The most important policy that you can immediately start, to protect your company against Fair Lending issues, is Underwriting second reviews. These occur during different phases of the process, and setting policies and procedures is paramount to your success in an exam.
Does your loan officer have the final say on who can and cannot get a loan? Sure, it’s easy to say that you don’t have loan product for a 580 loan. Yet in the interest of fair lending, did you provide the client with an alternative?
To do this, consider activating an “action plan” for the client that will help them become mortgage ready. Then refer them to 3 Non-profit home-buying counseling organizations. This allows you to assist the client in the future, build partnerships with your home-buying counseling partners, and provides hope to a client in the very complex mortgage world.
If a loan makes it to processing or underwriting and is denied, a senior person should always provide a second review. This serves to lessen bias in the decision, acts as training for underwriters or processors who are not as senior and protects the company from bad decisions. We all know of circumstances where a loan was denied, approved by another lender and all because the original company forgot to ask a question of the client.
Finally, build strong procedures around loan pre-approval, approval and denial. For instance, if you offer an exception is it consistent with your policy? For this, you will have to drill down into the nitty gritty to protect your company. As an example, your company may have a policy that the DTI may exceed 38% up to 40%, provided that the following conditions are met. 1. 3 months reserves in an account. 2. Less than 10 months on an installment loan. 3. Use of credit cards is business related and the business reimbursement is documented, etc. If you apply this to any client who falls within the guidelines you set forth, then you demonstrate exceptions applied to all parties with equal consideration.
I realize that we are not used to this type of detail in our process. However, it is something we are all going to have to get used to in order to protect our livelihood. The “big banks” already do most of this and the reason is simple; they were required to.