I am really scratching my head on this one and would appreciate comments from those of you that have been in the biz longer than I. Our bank has a mortgage department that sells loans on the secondary market. I believe it is acceptable that we state that rates are set by investors, but what I am having a difficult time with is that originators are allowed to charge up to x% of the loan amount. How can this be right? When you have to like candidates but charge on a fee of X and another a higher feeI have spoken with several other banks and they too allow this practice. I know this has been a widely used practice in the past but with everything I have come to understand about this issue, it seems to me that it is discretionary and will be a huge problem. What is everyone else doing?

Loan officers are in the sales business. They can charge whatever they want. If they can negotiate more fees, than good for them. However, any time you charge different interest/fees, you subject yourself to fair lending issues. If the loan officers are charging a protected class more, then there is an issue. If there is no correlation between higher fees and protected classes, then they are just doing their job.

Think about it this way:
1. Should ever person get the same rate/fees? No two applicants represent the same risk and sales are part of lending. If 20 of us went to a car lot interested in the same car, I guarantee you we would get 20 different prices for that car depending on our negotiation skills, financing options, etc. Is that illegal?

2. If people are treated differently because of their race, sex, age, etc. that's wrong.

David, thank you so much for responding. I just can't figure out how to insure that we are not mistreating anyone from a protected class. I guess we will just have to review loans after the fact and make restitution to those in protected classes that were charged more, because I don't see any way to prevent it on the front end.

"I guess we will just have to review loans after the fact and make restitution to those in protected classes that were charged more, because I don't see any way to prevent it on the front end."

Prior to implementing such an action, I would highly suggest you get legal assistance. By implementing such a corrective action you have admitted that you have fair lending violations and although you may fell that you have corrected them, it does not forestall referral to the Department of Justice for prosecution.

Thanks rlcarey, I understand what you are saying,and I may be asking a very complex question, how do you prevent it on the front end.

No one deliberatly sets out to discriminate and I know intention has nothing to do with it, but as David mentioned they are in the sales business looking to obtain the highest fee they can. Would it be prudent simply to charge all protected class applicants a lower fee to insure that there is no discrimination? Sorry, this may be a stupid idea but I have no idea how to handle this. I am not concerned about our in house loans because there are set fees and rates based on a pricing sheet and there are very few if any overides. But its different in mortgage division.

It shouldn't be and I think that is the point after all of the trials and tribulations that we have seen in the mortgage loan business. Pricing loans lower for applicants in a protected class results in reverse discrimination and leaves you with the same civil liabilities. Have them price the loans at the going market rate and take away loan officer discretion on setting any of the pricing. If they are making more money on commission on higher priced loans, the regulators are going to be all over this on the next visit. Fair lending has come back to the forefront and I don't think you are going to see anyone slide through a fair lending exam in the near future.

Thanks again...