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Fair Lending Analysis of Mortgage Pricing: Does Underwriting Matter?

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  • Yan Zhang

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    Abstract

    This paper evaluates the impact of underwriting decision on fair lending risk assessments of loan pricing. Using data from one national bank that contain a rich set of decisioning variables, we compare the estimation results from the single equation model with those from the sample selection type of models. Then we conduct three simulation studies to evaluate the sample selection bias and omitted variable bias under various scenarios. We demonstrate that the single equation approach could potentially generate biased estimates of pricing disparities when it fails to consider the impact of the underwriting decision. Copyright Springer Science+Business Media, LLC (outside the USA) 2013

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    File URL: http://hdl.handle.net/10.1007/s11146-011-9319-y
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    Bibliographic Info

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

    Volume (Year): 46 (2013)
    Issue (Month): 1 (January)
    Pages: 131-151

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    Handle: RePEc:kap:jrefec:v:46:y:2013:i:1:p:131-151

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

    Related research

    Keywords: Underwriting; Pricing; Fair lending analysis; Pricing disparities; Sample selection bias; Omitted variable bias;

    References

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    8. 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.
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    18. Crawford, Gordon W & Rosenblatt, Eric, 1999. "Differences in the Cost of Mortgage Credit Implications for Discrimination," The Journal of Real Estate Finance and Economics, Springer, vol. 19(2), pages 147-59, September.
    19. Jason Dietrich, 2005. "Under-specified Models and Detection of Discrimination: A Case Study of Mortgage Lending," The Journal of Real Estate Finance and Economics, Springer, vol. 31(1), pages 83-105, August.
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    21. James J. Heckman, 1976. "The Common Structure of Statistical Models of Truncation, Sample Selection and Limited Dependent Variables and a Simple Estimator for Such Models," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 5, number 4, pages 475-492 National Bureau of Economic Research, Inc.
    22. Nothaft, Frank E. & Perry, Vanessa G., 2002. "Do mortgage rates vary by neighborhood? Implications for loan pricing and redlining," Journal of Housing Economics, Elsevier, vol. 11(3), pages 244-265, September.
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