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The main Lending Disparities page was originally created partly as result of the announcement of settlement of the Department of Justice’s (DOJ’s) case against Countrywide Financial Corporation. Section 6 of that page discusses DOJ’s use of odds ratios in the analysis set out in its Complaint and Section 8 of the page discusses implications of the fact that the analysis of assignment to loan type examined only persons who received some type of loan (an issue now also addressed on the Partial Picture Issues sub-page). The case, especially the emphasis in the complaint on the obligation of lenders to seek less discriminatory alternatives, was also the subject of my recent articles “The Lending Industry’s Conundrum” (National Law Journal, Apr. 2, 2012) and “’Disparate Impact’: Regulators Need a Lesson in Statistics” (American Banker, June 5, 2012). Underadjustment issues that are highlighted in the Wells Fargo complaint, but that are also pertinent to the Countrywide case, are addressed in my “Statistical Quirks Confound Lending Bias Claims” (American Banker, Aug. 14, 2012).
Thus, while some aspects of the case may be further discussed in other articles, certain aspects of the case warrant attention here, though I am so far giving them only a small part of the attention they deserve. These issues go both to the Countrywide complaint’s treatment of higher borrowing costs (Complaint 9-31) and its treatment of assignment to less desirable loan types. Id. 31-38.
Two such aspects are presently treated below. I hope eventually to treat at least several others.
1. Continuous Measures
The issues raised on many pages of this site and in the recent articles about the ways measures of differences between outcome rates tend to be affected by the overall prevalence of an outcome do not necessarily apply to the Countrywide complaint’s analyses of differences in borrower costs, to the extent that such analyses involve true continuous variables. The Solutions sub-page of the Measuring Health Disparities page itself involves translating binary measures to continuous measures.
But often what appear to be continuous measures are functions of decisions about dichotomies, in which case the continuous measure will tend to be affected by the prevalence of an outcome in a complex way. See 2006 British Society for Population Studies presentation at 6-7 and Comment on Chandola BMJ 2007. Thus, the pertinence of the points made with regard to outcome rates may or may not pertain to the analysis of additional costs depending on whether those additional costs are influenced by decisions about such things as assignment to sub-prime status and decisions about overages and shortages. See Complaint at 11.
Subsequent to creation of this subpage, I posted the Partial Picture Issues subpage and published “Fair Lending Studies Paint Incomplete Picture” (American Banker, April 24, 2013) addressing other problems with lending claims involving continuous measures.
2. Additional Adjustment Issues
The issues raised in the Underadjustment Issues sub-page and in Section 2 of the main Lending Disparities page apply to both the analyses of differences in borrowing costs and the analyses of differences in loan type in the Countrywide complaint. Further, with respect to both claims, the complaint first questions the appropriateness of considering credit characteristics beyond the manner indicated by formal guidelines. But it then proceeds to nevertheless include those characteristics in the analyses, finding that doing so causes the magnitude of the disparity to be “only somewhat diminished.” Complaint at 16, 29. The complaint does not state how much diminished.
To the extent that credit-related characteristics affect the disparity, whether or not they are formally included in the company’s guidelines, such impact as they may have on the disparity would seem appropriate. For example, if inclusion of such factors entirely eliminated any disparity it would seem that any inference of intentional discrimination would be rebutted. Similarly, the true disparity that might be related to any intentional discrimination would seem to be that found after consideration of all credit-related characteristics.[i]
Thus, it would be useful for the complaint to set out the disparity after it has been, in the view of the government, only somewhat diminished. A common failing of many studies is the reporting of seemingly stark disparities between groups and then simply noting that the disparities remained statistically significant after adjusting for characteristics. One is then left wondering whether the disparity that residual disparity would remain seemingly stark or would appear almost trivial, albeit, still statistically significant. In large studies, trivial differences often are statistically significant. See the Disparate Treatment sub-page of the Discipline Disparities page.
The above points, however, should not be interpreted as suggesting that standard measures of differences in outcome rates are useful indicators of the strength of forces causing rates to differ. See pages 24-18 of the Harvard University Measurement Letter, Appendix B of the Federal Reserve Board Measurement Letter, and the June 14, 2013 American Banker item mentioned in the prefatory note.
Description of other subpages to the Lending Disparities page:
The Underadjustment Issues subpage addresses the fact that efforts to adjust for racial differences in characteristics related to securing some outcome are invariably inadequate.
The Absolute Differences – Lending subpage discusses issues concerning the measurement of lending disparities by means of absolute differences between rates as has been done in a number of studies by arms of the Federal Reserve System. The issue is treated more fully in Appendix A to the Letter to the Board of Governors of the Federal System.
The Disparities – High Income subpage addresses the erroneous perception that the fact that relative differences in adverse outcomes tend to be greater among higher-income than lower-income groups suggests that differences in income do not explain rejection rate disparities.
The Underadjustment Issues subpage addresses the fact that efforts to adjust for racial differences in characteristics related to securing some outcome are invariably inadequate.
The Absolute Differences – Lending subpage discusses issues concerning the measurement of lending disparities by means of absolute differences between rates as has been done in a number of studies by arms of the Federal Reserve System (a matter now more fully treated in Section A of Appendix to the letter to the Federal Reserve Board).
The Lathern v. NationsBank subpage discuses a putative class action brought against NationsBank Mortgage Corp. in Washington, DC on the basis of a study showing that NationsBank had comparatively large relative differences in mortgage rejection rates.
The United States v. Wells Fargo subpage addresses several issues especially pertinent to the Department of Justice's lending discrimination case against Wells Fargo Bank that was the subject of a $175 million settlement announced in July 2012.
The Partial Picture Issues subpage addresses a fundamental problem with analyses underlying claim of discrimination in assignment to subprime status and discrimination in loan pricing at issue in cases like United States v. Countrywide and United States v. Wells Fargo that was not present in analyses of rejection rate disparities – i.e., that the analyses of the claims fail to examine the entire universe of persons seeking the desired outcome. That matter was recently treated in my “Fair Lending Studies Paint Incomplete Picture,” American Banker, April 24, 2013
The Foreclosure Disparities subpage addresses recent studies of disparities in foreclosure rates, explaining the measures that generally reduce foreclosures, while tending to reduce relative differences in foreclosure rates, will tend to increase relative differences in foreclosure rates.
The File Comparison Issues subpage discusses the problematic nature of efforts to identify discrimination by means of comparisons of files of rejected and approved applicants.
The FHA/VA Steering Study discusses a study that regards the fact that a larger proportion of minority than white mortgage loans were FHA/VA loans as suggesting that minorities were steered to such loans but without providing an estimate of what the difference in proportions would be absent discrimination. It also discusses the fact that one of the entities authoring the study, after relying on relative differences in adverse outcomes as a measure of the comparative size of disparities, issued another study relying on relative differences in favorable outcomes as a measure of the comparative size of disparities.
The Holder/Perez Letter subpage discusses an April 24, 2012 letter to the Department of Justice explaining to the agency, among other things, that statistical perceptions underlying its fair lending enforcement policies are incorrect.
The Federal Reserve Letter subpage discusses the March 4, 2013 letter to the Board of Governors of the Federal Reserve System explaining to the agency, among other things, that statistical perceptions underlying its fair lending enforcement policies are incorrect.
[i] I have considered the points raised concerning “proxy bias” in Appendix 3 to the EEOC Commission Sales Report in EEOC v. Sear Roebuck and Co., the subject The Sears Case page of the this site. My present thinking is that those points would not affect the discussion in the text above in a material way.