Big Picture
Financial institutions face unique challenges in recruiting and retaining qualified talent to meet legal and regulatory requirements. Compliance with fair lending laws and corollary federal and state regulations remains a key priority for financial institutions and third-parties acting on behalf of financial institutions. Discrimination on a prohibited basis in any aspect of a credit transaction is unlawful and could result in the enforcement of federal and state laws, violations of which may result in civil money penalties, and could even limit financial institutions’ ability to grow or expand into new markets.
Client Scenario
A financial institution challenged with limited internal resources needed to expand the organization’s capabilities by tapping into the expertise and skills of external talent to support their compliance management system (“CMS”) and fair lending program. In order to maintain an effective fair lending program commensurate with the level of risk and size of the organization, the financial institution’s board and senior management executives are charged with ensuring policies, procedures and practices comport with all fair lending laws and regulations. To that end, the financial institution engaged Asurity Advisors to perform fair lending analytics on their closed-end and open-end Home Mortgage Disclosure Act (“HMDA”) data, including running regression and non-regression statistical analyses (i.e., underwriting regressions, denial disparity ratios, mean differences in APR, etc.), and building and executing regression models for underwriting and pricing outcomes.
Asurity Solution
Asurity Advisors, led by industry experts, has broad domain knowledge of and skills in conducting statistical analytics to assess fair lending risks by conducting comparative file reviews through matched pair testing. Asurity Advisors completed non-regression statistical analyses, logistic underwriting regressions, and ordinary least squares pricing regressions in relation to the financial institution’s open-end and closed-end HMDA reportable data.
To the extent focal points were identified in closed-end and open-end HMDA reportable data, a list of matched pairs was generated and comparative file reviews was performed for each universe. Asurity Advisors conducted the comparative files reviews to determine whether the files were truly similarly situated from a credit and collateral perspective, as well as whether the financial institution applied its policies, procedures, or guidelines consistently to all applicants. At the conclusion of the comparative file reviews, Asurity Advisors submitted a report that summarized potential findings, observations, and recommendations to mitigate any heightened fair lending risks or CMS concerns.
To supplement the comparative file conclusions and recommendations, Asurity Advisors offered tailored fair lending training via knowledge sharing sessions as requested by the financial institution’s executive management team to offset potential knowledge gaps and build capacity within the institution.