MORTGAGE LENDING, RACE, AND MODEL-SPECIFICATION

This study examines the role of race in home mortgage lending by inves tigating the sensitivity of race estimates to variations in model spec ification. I compare parameter estimates based on a statistical model utilized by the Federal Reserve Bank of Boston, using a subset of the data that corresponds to FDIC-supervised institutions, with estimates obtained from several alternative variations specified to reflect info rmation obtained from reviews of the mortgage loan application files. Estimates of the race effect are shown to be highly sensitive to the a ssumptions that underlie the model; minor modifications in model speci fication are sufficient to eliminate the race effect. The empirical re sults suggest that the statistical models used to evaluate the impact of race in mortgage lending may not provide reliable information about lending bias.