Question & Answer

Question: What are acceptable ratios for loan applications from minorities and approvals to denials for minorities and non-minorities? Are there any standards?

Answer: There are no specific guidelines for percentages of minority applications and approvals and denials. However, there are some useful rules of thumb to follow. First, the bank should target a representative number of applications from all members of its community. If the community is 10% minority, you should look for 10% of the applications to be from minorities. If the community is 45% minority, you should look for 45% of the applications to be from minorities.

Your HMDA data may show you a different picture from this goal. It is then vital to understand what contributes to your numbers. If the proportion of minority applicants is smaller than the percentage of minority population in your community, you should take steps to understand why. You should also take steps to increase the number of minority applications.

Similarly, if the ratio of denials of minority applications is greater than your ratio of denials of non-minority applications, you need to understand why. For example, you may have an elevated number of unqualified minority applicants that have resulted from outreach programs. You may find that some minority applicants have difficulty qualifying under established underwriting criteria.

These answers lead you to several solutions. Offering credit education and counseling programs will improve the qualifications of applicants. You may also need to look at your underwriting criteria. Use the second review process to evaluate not only the applicants, but also your underwriting process.

Copyright © 1996 Compliance Action. Originally appeared in Compliance Action, Vol. 1, No. 2, 1/96