Kathleen Muller

HOPE HomeOwnership Center

Ms. Muller is the executive director of the HOPE HomeOwnership Center in Evansville, Ind. She has been with HOPE for about 12 years. HOPE provides counseling on housing to residents throughout the entire Evansville metropolitan statistical area. For 35 years, HOPE has been providing credit and budget analysis for families to help them determine their ability to buy a house. HOPE also has been certifying their eligibility for special innovative loan packages. During the past year, HOPE served 450 individuals and families.

ALEXANDER ROSS

Retired, Department of Justice

Mr. Ross recently retired from the Civil Rights Division of the Department of Justice. For more than 35 years, he worked on lawsuits brought by the United States to enforce civil rights statutes forbidding discrimination in voting, employment, education, public accommoda tions, housing and lending. His position for many years prior to retirement was special litigation counsel for the division's Housing and Civil Enforcement Section, where he investigated and prosecuted matters involving a pattern or practice of discrimination in home mortgage and consumer lending. Mr. Ross was the division's lead lawyer in several landmark fair-lending cases.

The contributors to this article were asked to respond to the following statement:

While lending institutions may actively review and assess their own credit-scoring models for potential unlawful disparities, it is also important for lenders to monitor their relationships with third-party brokers. Mortgage brokers make credit available in communities that do not have traditional lending institutions. Lenders establish relationships with third-party brokers to reach these markets.

Lenders need to consider how their third-party brokers comply with fair-lending laws and use credit-scoring models. Lenders who knowingly work with noncompliant brokers and take no action may be liable as co-creditors. The following situations may lead to increased regulatory risk exposure for the lending institution:

  • The lender may build in a high broker overage tied to the credit score.
  • The broker may obtain a credit report or credit score and use it to underwrite and price a proposed deal prior to submitting it to a lender.
  • A broker may screen applicants or steer them to higher-priced products even if the applicant's overall risk profile (credit score) does not necessarily warrant it.

Considering the credit scoring issues outlined above, what strategies can lenders adopt to better manage their third-party broker relationships? What can third-party brokers do to ensure compliance with fair-lending regulations?

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