Solving Your HMDA Fair Lending Gaps

The Problem: In October 2015 the CFPB issued an executive summary spelling out new reporting requirements. Beginning in January of 2018, lenders will be required to report much more detail per transaction including: points and fees, borrower-paid origination charges, discount points, lender credits, and loan originator identifier.

What does this mean for originators? It means that every loan origination unit in the country could have a target on their back. Consumer advocacy groups, and tort firms will have a hay day. They will have enough granular data to identify branches or even loan originators that are conducting  business in an unfair manner, whether they realize it or not.

For example, a small branch may do a majority of their business within one MSA. The issue is that they may be closing a majority, if not all, of their transactions in the median-to-high income type neighborhoods, and rarely in the low-to-moderate income neighborhoods.

As far as regulators are concerned, this is not acceptable.

The Solution: You need to fill the gaps. Banks have been doing this for years in response to the Community Reinvestment Act. The problem is, many mortgage teams haven't been willing to market to the low-to-moderate income neighborhoods. The low average credit in some neighborhoods killed their ROI for marketing to those areas. So what did these teams do? They spent their marketing dollars focusing on the neighborhoods that they knew they would have better average credit and thus a better closing ratio. See the problem?

Lenders are required to market to all areas within the MSA that they do business in, to show that they are giving all demographics of people a fair chance at lending offers. One solution is to "fill the gaps" by mailing pre-screened offers of credit to the area that they historically have been missing. This ensures that the borrowers in the low-to-moderate income areas with good credit are getting the offers. Here's the beautiful part, this demographic of consumers are the most responsive to direct mail and pre-qualified offers of credit.

MonitorBase is solving these issues. We are generating thousands of inbound calls for our clients every month of new home buyers in all areas of their market. The quality of call is better on average because the consumers that we target are pre-screened. We think this is something our clients should be thinking about now, rather than after the new reporting requirements take affect.