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Mitigating Fair Lending Risk-Part One-Getting Organized!

MSA Diversity is not an issue that Mortgage Bankers have thought too much about.  In fact, when I was head of production I didn’t think about it at all.  In my mind assessment areas were bank issues.  Well times have changed and the tide has shifted.

Right now, the Data Scientists at the CFPB are churning the HMDA data from 2012 and making their list and checking in twice.  If they think you might be naughty….well that will not be nice.  You cannot change the past, but you can affect the future.  If you are using our real time fair lending tool and the historical database you are prepared in 2 out of 3 areas.

  1.  All new business coming in the door is being monitored, notated and your data is fully organized Before closing.  This means you now have proof that any consumer entering your door is treated fairly because you out-data their data (HMDA data) and present it in a way that demonstrates, a compliance management system over your pricing and fair lending.
  2. Loans can be checked at any time against your historical data, not rate sheets; but real runs of the actual programs and pricing available on that day in history.
  3. So the next logical area to strengthen is the “aggregated” analysis of your fair lending data.  This has to do with issues such as redlining and disparate impact.  Two fuzzy little areas that require details to defend against.

This next series will walk you through an action plan which demonstrates to the CFPB that you have a compliance management system in place for MSA Diversity.  It will also demonstrate that you self-identify issues and when you find one you self-remediate.  These are two very important functions that the CFPB and HUD require of mortgage bankers.

The First Step is to know what you are dealing with, and one way to get started is reviewing the basics before getting too complicated.

  1. Where do you lend in your MSA?
  2. What areas are not presently represented?  Are those underserved areas?
  3. If they are low to moderate income or underserved areas why has your company historically not done business there?
  4. 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 in the underserved areas of your MSAs.
  5. 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. Start at www.census.gov.  Or, if you have partnerships with the non-profit housing counseling agencies they should be able to assist you as well.
  6. How do your product lines and underwriting guidelines line up with the average homebuyer?  An easy way to check this is to run average clients through your historical database to see if you have product for this part of your market!
  7. What will you need to change or what products will you need to offer, in order to accommodate this market?
  8. What personnel changes will need to occur?
  9. How will you vary your present marketing?
  10. How will you build solid alliances to get great buyers, versus random marketing, to serve these new areas of business?

This series will take you on a step-by-step journey through each of these questions.  So if you do not know where to start, stay tuned and by the time you are done you will have an action plan and compliance management system that will take you off the naughty list and put you on the nice list!

Tammy Butler, Master CMB

Author Tammy Butler, Master CMB

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