BLOG

Question:

With recent enforcement actions and the near certainty of more to come in the area of fair lending, what are THREE WAYS MORTGAGE BROKERS AND LENDERS CAN MITIGATE FAIR LENDING RISK?

Answer:

In October 2021, the U.S. Department of Justice announced an initiative for combatting redlining. Redlining is a discriminatory practice that involves withholding services to potential consumers who reside in neighborhoods with significant numbers of minorities. The CFPB has also issued recent advisories and enforcement actions, and, in March 2022, made changes to its supervisory operations to further target unfair discrimination in consumer finance.

Bottom line: Mortgage brokers and lenders must make fair lending a priority. There are numerous actions mortgage companies can take to prevent discrimination and mitigate redlining and other fair lending concerns. Here are three to consider immediately:

            1) Training – training employees to understand fair lending issues and concerns is critical. Training should include real-world examples so that employees recognize both outright discriminatory practices, as well as seemingly benign actions that may have unforeseen discriminatory effects. Fair lending training must be ongoing and should take into account current trends and issues, as well as highlight potential penalties for non-compliance, which can be severe.

 
           2) Marketing – in addition to training, mortgage brokers and lenders must actively review marketing material and strategies to ensure that (i) all types of consumers are adequately represented, and (ii) the Company is actually marketing to majority-minority neighborhoods (areas where one or more racial, ethnic, and/or religious minorities make up the majority of the local population). Branch locations, lead letter zip codes, and other locations of marketing efforts should all be considered. New, additional outreach efforts may involve conducting homebuyer education classes in underserved markets and participating in community-based
events and opportunities.

         3) Responsibility/Accountability – appointing a Diversity Officer and/ or maintaining a Fair Lending Committee helps to ensure fair lending remains a top priority. This individual/committee can help develop and implement a business strategy that focuses on community outreach in minority areas, and also keep the company focused and educated on fair lending concerns.

Lastly, a mortgage lender’s HMDA data provides a wealth of information related to fair lending activity. It should be assessed and evaluated regularly to help identify fair lending risk.

Not sure where to start in developing a Fair Lending program or want to assess your current Fair Lending program? Schedule time with our team for a brief health check and/or check out our most recent webinars on Fair Lending and Fair Servicing.