Mortgage Lending, Race, and Model Specification

This study examines the role of race in home mortgage lending by investigating the sensitivity of race estimates to variations in model specification. I compare parameter estimates based on a statistical model utilized by the Federal Reserve Bank of Boston, using a subset of the data that corresponds to FDIC-supervised institutions, with estimates obtained from several alternative variations specified to reflect information obtained from reviews of the mortgage loan application files. Estimates of the race effect are shown to be highly sensitive to the assumptions that underlie the model; minor modifications in model specification are sufficient to eliminate the race effect. The empirical results suggest that the statistical models used to evaluate the impact of race in mortgage lending may not provide reliable information about lending bias.