Partners: A Fair Lending Resource From The FRB

Atlanta has been a source for significant development in the fair lending arena. The Atlanta newspapers broke "The Color of Money" story, running stories and statistics to show that blacks fared poorly in the mortgage market relative to whites. Then came the Decatur case, brought by the Department of Justice after a lengthy investigation of mortgage lenders in the Atlanta area.

Atlanta mortgage lenders organized the Atlanta Mortgage Consortium to facilitate lending to low-income borrowers in response to the concerns about racial bias in lending and the inability of low-income borrowers to qualify for credit. The Atlanta Mortgage Consortium gave impetus and drew attention to flexible underwriting. It also raised questions about the right way to underwrite such loans.

The Federal Reserve Bank of Atlanta has followed these developments closely. They have been particularly interested in the development of techniques for flexible underwriting. Their interest stems from two sources: their responsibility for the safety and soundness of member banks, and their responsibility for enforcing fair lending.

"Partners" is a software tool developed by Ron Zimmerman of the FRB-Atlanta. Ron has tracked the progress of the Atlanta Mortgage Consortium and other lending products for low-income borrowers. Partners is his software response to the need to quickly consider and evaluate alternative methods of qualifying a borrower.

Using Partners, you enter information about the loan applicant, including ratios and loan amount. The program quickly responds telling you whether the applicant is qualified. If the applicant is not qualified, the program guides you through a series of methods for adjusting the underwriting criteria to qualify the borrower.

Partners is important in several key respects. First, it can be used to work with individual loan applicants who have actually applied for a loan. The loan officer is able to suggest alternatives to the applicant to help the applicant structure a home purchase and mortgage that the applicant can support. Second, it is a useful teaching tool. Loan counselors, especially those working in a home purchase counseling program, can use Partners in their education program. The program illustrates the impact of different loan programs, and runs payment and amortization tables.

Finally, Partners can be central to your internal review of underwriting criteria and self-assessment. The program shows the impact of the underwriting criteria you use and helps you to assess how those criteria can be adjusted to support viable loan products. The program is easy and rewarding to use. Partners is available free. You are encouraged to obtain a copy and share it. Please do not attempt to sell it. This is a free lunch! You can request Partners from the Community Affairs Office in the nearest Federal Reserve Bank. If you are technologically adventurous, you can download Partners from the Internet at: http://woodrow.mpls.frb.fed.us

ACTION STEPS

Get Partners. Call the Consumer Affairs Office at your Federal Reserve Bank and ask for your free copy.
Use the software. Familiarize yourself with its capabilities.
Audit some loan approvals and denials using Partners.
Meet with your loan officers to discuss your findings. Then discuss how to use Partners in your lending programs.