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

M. Cary Collins (), Keith D. Harvey () and Peter J. Nigro
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M. Cary Collins: University of Tennessee, Knoxville, Tennessee 37996
Keith D. Harvey: Boise State University, Boise, Idaho 83706

Journal of Real Estate Research, 2002, vol. 24, issue 2, pages 129-152

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.

JEL-codes: L85 (search for similar items in EconPapers)
Date: 2002
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