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Banking and Finance

Dealing with HMDA Data Proxies - Recommendations and Statistical Thresholds [VIDEO]

This is the third post in our "Understanding Fair Lending" series based on a recent fair lending webinar with Jerry Miller. The first article (Fair Lending and Regulation B) is available and 7 more are coming. You can download the full webinar here

hispanic proxies for hmda help business loansThanks to the amazing turnout (over 250 banking compliance professionals in attendance) to our free Fair Lending regulation webinar earlier this month, the 30-min Q&A session was peppered with challenging questions. This one in particular asks about the best ways to use HMDA data proxies, the first set of which the FED was kind enough to provide in a webinar last year, and statistical thresholds to watch.

The HMDA proxies provided by the FED are for Hispanic names and were collected from the US census. Thus far, there aren't any other proxies for different ethnicity groups which make the use of proxies somewhat limited. In his answer, Jerry Miller, our fair lending veteran, recommends 200 basis points or higher for a proxy group. Mr Miller also goes on to suggest caution when using proxies specifically for indirect auto lending - examiners will ask "Why is there a 50 basis point difference for Hispanic borrowers in this metro area versus a white borrower?".

In the video below you can hear Mr. Miller answering this specific question, and you might want to read our previous article on the implications of proprietary scoring models for regulation B to have an idea how examiners address these issues.

Watch The Video Highlight: