New Evidence on the Relationship Between Race and Mortgage Default: the Importance of Credit History Data
One problem with the BCGH work was that their estimated default equation did not control for the credit history of the FHA borrower. Recent studies have found credit history (e.g., past record of making monthly payments on time) to be an important determinant of mortgage default that is also highly correlated with race, with minorities, on average, exhibiting below-average past credit records. Thus, BCGH's finding that black borrowers had higher FHA default probabilities could be traceable to their not controlling for the effects of credit history. The limited twofold purpose of this study is to report the findings obtained by including a measure of borrower credit history in a model of FHA defaults that is similar to the BCGH default model and to demonstrate the bias attributable to omitting such data.