Fair Lending Compliance for Mortgage Lenders: An ESG Approach

Mortgage lenders of all sizes are paying closer attention to environmental, social and governance (“ESG”) issues as they face inquiries from their investors and customers as well as increased scrutiny from regulators. Given the relatively new focus on ESG and the lack of a standardized approach to address such concerns, decisionmakers at financial institutions must consider long and short-term ESG issues and adjust their business practices accordingly.

To tackle ESG concerns head on, many mortgage lenders have announced public commitments in each of the E, S and G categories. For example, several lenders have focused on environmental sustainability (“E”) — including efforts to limit greenhouse gas emissions and promote resiliency of their real estate investments. Some mortgage lenders have established ESG initiatives that include implementing affordable housing initiatives to generate positive social impact (“S”) and setting forth updated governance (“G”) policies, such as promoting diversity and inclusion in board composition and leadership.

This article discusses the recent trend of increased regulatory scrutiny of mortgage lenders under fair lending laws and offers lenders an approach to advance the social and governance aspects of ESG with preemptive compliance measures in light of the latest anti-discrimination enforcement actions by federal regulators.