Mortgage Study A Preconceived Conclusion Looking For Data

May 28, 2002
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A recent study of home mortgage lending practices in the Grand Rapids SMA opens with a stark statement of purpose: “… to determine the degree to which racial minorities, the elderly, low-income individuals and other vulnerable groups encounter discrimination in the Grand Rapids MSA and the local (Kent County) home mortgage and equity loan markets.”

Note that the report’s authors didn’t set out to find whether local lenders discriminate on the basis of race, etc. The authors, consultants from three universities, simply assumed that lenders discriminate and then marshaled data to buttress that opinion.

The report seems to do little more than proffer statistical inferences. For instance:

  • When comparing white and black households, and white and Hispanic households, with the same marital status and family type, it was found that white homeownership was higher.

  • Black and Hispanic households with the same education and income as white households have lower homeownership rates than white households.

  • Lower-income, white households are twice as likely to be homeowners than lower-income, black households.

One might interpret such statements to show that lenders discriminate against black mortgage-seekers. But “might” is the operative word. Such statistics, in fact, hint at dozens of possible explanations that the report doesn’t deign to address.

In a study by Kent County regarding minority health care, researchers last year found that access to care and health education were leading to a higher number of health concerns among minorities, but using the bank study “formula,” they might have looked at the initial numbers and simply concluded that doctors and hospitals discriminate against minorities. The danger of such a conclusion in the health care study would have been all-out attempts to “fix” racism, rather than the issues actually affecting these life and death issues.

Scientists work by methodically trying, over and over, to disprove possible explanations, (hypotheses) for what happens in the world around us. They don’t seek statistical correlations to show that “A” causes cancer. Instead, they spend years trying to prove in dozens of ways that A does not cause cancer, and — if they fail — they start acting as if they have a partial handle on the problem.

The mortgage lending report exhibits little scientific rigor. The City of Grand Rapids and the Steelcase Foundation ought to ask for a refund. The report shows ethnic disparities in home ownership, but it proves nothing about lenders’ motivations or practices.

In fact, the study wholly skirted one major issue: foreclosure data. The study dismissed consideration of foreclosure data because of “high cost” and the “high probability of flaws in interpreting foreclosure data.”

Banks, however, pay a very high cost if they ignore foreclosure data.

Perhaps the greatest flaw in the report is that it is based in part on decade-old census data that do not reflect profound changes in the population of the SMA.

If mortgage officers let prejudices affect their work, they soon are looking for new jobs. Financial institutions want and need mortgage business. And woe to the mortgage lender whose boss finds out he’s turning down a steady stream of house payments from customers because of race.

To be sure, a mortgage officer’s job is to discriminate: to lend money only to good credit risks. The only color that counts is green.  

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