Under-specified Models and Detection of Discrimination in Mortgage Lending (WP 2003-2)
This publication is a part of:
Collection: Economics Working Papers Archive
Most empirical studies of discrimination in mortgage lending can be criticized for omitted variable bias. With access to data and policy guidelines typically unavailable to researchers, the OCC is in a unique position to assess the importance of omitted variables on fair lending models. This study examines how variables available to the OCC, but often unavailable to researchers, affect estimates from statistical models and identification of outliers for manual review.
The results show that omitted variables have an important impact on both the estimate of the effect of race and on the identification of outliers for review. Further, there appears to be no consistent patterns to the direction of these impacts. This suggests that it is inappropriate to make generalizations about the potential direction of bias based on assumptions about the correlations between omitted variables and race.