Five Questions With Marsha Courchane, VP, Charles River Associates
Marsha Courchane is vice president and practice leader of financial economics at Charles River Associates (CRA), a Boston-based consulting firm that offers economic, financial, and strategic expertise to law firms, corporations, accounting firms, and governments worldwide. Dr. Courchane is a leading expert in the areas of mortgage and consumer lending and has worked with many of the largest lenders in the U.S. Her client work and research focus on issues such as fair lending, affordable lending, credit scoring and the origination, pricing, securitization, and servicing of mortgages.
The Score sought out Dr. Courchane to discuss “Borrowers from a different shore: Asian outcomes in the U.S. mortgage market,” an article she recently co-authored (with Rajeev Darolia of the University of Missouri at St. Louis and her CRA colleague Adam H. Gailey) for the Journal of Housing Economics (JHE). The conversation started there and touched on several additional points.
Can you summarize your JHE article, “Borrowers from a different shore: Asian outcomes in the U.S. mortgage market”?
The research focused on providing a comprehensive examination of U.S. mortgage market underwriting and pricing outcomes for Asians. While Asians in the U.S. have relatively high average household incomes and credit scores, which would be expected to contribute to relatively favorable outcomes in mortgage markets, we find evidence that supports that expectation with respect to the average price (APR) Asians pay for mortgages, but examination of denial outcomes provides a contrary story.
Comparing unadjusted group averages indicates that Asians are more likely to be denied than non-Hispanic white borrowers, but less likely to be denied than African American or Hispanic borrowers. Analysis adjusting for loan and borrower characteristics suggests that Asians are as likely to be denied as often as minority groups who typically command more research attention. Therefore, consistent with findings in other contexts such as labor markets, while Asians may have more favorable observable average economic characteristics, they do not appear to have more favorable outcomes than similarly situated applicants of other minority groups or non-Hispanic whites. The research highlights the heterogeneous nature of Asian socioeconomic characteristics and emphasizes the need to engage in more nuanced analyses than can be provided by looking only at aggregate outcomes. Otherwise, the success of a small number of elite Asians could bias averages upwards, masking the challenges faced by those at the bottom of the economic distribution.
Why do you think more support should be directed towards integrating the Asian-American population into the mortgage market? How would you start to make this happen?
Asians are already an important component of borrowers in mortgage markets. Our concern is that the proper attention be paid to the differences among Asians, who may reflect a wide variation in income levels, length of residency in the U.S. and experience with the home buying process.
Your paper cites a Freddie Mac report that found Asian Americans generally debt-averse, with a strong desire for financial stability. These characteristics suggest the population would be attractive candidates for loans, but do those attitudes also hinder Asian Americans from establishing credit histories and building strong credit scores?
There is no question that most of the models which are used in the development of credit scores rely currently on previous behavior with respect to the management of debt. The number of tradelines, the balances on those lines and the performance on the loans can all help borrowers accrue the financial profile necessary to be scored using traditional credit scoring models, such as those historically developed by Fair Isaac. Borrowers without established credit profiles that are based on the accumulation and management of debt will likely find it more difficult to build a strong credit score using traditional models.
Many Asian Americans are self-employed entrepreneurs. Have new regulations made it harder for those individuals to obtain mortgage financing?
New regulations have made it more difficult for everyone to obtain mortgage financing, unless they can demonstrate sufficient financial reserves, sufficient employment history, and strong creditworthiness. As full documentation of income and employment is required, as well as the production of income tax returns, certainly those who can provide three to six months of W-2s and two years of tax returns will find it easier to be qualified than those who hope to qualify based on small business income and profit statements.
How do you think the credit scoring industry can help facilitate the extension of more loans to Asian Americans?
The use of quantitative measures to value creditworthiness is well established in the U.S. Particularly with Freddie Mac, Fannie Mae and FHA having such a large share of the overall mortgage market originations processed through their automated underwriting systems, maintaining the ability to use alternative models for the generation of credit scores can be very important.