Mortgage lending can be a complicated process sometimes, with dozens of factors taken into consideration before approving an applicant for a loan. Unfortunately, lenders can often be so focused on the data and statistics that they may inadvertently be declining a number of specific applicants or not offering them additional financial programs. This can add up over time and may, in turn, prevent struggling communities from improving their economies. The result of this negligence can lead to damaging accusations of redlining.
What is Redlining and How Can It Hurt You?
Redlining is the unethical practice used by banks to prevent certain communities, predominantly composed of minorities, from receiving loans and other financial services. While banks may decline loan requests due to an individual’s financial history and credit score, The Fair Housing Act of 1968 and The Community Reinvestment Act of 1977 prohibit exclusion based solely on the applicant’s race.
One of the most recent cases of redlining is that of KleinBank, a subsidiary of Old National Bank. In 2017, the Department of Justice accused KleinBank of using racial demographics as a factor when approving or denying applicants in the St. Paul/Minneapolis area. They clearly provided services to white applicants, but did not offer those same services to minority communities nearby.
The consequences for redlining can be tremendous, with Hudson City Savings Bank being ordered by the Department of Justice to pay out $5.5 million in penalties and invest at least $27.25 million in mandated programs in 2015.
The Advantage of LendingPatterns™
Unfortunately, while these institutions were shown to purposefully disregard communities, most banks that struggle with redlining do so because they do not understand the demographics of their communities, rather than because of malicious intent.
There are four analyses that can be done in LendingPatterns™ to investigate potential redlining risk factors:
It is important to know the borrower segments you are serving in your top markets. Are you underserving or overserving any population segments based on race/ethnicity, tract income, or tract percent minority? It is easy to produce a report in LendingPatterns™ to highlight population segments with under or over penetration.
Statistical Analysis of Redlining Risk Factors
According to the Interagency Fair Lending Examination Procedures, it is important to conduct a redlining analysis to identify significant differences in application counts and rates of approval/denial between areas with relatively high concentrations of minority group residents and areas with relatively low concentrations of minority residents. This is just one of nine redlining risk factors identified in the FFIEC guidelines. You should take into consideration all nine risk factors when conducting your analysis. LendingPatterns™ contains reports that will pinpoint areas with statistical significance for you, taking the guesswork out while evaluating these risk factors.
Where Are You Marketing?
Using LendingPatterns™ Custom Mapping module, it is possible to upload and geocode marketing mailing lists to create an extensive demographics report to learn about the make-up of the tracts in your marketing areas. You can use this report to drill-down on the census tract demographics to evaluate whether there may be targeting issues or redlining issues with your marketing lists.
What does your Assessment Area look like on a map?
A picture is worth a thousand words. The LendingPatterns™ mapping module allows you to easily creates a visual representation of your lending activity on a map. The map can show your Assessment Area, areas adjacent to the Assessment Area, branches, and lending activity. When all of this activity is plotted on one map, it is easy to identify potential redlining issues.