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Anyone that has dealt with Fair Lending issues will tell you that it is a web that weaves through every policy, procedure, and practice within your company.  This is why so many lenders struggle with prioritizing where to start. It’s like the “Whack a Mole” game.  Just when you think you solved a problem in one area, it pops up in another!

The most significant risk that many lenders are not paying attention to is the “tell-all” data set of HMDA 2018. This data has been collected all year and will be dissected by the Data Scientists from the Federal regulators, State regulators and consumer advocacy groups in the Spring of 2019.  The new data and what it says about mortgage company practices will likely rock the world of many lenders.  Pricing practices about a lender and how they compare to their peers were not highly detectable with the old HMDA data set.  However, the new HMDA dataset pricing practices and the fields needed to detect problematic practices are front and center!  You have exactly one quarter left in the year to wrap your arms around what needs to change before the data calls you to the top of the priority list for examination.

So how do you get started? Large or small, no company can address every issue at once.  You must look for the hot spots and then prioritize how to minimize that risk.  Done over time your risk begins to drop in all areas.  The first task is to perform an in-depth analysis to see where a lender is exhibiting Pricing Disparity or Redlining as these are the two areas that will be called out with the new data set.  Look for the “hot spots” because those will then become the priority.  This involves not only looking at your data but also ensuring that your pricing outputs from your PPE are in line with your policies and field practices.  That seems simple until you get into it and realize that for many mortgage lenders these practices are all over the place and few things seem to match up.

Once you have the hot spots determined, it’s time to start wrapping a strategy around reducing your risk.  Doing this does not mean you attack every hot spot at once.  On the contrary, it is at this point that you should look for the hot spots in the highest risk areas.  These “areas” are tied to State temperament because it is in these states that the Attorney Generals are highly aggressive when it comes to fair lending.  State AGs can start fair lending legal action just as easily as the CFPB, FDIC or other prudential regulators.

Where are these States?  In an opinion letter to HUD regarding Disparate Impact, 17 State AGs made it clear that they are in favor or HUD keeping Disparate Impact in play.  I’ve attached this letter below if you would like to read it.  The letter affirms their stance on this issue and fair lending in general at the state level.

These states are North Carolina, California, District of Columbia, Illinois, Iowa, Maine, Maryland, Massachusetts, Minnesota, New Jersey, New York, Oregon, Pennsylvania, Rhode Island, Vermont, Virginia, and Washington.  Very high population states and led by AGs that mean business when it comes to the Fair Lending practices of lenders in their states!

To be VERY clear, I am not saying that you should only pay attention to Fair Lending in certain states as that would be business suicide.  Good fair lending policy and practices must permeate your entire company. What I am saying is that if you have a lot to work through, as some companies do, then you must start with the areas that are showing the highest amount of risk and start there. Your goal is to mitigate Pricing Disparity, Redlining and Disparate Impact in every part of your company.  If that cannot be done in all states at once, then you start with high-risk offices, located in the high-risk states and work your way through until you achieve consistency throughout the company. Consistency is the key word in any fair lending strategy.

Fair lending strategy rarely means that you need to change things so dramatically that you lose staff or make everyone mad.  In fact, many clients find that a few tweaks internally produce the needed changes to head in the right direction.  And here is the bonus!  There are likely profit models that you didn’t even consider that reduce your cost to originate while at the same time mitigate your risk!  How about that for great outcomes!

I have been fortunate to work with many top mortgage lenders to help them detect, and then prioritize fair lending strategy and initiatives to reduce their risk dramatically.  Possessing a long and diverse background in origination, sales, marketing, operations, technology, and compliance, gives me a unique view of how to solve the problem strategically without losing your sales force, losing money or disrupting the company practices too much.  If you think you need some expert help to meet your goals, I can be reached at

Click Here to Read the State AG Opinion Letter to HUD.

Tammy Butler, Master CMB

Author Tammy Butler, Master CMB

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