This article will highlight a few recent high profile redlining cases and their settlements. Then, we will explain how fair lending software and consulting can help mortgage lenders evaluate their redlining risk.
Our tools are guided by the following settlements involving the federal government:
- ESSA Bank & Trust
- City National Bank (2023)
- Lakeland Bank (2022)
- Trident Mortgage Company (2022)
- Trustmark National Bank (2021)
- Cadence Bank (2021)
- First Merchants Bank (2019)
- KleinBank (2018)
- BancorpSouth Bank (2016)
- Eagle Bank and Trust Company of Missouri (2015)
- Hudson City Savings Bank, F.S.B. (2015)
In the settlements listed above, the court ordered institutions to implement one or more of the following actions:
- Establish a loan subsidy fund
- Increase the budget for advertising, community outreach, financial education, and credit repair.
- Open new branches for the underserved communities affected by the institution’s alleged “redlining.”
- Employ a community development officer tasked with overseeing the needs of predominantly minority areas.
- Establish a monitoring program
- Train employees in fair housing and lending laws
- Create a settlement fund for harmed borrowers
- Pay civil penalties
- Increase the number of loan officers dedicated to meeting the needs of majority Black-and-Hispanic neighborhoods.
The above examples show how financial institutions can face millions of dollars in fines and community-building projects when failing to provide residential lending to people in communities with high percentages of minorities.
Identify Redlining Risk Through Software and Consulting
Comprehensive software can help lenders monitor and discover potential redlining risk before the federal and state examiners do. Bringing practices in line with fair housing and lending practices as soon as possible could help lenders avoid investigations and expensive settlements.
To be specific, I recommend the following:
- At a minimum, lenders should be comparing their share of lending in White majority tracts to their share of lending in majority-minority tracts (“MMTs”) and testing those differences for statistical significance.
- If necessary, determine the magnitude of any market penetration issue by computing the number of applications needed in specific geographies to eliminate risk. This concrete take-away allows lenders to set marketing strategies and production goals while ensuring safety and soundness.
- Conduct market penetration analysis using multiple peer groups. These peer groups should be based on who the known competitors are, activity range (e.g., by excluding peers with less than or half or more than twice the activity of the subject lender, within the selected geography), asset size, regulator/type of institution, and business models.
How we can help you
ComplianceTech provides a range of software and consulting options that lenders can use to ensure they comply with federal and state fair lending guidelines. Our popular fair lending software products include:
If you’re not sure which fair lending software suits your organization’s needs best — or whether you need more than one solution — request a demo so you can experience the features that come with each option.