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QUESTION

Are there any significant risks to a mortgage lender for offering pricing exceptions to an applicant in an effort to retain the customer?

ANSWER

Yes.

In a previous MQMR FAQ, we addressed the risks posed to a lender when making a pricing exception. We detailed how the CFPB outlined in a 2014 Supervisory Highlights that any lender who makes pricing exceptions to their credit standards should:

• Memorialize written policies and procedures for pricing exceptions (when allowed) and how they must be documented.
• Monitor and Audit to make sure these policies are followed.
• Train staff on the policies (not just basic fair lending training).
• Include pricing exceptions in the Fair Lending Analysis a lender performs to ensure there are no patterns of disparity.

The CFPB again raised concerns with pricing exception practices in their Supervisory Highlights published in the Fall 2021 Supervisory Highlights and Summer 2023 Supervisory Highlights, finding that mortgage lenders violated ECOA and Regulation B by discriminating in the incidence of granting pricing exceptions across a range of ECOA-protected characteristics, including race, national origin, sex, or age.

Most recently, in December 2023, the CFPB issued a Matter Requiring Attention (MRA) notice to Wells Fargo regarding pricing exceptions (referenced by the CFPB as “loan discounts”). The CFPB has previously explained that examiners use MRAs “to communicate specific goals to accomplish to address violations of law, risk of such violations, or compliance management deficiencies.” It is not entirely clear whether the CFPB is investigating Wells Fargo for actual discrimination or found sloppy records, lack of written guidelines, poor oversight, or a combination of the foregoing.

Given the repeated warnings by the CFPB, mortgage lenders need to ensure their policies and procedures surrounding pricing exceptions are well-developed and equally applied. Staff must be properly trained and a lender must monitor its process and procedures to ensure fair treatment of applicants. Fair lending and anti-discrimination are key areas of concern for the CFPB and other regulators. In 2022, the CFPB carried out 32 fair lending investigations, more than doubling the number of probes it commenced in 2020. Lenders should expect this number to continue to rise.