Hi! It’s Tory Haggerty from Tuscan Club University’s Fair Lending School and welcome to another Fair Lending Short.
In this fair lending short, we are going to talk about the importance of writing clear underwriting standards.
I always say that setting up strong policies and procedures, clear guidance for your loan staff, is the best way to start building a strong fair lending program.
Granted, you actually need to follow those policies and procedures once they are developed, or they will lose value.
So, what does it mean to have clear and concise underwriting guidance?
Whether you are writing standards or reviewing them, the biggest thing you are looking for is clarity. Is the guidance clear, or do lenders have to guess and make judgement calls?
I once reviewed underwriting standards that said “No recent late payments”
Well, what does that mean? What’s recent? 3 months, 6 months, 12 months, 24 months? And do I have to care about recent late payments with my bank or other banks as well?
I once saw guidance that referred to luxury vehicles. Well, what cars or brands are considered a luxury vehicle.
The point is that if you give guidance like this to your lenders, they will make up their own definitions, and they will treat customers differently. Now you risk them doing it on a prohibited basis characteristic. This is the risk.
Review all of your underwriting standards. Ask yourself – can this guidance be read and interpreted more than one way? If the answer is yes, find a way to clarify it and remove that guesswork. This will ensure all customers are evaluated fairly and consistently.
Thanks for reading!
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