Fair Lending
Redlining
Redlining analyses are conducted under the “four prongs” and according to Agency methodologies, including variances in how “majority-minority census tracts” (MMCTs) are defined :
- Assessment Area Delineation
- Lending
- HMDA lending patterns
- Small Business lending patterns
- Small Farm lending patterns
- Marketing and Outreach
Redlining is the practice of treating majority-minority census tracts differently than non-minority census tracts. We determine MMCTs according to the various methods used by federal regulators, and we evaluate your HMDA lending patterns compared to peer institutions. Any disparities in your performance are measured with statistical testing methodologies. We also evaluate small business and small farm loans for redlining risks, comparing your results to small business and small farm aggregate lending patterns.
Fair Lending Risk Assessments
The hallmark of sound fair lending risk management:
- Risk-based approach
- Risk factors determination according to IFLEP
- Statistical testing of disparities against prohibited basis groups
- Fair Lending Compliance Management System (FLCMS) evaluation
- Appraisal bias
- Recommendations and best practices
Modeled after regulatory guidelines to identify risks, this is our most extensive Fair Lending offering. Our Fair Lending Risk Assessment (FLRA) follows the IFLEP, focusing on a detailed review of your institution’s policies, procedures, internal controls, and lending patterns. We identify the IFLEP “risk factors” associated with 1) HMDA/residential real estate, 2) consumer, 3) commercial, and 4) agricultural applications and loans. These risk factors are subject to statistical testing methodologies to determine the levels of residual risk. We also conduct an evaluation of your Fair Lending Compliance Management System based on interagency guidance. The FLRA will determine Focal Points (comparative file reviews or audits) that should be conducted in conformance with IFLEP and risk-based examination principles. Risk of appraisal bias is also included. Actionable and targeted recommendations are provided.
Fair Lending Dashboards
Fair Lending Dashboards focus on HMDA lending patterns and the associated risk factors set forth in IFLEP:
- Risk-based approach
- Risk factor determination according to IFLEP
- Statistical Testing of disparities against prohibited basis groups
- Summary of risks
- Conveys Focal Point or Targeted Reviews deemed appropriate based on statistically significant disparities toward one or more prohibited basis groups
- Recommendations and best practices
Our proprietary Fair Lending Dashboard (FLD) analyzes HMDA lending patterns for risk factors associated with 1) underwriting, 2) pricing and other terms and conditions, 3) steering, 4) redlining, and 5) marketing. A risk-based approach is used in determining any statistically significant lending disparities that require the institution’s action. According to IFLEP, Focal Points or Targeted Reviews should be conducted in response to statistically significant disparities.
Focal Points (Comparative File Reviews or Audits
Focal Points address residual Fair Lending risks identified via our Fair Lending Risk Assessment or Fair Lending Dashboard:
- Investigated whether applicants or borrowers received different treatment on a prohibited basis
- Modeled based on guidance found in IFLEP
- Conducted as standalone events or in combination with Fair Lending Risk Assessment or Fair Lending Dashboard
- Types of Focal Points conducted:
- Underwriting
- Pricing and Other Terms and Conditions
- Steering
- Redlining/Marketing
- Loan Servicing and Loss Mitigation
- HELOC Modifications
- OREO Related Practices
Focal Points, often referred to as comparative file reviews or audits, address specific residual Fair Lending risks at the product level. In conformance with IFLEP, Focal Points are conducted based on the identification of statistically significant disparities against one or more prohibited basis groups, such as denial or average interest rate disparities. Conducting Focal Points in response to the identification of residual risks helps to support a strong Fair Lending Compliance Management System.
Consulting
We offer fixed fee or hourly billing to support Fair Lending risk management principles to enhance your Fair Lending Compliance Management System.