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Fair lending
Consumer finance lending and underwriting practices are increasingly
scrutinized for discriminatory pricing practices as a result of legislation
such as the Fair Housing Act, Home Mortgage Disclosure Act, and the Equal
Opportunity to Credit Act. To assist mortgage lenders, Bates White has
developed a three-phase approach for evaluating portfolio and pricing
practices for any potential fair lending issues. First, we review the
mortgage lender’s pricing system and the resulting rates charged to
each protected and unprotected class. Then, to uncover the underlying cause
of any pricing disparities, we deconstruct the price charged to each
individual, by each element, in the mortgage lender’s pricing plan.
Finally, to validate pricing practices, we analyze the mortgage lender’s
portfolio payment and performance history.
Even for portfolios where all pricing disparities are explained by
differences in credit quality, mortgage lenders can improve fair lending
results by evaluating alternative credit scoring and pricing strategies.
By constructing advanced credit scoring models or modifying certain elements
of the pricing system, lenders can reduce pricing disparities without
sacrificing the ability to predict risk. The result is improved profitability
and more accurate pricing to their portfolio. Additionally, this analysis may
reduce pricing disparities between the various demographic groups.
For more information on our Fair Lending services, click here.
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