General Introduction

A Five Installment series by the Federn' Reserve System's. Mortgage Credit Parlnership Credit Sea-ring CommiMee

Credit scoring is an underwriting tool used to evaluate the creditworthiness of prospective borrowers. Utilized for several decades to underwrite certain forms of consumer credit, scoring has come into common use in the mortgage lending industry only within the last 10 years. Scoring brings a high level of efficiency to the underwriting process, but it also has raised concerns about fair lending with regard to historically underserved populations.

The Federal Reserve System's Mortgage Credit Partnership Credit Scoring Committee has produced a five-installment series, which explores the potential impact of credit scoring on mortgage applicants. This brochure is the introduction to all five installments.

BACKGROUND

A set of Federal Reserve initiatives known collectively as the Mortgage Credit Partnership (MCP) projects, was launched in 1996 by the Reserve Banks of Boston, Chicago, New York, St. Louis and San Francisco. The Federal Reserve Bank of Cleveland launched its MCP project in 1993 and had a follow-up project in Cincinnati beginning in 1996. The MCP projects were designed to identify and address barriers to both mortgage credit and fair housing in traditionally underserved market demographic profiles and communities.

The MCPs engaged a cross-section of housing industry professionals to examine various aspects of the home-buying process. The purpose was to identify areas that might give rise to, or create the potential for, disparities between majority and minority homebuyers and borrowers in the home search or credit application process. With each project, and around each topic, complex and often heated dialogue arose. Topics such as racial steering, the effect of a neighborhood's racial makeup on appraisals, and the effect of a lack of affinity between borrower and lender were confronted by practitioners in the various housing-related industries. Task groups were formed to address specific issues, such as access to homeowners' insurance, fair appraisal practices, fair lending practices and the impact of specific policies on communities.

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