Wells Fargo Home Mortgage
Wells Fargo Home Mortgage strongly believes that credit scoring has provided significant net benefits to both the mortgage industry and the public. Credit scoring has helped to make mortgage credit more widely available to all households, including traditionally under-served market segments, and it has helped to fuel the growth in homeownership that has occurred over the past decade. We welcome open public dialogue about credit scoring and second reviews and, thus, we are pleased to address the following questions.
1. What methods should lenders adopt to optimize the usefulness of overrides, minimize their frequency and ensure their use is in compliance with fair-lending laws?
Credit scores can incorporate only a limited set of factors. Overrides tend to occur most frequently when certain important risk factors are omitted from the credit score. Consequently, a high rate of overrides may indicate that it is time to redevelop the credit score. In addition, lenders should, as part of a comprehensive fair-lending program, institute procedures to monitor the incidence of overrides to ensure they do not favor or disfavor any class of loan applicant disproportionately.
2. What actions could lenders take to ensure that counteroffers are extended fairly?
Monitoring counteroffers is just as important as monitoring the incidence of overrides. Lenders may wish to establish a centralized monitoring function within a staff depart ment, such as the compliance function, to ensure adherence to corporate policies and procedures regarding credit scoring, overrides and second reviews.
3. What measures and systems should be instituted to ensure that the second review process is operating in a consistent and fair manner?
In connection with credit scoring, a second review process typically reviews loan applications that do not meet credit-score guidelines— that is, those that are turned down under strict reliance on the score. Second reviews seek to determine whether compensating factors that are not captured in the score are present and whether, on balance, those factors outweigh the negative outcome of the scoring process. Monitoring the use and outcomes of the second reviews is key. Understanding the decisions made as a result of second reviews can provide important information, ensure adherence to corporate policies and procedures, and help to ensure there is no disproportionate effect on any class of loan applicant.
4. What steps can lenders take to ascertain the level of staff's compliance with its policies and procedures?
Often, effective monitoring processes are based on the principles of quality assurance, testing samples of actual transactions to determine defect rates, reporting results to management and then initiating corrective action as required. Corrective action might include broad training, individualized coaching and a range of more punitive sanctions for repeated violations.
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