Conversations About QC: How to Responsibly Manage Pricing Exceptions

April 18, 2023

This month’s Conversations About QC featured Nanci L. Weissgold and Melissa Malpass from Alston & Bird discussing pricing exceptions. As regulators become savvier about pricing exceptions, the need to ensure proper adherence and documentation will increasingly be paramount to long-term success.

To level set, pricing exceptions are deviations – or adjustments – to established pricing to a borrower as listed on a rate sheet or pricing engine and includes:

  • Discretionary lending credits
  • Reductions in interest rates or points
  • Fees waivers

They have gone by many names, including underages and overages, pricing concessions, and upward and downward adjustments.

For background, the Equal Credit Opportunity Act (ECOA) prohibits discrimination in any aspect of a credit transaction. The Consumer Financial Protection Bureau (CFPB) has alleged that mortgage lenders have violated ECOA by discriminating against African American and female borrowers in particular. They arrive at these conclusions by asking for information and data. As a result, it is critical for lending institutions to readily track requests for price exceptions, whether they were granted or denied and why, and making sure to only grant them for legitimate business reasons. At a minimum, lenders should be electronically tracking:

  • When the pricing exception was granted
    • The amount of the exception
    • The reason for the exception
    • Whether the exception was approved in accordance with written policy

How you authorize pricing exceptions on consumer requests – whether you are approving and denying them as well as the magnitude of the exception can mean the difference between a healthy mortgage manufacturing process and one that will be wrought with long-term consequences. In addition, while having policies and procedures is critical, you also must train on your team on those procedures, have documentation on your policies, and monitor and audit regularly to ensure those policies are being followed.

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