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I appreciate this analysis, but it's important to note that not everyone wants unbiased model output. Historically, redlining was intentional, and it took laws

I appreciate this analysis, but it's important to note that not everyone wants unbiased model output. Historically, redlining was intentional, and it took laws to stop it. A major risk of automating mortgage engines is that redlining could easily be reinstated (in the form of model parameters) in a way that is both hard to detect and easily deniable.

yummyfajitas 10y ago
There are two possible reasons for redlining: 1) I hate black people more than I like money, but blacks do pay back their loans, so I'll redline even if it costs me money. 2) I like money and am neutral towards blacks, but blacks are deadbeats so redlining gets me more money. (There are also 2 other cases. "I love/am neutral towards blacks and they pay back their loans", which results in no disparate impact. Also "I hate blacks and they don't pay back their loans" which is equivalent to (2).) Statistical algorithms solve (1), yet somehow disparate impact isn't fixed. (2) is unspeakable to the modern left - only racists could say that - yet statistics continually reproduces conclusion (2). So obviously the problem must be with the algorithms.
- dragonwriter 10y ago
  There is also "I am neutral to blacks and view them as, ceteris paribus, equally likely to pay back loans, but white people on average are not neutral toward them, and particularly are not neutral to living in close proximity to them, and the decrease in property values when black people are allowed in otherwise white neighborhoods makes both their default and the default of white people in the neighborhood more likely, and makes deficiency more likely in the event of default of either." (Statistical models that properly account track all-factors likelihood of default on a particular loan do not solve this.)
  - yummyfajitas 10y ago
    True, a model which predicts reality will in fact predict reality. I've never seen any evidence that your hypothesis is true, or even a model that would account for it, but I'm hardly an expert in the field. Assuming this is more than speculation/theoretical nitpicking, do you have citations on the effects you describe? If your theory is more than just idle speculation, this is a great way for non-racists to engage in house price arbitrage insofar as they wish to consume housing. Do you know of any neighborhoods in NYC where I can exploit this arbitrage?
    - dragonwriter 10y ago
      > I've never seen any evidence that your hypothesis is true If the key element of it wasn't true at one point, blockbusting would never have been a viable strategy. If you want to present arguments that race relations have changed in enough since then that whites no longer prefer living without blacks in the immediate vincinity so that such neighborhoods command a price premium and diversity causes price declines, I'm prepared to examine your evidence. > If your theory is more than just idle speculation, this is a great way for non-racists to engage in house price arbitrage insofar as they wish to consume housing. If you mean "white non-racists can get cheaper housing by voluntarily choosing to live where black people live", that's been a well-known way for non-racist whites to optimize home affordability since at least when my parents were young adults in the 1960s. Of course, the downside in jurisdictions where there is a significant constituency of racist whites (which is, of course, any place where this strategy is particularly effective) is that non-racist whites then also get to experience the downside of the way racist whites distribute public services among different neighborhoods, which depending on personal utility functions may more than offset the value of the cost savings on the real estate itself. But, still, the strategy isn't new.
      - yummyfajitas 10y ago
        Blockbusting does not have to be caused by white people being non-neutral towards blacks. It can also be caused by white people, perhaps accurately, believing that the neighborhood will change in other undesirable ways (e.g. higher crime). Similarly, while I'm well aware of (and have practiced in the past) living in black neighborhoods to save money, it was not obviously a racial-arbitrage strategy. The neighborhoods I lived in were undesirable and cheap for a variety of reasons (reduced amenities, higher crime), and it's far from clear how much of a racial delta there was. I don't have any reason to believe that a low amenity, high crime, entirely white neighborhood would have had a different price. I always viewed it as a crime arbitrage strategy; being 6'6", somewhat muscular and wearing shoes with holes in them, I don't view myself as much of a crime target. So yes, I'd like to see evidence of either a) whites being non-neutral towards blacks in the statistical algorithms era (e.g. 1995+) and b) a statistical default or prepayment model that incorporates network effects of this sort (or anything mathematically similar). And incidentally, I'm asking about the networking model because it sounds super interesting. Insofar as network models are reliable enough to use in lending, I'd love to know about it. This would directly affect some of my work if I could port such models into the tech space.
- rlucas 10y ago
  There's also: You like money and are neutral toward blacks but there exists a reverse Keynesian beauty contest where you accurately predict that others will redline and hence drive down liquidity and prices, thus making lending less attractive. Hence you are "blamelessly" (but predictably) racist.
- rlucas 10y ago
  There's also: You like money and are neutral toward blacks but there exists a reverse Keynesian beauty contest where you accurately predict that others will redline and hence drive down liquidity and prices, thus making lending less attractive. Hence you are "blamelessly" (but predictably) racist.

