine Browne & Geoffrey M.B. Tootell, 1995. "Mortgage lending in Boston: a response to the critics," New England Economic Review, Federal Reserve Bank of Boston, issue Sep, pages 53-78.
    5. Yatchew, Adonis & Griliches, Zvi, 1985. "Specification Error in Probit Models," The Review of Economics and Statistics, MIT Press, vol. 67(1), pages 134-39, February.
    6. Stephen L. Ross & John Yinger, 2002. "The Color of Credit: Mortgage Discrimination, Research Methodology, and Fair-Lending Enforcement," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262182289, December.
    7. Lee, Lung-Fei, 1982. "Specification error in multinomial logit models : Analysis of the omitted variable bias," Journal of Econometrics, Elsevier, vol. 20(2), pages 197-209, November.
    8. Mitchell Stengel & Dennis Glennon, 1999. "Evaluating Statistical Models of Mortgage Lending Discrimination: A Bank-Specific Analysis," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 27(2), pages 299-334.
    9. Harrison, Glenn W, 1998. "Mortgage Lending in Boston: A Reconsideration of the Evidence," Economic Inquiry, Western Economic Association International, vol. 36(1), pages 29-38, January.
    10. Munnell, Alicia H. & Geoffrey M. B. Tootell & Lynn E. Browne & James McEneaney, 1996. "Mortgage Lending in Boston: Interpreting HMDA Data," American Economic Review, American Economic Association, vol. 86(1), pages 25-53, March.
    11. Mervyn A. King, 1980. "An econometric model of tenure choice and demand for housing as a joint decision," NBER Chapters, in: Econometric Studies in Public Finance, pages 137-159 National Bureau of Economic Research, Inc.
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    Cited by:
    1. Judith Clarke & Nilanjana Roy & Marsha Courchane, 2009. "On the robustness of racial discrimination findings in mortgage lending studies," Applied Economics, Taylor & Francis Journals, vol. 41(18), pages 2279-2297.
    2. Yan Zhang, 2013. "Fair Lending Analysis of Mortgage Pricing: Does Underwriting Matter?," The Journal of Real Estate Finance and Economics, Springer, vol. 46(1), pages 131-151, January.
    3. Judith A. Clarke & Nilanjana Roy & Marsha J. Courchane, 2006. "On the Robustness of Racial Disrcimination Findings in Motgage Lending Studies," Econometrics Working Papers 0604, Department of Economics, University of Victoria.

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