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The Lender's Guide to Consumer Compliance and Anti-Discrimination Laws: Complete Coverage of CRA, ECOA, and HMDA.

The Lender's Guide to Consumer Compliance and Anti-Discrimination Laws: Complete Coverage of CRA, ECOA, and HMDA

Paul H. Schieber and Dennis Replansky Probus Publishing Company 1925 N. Clybourn Avenue Chicago, Illinois 60614 1990, 370 pages, $65 (MBA members), $75 (nonmembers) Hardcover

The goals of the Community Reinvestment Act (CRA), the Equal Credit Opportunity Act (ECOA) and the Home Mortgage Disclosure Act (HMDA) are to foster those objectives currently on top of politically correct housing agendas: to generate loans and consumer banking services in middle- and lower-income neighborhoods. The congressional presumption is that these areas have not had the full benefit of economic independence because of the distinctly non-banking concerns of economic and racial discrimination. Unfortunately, the times do not make the generation of new loans in these areas a simple solution to compliance with these laws, as real economic concerns often mandate that conservative lending philosophies avoid the higher-than-normal risks associated with low- and moderate- income communities.

CRA, ECOA and HMDA were all enacted in the mid-1970s, and CRA and HMDA were updated in 1989 as a part of the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA). The potential for these laws to remedy the disproportionate unavailability of mortgage lending is evident from the acts' provisions, as the reports and profiles required for compliance give a complete picture of the lender's portfolio with regard to various factors. While there is no affirmative-action requirement accompanying the reporting obligations, it is implicit that political and economic market forces will work to make known which lenders are leaders and which are lower on the compliance scale. That the same scale may not reflect the lenders' relative profitability is not their concern. Thus, there is the challenge for lenders to comply and the need for this book.

The authors, Paul Schieber and Dennis Replansky, produced the Lender's Guide in response to a market-driven need for consultation about the new reporting requirements contained in the amendments to CRA, ECOA and HMDA, which expands not only the information required to be kept and reported, but the institutions which must be in compliance. The book includes complete texts of the applicable laws and regulations with model forms. It restates each law, recommends strategies for compliance and provides checklists for procedure reviews. The text is deliberately written in cogent, mid-level employee-speak.

Accordingly, the volume is appropriate for compliance and quality-control departments, government affairs liaison staff, as well as attorneys. It should be appreciated by several layers of staff.

CRA requires lenders to create community "delineations" or maps of their lending communities and to prepare and publish formal CRA statements for each delineation listing specific credit programs that the lender extends to that community. CRA notices must be publically posted and public-comment files maintained. The act mandates that federal regulators review a financial institution's CRA compliance records, including efforts to meet the goals of CRA, before granting approvals for such activities as mergers, acquisitions, branch closings and relocations.

A key aspect of CRA review is the lender's record of compliance with the provisions of ECOA, which prohibits creditors from discriminating against an applicant on a prohibited basis with regard to any aspect of a credit transaction, from solicitation and advertisement through extension, denial and collection of unpaid accounts. These prohibited bases include race, color, religion, national origin, sex, marital status, age, receipt of income from any public assistance program and exercise of rights by the applicant under the Consumer Credit Protection Act. The test is not simply whether discrimination was intended, but whether any credit-evaluation procedure has the effect of discriminating against any protected class of applicants. While the adoption of model application forms is not problematic, compliance with the regulations regarding notification to applicants of adverse actions may be more confusing. Thankfully, this area is covered extensively in the book.

HMDA disclosure statements are one of the primary tools used by regulators and community groups to assess a lender's compliance with the goals of CRA. These disclosures contain information concerning all home-purchase loans, refinances and home-improvement loans, whether approved or closed, in the specific communities in which an institution lends and does not lend. Enacted in 1975, HMDA was amended in 1989 to include data on the race and sex of loan applicants.

CRA reviewers are becoming more and more aggressive and community groups are becoming more and more attuned to the public relations impact that the release of compiled data contained in these reports can have on their constituencies. The lender who looks the other way, seeking to avoid the true depth of attention that CRA compliance requires, will not necessarily be acting conservatively. Lending in marginally profitable areas may turn out to go far in making a lender's entire portfolio a more profitable venture.

Reviewer Anthony D. Shore is claims counsel and assistant secretary for Commonwealth Mortgage Assurance Company (CMAC), Philadelphia.
COPYRIGHT 1991 Mortgage Bankers Association of America
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1991 Gale, Cengage Learning. All rights reserved.

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Author:Shore, Anthony D.
Publication:Mortgage Banking
Article Type:Book Review
Date:Aug 1, 1991
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