Once upon a time we lived in a world where mortgage originators were allowed to run their business with discretion in pricing, to compete in the marketplace. Unfortunately, we now have more oversight than we ever expected. As a result, many of you are dealing with pricing discretion questions, monitoring those discretions and avoiding fair lending issues as a consequence of the new scrutiny.
The first step in monitoring and documenting your pricing exception policy is to define it. Now more than ever, Executive Management teams need to have business changing discussions, to properly position their company for the next evolution. Here are some questions to get the brainstorming started.
- Do all originators have the same discretion?
- Are more-seasoned originators allowed different discretions?
- What is your basis point threshold for originator discretion?
- What is the approval process for discretion outside of those parameters?
- Have you defined document back-up procedures for the discretion? If so, what?
- Are originators allowed a certain number per month or other defined time frame?
- How are pricing exceptions being tracked?
- Does the tracking include protected class information?
- Are pricing exceptions being mapped per MSA?
- Are pricing exceptions being reviewed for balance in MSA based on similar loan criteria and inclusive of protected class?
- Do certain clients qualify for pricing exceptions based on their relationship with the financial institution? If so, precisely how?
Once your Executive team has answered all of these questions, then it is time to take the responses and build policy around them. This means written and very specific policy which is not only in your corporate guidelines, but in originator agreements, part of their training and in your pricing engine. Tedious? You bet! Yet, this is a very necessary process if you are to defend your company against pricing discretion discrimination claims. Lock down your policies and you have nothing to fear.
It is challenging to do all of this and maintain a competitive edge. The CFPB is looking for you to balance your pricing discretion amongst the protected classes based on similarly situated loans. This is why your compliance personnel should be just as trained on your pricing engine as your secondary marketing personnel. They can identify configuration rules that will document and protect your company from the issues in the future. If you need assistance in training your compliance personnel or adding pricing configurations to your system, please reach out to your account manager who can make that happen for you!