Compliance Risk Assessment (HMDA, CRA and Fair Lending) Fact Pattern

You are both the compliance and risk officer for Fargo Non-Compliant National Bank, a $50 billion asset national bank headquartered in Orlando, Florida. Examiners are scheduled to visit the bank in 2 weeks, and you have been asked to prepare a memorandum to identify red flags, identify what questions you anticipate the regulators to ask, and make recommendations on policy changes that will help ensure operations are in line with regulations.

This year, the bank has made 10,000 single-family residential real estate mortgage loans. Your data notes that no loans were made for under $75,000.00. Fargo received 50,000 applications of which 30,000 were denied and 10,000 applications were withdrawn. It is also noted that 80% of the loans were all made in one single zip code area.

Readings

Required

• Office of the Comptroller of the Currency Comptroller's HandbookLinks to an external site.
  • Review site. Under the Comptroller's Handbook by Series heading, click on "Expand All" and review content.
  • In particular focus on the main headings and subheadings, since that will provide you with a good overview of the content.
    • To make it easier, attached is a document with theComptroller's Handbook by Series content set forth on the OCC website.
• Manuals from the Consumer Compliance Section. Please read the following:
  • Community Reinvestment Act Examination Procedures (pages 34-51)
  • Fair Lending (Introduction - pages 1-9, and Exam scoping - pages 20-35)
  • Home Mortgage Disclosure (Interagency)

Recommended

• Consumer Financial Protection Bureau's Examination ManualLinks to an external site.

Assignment

• Prepare a 4-5 page Memorandum to the CEO of Fargo Non-Compliant National Bank that identifies the major areas that may be of significant concern during the visit by the Examiners. This is not intended to be an exhaustive list, just the most major issues of concern (i.e., pick around 2 - 5 issues).
  • Discuss why the known data either presents a concern or whether Fargo should be confident in what the data shows.
  • Identify those data points that should be looked at to determine if any violations or patterns occur based on the fact pattern and discuss why they are relevant.
  • Identify what questions you think an examiner might ask the CEO during the examination.
  • Discuss whether you can determine what levels the data should be at for the bank to be compliant. In other words, does HMDA data actually help a bank set the lending levels or is it just a disclosure statue?
    • Discuss whether you think the public disclosure of this data is effective in changing the behavior of the bank?
    • Should the bank be concerned about its data?
  • Identify any policy changes that you would recommend the bank make to improve their compliance performance.