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The Influence of Bureau Scores, Customized Scores and Judgmental Review on the Bank Underwriting Decision-Making Process

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  • M Collins
  • Keith Harvey
  • Peter Nigro

Abstract

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 “disparate impact” 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 naïe 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.

Suggested Citation

  • M Collins & Keith Harvey & Peter Nigro, 2002. "The Influence of Bureau Scores, Customized Scores and Judgmental Review on the Bank Underwriting Decision-Making Process," Journal of Real Estate Research, Taylor & Francis Journals, vol. 24(2), pages 129-152, January.
    • Handle: RePEc:taf:rjerxx:v:24:y:2002:i:2:p:129-152
    DOI: 10.1080/10835547.2002.12091093
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    Cited by:

    1. Dubravka Ritter & David Skanderson, 2014. "Fair lending analysis of credit cards," Consumer Finance Institute discussion papers 14-2, Federal Reserve Bank of Philadelphia.
    2. Danny Ben-Shahar, 2008. "Default, Credit Scoring, and Loan-to-Value: a Theoretical Analysis under Competitive and Non-Competitive Mortgage Markets," Journal of Real Estate Research, American Real Estate Society, vol. 30(2), pages 161-190.
    3. Rodríguez-García, Jair Hissarly & Venegas-Martínez, Francisco, 2021. "Reducción de la brecha del crédito en México en un ambiente de incertidumbre generada por la pandemia COVID-19: Un enfoque de ciencia de datos (machine learning) [Reducing the credit gap in Mexico ," MPRA Paper 105133, University Library of Munich, Germany.

    More about this item

    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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