Bates White is a leading provider of fair lending analysis and related consulting services to mortgage and consumer finance companies. We have extensive experience consulting for lenders facing class action litigation and for companies involved in regulatory matters. We combine theoretically sound and rigorous statistical modeling techniques with our deep understanding of our clients’ businesses and the economics of the consumer finance industry. This combination allows us to apply sophisticated analytical techniques to diagnose consumer finance lenders’ fair lending issues and provide guidance on understanding and addressing any potential pricing or underwriting disparities.
To assist mortgage lenders, Bates White provides a tailored approach to evaluate portfolio and pricing practices:
Diagnosis of underwriting and pricing practices—We identify and measure structural and unexplained pricing disparities between each of the demographic groups by systematically deconstructing the price charged to each individual, by each element, in the mortgage lender’s pricing plan.
Validation of underwriting and pricing practices—We evaluate each aspect of the lender’s pricing plan against the underlying credit risk to establish the credit risk impact of various credit profiles and correlate approval and pricing differences with the credit quality profiles which the underlying credit risks produced.
Alternative underwriting, pricing, and credit scoring strategies—Bates White helps mortgage lenders improve fair lending results by constructing advanced credit scoring models or modifying certain elements of the pricing system to reduce pricing disparities without sacrificing the ability to predict risk. Our analysis allows lenders to maintain or even improve profitability while providing more accurate pricing to their portfolio, potentially reducing pricing disparities between the various demographic groups.
- Served as consulting experts in a discrimination class action matter in which minorities alleged that the company unfairly marketed and issued home insurance policies. Analyzed zip code level variation in market shares and related that variation to factors such as income, house values, home ownership rates, and the minority share of zip codes. Evaluated the extent to which zip codes varied in type of policies underwritten, while distinguishing between high-cost full-replacement policies and alternative lower cost policies sold by the same insurers. In addition to this analysis, our experts worked to rebut claims of opposing experts.
- For a $2 billion retail and broker mortgage originator, analyzed HMDA data to determine source of racial and gender pricing disparities. Investigated branch and loan officer level pricing to uncover areas of potential discriminatory problems.
- Directed statistical and economic analyses on behalf of a major financial institution with multiple prime and subprime mortgage business units. Developed statistical models to detect pricing disparities between protected and unprotected classes and to analyze the relationship between its mortgage pricing strategies and credit risk. Developed alternate risk-adjusted pricing algorithms and credit–scoring models to reduce adverse impact without sacrificing effectiveness.
- For a large company in the home mortgage industry, evaluated the ability of the company’s automated underwriting system (AUS) to predict default, foreclosure, and other adverse outcomes for all groups. We analyzed whether the AUS predictions were equally valid for all groups and whether the underlying statistical model over-predicted minority defaults. We also considered whether there were alternative AUS systems that would have fewer disparate impacts and that could predict default and other loss measures equally well.
- On behalf of a major financial institution with multiple mortgage business units, provided statistical and economic analysis to respond and comply with government regulatory bodies assessing fair lending pricing and underwriting practices. Analyzed subprime mortgage underwriting practices and constructed comprehensive algorithmic and statistical models to detect loan-level pricing disparities between protected and unprotected classes.
- On behalf of a major financial institution, provided statistical and economic analysis to assess fair lending pricing and underwriting practices. Analyzed subprime mortgage pricing practices and developed statistical models to detect pricing disparities between protected and unprotected classes. Analyzed the relationship between borrower credit, property, and loan characteristics and mortgage pricing.