Fair Lending Analysis and Understanding Census Data

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In fair lending analysis, one of the most common comparisons is to examine loan files based on race or ethnicity. These classifications are often misunderstood and can be confusing. This is because race and ethnicity are two different things.

While the racial categories are mutually exclusive (with the exception of the newer multi-racial categories added by the Census Bureau) ethnicity spans racial groups. An individual can be Hispanic and be of any race. This means in a sample used in fair lending analysis, borrowers of Hispanic origin may also be represented in multiple racial categories.

This can also be problematic when examining census population data. At any geographic level (such as county or census tract), the Census Bureau typically reports the race categories along with Hispanic. The counts in the race categories are all independent but not the Hispanic category. The Hispanic total is a subset of the race categories, as the Hispanic column includes persons of any race. This is important when determining total minority calculations.

Another area of fair lending inquiry is redlining. Redlining involves geographic analysis of lending activity, and is often conducted at the census tract level.

Every county in the U.S. is divided into census tracts with each one having a unique number. Much demographic information that is available at other levels of geography (such as city and county) is also available for each census tract.

Census tracts are defined to be relatively homogeneous in terms of land usages and for the most part follow visible identifiable features. They may follow nonvisible legal boundaries, such as minor civil division (MCD) or incorporated place boundaries in some states and situations. It is important to note that the tract boundaries are subject to change between decennial censuses.

The population and the number of households within census tracts are fairly similar with the exception of some “special use” type tracts where there are facilities such as prisons. The average population in census tracts ranges from roughly 3,800 in rural areas to 4,300 in urban areas. The average households by tract are similar in rural and urban areas, between 1,500 – 1,600. Tracts can also vary considerably in terms of actual land area depending on population density and land use.

Finally, it is important to remember that Community Reinvestment Act (CRA) income designations for census tracts can change annually. This information is updated each year by the FFIEC and is available on their website at FFIEC.GOV.

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