While some observers suspected discrimination, the HMDA measures of applicant creditworthiness are not rich enough to gauge discrimination with certainty. Though hailed by many as conclusive evidence of the existence of racial discrimination in lending, the report is not without its detractors. This working paper reexamines the Boston Fed study and its related criticisms. In addition, it frames the Boston Fed study within the overall context of lending discrimination. Confusion over the scope and methods of the Boston Fed study has contributed to the controversy.
Discrimination can enter the lending process at any of at least five identifiable stages.
Proponents and critics of the study should clearly understand the limited research niche filled by the Boston Fed study. Consequently, these criticisms say nothing about the merits or findings of the Boston Fed study. Our analysis shows that the Boston Fed data do contain many miscoded or atypical observations. Using a systematic data-cleaning procedure, we reestimated the Boston Fed study with clean data only and found that the race effect on application disposition persists even when questionable data are treated or excluded. Zandi reestimated the Boston Fed study and contended that the omission of a variable assessing applicant credit risk was responsible for the race effect.