Digital footprints can eradicate discrimination in the mortgage market

Dr Dulani Jayasuriya, researcher at the University of Auckland (photo provided)

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Auckland, August 8, 2022

Discrimination in the home loan market is widespread globally, but a recent study shows that using digital fingerprints can level the playing field. A person’s digital fingerprint can be used for including identity theft and fraud, but not all is bad, said Dr Dulani Jayasuriya, a researcher at the University of Auckland.

She and two co-authors have found that using digital fingerprints, which are a record of online activity, can help reduce discrimination in the US mortgage market.

“Borrowers of a certain race, gender, income bracket, or geographic location may be marginalized due to preconceived biases, and in our study, we found that a borrower’s digital footprint can help correct those biases” , she said.

Dr Jayasuriya said research can improve the process of selecting good quality borrowers and help ensure lenders are not inhibited by bias.

Researchers’ analysis of 50 banks, many of which collect customer digital fingerprints, found that using this information can benefit both the business and the customer by significantly reducing overall lender risk as well as discriminatory features.

Borrower’s digital footprint can help correct for bias (Image from University of Auckland website)

Informational advantage

Dr. Jayasuriya said she and her fellow researchers found that the informational advantage associated with using a borrower’s digital fingerprint far outweighed that of existing lending methods.
“Just because you’re a certain race or female, or live in a not so nice neighborhood, you might be considered a subprime borrower by traditional lenders, but banks that use digital fingerprints have information more granular and can identify a borrower’s true creditworthiness and ignore biases. We’ve also found that banks that use this digital information reduce the overall risk of their portfolios by lending to these borrowers,” he said. she declared.

At a time when interest rates are rising and putting considerable pressure on mortgage borrowers and homebuyers, the findings have unique implications not just in the United States but around the world, Dr. Jayasuriya said.

“The research is applicable here – many banks in Aotearoa, New Zealand and Australia collect their customers’ digital information. We explored the substantial increase in digital footprint users in the US residential mortgage market, the type of data collected, and subsequent loan outcomes,” she said.

Implications of the study

The researchers studied 50 US banks and lenders, including JP Morgan Chase, Wells Fargo and Bank of America, and published their findings in an article titled “The Use of Digital Footprints in the US Mortgage Market”. Their findings have important implications for data privacy, data use, market efficiency, and decision-making processes for borrowers and lenders.

Call for regulation and transparency (Image from University of Auckland website)

“While this is an example of how our online business can be put to good use, it also raises many questions about big data, data privacy and consumer behavior as a result of data collection. For example, if borrowers know that banks collect their digital data and use it to identify their creditworthiness, they can change their behaviors,” she said.

The research highlights the need for regulation and oversight and calls for transparent discussions about privacy and data collection.

According to Dr. Jayasuriya, the endless and very detailed confidentiality agreements used by many banks and other organizations need to be constructed in a way that people can digest them and want to.

“There are positives when it comes to collecting a user’s digital fingerprint, as we have shown, but there can also be negatives, so there needs to be monitoring, transparency and laws regarding privacy, data collection and use.When we click “yes” to these very detailed data privacy agreements, many of us do not read or understand the statement in its entirety.

“Instead, customers could be told what they are signing if the key points were summarized detailing what data is collected and what scenarios it can be used for, including whether it can be sold to third parties,” said Dr. Jayasuriya.

She said another alternative could see providers incorporate short explainer videos to let customers know how their digital information will be used.

“This can result in a more transparent and open process where users and businesses both benefit from the collection and use of this data,” Dr Jayasuriya said.

Priscilla C. Carnegie