Why Shallow Fair Lending Analysis Hurts Both Lenders and Consumers
In the world of mortgage lending, surface-level fair lending analysis can create serious blind spots - for lenders, regulators, and, ultimately, for consumers. The recent $10 million enforcement action involving Fairway Independent Mortgage Corporation serves as a clear example. The Birmingham-based lender faced allegations of redlining in Majority Black Census Tracts (MBCTs). The allegations state that "Only 3.7% of Fairway’s applications from 2018 through 2022 were for properties in majority-Black areas, compared to 12.2% for Fairway’s peer lenders." While this is approximately accurate statement, the mortgage banking reality is much more complex than this simplistic representation of lending practices.
Using Polygon’s HMDAVision tool, we took a closer look at Fairway’s application data within MBCTs, comparing their loan purpose mix to their independent lender peers. Here’s what we found: while Fairway’s mortgage applications in these areas were 95.5% purchase loans, independent lenders overall sat at a significantly lower 55.9% for purchase applications.
This stark difference in business models demands deeper analysis. Was Fairway selling what the market wasn't buying? Did they miss a signal, or were they playing a long game? On the other side of the coin, did the enforcement action fully consider market strategy and product mix? These are just a few questions to kick off a deeper dive.
HMDA data exists to ensure fair lending, and with the right tool, it does so for all the fair lending categories: redlining, pricing, steering, marketing, and underwriting. But if you look at fair lending as the expression of where and how you meet your customers in the marketplace, you quickly realize it is inseparable from your business strategy. The aha! moment for some people when they see HMDA data fully unlocked for the first time is how rich a source it is for product management and competitive intelligence for over 5,000 lenders.
This case highlights an urgent issue in the mortgage industry: superficial fair lending analysis does more harm than good. When regulators or lenders base actions on surface-level data, they miss a nuanced view of the market - and real opportunities for responsible growth. In such cases, regulators can use their power to overreach and enforce burdens on the lenders that would result in increased costs (often passed on to consumers), slower pace of innovation, and less options for access to mortgage finance for borrowers. Simply checking the compliance box without looking deeper into market needs and lender strategy creates regulatory risk, limits consumer options, and overlooks valuable insights.
The Strategic Advantage of Data-Driven Fair Lending Analysis
At Polygon Research, we consistently see the value of deep, data-informed fair lending analysis. For example, using HMDAVision, lenders:
- Identify gaps in market reach by examining loan purpose and product distribution in different demographic areas.
- Strengthen product management by pinpointing community-specific demands - like the difference between purchase and refinance preferences in MBCTs.
- Gain competitive intelligence on how peer lenders are performing, identifying opportunities to enter underserved markets responsibly.
At Polygon Research, we consistently find that when lenders base their strategies on rigorous, data-driven analysis that considers all important dynamics, everyone wins. Lenders gain confidence to serve a variety of markets, regulators zero in on genuine disparities, and consumers enjoy greater options.
