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Question & Answer
Question: I am concerned about how file comparison will work in the new fair lending examination procedures. We do business in several markets that have very different real estate prices. May a bank use a lower loan to value ratio in one of its markets than it accepts in other markets?
Answer: First, the examination will focus on a single market. The examiners may look at several of your markets, but they will look at each market as a universe. Your practices will be evaluated in the market context (demographics, prices, etc.) of the market.
They may compare how the bank operates in different markets so you should be prepared to answer any questions about how bank products and prices vary in the market. If you do use different prices or products, be sure that you have a legitimate business reason. It would be a good idea to have some explanatory documentation ready for the examiners to answer questions before they ask them.
To be sure that differing products or prices are acceptable, you should assess the impact of the differences on the markets involved. Know why the differences exist. Most important, know whether the differences may have a differential result on a prohibited basis.
Copyright © 1999 Compliance Action. Originally appeared in Compliance Action, Vol. 4, No. 7, 6/99
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