This is the first checklist in the new series revolving around Disparate Impact, Fair Lending and Redlining. Now before you read this, if you have high blood pressure make sure you take your medication because this checklist may get you fired up. As mortgage bankers, we typically worked from a business plan where we recruited the best and brightest loan originators, in the areas where we wanted to get loans. Typically, we gave little thought as to how diverse our lending practices were. Sure, banks worried about that, because their regulators told them they needed to. Well now the new sheriff, CFPB, is in town and they want you to know that mortgage bankers need to worry about it too.
I recommend that you sit down with the Executive Committee and Compliance people to discuss this checklist. From there, you should be able to come up with a framework for this part of your policy.
Market Diversification:
⃝ Do you know how diverse your borrower population is? Do you have charts from the ethnicity, race, sex and age of those loans you closed, or are working on?
⃝ How do you monitor market diversification BEFORE loans close?
⃝ Do you have any representation, in the areas of your MSA that are considered mainly minority?
⃝ Have you done any outreach to the non-profit, homebuyer counseling groups?
⃝ Do your strategic growth plans include inclusion of demographic trends?
⃝ Have you mapped where you do business? If so, are there any areas that you are not presently covering? If so, why? What efforts have been made to hire or market to those areas? Are you giving the same amount of attention to marketing those areas of your MSA as others? Make sure that you document everything that you do. If you have holes in you MSA, and can prove that you are trying, you are one step ahead.
⃝ Have you spoken with the Executive Directors of the community groups in your area to find out the financial needs of their community? Do they have access to credit, similar to the same type of access in other communities in the MSA? If not, why? Do you have programs that may address their needs and still fit within your safety and soundness model?
⃝ If you portfolio your loans, how does your portfolio compare to the new loans you are originating?
⃝ If you have lending gaps in your area, why? What are you doing to correct that?
⃝ How are economic changes affecting your outreach to communities? Do you offer any solutions that will still allow for your company’s safety and soundness?
⃝ Do your credit overlays “discourage” clients from applying with you? For instance, the average credit score in an area is 660 and your minimum is 680, yet your investor takes 640. If you cannot justify the necessity of this policy you may have issues.
The bottom line to this thought process is that is not okay to participate in lending today, and not serve the needs of your community. There may have been a time when “cherry picking” the best clients in the area made great business sense, and you did that. However, with new regulation your mind may need to shift to inclusion, outreach and diversification. You can still be just as profitable, it is just a different technique compared to the way you may have done business in the past. Okay, now Breathe………..
