Artificial Intelligence and its inherent bias seems to be an ongoing contributing factor in slowing minorities home loan approvals. An investigation by The Markup found lenders were more likely to deny home loans to people of color than to white people with similar financial characteristics. Specifically, 80% of Black applicants are more likely to be rejected, along with 40% of Latino applicants, and 70% of Native American applicants are likely to be denied. How detrimental is the secret bias hidden in mortgage algorithms? It's important to note that 45% of the country's largest mortgage lenders now offer online or app-based loan origination, as FinTech looks to play a major role in reducing bias in the home lending market, CultureBanx reported.
Artificial Intelligence and its inherent bias may not be as judgmental as previously thought, at least in the case of home loans. It appears the use of algorithms for online mortgage lending can reduce discrimination against certain groups, including minorities, according to a recent study from the National Bureau of Economic Research. This could end up becoming the main tool in closing the racial wealth gap, especially as banks start using AI for lending decisions. The Breakdown You Need to Know: The study found that in person mortgage lenders typically reject minority applicants at a rate 6% higher than those with comparable economic backgrounds. However, when the application was online and involved an algorithm to make the decision, the acceptance and rejection rates were the same.
Buying a home is an important milestone many Americans dream about. Kids grow up doodling images of their dream home. College students start building their credit early so they can apply for a mortgage in the future. People save money for years so they can afford a downpayment. But, imagine if after all that dreaming and hard work, your hopes of buying a home are dashed by a biased lending algorithm that uses your race, or where you grew up, to determine your future. According to a recent investigation conducted by The Markup, this nightmare is a reality for many prospective borrowers in the United States.
On Aug. 30, the Federal Financial Institutions Examination Council made available data on mortgage lending transactions in 2018 as required by the Home Mortgage Disclosure Act. The HMDA data set provides important information on U.S. mortgage market activity and is an important tool for all stakeholders to consider how to enhance efforts to expand homeownership in their communities. Banks are in the business of making loans and want to provide safe and sound mortgages to as many qualified borrowers as possible. Since HMDA captures lending information across all populations, this data is beneficial to banks to assess how well they meet their customers' needs, to identify business opportunities, and most importantly, to detect possible trends that would suggest unfair treatment of any group, region or population. We hold as a fundamental tenet that race, ethnicity, or another prohibited basis should never factor into lending and pricing decisions.
This past June, to commemorate the massacre of hundreds of Black Americans and destruction of their thriving community by a white terrorist mob in Tulsa, Oklahoma, a century ago, the Biden administration promised it would work to address the racial wealth gap. Specifically, it said, federal officials would expand access to "two key wealth-creators"--home and business ownership--and take actions to address racist practices in the housing market. Important steps, to be sure, but new research points to an equally vital priority: helping families weather the kinds of economic shocks that propel homes into foreclosure. The wealth gap is dire. Based on data from the Fed's 2019 Survey of Consumer Finances, median wealth for white families nearing retirement was $315,000, nearly triple that of Hispanic families and six times that of Black families.