It is critical for financial institutions to consistently monitor their lending practices and processes to mitigate all risks associated with fair and equitable lending. Using data reportable under the Home Mortgage Disclosure Act (HMDA), financial institutions utilize statistical analyses to identify potential discrimination on a prohibited basis, as defined in the Equal Credit Opportunity Act (ECOA) or the Fair Housing Act (FHA). ECOA prohibits discrimination in any aspect of a credit transaction.  It applies to any extension of credit, including extensions of credit to small businesses, corporations, partnerships, and trusts. FHA applies to extensions of credit secured by residential real estate. Financial institutions should perform statistical analyses, including regression modeling for portfolios with sufficient volume, to identify underwriting and pricing outcomes to determine if there are statistically significant differences in treatment on a prohibited basis to ensure their lending practices and processes sufficiently mitigate fair lending risk.

Asurity Advisors leveraged statistical tools to examine the bank’s loan data while also comparing the model inputs and outputs to the models the bank had used in the past. The review encompassed statistical analyses of the bank’s mortgage and consumer lending data set to detect any disparities on a prohibited basis in underwriting outcomes and pricing decisions. As well as the regression results for every analysis, Asurity Advisors also delivered fair lending model documentation for submission to the bank’s model risk management group and identified matched pairs for comparative file review. By entrusting Asurity Advisors with delivering fair lending analysis, the hands-on approach leveraged in this engagement helped the bank understand their risk exposure to unintentional biases in lending practices, unfair lending practices across all loan programs, and ultimately provided recommendations to strengthen the bank’s fair lending reviews going forward.