In my experience, there are more lenders who
do little to nothing to monitor fair lending than those
who actively manage it. Those that do less tend to
be independent mortgage companies rather than
I believe there are several reasons for this
outcome: A) Culture and Traditions: Prior to Dodd-Frank, independent mortgage companies were not
subject to compliance examinations. Therefore,
many of them just do not know what it takes to get
ready for a fair lending examination. In many cases,
the sales culture of such lenders dominates the risk
management side of the business. B) The only color
they see is green. Because of the entrepreneurial
nature of mortgage companies, they would like to
think that the desire to make every loan effectively
prevents lending discrimination. C) The absence of
a Community Reinvestment Act (CRA) imperative
directed to lending to low and moderate income
households and in LMI areas. The monitoring and
reporting disciplines and institutional framework
required by CRA create a more receptive climate for
fair lending monitoring. D) Some mistakenly believe
“the darned if I do or don’t rhetoric.” This says, for
example, if I increase credit access, it will cause more
fair lending problems.
Notwithstanding these possible reasons for doing
less fair lending monitoring, I would like to offer
the following five reasons why all lenders should be
monitoring fair lending on a regular basis:
1. You don’t know what you don’t know! Fair
lending monitoring will inform the lender about
operational gaps and missed opportunities never
2. What's our story? Every lender has a different
narrative based on its chosen business model. It
is important to be able to explain your lending
performance to a regulator in that context as well
as relative to peers. How does the lender look
from the outside?
3. How well are my origination sources doing?
When you monitor fair lending activity by channel,
loan officer, or broker, the lender can then see
patterns that may be hidden when all activity
is averaged in the aggregate. A related issue is
whether marketing activities support or detract
from fair lending?
4. How effective is our training? Fair lending
monitoring gives rise to findings that sometimes
require re-training staff in certain areas. Regular
monitoring allows the lender to measure the
effectiveness of the training and hold employees
5. Do we have a problem? Lenders generally
consider this to be the most important reason to
act. Unfortunately, this is not a question to be
asked just once: It must be asked over and over;
every quarter, every year, in multiple markets for
each channel and for various products.
If you have been sitting on the fair lending
sidelines, hopefully this note will inspire you to act.
Like quality assurance, fair lending monitoring is an
essential business practice. Believe it or not, once you
get into it, you will find it intriguing. Let me know how
you feel about it at firstname.lastname@example.org.
What's the point of fair lending monitoring?
THE FAIR LENDING GUIDE
The Fair Lending Guide is designed to give you up-to-date information on fair
lending regulations; the common fair lending regulatory exam findings; how to
conduct fair lending reviews of your company; and what you should be doing to
ensure that you are in compliance with fair lending regulations. Michael Taliefero
is co-founder of ComplianceTech and is known nationwide in the mortgage
industry as one of the leading authorities on fair lending.