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A Monte Carlo examination of bias tests in mortgage lending

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  • Paul W. Bauer
  • Brian A. Cromwell

Abstract

An exploration of the effectiveness of testing procedures in uncovering discrimination by mortgage lenders, reflecting perceived shortcomings in the scope of data provided by the Home Mortgage Disclosure Act, which indicates that the rejection rate for black mortgage applicants is much higher than for whites. The authors find that for plausible levels of bias, the sample size is critical, but that low levels of bias can be difficult to detect even with large sample sizes.

Suggested Citation

  • Paul W. Bauer & Brian A. Cromwell, 1994. "A Monte Carlo examination of bias tests in mortgage lending," Economic Review, Federal Reserve Bank of Cleveland, vol. 30(Q III), pages 27-40.
    • Handle: RePEc:fip:fedcer:y:1994:i:qiii:p:27-40:n:v.30no.3
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    References listed on IDEAS

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    1. Robert B. Avery & Patricia E. Beeson & Mark S. Sniderman, 1993. "Lender consistency in housing credit markets," Proceedings 417, Federal Reserve Bank of Chicago.
    2. Robert B. Avery & Patricia E. Beeson & Mark S. Sniderman, 1993. "Lender consistency in housing credit markets," Working Papers (Old Series) 9309, Federal Reserve Bank of Cleveland.
    3. 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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    Cited by:

    1. Douglas D. Evanoff & Lewis M. Segal, 1996. "CRA and fair lending regulations: resulting trends in mortgage lending," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 20(Nov), pages 19-46.
    2. Jed L. DeVaro & Jeffrey M. Lacker, 1995. "Errors in variables and lending discrimination," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 19-32.
    3. Douglas Evanoff & Lewis Segal, 1997. "Strategic Responses to Bank Regulation: Evidence From HMDA Data," Journal of Financial Services Research, Springer;Western Finance Association, vol. 11(1), pages 69-93, February.
    4. David G. Blanchflower & Phillip B. Levine & David J. Zimmerman, 2003. "Discrimination in the Small-Business Credit Market," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 930-943, November.

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