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

Author

Listed:
  • M. Cary Collins

    (University of Tennessee, Knoxville, Tennessee 37996)

  • Keith D. Harvey

    (Boise State University, Boise, Idaho 83706)

  • Peter J. Nigro

    (The Office of the Comptroller of the Currency, Washington, D.C. 20219)

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 naý¨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.

Suggested Citation

  • M. Cary Collins & Keith D. Harvey & Peter J. Nigro, 2002. "The Influence of Bureau Scores, Customized Scores and Judgmental Review on the Bank Underwriting Decision-Making Process," Journal of Real Estate Research, American Real Estate Society, vol. 24(2), pages 129-152.
    • Handle: RePEc:jre:issued:v:24:n:2:2002:p:129-152
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    Citations

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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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