What Does “Statistical Significance” Mean Anyway? Part 1 of 2

When statistical methods are applied to evaluate fair lending compliance, one of the metrics of interest is the statistical significance of measured differences in treatment of applicants. Such differences may be measured by such things as the interest rates charged on loans or the rates of denial for one group versus another (such as males […]

Read More

Underwriting Analysis for Fair Lending Using Logistic Regression: Odds Ratio vs. Marginal Effects

When conducting fair lending regression analysis of underwriting, we are examining a sample of loan applications that were either approved or denied. The practice is to regress denial (y=1 if denied, 0=approved) on a target group indicator variable and other attributes upon which the loan decision should have been based.   

Read More

To Be Successful in Fair Lending, Lenders Must Discriminate

Several years ago, I began a conference presentation by making the statement: “To be successful at fair lending, you must learn how to properly discriminate.” The statement was obviously meant to be provocative, and it must have worked because it was quite some time before I was invited back (just kidding). The statement, however, is […]

Read More

Manage Customer Service Perceptions to Lower Fair Lending Risk

In a previous post, we addressed the importance of customer service as a component of managing fair lending risk. While it is important for an institution to have efficient processes in place to facilitate the lending process, equally important is the recognition that business is relationship.

Read More

Handling Missing Data in Fair Lending Regression Analysis

Missing data is a common problem in econometric analysis in general and fair lending analysis specifically.

Read More

Use of Credit Cards is On the Upswing

The Center for Microeconomic Data’s latest Quarterly Report on Household Debt and Credit shows that total outstanding credit card debt was $747 billion at the end of September.

Read More

Improve Customer Service to Lower Fair Lending Risk

A formal complaint filed against a financial institution with a regulatory agency often results in some type of inquiry or investigation of the institution in order to resolve the issue. If the nature of the complaint involves a potential violation of fair lending laws, it can often cause a formal fair lending review of the […]

Read More

Understanding the 3 Types of Fair Lending Discrimination

Fair lending laws and regulations are broad and cover every phase of the lending transaction. This includes the initial inquiry and loan application process through the servicing and ultimate settlement of the debt. Accordingly, there are nearly an infinite range of possible pressure points that a lender may need to evaluate in order to assess […]

Read More

Modeling Rate Sheet Variables for Fair Lending Regression Analysis

Most financial institutions have rate sheets that provide pricing guidance for various loan products. Loan pricing is often in the form of a matrix in which the appropriate rate is determined by a combination of two or more values.

Read More

Five Basic Tips for Managing Fair Lending Compliance

Fair lending compliance remains treacherous waters for financial institutions. The advent of Dodd-Frank added a multiplicity of compliance challenges to an already significant regulatory burden. This has left fair lending just one of many issues with which banks must contend, meaning efficiency is an absolute necessity in order to be successful.

Read More