Thread Options
#2130767 - 05/17/17 03:05 PM Opportunity for Co-borrowers w/insuff credit
GLL Offline
100 Club
Joined: Apr 2002
Posts: 192
KY
For several years we have been using information from the Fair Lending Second Review tool from Bankersonline when doing our reviews. Management is now trying to kick back on some of this and are wanting a regulation reference to this effect, and I am not finding anything. Can someone help me locate a reference?? We don't actually have a "second review" program in place, but we have been using this tool as a guideline when doing loan review. Maybe I shouldn't even be using these guidelines if we don't have the process formally in place.

Return to Top
Fair Lending
#2130782 - 05/17/17 03:39 PM Re: Opportunity for Co-borrowers w/insuff credit GLL
rlcarey Offline
10K Club
rlcarey
Joined: Jul 2001
Posts: 78,922
Galveston, TX
It is a tool - if something doesn't work for you - change it. If you have no formal program and you are only running some loans through this process - that alone probably represents a fair lending issue.
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

Return to Top
#2130797 - 05/17/17 04:52 PM Re: Opportunity for Co-borrowers w/insuff credit GLL
GLL Offline
100 Club
Joined: Apr 2002
Posts: 192
KY
In an audit report, I listed a finding that there were several applications with Insufficient credit (no score) that did not appear to have a co-borrower offered, and they are bucking and saying that they did not know that was a "requirement". I explained to them that I was pretty sure that this was a fair lending issue and they are wanting to see a citation, but I am not seeing anything specific that mentions this, other than this tool that I am pretty sure is where we got our info for our audit checklist..

Return to Top
#2130807 - 05/17/17 05:33 PM Re: Opportunity for Co-borrowers w/insuff credit GLL
rlcarey Offline
10K Club
rlcarey
Joined: Jul 2001
Posts: 78,922
Galveston, TX
It would only be applicable if you allow co-signers or co-applicants to make up such a deficiency. If you do and you make that offer to one applicant, you have to make that offer to each and every applicant in that situation. The idea is that you are checking to make sure that your lending processes are consistent, not that you have to or not have to do anything on that checklist.
_________________________
The opinions expressed here should not be construed to be those of my employer: PPDocs.com

Return to Top
#2130869 - 05/18/17 12:58 AM Re: Opportunity for Co-borrowers w/insuff credit rlcarey
Rocky P Offline
Power Poster
Joined: Jun 2003
Posts: 7,377
Florida
You need to look at the Fair Lending examination manual - what the examiners will be looking at, not the regulations.
The following are from Appendix V.
The 2nd review should NOT only confirm the original underwriter's decision, but should look further to identify if any similarly situated applicants received a different decision, and ensure that your file documents WHY the decisions are different. EG - Applicant XYZ can be denied for credit with a 590 score, but that decision will be compared to applicant ZYX who was approved with a 580. What the 2nd review should be comparing are denied applications to similar approved apps.

Interagency Fair lending Exam Manual - Appendix V
Identifying Marginal Transactions
These procedures are intended to assist an examiner in identifying denied and approved applications that were not either clearly qualified or unqualified, i.e., marginal transactions.
A. Marginal Denials
Denied applications with any or all the following characteristics are “marginal.” Such denials are compared to marginal approved applications. Marginal denied applications include those that:
• Were close to satisfying the requirement that the adverse action notice said was the reason for denial;
• Were denied by the institution’s rigid interpretation of inconsequential processing requirements;
• Were denied quickly for a reason that normally would take a longer time for an underwriter to evaluate;
• Involved an unfavorable subjective evaluation of facts that another person might reasonably have interpreted more favorably (for example, whether late payments actually showed a “pattern,” or whether an explanation for a break in employment was “credible”);
• Resulted from the institution’s failure to take reasonable steps to obtain necessary information;
• Received unfavorable treatment as the result of a departure from customary practices or stated policies. For example, if it is the institution’s stated policy to request an explanation of derogatory credit information, a failure to do so for a prohibited basis applicant would be a departure from customary practices or stated policies even if the derogatory information seems to be egregious;
• Were similar to an approved control group applicant who received unusual consideration or service, but were not provided such consideration or service;
• Received unfavorable treatment (for example, were denied or given various conditions or more processing obstacles) but appeared fully to meet the institution’s stated requirements for favorable treatment (for example, approval on the terms sought);
• Received unfavorable treatment related to a policy or practice that was vague, and/or the file lacked documentation on the applicant’s qualifications related to the reason for denial or other factor;
• Met common secondary market or industry standards even though failing to meet the institution’s more rigid standards;
• Had a strength that a prudent institution might believe outweighed the weaknesses cited as the basis for denial;
• Had a history of previously meeting a monthly housing obligation equivalent to or higher than the proposed debt; and/or
• Were denied for an apparently “serious” deficiency that might easily have been overcome. For example, an applicant’s total debt ratio of 50 percent might appear grossly to exceed the institutions guideline of 36 percent, but this may in fact be easily corrected if the application lists assets to pay off sufficient nonhousing debts to reduce the ratio to the guideline, or if the institution were to count excluded part-time earnings described in the application.


B. Marginal Approvals
Approved applications with any or all of the following characteristics are “marginal.” Such approvals are compared to marginal denied applications. Marginal approvals include those:
• Whose qualifications satisfied the institution’s stated standard, but very narrowly;
• That bypassed stated processing requirements (such as verifications or deadlines);
• For which stated creditworthiness requirements were relaxed or waived;
• That, if the institution’s own standards are not clear, fell short of common secondary market or industry lending standards;
• That a prudent conservative institution might have denied;
• Whose qualifications were raised to a qualifying level by assistance, proposals, counteroffers, favorable characterizations or questionable qualifications, etc.; and/or
• That in any way received unusual service or consideration that facilitated obtaining the credit.
_________________________
Integrity. With it, nothing else matters. Without it, nothing else matters.

Return to Top
#2130877 - 05/18/17 12:33 PM Re: Opportunity for Co-borrowers w/insuff credit GLL
Rocky P Offline
Power Poster
Joined: Jun 2003
Posts: 7,377
Florida
Couldn't edit the above - to answer your second post.

Randy nailed it when he mentioned consistency. If only some applicants are asked if they can provide a suitable co-borrower (should be for lack of or limited credit - not bad credit), or given a customer discount, etc., the ones where the offer was not made were treated differently - the words the regulators use - disparate treatment. It can happen often, because of bias. If regulators feel that a disproportionate number of the borrowers getting the benefit are white and/or male, they can perform additional tests to validate their position through HMDA data, surrogates, or BISG.
_________________________
Integrity. With it, nothing else matters. Without it, nothing else matters.

Return to Top