The Influence of Bureau Scores, Customized Scores and Judgmental Review on the Bank Underwriting Decision-Making Process
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 â€˜â€˜disparate impactâ€™â€™ 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 naÃ½Â¨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.
Volume (Year): 24 (2002)
Issue (Month): 2 ()
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