One key component to any fair lending monitoring program is robust monitoring of underwriting and pricing exceptions. The Interagency Fair Lending Examinations Procedures indicate that institutions face increased fair lending risk if internal policies are vague with respect to the granting of exceptions. Written policies should be in place that explain the process for submitting, evaluating, approving, and reporting exception requests. It is up to the compliance manager to monitor underwriting and pricing exceptions to ensure that practices follow internal policies and that loan exceptions do not vary based on prohibited basis status. Depending on the size of your institution, you may want to monitor exceptions as frequently as on a quarterly basis. Regardless of monitoring frequency, you should be prepared to answer the following questions before your next fair lending exam:
- What count/percent of borrowers receive underwriting and pricing exceptions?
- What is the distribution of exceptions by prohibited basis groups?
- Are the exceptions granted in specific loan programs?
- Do borrowers who apply for specific loan types receive more exceptions and do the exceptions vary by prohibited basis?
- Who grants the exceptions: branches, loan officers, underwriters, processors, etc.?
- What are the reasons given for the exception?