The Home Mortgage Disclosure Act: An Overview of Recent Developments and a Guide to Limiting Risk


New data on home mortgages, first made public last year, have spawned waves of investigation by regulators and class actions alleging discrimination in pricing on the basis of race, gender, or ethnicity. In view of all of these risks, what is a prudent lender to do? Although no lender can guarantee that it will not be subject to adverse regulatory or enforcement activity, or that disparities will not arise in its loan pricing, all lenders can take steps to reduce these risks.

First and foremost, lenders should establish and maintain a strong and effective fair lending program. Despite an institution's strong fair lending program, it is possible for pricing disparities to arise. In order to evaluate and respond to this risk, it is important that lenders analyze their own data before others do so. In addition, regulators are more likely to view an institution in a favorable light if it has identified and addressed problems before any inquiry began. In electing to conduct a pricing analysis, a lender should also be prepared to investigate the root causes of any identified disparities and to take action to correct them. Where there are disparities, a lender should examine the caps on overages and underages commonly applied by other lenders in its segment in order to determine whether the extent of pricing discretion may be viewed as excessive. Lenders should require loan officers to document the reason for any overages, underages, or other pricing exceptions, such as adjustments made due to an offer from a competing lender or an applicant's longstanding deposit relationship.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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