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Decision
system construction, validation and regulatory review. |
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To
contact us: |
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Management Consulting Services |
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Mortgage Decision Technologies, Inc. |
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The Comptroller’s
Handbook on Fair Lending Examination
Procedures cites the “Lack of clear
objective standards for …classifying applicants as ‘prime’ or ‘subprime’
borrowers” as an indicator of disparate treatment. Mortgage origination models provide completely objective
standards for classification as prime or subprime. The presence or absence of prohibited
factors is fairly obvious. The essence
of a fair lending review on mortgage decision systems is identification
of disparate impact and
evaluation of business necessity. |
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Denial
Rates By Group |
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MDT personnel have experience in fair lending review of
origination systems and in review of individual components of such
systems. Familiarity extends beyond
application variables to credit scores and credit file attributes. Demonstration of business necessity is
insufficient if an alternative attribute or variable could be substituted to
achieve the business objective with less discriminatory effect. MDT can be helpful in identification of
alternatives. The most obvious fair lending weakness in pricing or granting of
mortgage credit is consideration of
only part of the profitability
equation in lending. Credit must be
examined simultaneously with prepayment risk in order to objectively
determine profitability of a loan. Most fair lending reviews conducted today
examine only credit losses. A number of variables adversely impact credit but also reduce
prepayment risk. To penalize a
borrower for credit and not recognize favorable prepayment impact is wrong. |
|
Score Percentile |
Group
1 |
Group
2 |
Group 3 |
Group
4 |
|
Best 50% |
2% |
3% |
2% |
3% |
|
51- 60% |
3% |
2% |
3% |
2% |
|
61 - 70% |
2% |
3% |
2% |
3% |
|
71 - 80% |
10% |
10% |
9% |
9% |
|
81 - 90% |
50% |
49% |
51% |
50% |
|
91-100% |
99% |
99% |
99% |
99% |