Fair Lending Nuances in Consumer and Residential Loan Servicing – pt. III

Written by M&M Consulting

March 9, 2023

Fair Lending is on every compliance examiner’s radar, and nowhere is this more apparent than in examinations of consumer and residential loan servicing. Read any issue of the CFPB’s Supervisory Highlights and note how many examples deal with consumer and residential loan servicing – it’s because Fair Lending touches every aspect of loan servicing. What can a financial institution do to avoid findings in this area?

  1. Increase Fair Servicing training for loan servicers that:
    • Reminds servicing staff that Fair Lending equals Fair Servicing in all courses that address servicing operations and compliance.
    • Provides real examples of how Fair Lending pertains to servicing. Examples:
      1. Each request for forbearance deserves the same sense of urgency, regardless of the borrower’s race, ethnicity, sex, or any other protected basis.
      2. Requests for fee waivers need to be handled based on written procedure and not based on discretion of the servicing staff.
      3. Collection practices cannot be based upon a protected basis or even on the location of the property securing the loan.
      4. Appraisal standards need to be consistent with a thorough review process.
      5. Real estate owned properties need to be managed consistent with local, county, and state laws, and never based upon a protected basis of the owners or the neighborhood in general.
  2. Ensure that Fair Servicing is adequately covered in Fair Lending policies/procedures. It isn’t sufficient to just indicate “in all areas of lending” anymore without including the nuances of Fair Servicing, as detailed above in the training item.
  3. Ensure that risks pertaining to Fair Servicing are delineated in the Fair Lending Risk Assessment, and not lumped as one “Fair Servicing” risk.
  4. Revisit complaints metrics. Within the category of “Fair Lending” complaints, there should also a sub-category for “Servicing.” For institutions that service their own loans, this sub-category will likely include a lot of activity.

Fair Servicing is becoming a distinct compliance area, and should receive adequate attention across an institution’s training, policies/procedures, risk assessment, and complaints process.

For more information on Fair Servicing, contact us via our website:  www.mandm.consulting

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