NCUA Report - February 2012

Office of Consumer Protection Report
FAIR LENDING EXAMINATIONS AT CREDIT UNIONS

NCUA’s Office of Consumer Protection (OCP) conducts fair lending examinations at federal credit unions. This important responsibility previously resided with the regional offices. OCP commends federal credit unions for their efforts in meeting reporting requirements. At the same time, our consumer compliance analysts note some recurring challenges that we want to share.

The Home Mortgage Disclosure Act (HMDA) is the guide for fair lending examinations. And each examination begins with a review of the Loan Application Register (LAR). Our reviews of LAR show recurring examples of inaccurate data. Issues include: incomplete or withdrawn loans recorded as denied; “pre-qualification” and other loans that should not be included in this data; and action dates that do not match loan documentation. Additionally, many credit unions did not understand the required information that needs to be reported on the LAR.

The examinations reveal that some credit unions did not comply with the HMDA requirements described in Regulation C (12 CFR Part 203), especially when using electronic medium, such as internet and phone applications. A frequent challenge for these federal credit unions is following the prescribed collection methods for government monitoring information (GMI).

GMI is the ethnicity, race, and sex (gender) of an applicant.
In many instances the GMI was not collected for loan
applications, or federal credit unions generally indicate an
applicant had refused to provide GMI. When applications
are received electronically, a consumer must have the
opportunity to individually respond to each GMI question
of ethnicity, race and sex; there cannot be a blanket “does
not want to respond” selection for GMI questions. It is
important to note on the loan documents how the credit
union obtains the GMI. In our review of many loan files, the
GMI section is incomplete or contains errors. It is essential
for federal credit unions to annotate the method used to
obtain the information on the application, and transfer the
information to the LAR correctly.

The information captured in the LAR is critical for government agencies and the public to:

; Determine whether financial institutions are serving the housing needs of their local communities;

; Influence the distribution and investment of public funds; and

;Identify possible discriminatory lending, although the information captured in the LAR is not always sufficient to determine whether a federal credit union has engaged in an unfair lending practice.

In order for an accurate picture of how a credit union monitors its mortgage loan program, additional information is often needed. In 2011, we requested the annual percentage rate, applicant’s credit score, debt-to-income ratio, loan-to-value ratio, rate lock date, rate type, and the number of years until the loan rate adjusts. The Dodd-Frank Act will require this information on future LARs. If a credit union is using a data processor, now is the time to verify that the data processor will be able to pull this information for the LAR. For credit unions that manually record this information, now is the time to provide additional training to staff.

Finally, credit unions should complete a second review of the LAR before submitting the data. A second review will help ensure all information is correct.

Helpful references about LARs are available at: A Guide to HMDA Reporting: Getting it Right!, and the FFIEC Fair Lending Guidance at www.ffiec.gov/HMDA.