How to Avoid the Pitfalls Hiding in Your HMDA Data
As bankers finalize and submit their 2011 HMDA data before the March 1st deadline, most will take time to perform a Fair Lending analysis.
That’s good. We like that. And so do examiners. Sometimes, though, even well-intentioned, hard-working bankers stumble during their data analyses and don’t realize it until they have an examination. They stumble because of Fair Lending pitfalls.
This is the perfect time of year to avoid Fair Lending pitfalls, and here’s how to do it:
- Know your assessment area’s demographic percentages for each of your target groups. Target groups include Native American/Alaskan American, Pacific Islander, Asian, black or African American, Hispanic, female. Your application rates should roughly mirror the same as the demographic percentages for each of your target groups in your assessment area.
- Review your fallout rates. Many bankers only focus on denials; however, the potential for discrimination lurks in fallout rates. Fallout rates can be built by aggregating your withdrawn, approved–but-not- accepted and incomplete applications.
- Include pricing in your analysis. It’s important to know whether higher-priced loans are occurring at the same frequency for target and control groups. Don’t forget to review the average rate being charged to the target group.
The very worst pitfall is doing nothing at all. And it’s surprising to me how often this happens. Every month I receive phone calls from bankers who thought that these (and other) cautionary steps didn’t apply to their institution – until an examination opened their eyes.
Often these calls are from bankers in small towns where everyone knows each other – and they’re confident there’s been no discrimination. Then they discover their examiner – an outsider to their small town – has a different opinion. And by then, it’s too late to take those cautionary steps.
These bankers quickly become our best partners, because they’ve learned the hard way the value of analyzing their data. At Ncontracts, we specialize in helping financial institutions avoid pitfalls and make the most of their data.