The St Louis Contrarian

Providing Independent and Intelligent Insight on St. Louis Public Policy Issues

Real Facts Behind Alleged Racial Discrimination in Mortgage Underwriting

Once again articles have appeared alleging racial discrimination in mortgage underwriting. The allegations are very simplistic, they are based on the fact that fewer African Americans than white Americans get approved for mortgage loans even adjusting for income.

There are several key factors that go into underwriting a loan that belie this argument. A huge factor in loan underwriting is the creditworthiness of the borrower. I have conducted research which has shown that a poor credit rating was the biggest predictor of loan default. It makes sense. People could have a lot of money, but if they don’t pay bills, they are a risk. The analyses conducted by fair housing groups don’t take credit history into account. They are not being accurate to state they are comparing like borrowers.

A second reason which supports the argument that we have a credit worthiness problem is the nature of the mortgage business. Mortgage loan officers are hugely competitive and derive their income from closing loans. I can speak from experience they fight aggressively for each deal. They are not going to pass up a commission because they may be prejudiced against people of color.

Underwriting standards need to be constantly reviewed to insure they are fair to all and capture as best they can the experience of racial minorities. We can get better results. But let’s not go in for simplistic analysis. Written by Paul Dribin


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