Artificial intelligence software might have a practical application in reducing discrimination against some minority groups when it comes to applying for a mortgage online. That’s according to a new study by the National Bureau of Economic Research, which is calling on banks to embrace AI as a way of ending bias in home loan decisions.
The study found that mortgage lenders tend to reject minority applicants at a rate that’s 6% higher than those with comparable economic backgrounds following in-person meetings. But of applicants who completed their mortgage application online, the acceptance and rejection rates were more or less the same, the study found.
“If we look at banks, they have argued in the past that they’re in a bind when staring down potentially conflicting government mandates to reduce balance sheet risk, while not discriminating against any one demographic group,” an article in Forbes.com noted.
Economists say the disparity in homeownership rates is one of the main reasons for the racial wealth gap in the U.S.
Homeownership rates among African Americans have currently fallen to a new low of just 40%, having declined steadily since peaking in 2004, according to data from the U.S. Census Bureau. Between 2009 and 2015, around 1.3 million mortgage applications from minority persons were rejected, according to estimates.
The National Bureau of Economic Research’s researchers say AI could be one way of reversing that trend. It notes that lenders who’ve already embraced AI-powered lending have seen a fivefold increasing in African American and Hispanic borrowers aged between 30 and 40 over the last year.
But, “the growing use of algorithms in financial services can produce results that are positive, negative, or simply unpredictable,” Forbes.com said. “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.”
I would like to see discrimination eliminated from the housing market. Though, recent news about the algorithms being used by banks and credit companies leaves me less than hopeful that AI will be the answer to this issue.