Reducing Racial Disparities in Consumer Credit : the Role of Minority Loan Officers in the Era of Algorithmic Underwriting

Using a novel data set that links mortgage loan officer registration records to individual loan applications in the U.S., we find that minority loan officers expand credit access for minority borrowers. This impact is non-trivial even with the widespread adoption of automated underwriting systems (AUS). Minority loan officers are more likely to override negative AUS recommendations received by minority applicants. Even for minority applicants approved by AUS, minority loan officers still make a difference in the ultimate approval and origination decision. Analyzing borrower heterogeneity and ex-post default, we find evidence consistent with minority loan officers being crucial for collecting and verifying relevant credit information for minority applicants with noisy hard information but good intrinsic credit quality. These findings support policies aiming to mitigate the under-representation of minority loan officers, which we show is positively associated with the racial mortgage rejection gap across regions and lending institutions.