Anatomy of a Fair-Lending Exam: The Uses and Limitations of Statistics

In this paper, we consider the role of statistical analysis in fair-lending compliance examinations. We present a case study of an actual fair-lending examination of a large mortgage lender, demonstrating how statistical techniques can be a valuable tool in focusing examiner efforts to either uncover illegal discrimination or exonerate an institution so accused. Importantly, our case also highlights the limitations of such statistical techniques. The study suggests that statistical analysis combined with comparative file review offer a balanced and thorough approach to enforcement of fair-lending laws.