Before taking the position at Wichita State, Mr. Longhofer was a financial economist at the Federal Reserve Bank of Cleveland, where he was a founding member of the Federal Reserve System's Fair Lending Advisory Group. Mr. Longhofer's research on mortgage discrimination, financial contracting and bankruptcy has been published in the Journal of Real Estate Finance and Economics; the Journal of Money, Credit, and Banking; the Journal of Financial Intermediation; and the European Economic Review. In addition, he has written several articles on the mortgage market and other topics. He holds a doctoral degree in economics from the University of Illinois.
Contributors to this installment of the series were asked to respond to the following statement:
The emergence of credit scoring in the home-buying process has been a significant contributor to the increase in mortgage lending activity around the country. Proponents of scoring systems argue that their purely objective nature constitutes a significant fair-lending benefit by virtually assuring against disparate treatment on a prohibited basis. Others point out that when inaccurate information is contained in the credit report, the consumer may not have the opportunity to rectify the report, and the lending decision will be made with inaccurate data. Another concern that has been raised is that the objectivity of the credit score is lost when a lender supplements the scoring process with overrides, counteroffers or second-review programs that are subjective in nature or in use.
Credit-scoring overrides and counteroffers can serve important functions in maximizing access to credit. However, their nature and usage could result in unlawful discrimination. A frequent use of overrides would suggest a mismatch between the scoring system and the lender's credit
policies or objectives. In addition, inconsistency in the use of either "high-side" or "low-side" overrides to reach a credit decision, or inconsistent counteroffers made to similarly situated applicants, may result in disparate treatment on a prohibited basis. Furthermore, if a lender engages in a subjective second review process, unlawful disparities may result from the absence of well-established, consistently applied second-review guidelines that include clear explanations of judgmental factors and cutoff scores.
Describe steps that the lenders could take to ascertain the level of staff's compliance with its and
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