The results of the study of discrimination in mortgage lending by Munnell, Browne, McEneaney, and Tootell (1992) have been questioned by some who claim that the authors failed to control adequately for the expected profitability of each loan. Critics assert that an examination of default rates for minorities and whites would explain the disparate treatment minorities received in obtaining mortgage loans.

This article will demonstrate that studies of denials are a valid approach to testing for discrimination and that, in fact, examination of defaults cannot, in general, reveal much about the issue. Since studies of defaults leave out the observations that are most important to the examination of discrimination, denied applications, they cannot compare the profitability of rejected minority applications to accepted white ones. Only by including these observations, as is done in studies of denials, can definitive evidence about discrimination be found.