Lenders are often faced with questions: What resources do I need to manage fair lending? How much should I budget? The human, technological and monetary resources needed to manage fair lending risk vary by a lender’s size and scope of operations. The fair lending resources demanded are a function of the following:
- The number of lines of business (LOBs) such as mortgage, consumer, small business, and home equity, etc. Companies with multiple LOBs need great fair lending resources even if the institution is relatively small in terms of asset size. This is more of an issue for depository institutions than a monoline non-bank mortgage company.
- The number of business channels within each line of business wholesale/retail/Internet, builder business, direct/indirect, and secured/unsecured. Multiple channels generally require separate analyses to tease out accurate cause and effect relationships.
- The number of products with unique underwriting criteria (FHA, conventional, VA). In most cases, it is generally appropriate to only analyze the fairness of underwriting within the same loan program/product. Different investor requirements are another consideration. The number of products priced under distinct pricing policies (conforming conventional, jumbo, FHA, VA, and any of the foregoing with different terms i.e., LLPAs, 30–year, 15–year, FRMs or ARMs). The greater the variation in programs/products, terms, and adjustments the more analytical resources are needed to understand them.
- The number of states and markets in which the lender operates. Different state laws impact origination practices. Different markets have different competitive pressures. These factors must be controlled for in analyses thereby increasing resource demands.
- Whether the lender is subject to CRA and therefore has an assessment area. Merely being subject to CRA increases the opportunity for redlining claims.
- Whether the lender engages in the servicing of loans. This is just one more area that could become a target of fair lending scrutiny.
In general, the more factors checked off as present in 1–6 above, the greater the demand for fair lending resources and the greater budget required.
In sum, the purpose of this article was to get the point across that fair lending resource demands are a function of the size, scope, and complexity of lending operations. All lenders are not alike, therefore, resource demands, and the related budget for them, vary widely. Take the time to compare your organization to the hypothetical examples to see where you fit. Please don’t hesitate to reach out to us at firstname.lastname@example.org.