Modern Redlining is Subtle
The historic type of redlining that we all have heard about (e.g. maps which designate areas not to lend in based on minority populations) doesn't exist anymore. But there is the concept of "modern redlining". The idea behind this concept is that lenders intentionally or unintentionally discourage borrowers from majority-minority areas from applying for mortgages. The CFPB focuses on application patterns as evidence of lenders who are avoiding minority borrowers. As one speaker noted, "CFPB does not need to find a specific policy or a specific expression of intent which indicates that the company is avoiding minority areas." CFPB looks at low application numbers, a lack of affirmative outreach/ marketing, and "May also consider other factors, such as sufficiency of fair lending CMS and whether employees have made racially charged statements." Here is an example of facts assembled by the OCC in August 2021for a referral to DOJ of a bank in Houston:- Low application volume from majority-minority areas.
- Location of branches predominantly in majority-white neighborhoods (except for one branch).
- Loan officers generated leads through referrals with real estate agents, builders and developers in areas near branches (i.e. in majority-white neighborhoods).
- Reliance on bank network - “No meaningful steps to encourage applications from outside branch network" - e.g. no advertising in Spanish and inadequate advertising to the Black community.
- Lack of diversity - Not employing or hiring loan officers with ties to majority black or Hispanic communities or with Spanish language skills.
- Lack of purposeful training -Not training loan officers on taking steps to serve the credit needs of majority-Black and Hispanic areas.
Data Radar
One of the participants, Head of Community Lending & Development at a large bank, shared a best practice to slice and dice HMDA data to analyze lending patterns and benchmark against peers as a basis of business strategy. We've been thinking a lot about that too. In the process of analyzing HMDA data for compliance, lenders also can leverage the insights for strategic analysis, D&I, and many other use cases. We have identified 10 business use cases for HMDA LAR when modeled in its entirety and blended with census data. Here are a handful of use cases that every lender faces at least once and many do on a regular basis, which we have distilled through interactions with our HMDAVision customers:Diversity & Inclusion Use Case:
Measure lender’s progress toward minority lending goals.
(i) Triage tool for quick analysis of lender’s patterns (e.g. marketing/redlining risk, pricing/reverse redlining, underwriting )
(ii) Know and own your lending story - proactively analyze your patterns in local market context and in comparison to peers, and tell your story.
Develop and set goals, track market share and develop winning growth strategy.
Perform market analysis, secondary market intel, for new product development.
(i) Identify growth areas, evaluating MLOs skills and production in local market context;
(ii) Train MLOs in local market trends / helping MLOs prepare their marketing plans.
Automate useful local market analysis for referral partners – realtors and builders.
Evaluate targets, identify synergies.
Develop or check advocacy opinions based on facts.
Understand lender client applications volume.
Analyze area for special marketing outreach based on demographic and mortgage lending trends. In this way, avoid pitfalls of many marketing strategies to target individuals, but still make sure the entire community you serve understands and knows about the credit opportunities available through your lending organization.
We believe that inclusive and fair real estate finance industry starts with individual companies. There are companies who carefully evaluate their decisions using HMDAVision and applying the MCGI framework. Are you ready to explore this for your own business? Then schedule a free 30 minute exploration of your business in HMDAVision.