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#2059940 - 01/22/16 02:49 PM New Loan Program
Bec Offline
Diamond Poster
Bec
Joined: Jul 2010
Posts: 1,114
The Great White North
Being new to this compliance role, I need some help vetting this new loan program that is being kicked around.

We would like to provide construction loans to customers of a builder that would like to use our bank as a financial partner. The homes start at $500,000 and it appears that we will be also doing the take out on these loans.

One of the parts is that a $400 lender's credit towards closing costs will be granted on the condition that we receive a new depository relationship of 10K or more and the end financing.

This scares me for some reason. It sounds like a fair lending issue. Granted the loan program is for higher end homes. But what about those that don't have the $10,000, they might still qualify for the loan, but now they don't get the lender's credit?

They also want to require EFT. I know that is a not allowed. That they can condition an EFT on a discounted rate with the option of the customer dropping the EFT but then losing the preferred rate. I know that they are not going to want to discount the rate...but could we condition the $400 lender's credit for the EFT?

Let me know if I am on the right track with my thinking or if I am completely off base.
Thanks!
Last edited by Bec; 01/22/16 02:51 PM.
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Lending Compliance
#2059962 - 01/22/16 03:53 PM Re: New Loan Program Bec
Rocky P Online
Power Poster
Joined: Jun 2003
Posts: 7,460
Florida
Look at the Fair Lending examination manuals. The following is from the OCC's - others are the same.

4. Identify Residential Lending Discrimination Risk Factors

Review the lending policies, marketing plans, underwriting, appraisal and pricing guidelines, broker/agent agreements, and loan application forms for each residential loan product that represents an appreciable volume of, or displays noticeable growth in, the bank’s residential lending.

P7 *A loan program that contains only borrowers from a prohibited basis group, or has significant differences in the percentages of prohibited basis groups, especially in the absence of a Special Purpose Credit Program under the ECOA.

R6.
Explicit demarcation of credit product markets that excludes metropolitan statistical areas (MSAs), political subdivisions, census tracts, or other geographic areas within the bank’s lending market or CRA assessment areas and having relatively high concentrations of residents of a particular racial or national origin group.
R8.
Policies on receipt and processing of applications, pricing, conditions, or appraisals and valuation or on any other aspect of providing residential credit that vary between areas with relatively high concentrations of residents of a particular racial or national origin group and those areas with relatively low concentrations of residents of such racial or national origin group.

M1.
Advertising patterns or practices that a reasonable person would believe indicate prohibited basis customers are less desirable.
M2.
Advertising only in media serving particular racial or national origin areas of the market.
M3.
Marketing through brokers or other agents that the bank knows (or has reason to know) would serve only one racial or national origin group in the market.
M4.
Use of marketing programs or procedures for residential loan products that exclude one or more regions or geographies within the bank’s assessment or marketing area that have significantly higher percentages of residents of a particular racial or national origin group than does the remainder of the assessment or marketing area.
M6.
*Proportion of monitored prohibited basis applicants is significantly lower than that group’s representation in the total population of the market area.


Bec - taken individually, there may not be an issue, taken collectively, there may be. The list can go further. Remember that disparate impact includes the "effects test".

From the exam manual, "When a bank applies a racially or otherwise neutral policy or practice equally to all credit applicants, but the policy or practice disproportionately excludes or burdens certain persons on a prohibited basis, the policy or practice is described as having a “disparate impact.” Disparate impact has been referred to more commonly by the OCC as “disproportionate adverse impact.” It is also referred to as the “effects test.”
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#2059977 - 01/22/16 04:20 PM Re: New Loan Program Bec
Bec Offline
Diamond Poster
Bec
Joined: Jul 2010
Posts: 1,114
The Great White North
Thank you for the citation Rocky P. I appreciate you posting it.
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