Holyoke-based PeoplesBank has been using Boston-based PCi Corp.’s software, which gives lenders crucial information about pricing patterns, for about a year.
In an effort to help banks and mortgage companies better prepare themselves for Home Mortgage Disclosure Act inquiries, a Boston-based company is offering tools to help lenders know what their pricing patterns are before the information hits the streets.
PCi Corp., which offers software and professional services to monitor, detect, analyze and resolve compliance demands throughout the entire lending process, has formulated a strategy in response to customers who are seeking practical guidelines to best conduct HMDA pricing analysis.
“The new HMDA pricing information is creating significant uncertainty among lenders,” said Raffi Festekjian, president of PCi. “Because so many lenders are coming to us seeking guidance, we want to share the basics of a practical strategy to best conduct HMDA pricing analysis in a manner that works for each lender. ‘One size fits all’ does not apply to HMDA pricing analysis. The good news is there are companies like PCi that can help lenders identify and address potential HMDA pricing issues, no matter how daunting these issues might appear.”
HMDA, enacted by Congress in 1975, requires most mortgage lenders located in metropolitan areas to collect data about their housing-related lending activity, report the data annually to the government and make the data publicly available, according to the Federal Reserve Board. Lenders must report data about the loan, the loan decision, the property and the applicant’s ethnicity, race, sex and income.
In the 2004 HMDA data, lenders had to report a rate spread for approved mortgage loans and corresponding information, such as lien status, that helps evaluate the differences in rate spreads. The rate spread compares the annual percentage rate to the Treasury rate.
Todd Cooper, chief product manager at PCi, said lenders and community groups have been preparing for such data for years. Often, community groups will point to a discrepancy in a lender’s data and question if there was discrimination.
To better prepare lenders, PCi offers tool sets that help lenders understand data and prepare a case to explain their lending patterns. It also recently offered several steps to help lenders maximize HMDA pricing analysis.
‘A Quicker Knowledge’
PCi suggests breaking down analysis to individual geographies. In areas with a high-risk profile, one would use statistically enhanced analyses to refine analysis efforts. Examining pricing information for all loans – not just those that exceed the spread – is also useful, according to PCi. In addition, the company suggests tying critical decision factors such as credit, collateral quality, ability to repay and debt load to contextualize pricing patterns.
PCi offers a handful of tool sets that lenders can use to analyze their data. The CRA Wiz software, utilized by many large lenders, allows clients to monitor their HMDA data to make sure it is as highly accurate as possible, according to Cooper. It provides analysis to “slice and dice” data to draw out pricing disparities. According to PCi’s Web site, automation can streamline the process and boost the accuracy and quality of data while reducing the labor involved, sometimes by as much as 80 percent.
The Fair Lending Wiz is another PCi tool that is automated and incorporates risk assessment, matched pair testing, regression analysis and reporting. It works by inputting application information, credit scores, loan-to-value ratios and decisions. The tool then provides a prediction model of where the loan in question should fall, including a price and decision. If the real loan falls outside the prediction model, it is an indication that the lender should look more carefully, Cooper said. Another example of how the tool works is by inputting all the same decision criteria for a male and female borrower. If the female gets a higher price, the tool will draw that out for the lender to take action. Usually, Cooper said, the lender has justification for the decision.
The Third Party Origination Monitor is also available for lenders who have portfolios originated by third parties. It allows them to view data to manage fair lending risk.
Cooper said lenders can benefit from PCi’s tools because it saves on time and manpower.
“We’re saving them immense amounts of time,” Cooper said.
PCi works with a variety of institutions, and Cooper said the cost structure varies depending on aspects such as data volume and the specific tools the lenders are using.
According to the Federal Reserve, March 31 was the earliest date that data from the previous calendar year was publicly available. Since then, Cooper said PCi has noticed its tools have impacted clients positively.
“It has had an impact in helping [lenders] understand lending patterns, as well as full compliance management,” Cooper said.
Holyoke-based PeoplesBank is one of PCi’s clients and has been using the company’s software for about a year. The software was first purchased by the bank in the summer of 2003. Soon after, Lynne Gino, compliance officer at the bank, and PCi had their first meeting. Gino said PCi worked with the bank to help implement the software into the bank’s existing system.
“They came in and reviewed our whole workflow,” Gino said.
Once implemented, PeoplesBank was able to have access to all its 2003 lending data. The bank also contracted PCi to create its self-assessment document. Like Cooper, Gino said being able to use software to create the document for regulators at examination time has saved both time and manpower.
“It cuts down on so much input,” she said.
The information is scrubbed on a monthly basis and the bank is able to review its figures frequently. By using the CRA Wiz, Gino said she is able to see where the bank is lending strategically.
“It has improved the quality of data,” she said.
Before the software, Gino said the bank was aware of its lending strategies, but it took longer to gather the information because it was manual.
“[The new software] gives us a quicker knowledge of where we are,” Gino said.
There is also a better sense of security for the bank, Gino added, because there is less chance for error.
Jennifer Jope may be reached at jjope@thewarrengroup.com.
