FairLending

A fair lending regression tests whether a gap in a lending outcome, such as denial or the rate paid, between a prohibited basis group and a control group survives once the credit factors your policy actually uses are held constant. What survives is the part you will be asked to explain, and the model shows which applications drive it. This article covers the working side of that: what goes into the model, how to read what comes out, and how examiners use the result. It is the companion to what regression can and cannot prove in fair lending, which deals with the method's limits in detail, quoting the OCC's handbook. If you have not read that one, the short version is that a model can only account for the factors you give it. What is a fair lending regression actually testing? Two…

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A fair lending examination is more predictable than it feels, because the procedure examiners follow is published. The Interagency Fair Lending Examination Procedures set out how scope is decided, what documents get requested, how a focal point is chosen, how files are compared, and what an institution's explanation has to establish to resolve a finding. If you know that sequence, you can assemble most of what will be asked for before it is asked for. This article walks the sequence in order. It is the counterpart to our guide to running a self-assessment, which covers testing yourself. This one covers what happens when someone else does the testing. The document, and which agencies use it The procedures were issued in August 2009 by the OCC, the FDIC, the Federal Reserve Board, the…

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Fair lending examination does not stop at the credit decision. A servicer that grants a forbearance to one borrower and denies it to a similarly situated borrower on a prohibited basis has a fair lending problem, even though no application was declined and nothing about it will ever appear on a HMDA loan application register. The CFPB instructs its examiners to test for precisely this. The data they need to do it does not live in your LAR. This article covers what those servicing decisions are, why origination-side testing cannot see them, and how the statistical methodology used on application data transfers to servicing data. It is also specific about where that methodology stops transferring cleanly, because that is the part most treatments of this topic skip. What fair servicing…

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Fair lending compliance is not only about passing your next exam. It is about being able to show that your institution treats every applicant consistently, and being able to show it with evidence you generated yourself rather than evidence an examiner generated for you. A thorough self-assessment identifies potential issues before examiners do, demonstrates proactive risk management, and protects the institution from enforcement actions that begin as findings nobody looked for. This guide walks through a comprehensive fair lending self-assessment using the same methodology regulators use when they examine an institution. The ten steps are in the order an examiner would work through them, which is also the order in which each step's output becomes the input to the next. Fair Lending…

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