Keep Cool, Calm, And Compliant

Lenders need to craft a culture of compliance and customer care

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Vice President

In a recent CFPB Supervisory Highlights1, “Pricing Discrimination” has been identified as a fair lending issue. In a highly competitive mortgage market, it has become increasing more important for mortgage originators to be able to offer pricing exceptions. With the low volume of loans, it is extremely imperative to keep current clients and work to gain new clients, by being assertive when it comes to pricing. Many mortgage companies are advertising “bring me your LE, and we will meet it or beat it.” Expressly, stating they are willing to offer a pricing exception. However, the analysis of the data reflects that more favorable pricing options are being offered to some but not to all. The data also reflects that there is a “significant” disparity in these rate adjustments, especially when it comes to certain protected characteristics of consumers, therefore, leading to pricing discrimination.

“The CFPB again found that mortgage lenders violated ECOA and Regulation B by discriminating in the incidence of granting pricing exceptions across a range of ECOA-protected characteristics, including race, national origin, sex, or age.”

The CFPB clearly states they will be examining lender’s practices on pricing exceptions to determine if they meet the minimum fair lending standards. This may include a review of how the overall process works within your organization. How will your company fair, when asked these questions:

Do you have policies and procedures on how pricing adjustments are evaluated, determined and granted?
Do you provide oversight and controls over mortgage loan officer’s discretion when making price exceptions?
Does management take corrective action when disparities occur in the pricing adjustment process?
Are there legitimate, nondiscriminatory decision-making practices consistently applied to all mortgage loan applicants?
Are there weaknesses in training programs on fair lending and specifically pricing exceptions?
How does your record retention, support the decision, documenting the reasons, and how the decision was derived, when allowing for the price exception?
- What is the source of the initiation request (borrowers request v. loan officer offering)?
- Are your loan originators coaching some clients v. neglecting to share the same information with other clients on how to get best price?
- Do you require documentation from competitors demonstrating the need for price exception to gain or retain the mortgage transaction?

When it comes to fair lending, mortgage professionals need to make sure all aspects of the business practices incorporate factors that protect consumers, and that all practices are equally applied to all mortgage clients.

“Finally, examiners concluded that management and board oversight at lenders was not sufficient to identify and address the risk of harm to consumers from the lender’s pricing exceptions practices.” – CFPB

The CFPB again found that mortgage lenders violated ECOA and Regulation B by discriminating … across a range of ECOA-protected characteristics, including race, national origin, sex, or age.

The CFPB required these lenders that were found to be in violation, to take corrective action and implement changes to ensure fair lending standards and practices were included in all pricing exceptions. Some of the requirements included, but not limited to:

Must have pricing exceptions policies and procedures that incorporate fair lending standards, and identify how a mortgage originator must apply those standards.
Develop a list of documentation required in order to get a price exception approval.
Create detailed criterion for pricing exceptions with determining factors for approval.
Identify those within your organization who will have the authority to make price exceptions.
Establish record retention requirements for all pricing exceptions.
Clearly identify and document who initiated the pricing exception request (borrower or mortgage loan originator).
Monitor and self-audit the pricing exception process to identify any potential fair lending issues resulting from the current process and adjust if necessary.

Fair lending risks are related to all aspects of the loan origination process2. Pricing discrimination is just one aspect that is currently being highlighted by regulatory authorities. It’s being exasperated by a tremendously competitive mortgage market partly because of the existence of a significantly high interest rate environment. This is the perfect storm for fair lending risks and pricing discrimination to occur.

As mortgage professionals, providing the best customer service and best deals to all our clients is the goal and certainly a priority. However, think about how you can accomplish this and still protect yourself and the mortgage company. Meaning, put it all down in writing, continually train, and then monitor your success.

Remember, examiners can only see the documentation that is in the mortgage file, not what you intended. If the documentation does not support your efforts, it did not happen or it happened in a way that may have been a fair lending violation. So, create a culture of compliance that shares knowledge, experience, and documents how much you “like” your clients (all of them) by helping them achieve their goal of homeownership. Providing all of your clients the opportunity to build wealth through investing in themselves and their homes. Just like having kids, you can’t really have a favorite, you must love them all equally! Clients and kids, treating them all fairly and equally will provide you with the best results at work and at home