| By: |
Judith A. Clarke (Department of Economics, University of Victoria);
Marsha J. Courchane (ERS Group, Washington D.C.);
Nilanjana Roy (Department of Economics, University of Victoria) |
| Abstract: |
The binary logistic regression or logit link model is commonly used to test
for racial disparate treatment in fairlending studies undertaken by government
agencies, including the Office of the Comptroller of the Currency (OCC) and
the Federal Reserve Board (FRB). Ensuring race neutrality in lending remains a
concern of regulators and consumer advocates. Improving the understanding of
any shortcomings of either bank internal models or regulatory agency models
will enable those participants in the mortgage industry to better serve the
needs of consumers. We explore this issue using five bank studies undertaken
by the OCC. We consider the impact of the logit link assumption, as this
determines how race affects the likelihood of loan approval, by moving to
three other links: probit, gompit and complementary log log; the latter two
are examples of asymmetric links. As our data sets have been obtained using
stratified sampling procedures, which has been typical at the OCC, rather than
being drawn via simple random sampling, moving away from the logit link
complicates estimation; it is no longer possible to use a standard estimation
command with an adjustment for stratum effects. Our results reveal that the
choice of link function, despite exhibiting similar sample fit, can influence
findings of disparate treatment at the nominal level of significance commonly
accepted as the legal standard. We also find that the use of a resampling
method, which aims to better approximate the finite sample null distribution,
for obtaining p-values typically leads to support for discrimination more
often than arises from use of the standard normal approximation. |
| Keywords: |
Logit, Fair lending, Stratified sampling, Binary response, Semi-parametric maximum likelihood, Pseudo log-likelihood, Profile log-likelihood, Without replacement resampling, Bootstrapping |
| Date: |
2005–10–14 |
| URL: |
http://d.repec.org/n?u=RePEc:vic:vicewp:0516&r=ure |