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Fair Lending Analysis of Mortgage Pricing: Does Underwriting Matter?

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  • Yan Zhang

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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  • 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.
  • Handle: RePEc:kap:jrefec:v:46:y:2013:i:1:p:131-151
    DOI: 10.1007/s11146-011-9319-y
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    References listed on IDEAS

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    Cited by:

    1. Agata M. Lozinskaia & Evgeniy M. Ozhegov & Alexander M. Karminsky, 2016. "Discontinuity in Relative Credit Losses: Evidence from Defaults on Government-Insured Residential Mortgages," HSE Working papers WP BRP 55/FE/2016, National Research University Higher School of Economics.
    2. Wheeler, Christopher H. & Olson, Luke M., 2015. "Racial differences in mortgage denials over the housing cycle: Evidence from U.S. metropolitan areas," Journal of Housing Economics, Elsevier, vol. 30(C), pages 33-49.
    3. Yan Zhang, 2018. "Assessing Fair Lending Risks Using Race/Ethnicity Proxies," Management Science, INFORMS, vol. 64(1), pages 178-197, January.
    4. Su, Qing, 2015. "Determinants of mortgage pricing: A quantile regression analysisAuthor-Name: Al-Bahrani, Abdullah," Journal of Housing Economics, Elsevier, vol. 30(C), pages 77-85.
    5. Lozinskaia Agata & Ozhegov Evgeniy, 2016. "Key Determinants of Demand, Credit Underwriting, and Performance on Government-Insured Mortgage Loans in Russia," EERC Working Paper Series 16/03e, EERC Research Network, Russia and CIS.
    6. Yurchenko, Yurii, 2019. "The impact of macroeconomic factors on collateral value within the framework of expected credit loss calculation," MPRA Paper 97135, University Library of Munich, Germany.
    7. James B. Kau & Lu Fang & Henry J. Munneke, 2019. "An Unintended Consequence of Mortgage Financing Regulation – a Racial Disparity," The Journal of Real Estate Finance and Economics, Springer, vol. 59(4), pages 549-588, November.

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