Fair lending AI platform raises funding, reports most biased cities

FairPlay, a Los Angeles-based fintech that seeks to provide “fairness as a service” to mortgage underwriting, announced Monday that it raised $4.5 million in seed funding.

The company aims to eliminate bias in lending through its artificial intelligence in a pair of application programming interfaces. The first API analyzes lending model fairness and the second re-underwrites declined applications from underserved borrowers to determine the rejection’s validity.

Third Prime Capital led the funding round with other investors including FinVC, TTV, Financial Venture Studio, Amara, and Nevcaut Ventures. The capital will go toward hiring data scientists and machine learning engineers to develop and scale the company’s APIs, according to Founder and CEO Kareem Saleh. While technology and automation can assist in efforts to root out racism, they must first be built through an unbiased lens, he said.

“Think of self-driving cars. If Tesla programmed a car merely to go from point A to point B, the car might go the wrong way down a one-way street, blow through red lights or endanger pedestrians,” Saleh said in a statement to NMN. “You have to program the neural network to direct the car while observing the rules of the road and not causing mayhem. Our solution at FairPlay does the same thing — it imposes constraints on credit models so that they predict default correctly while also minimizing disparities for protected groups.”

In addition to closing the round, the company released its inaugural Mortgage Fairness Monitor, which reviewed and ranked lending equality among the 20 largest housing markets using 2020 approval rates. Los Angeles, Portland, Ore., and Las Vegas were deemed fairest for Black home buyers, while Cleveland, Detroit and Chicago were least fair. Miami, Los Angeles and Phoenix were most welcoming to Hispanic borrowers but Boston, Dallas and New York were least.

Women faced the lowest lending adversity in Los Angeles, New York and Las Vegas while having the most trouble in Detroit, Atlanta, and Dallas. Millennial borrowers had the easiest time getting a mortgage in New York, Miami and Chicago but Phoenix, Las Vegas and San Francisco were the hardest.

“The biggest takeaways are that certain groups of homebuyers, Black and Hispanic Americans in particular, are approved for mortgages at substantially lower rates than white homebuyers,” Saleh said. “In most instances, the results appear to be a legacy of socio-economic and political factors that cause applicants from historically disadvantaged communities to be perceived as riskier.”