yummyfajitas 10y ago

There are two possible reasons for redlining: 1) I hate black people more than I like money, but blacks do pay back their loans, so I'll redline even if it costs me money. 2) I like money and am neutral towards blacks, but blacks are deadbeats so redlining gets me more money. (There are also 2 other cases. "I love/am neutral towards blacks and they pay back their loans", which results in no disparate impact. Also "I hate blacks and they don't pay back their loans" which is equivalent to (2).) Statistical algorithms solve (1), yet somehow disparate impact isn't fixed. (2) is unspeakable to the modern left - only racists could say that - yet statistics continually reproduces conclusion (2). So obviously the problem must be with the algorithms.

dragonwriter 10y ago
There is also "I am neutral to blacks and view them as, ceteris paribus, equally likely to pay back loans, but white people on average are not neutral toward them, and particularly are not neutral to living in close proximity to them, and the decrease in property values when black people are allowed in otherwise white neighborhoods makes both their default and the default of white people in the neighborhood more likely, and makes deficiency more likely in the event of default of either." (Statistical models that properly account track all-factors likelihood of default on a particular loan do not solve this.)
- yummyfajitas 10y ago
  True, a model which predicts reality will in fact predict reality. I've never seen any evidence that your hypothesis is true, or even a model that would account for it, but I'm hardly an expert in the field. Assuming this is more than speculation/theoretical nitpicking, do you have citations on the effects you describe? If your theory is more than just idle speculation, this is a great way for non-racists to engage in house price arbitrage insofar as they wish to consume housing. Do you know of any neighborhoods in NYC where I can exploit this arbitrage?
  - dragonwriter 10y ago
    > I've never seen any evidence that your hypothesis is true If the key element of it wasn't true at one point, blockbusting would never have been a viable strategy. If you want to present arguments that race relations have changed in enough since then that whites no longer prefer living without blacks in the immediate vincinity so that such neighborhoods command a price premium and diversity causes price declines, I'm prepared to examine your evidence. > If your theory is more than just idle speculation, this is a great way for non-racists to engage in house price arbitrage insofar as they wish to consume housing. If you mean "white non-racists can get cheaper housing by voluntarily choosing to live where black people live", that's been a well-known way for non-racist whites to optimize home affordability since at least when my parents were young adults in the 1960s. Of course, the downside in jurisdictions where there is a significant constituency of racist whites (which is, of course, any place where this strategy is particularly effective) is that non-racist whites then also get to experience the downside of the way racist whites distribute public services among different neighborhoods, which depending on personal utility functions may more than offset the value of the cost savings on the real estate itself. But, still, the strategy isn't new.
    - yummyfajitas 10y ago
      Blockbusting does not have to be caused by white people being non-neutral towards blacks. It can also be caused by white people, perhaps accurately, believing that the neighborhood will change in other undesirable ways (e.g. higher crime). Similarly, while I'm well aware of (and have practiced in the past) living in black neighborhoods to save money, it was not obviously a racial-arbitrage strategy. The neighborhoods I lived in were undesirable and cheap for a variety of reasons (reduced amenities, higher crime), and it's far from clear how much of a racial delta there was. I don't have any reason to believe that a low amenity, high crime, entirely white neighborhood would have had a different price. I always viewed it as a crime arbitrage strategy; being 6'6", somewhat muscular and wearing shoes with holes in them, I don't view myself as much of a crime target. So yes, I'd like to see evidence of either a) whites being non-neutral towards blacks in the statistical algorithms era (e.g. 1995+) and b) a statistical default or prepayment model that incorporates network effects of this sort (or anything mathematically similar). And incidentally, I'm asking about the networking model because it sounds super interesting. Insofar as network models are reliable enough to use in lending, I'd love to know about it. This would directly affect some of my work if I could port such models into the tech space.
rlucas 10y ago
There's also: You like money and are neutral toward blacks but there exists a reverse Keynesian beauty contest where you accurately predict that others will redline and hence drive down liquidity and prices, thus making lending less attractive. Hence you are "blamelessly" (but predictably) racist.
rlucas 10y ago
There's also: You like money and are neutral toward blacks but there exists a reverse Keynesian beauty contest where you accurately predict that others will redline and hence drive down liquidity and prices, thus making lending less attractive. Hence you are "blamelessly" (but predictably) racist.