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Exclusive analysis of U.S. mortgage fairness reveals alarming inequality for Black and Native American borrowers

In a first-of-its-kind report, a 31-year analysis of U.S. mortgage approvals exposes deep inequities in mortgage fairness over time

LOS ANGELES, Nov. 29, 2022 /PRNewswire/ -- In one of the most comprehensive studies of discrimination in the American mortgage market to date, FairPlay today released the State of Mortgage Fairness Report. The research identifies trends in publicly-available data to determine if mortgage fairness in the U.S. has changed over time. FairPlay's findings reveal that mortgage fairness for Black Americans is essentially no better today than it was thirty years ago, and for Native Americans, mortgage fairness has declined by more than 10%. These discouraging results are tempered by positive news for female and Hispanic mortgage applicants, who experienced a steady increase in mortgage fairness.

Fairplay Logo (PRNewsfoto/Fairplay)
Fairplay Logo (PRNewsfoto/Fairplay)

FairPlay, the world's first Fairness-as-a-Service™ solution, conducted a comprehensive study of more than 350 million mortgage applications from 1990 to 2021. The loan records were obtained from Federal public source data in the Home Mortgage Disclosure Act (HMDA). This is the most comprehensive publicly available data source that identifies race, ethnicity and gender for mortgage applications.

To measure fairness, Fairplay used the industry standard metric Adverse Impact Ratio (AIR), which compares the rate of approval for protected status applicants compared to a control group (typically White or male applicants). For example, if protected class applicants had a 60% approval rate, while the control group had a 90% approval rate, the AIR would be 60/90 or 67%. An AIR of less than 80% is considered a statistically significant disparity. AIR does not control for risk.

Key findings from the State of Mortgage Fairness Report include the following:

  • (↘) Native American mortgage applicants: In 1990, Native American homebuyers had an AIR of 94.8%. By 2021, AIR for Native American mortgage application approvals dropped to 81.9%.

  • (↔) Black mortgage applicants: In 1990, Black mortgage applicants obtained loan approvals at 78.4% the rate of White applicants. In 2019, the AIR remained unchanged. Only in 2020 and 2021, was there a modest increase in AIR for Black applicants, to 84.4%, likely attributable to massive government stimulus and other support programs designed to stabilize the housing market during the COVID-19 pandemic

  • (↗) Female mortgage applicants: The most positive trend seen in the HMDA data relates to mortgage fairness for women. Between 1990 and 2021, the AIR for mortgage applications filed by women rose from 91.8% to 99.2%, which is nearly on par with the control group (men).

  • (?↗) Hispanic mortgage applicants: HMDA data on Hispanic applicants only dates back to 2008, so there is an incomplete picture for fairness trends for this population.

  • () Asian mortgage applicants: For Asian homebuyers, the fairness story continues to remain positive. Asian Americans had fairness parity with White mortgage applicants in 1990, and have consistently maintained comparable levels of mortgage approvals to White applicants.

Many government programs intended to increase homeownership and financial inclusion have been put in place since 1990. Financial regulators have 30 years of additional enforcement of fair lending laws. The Consumer Financial Protection Bureau (CFPB) has emerged on the regulatory scene and has conducted multiple supervision and enforcement actions related to fair lending in the mortgage market. This 30-year period also coincides with the introduction of modern credit scores. Despite these regulatory efforts at removing bias from lending, progress has clearly been uneven, with particularly troubling data for Black and Native American borrowers.

"Despite decades of government intervention and the growth of high-priced consultancies devoted to fair lending practices, there is clearly much work to be done," said FairPlay CEO/founder and report co-author Kareem Saleh. "It's time for policymakers, regulators and lending institutions to admit that our efforts to reduce bias in mortgage lending have not moved the needle. If we want to extend the American dream to historically underrepresented groups, we must start encouraging new approaches to lending fairness."

For more information about the State of Mortgage Fairness Report or to view additional research materials, visit FairPlay.ai.

About FairPlay AI

FairPlay AI is the world's first "fairness-as-a-service" solution helping organizations address algorithmic bias to improve humanity, reduce regulatory risk, and increase bottom lines. Built by some of world's most foreknown leaders in AI, FairPlay's technology serves financial institutions, lenders, insurance carriers, marketers and others by identifying blind spots in their algorithms and providing automated "second-looks" to improve decisioning systems without increasing risk. FairPlay believes that users of algorithms must act with intentionality to keep the biases of the past from being encoded into the digital decisions of the future. For more information about FairPlay and its products, visit FairPlay.ai.

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SOURCE Fairplay