Hi! It’s Tory Haggerty from Tuscan Club University’s Fair Lending School and welcome to another Fair Lending Short. In this Fair Lender Short I want to talk about the service levels that you provide, or you lenders provide to your applicants.
Now if you’re a HMDA reporter, one of the ways you can find that is through your fallout applications. What’s a fallout application? It’s any time an application does not result in either a loan or a denial. So think approved, not accepted, incomplete, or withdrawn by the applicant.
These are those instances where somebody applies and it doesn’t go through the loan process. They “fall out” of the process. If you have high fallout rates to minority applicants, but not white applicants, that can be an indicator that they are not getting the same service levels as other borrowers are. In fact, I’ve seen an instance where an organization had high fallout rates to hispanic applicants. Turns out they had zero hispanic speaking employees, so hispanic applicants were applying, but when they found out no one spoke their language, they were withdrawing their applications. They were getting less service levels.
If you’re not a HMDA reporter, one of the things you can look at is a concept we like to call the thick file syndrome. What that means, is when you look at borderline approvals and denials for white applicants that barely got approved, they have this really thick file. You went through all of this process to get them approved. And when you look at a similarly qualified minority applicant, that got denied and their file is small. That’s an indicator that this white applicant got significantly more customer service and help through the process, while this applicant over here that had the same credit worthiness, oftentimes better credit worthiness, simply got denied.
That’s two ways you can monitor the service levels that your organization is providing. This is important because it’s an extra indicator of fair lending risk at your organization and something that you should be reviewing for and can be monitoring for.
Thanks for reading!
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