James P. Scanlan, Attorney at Law

Lending Disparities in High Income Groups

(Feb. 16, 2012; rev. Apr. 13, 2012)

One way in which the failure to recognize the pattern whereby the rarer an outcome the greater tends to be the relative difference in experiencing it and the smaller tends to be the relative difference in avoiding it leads to a mistaken interpretation of data involves large relative differences in adverse outcomes among advantaged populations.  “Race and Mortality” (Society 2000) discusses the attention given to large relative (racial) differences in infant mortality where parents are well-educated.   “Can We Actually Measure Health Disparities?” (Chance 2006) and many comments or journal articles (see Section E.1 of the Measuring Health Disparities page (MHD)) discuss the attention given to the large relative (occupational level) differences in adverse health outcomes among British civil servants in the Whitehall Studies.  Those providing various explanations for such patterns failed to appreciate that large relative differences in adverse outcomes are to be expected within groups where those outcomes are less common or that relative differences in the opposite, favorable outcomes tend to be small within those groups. 

In the lending context, with regard to disparities in assignment to subprime loans[i] and disparities in mortgage rejection rates[ii] (as well as disparities in foreclosures), it was argued that the fact that relative differences in these adverse outcomes were larger among higher-income groups than among lower-income groups refuted claims that income differences accounted for disparities.  Even if, properly measured, disparities were larger among higher-income groups, such fact would hardly be probative of discrimination. It would merely show that the factors driving the disparities, whether discrimination or differences in income and other credit-related factors,[iii] were more substantial among higher-income groups.  And there is some reason to expect income variation within income level to be greatest in the highest-income group, where the grouping does not have an upper bound.

More to the point of this item, however, there is reason to expect relative differences in adverse lending outcomes to be greater among higher-income groups simply because such outcomes are rarer among higher-income groups.  For the same reason, there is reason to expect relative differences in the favorable outcomes to be smaller among high-income groups. 

In “Getting it Straight When Statistics Can Lie,” (Legal Times, June 23, 1993), I relied on publicly available data on rejection rates by income groups simply to illustrate the above pattern.  To my knowledge, that was before observers were relying on the larger rejection rate disparities among higher-income group as evidence that income differences could not explain observed rejection rate disparities. 

The studies referenced in the first two notes provide additional information to explore these patterns.  The figures in Table 1 are from Graph 1 of the study on differences in assignment to subprime loans references in note i  (Bradford).  The adverse and favorable ratio columns show that, in accord with the distributionally-driven forces, as income increases and rejection rates becomes smaller, relative differences in rejection rates increase while relative difference in approval rates decrease.  While not necessarily germane to the instant issue, the final column shows the difference between whites and blacks according to the method described on the Solutions sub-page of MHD that is theoretically unaffected by the overall prevalence on outcome.  That column shows that the disparities were about equal in all four income categories.    

Table 1 Percents of White and Black Home Loans That Were Subprime and Measures of Difference (Based on Bradford Graph 1) [ref B2612 a 1]

As shown in Table 2, the patterns from the study on rejection rate disparities are a good deal less consistent with the distributionally-driven forces, both with respect to the larger relative differences in rejection rates at each higher-income level and with respect to decreasing relative differences in approval rates.  These are functions of true differences at the various levels, as reflected in the final column.  But whatever may be causing the differences within income level, that the differences vary by income category does not suggest that the differences are or are not functions of differing group characteristics within each income category.

Table 2 White and Black Mortgage Rejection Rates at NationsBank by Locale and Income Level and Measures of Difference (based on Bond Tables) [ref 2516 a 2]