If you have been through one of my demos, you have no doubt heard me talk about MSA analysis. As mortgage bankers this has never been an area of concern; unless you were a bank. However, the CFPB has made it clear that policies, marketing or products that unintentionally cause Disparate Impact on the underserved areas of your assessment area; are considered a Fair Lending violation.
For many mortgage bankers, you are just trying to wrap your heads around the ever-growing and highly complex regulatory environment. No doubt the acclimation period for all of this new scrutiny will be costly and painful. To take some of the pain away, I thought it might be a good idea to show you an example of how to look at your assessment area.
Assessment area has not been defined for mortgage bankers by the CFPB. However, it is commonly referred to as the MSA so let’s go with that.
- Where do you lend in your MSA?
- What areas are presently avoided? Are those underserved areas?
- If they are low to moderate income or underserved areas why has your company historically not done business there? For most mortgage bankers it is because the loans were easier or more profitable in other areas.
- Since you are expected to either have a strong business justification (legal and expert consultants) or a plan to market those areas, you first have to understand a normal homeowner.
- What are the financial characteristics of the average homebuyer in the underserved areas of your MSA? The government has all sorts of information to help you build out this information. Or, if you have partnerships with the non-profit housing counseling agencies they should be able to assist you as well.
- How does your product line and underwriting guidelines line up with the average homebuyer?
- What would you need to change or what products would you need to offer in order to accommodate this market?
- What personnel changes would need to occur?
- How would you vary your present marketing?
- How would you build solid alliances versus random marketing to serve these areas?
All of these questions need to be answered, documented and laid out in a logical manner. I find that the best way to do this is to actually mirror the examiner’s assessment protocol. What do they look at? How do they evaluate you? It is difficult to come up with fair lending analyses’ for mortgage bankers since they have not been released yet. I came across an article from a consumer group in St. Louis who highlighted a bank that needed to improve their Fair Lending. Attached is the report from the FDIC (public knowledge) for you to build a frame around how you assess your areas.
When you take the time to mirror what an examiner would perform as an analysis, the examiner will most likely be impressed with your results!