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Fair Lending and Reverse Redlining... Can Banks Ever Win?

author Justin Smith
1 min read
May 23, 2011

Once again, Fair Lending, Redlining and Reverse Redlining are in the spotlight. Can community banks win in this regulatory environment?Prior to the mortgage crisis, regulators encouraged banks to improve their Fair Lending and CRA (Community Reinvestment Act) efforts and market mortgages to poor minorities with weak credit. Now, banks are being persecuted for those same loans for "Reverse Redlining" or "Predatory Lending".

Banks price loans based on risk. Higher risk loans are priced higher. Now these same loans that banks were encouraged to make prior to the mortgage crisis are being targeted for increased scrutiny by the government.

A recent article in Investors Business Daily sums this up. It's a good quick read: http://www.investors.com/NewsAndAnalysis/Article/572091/201105121901/Holders-Anti-Bank-Witch-Hunt.aspx 

In order to succeed in this regulatory environment, you have to know the story your data tells!

As a compliance officer, a detailed working knowledge of lending by census tract is helpful. One must also review census tract minority composition. For higher minority census tracts, focus on application, origination and denial numbers (Redlining) and high rate loan frequency and average loan rate (Reverse Redlining).

Community bank compliance officers are in a tough position right now. The only way to combat this sort of double talk is with the numbers.

TRUPOINT Partners can help you with your CRA, Fair Lending, and HMDA compliance. We're always here to help.

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