Skip to main content

With the recent administration change, Fair Lending is expected to retake a front seat with the Federal regulators.  Over the last few years, Federal regulators have been active, but we saw more activity at the State level.  Now, lenders can fully expect that 2021 and forward will result in more fair lending activity from the Federal regulators.

Now is the time to get in front of any issues and correct them!

Each quarter, the regulatory agencies provide an update to the industry regarding compliance topics.  The latest call highlighted Pricing Disparity, Pricing Exceptions, Underwriting Exceptions, and Redlining as the areas regulators are most concerned with in Mortgage Lending.  In small business lending, regulators are concerned with what they believe to be a lack of diverse lending to small businesses such as Women or Minority-Owned companies.

I believe that most lenders strive to be Fair Lending compliant; unfortunately, it has been my experience that Fair Lending is a commonly misunderstood and abstract concept to grasp. As a result, many companies believe they are doing a great job of monitoring when, in reality, the barn door is wide open!

Here are the Top 5 Potholes we see in Fair Lending Compliance.  I will dive deeply into each of these topics in future blog posts, so make sure you follow us so that you do not miss any!

  1. Reliance on Fair Lending Software to Demonstrate Monitoring. Software is for scoping a problem, not fixing it.
  2. Misunderstanding the Impact of the New HMDA Data that has been collected since 2018. The additional data collected allows a regulator to dive deeply into your business, and they were not able to do this previously.
  3. Relying on the Fair Lending Knowledge of Your Secondary Marketing Team that there is no pricing disparity, and if there is, it can be explained by risk adjustments. Risk adjustments are not margin adjustments. While banks typically understand this because they have been under fair lending scrutiny longer, mortgage lenders struggle with adjusting their profit models to eliminate pricing disparity. Pricing is complex, but compliance must understand the impact of their pricing stack.
  4. Leakage and “Cherry Picking” on Your Front Line. When your sales force is commissioned based, such as retail mortgage origination or numbers-driven as in call centers, the employee’s impetus to “cherry-pick” the good loans and ignore others is strong.  This is especially true during high volume times like we are experiencing now.
  5. Reliance on Automated Systems for Filtering Leads for Approvals, Denials, and Conditions. AUS [Automated Underwriting] is undoubtedly a big help, but it should never be the sole determiner. Any originator or processor can tell you that with their years of experience, it takes a deep understanding of how to input the file data to get the proper results.  If that is the case, you can certainly not expect an online application, filled out by a novice consumer, communicating with an AUS system to be the sole determiner of approvals or denials.

Each of these “potholes” deserves its own blog post, so I will be writing about these over the next few weeks. Please be sure to subscribe [for free] to our blog at or follow us on LinkedIn or Facebook at Fair Lending Diversity.

Fair Lending Diversity specializes in uncovering and fixing the highest risk issues to the lender. Our clients range from small banks to top mortgage lenders.  Our mission for all our clients is simple – “Maintain Profitability & Reduce Risk.” If you would like to discuss our services, please contact me at

Tammy Butler, Master CMB

Author Tammy Butler, Master CMB

More posts by Tammy Butler, Master CMB

Leave a Reply