Disparate Impact, Fair Lending & Redlining:
Checklist Number Three-Product Diversification
So you made the career decision to offer mortgage loans to clients, and your business model has been successful for years. Well, do not get too comfortable. After all, life can be boring if you do not shake it up once in a while! Now the evolution has come, and the CFPB is leading the charge. Today’s checklist will help you determine whether or not you have the right product mix and overlay guidelines, to avoid disparate impact or redlining issues.
_____ Do you offer a traditional mix of products? If not, why?
_____ Do you give special prices, products or services in some markets and not others? Are your loan originators allowed discretion in some areas and not others?
_____ Is your technology sophisticated enough, to handle and monitor your production policies and procedures?
_____ What does your training look like, regarding assisting clients by referring them to other loan options, which may be better for them? How is this monitored? If an operations staff member, such as an underwriter identifies a better product, do you disclose that to the client? Is this part of your policy?
_____ Does your product mix meet the average credit criteria in all parts of your MSA? As an example, do you require “traditional credit” when some of your lenders or investors accept “non-traditional credit”? If non-traditional credit is predominant in one area of your MSA, then you may want to consider altering your policy, unless you can prove that doing so would cause harm to your company. Each overlay and pricing adjustment should be added to a task list and reviewed. Why is it there? Do you have risk? Can you document the risk? The examiner is going to wonder why, if you have an outlet for loans, that you do not offer them. This is especially true if that practice or policy results in disparate impact.
_____ Do you do more of one type of financing versus another? If so, why? Does this “specialty” cause Disparate Impact in protected class areas of your MSA? For instance, you only do jumbo loans.
_____ Are other lenders thriving in areas that you are ignoring? If so, why are you not in that ball game?
It may feel like you have to dissect everything you have every done, in order to be compliant in the regulatory environment we now face. The truth is, your feeling is correct. Business models, workflow and best practices are changing. Better to face that reality now and adjust, versus waiting until you are fined and suffer reputational damage. I realize it is not easy. It is kind of like starting an exercise program and you say you will start that tomorrow. Yet, not starting gives you all sorts of stresses, you really do not want to experience. Tomorrow, I will give you a checklist for Marketing Outreach. I will bet you cannot wait for that one!