Managing fair lending risk in wholesale mortgage pricing
Download Managing fair lending risk in wholesale mortgage pricing
One of the thorniest fair lending compliance issues currently confronting banks and other mortgage lending institutions is whether to monitor wholesale loans – i.e., loans originated by mortgage brokers – for potential disparities in pricing by race or national origin. Historically, many small and even some large institutions opted against monitoring wholesale loans for two key reasons. First, there is no legal authority expressly stating that lenders are legally responsible for pricing differences resulting from the acts of independent, third party mortgage brokers. Further, even if lenders decide to address such differences, it is extremely difficult if not impossible to prevent them from arising.
The landscape is changing, however. Stepped up federal and state enforcement efforts – including a notable increase in investigations and settlements involving smaller players – have captured the attention of many compliance officers and in-house counsel concerned with avoiding fair lending risk. These factors combined with strong signals from the Obama administration that lending discrimination will be a major enforcement priority and a wave of fair lending class action lawsuits have prompted many smaller banks and nonbank mortgage lenders to join the larger players and implement wholesale price monitoring programs.
Making the decision to monitor is just the beginning. Lenders that choose to invest the resources to create and implement a monitoring program have to address many practical challenges. The main goal is to develop and implement a program that will identify and effectively alleviate price disparities across different races and ethnicities while creating as little as possible disruption to the lender’s business. Balancing these considerations is difficult, but managing the fair lending risks associated with wholesale lending is now more important than ever.