More news from the Mitch Kider, Ken Markison and Me panel last week! Someone asked a question about the basis point variances that are acceptable to the CFPB in a fair lending exam. Since there is no threshold for this, you are likely to find varying opinions on this topic depending on who you ask. I like the way Mitch answered this as it was based on what is really happening and not on opinion! Beware the attorneys who give you a number that they say they can defend, because if you use that number and the CFPB begs to differ, you will have to pay to defend it. I’m sure you know that is very costly, drags out an exam longer than it needs to go, and just not worth the stress on your company.
Mitch stated there is no “acceptable” threshold. He has seen settlements where they are only 4 basis points off. Those of you who understand secondary marketing know that this is a miniscule number. For non-secondary people this is .04 of 1% in rate, which is less than an 1/8th in rate (12.5bps). The examiners expect that you are monitoring your info before a loan is locked or closes, so that you know if a client was treated fairly and so that you can prove it.
So if you have attorneys that are giving you “defensible opinions” regarding rate variances and thresholds, be careful. It might be time for another opinion!
As you are thinking through your Fair Lending reviews, ask yourself this. If the client did not receive the lowest interest rate and cost, can you immediately tell the examiner why on a loan by loan basis? No hypothesizing, no guessing, no digging into the file, just tell them why borrower A and borrower B did not get the same rate/cost that day. If the answer is No, you might want to re-visit that strategy, as it is not working well with the new scrutiny we are all under.