Disparate Impact, Fair Lending & Redlining:
Checklist Number Two-Market Delivery
Today’s checklist helps you review any issues you may have, with how you get your products to market. How are you delivering your products to your geographical region? Following are the questions you might want to answer, to determine if you have any pending fair lending, disparate impact or redlining issues. I like using a big white board to brainstorm these questions, with the necessary parties in your company.
_____ How do potential clients in your MSA know that you exist? Define any possible means.
_____ Do you archive your marketing materials? If not, make sure you start that practice along with archiving your social media. This should be a detailed archive of how was it was distributed and when.
_____ Do your products, pricing or terms vary by areas within the same MSA? Warning, other lenders have been stung hard on that one. The regulators will allow this with a “business justification”, however, most lenders have a tough time proving that. If you are going to stick to that policy, I recommend seeking expert legal counsel and consultants.
_____ Are you offering any incentives, pricing differences or underwriting differences in the same MSA? The goal is to prove that your offerings are applied equally and consistently.
_____ Do you discourage, through higher pricing or different underwriting criteria, loans from “certain areas”?
_____ Do you know the protected class composition of the loans you originate, based on each production channel? If so, have you defined areas for improvement, and developed action plans to correct that disparity?
_____ Do you vary your marketing by channel? If so, how does that affect your protected class consistency? Think about this. If you spend $1 million dollars in advertising to get loans in the higher priced sections of town, and $2000 dollars on the “other side of town”, you may want to re-think your marketing budget and outreach plan.
_____ How do you market differently per business channel? What are the reasons? Is marketing consistently applied to offer access to credit in your geographic area?
_____ Do you switch out vendors (i.e. credit bureaus, contract processing, underwriting, etc.) for business channels or geographical areas. If so, is the client receiving the same price, service and results? Also, be sure to document why you do this, and how they are getting the same price, service and results.
_____ When you offer products to the market as a wholesale lender, do your representatives attempt to offer your products in all areas of your geographical outreach? Look to see if they or your company is “cherry picking” the perceived “good areas” and ignoring the rest.
I suspect that many of you are shaking your head at the new scrutiny that you face. One client told me “that’s it, I’m retiring and I’m going to be a greeter at Wal-Mart”. I certainly understand his frustration, because this is definitely a new business model for mortgage bankers. I just ask that you consider that although it is different, it may still be workable. Remember, the regulators do not expect perfection in your execution. They do expect that you can demonstrate you are trying, monitoring and correcting issues when you see them. Do that and you should have few issues