A TheMarkup investigation reveals that lenders are more likely to deny home loans to applicants of color than financially similar white applicants.
were founded by the federal government to spur homeownership and now buy about half of all mortgages in America. If they don’t approve a loan, the lenders are on their own if the borrower skips out.
“This is how structural racism works,” said Chi Chi Wu, a staff attorney at the National Consumer Law Center. “This is how racism gets embedded into institutions and policies and practices with absolutely no animus at all.”by Vantage Score — a credit model developed by the “Big Three” credit bureaus to compete with FICO — estimated that its model would provide credit to 37 million Americans who have no scores under FICO models. Almost a third of them would be Black or Latino.
Neither of the companies would answer questions from The Markup about why they still require Classic FICO. But, like similar promises that algorithms would make colorblind decisions in criminal risk assessment and health care, research shows that some of the factors Fannie and Freddie say their software programs consider affect people differently depending on their race or ethnicity. These include, in addition to credit histories, the prospective borrowers’ assets, employment status, debts, and the size of the loan relative to the value of the property they’re hoping to buy.
“This is a relatively new world of automated underwriting engines that by intent may not discriminate but by effect likely do,” said David Stevens, a former president and CEO of the Mortgage Bankers Association, now an independent financial consultant. “This analysis includes a review to ensure that model inputs are not serving as proxies for race or other protected classes,” Chad Wandler, Freddie’s director of public relations, said in a written statement. He declined to elaborate on what the review entails or how often it’s done.
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