Two federal laws, the Home Mortgage Disclosure Act (HMDA) and Community Reinvestment Act (CRA), passed in the 1970s after a national grassroots advocacy campaign that uncovered examples of redlining – refusal to loan in a community due to bankers’ misperceptions of risk – gave rise to a community reinvestment movement.
Congress passed HMDA in 1975 in response to concerns that banks were refusing to make mortgage loans to qualified applicants in minority and lower-income central city neighborhoods. HMDA requires lending institutions to report census tract level data on mortgage applications and originations.
HMDA
The data collected under HMDA may be used to ensure that lenders adequately serve the housing finance needs of all communities, to enforce fair lending laws, and to provide information on gaps in local housing markets and opportunities for investment.
HMDA requires most mortgage lenders to report data annually on the disposition of mortgage loan applications. As of 2017, HMDA regulations required depository institutions – which include banks, savings associations, and credit unions, with more than $44 million in assets and a home or branch office located within a metropolitan area – to report their lending activity if they originated 25 or more loans in each of the preceding two years.
Before that, HMDA regulations required all institutions meeting these criteria to report if they originated one or more home purchase or refinancing loans. HMDA regulations also require non-depository lenders, such as mortgage and consumer finance companies, that are active in metropolitan areas and meet certain criteria for mortgage lending activity to report data.
The data reported under HMDA cover the majority of lending activity, particularly in urban areas, but not all of it. In 2017, over 5,800 lenders nationwide reported HMDA data. In the seven-county Chicago area, 831 lenders reported HMDA data.
The data required to be reported under HMDA have changed substantially since Congress first passed the law. Initially, HMDA only to depository institutions and required them to report data on the census tract location of mortgage originations in metropolitan areas. Amendments to the law and changes to the regulation that implements the law have greatly enhanced the data collected under HMDA and expanded the types of lenders covered.
Amendments made in 1989 expanded data collection beyond simply loan originations to include loan applicants and denials by the race, gender, and income of loan applicants. In 1993, many mortgage companies that were previously exempt from HMDA data collection were required to begin reporting. In 2004, the Federal Reserve Board enacted major changes to Regulation C, which implements HMDA.
These changes were a response to the growing importance of risked-based pricing in the overall mortgage lending market and continuing concerns around disparities in mortgage pricing between white and non-white borrowers. Starting in 2004, lenders were required to report additional data on the pricing of higher-cost mortgage loans. For loans originated on single- family properties, lenders now had to report the difference, or spread, between a loan’s annual percentage rate (APR) and the rate of U.S. Treasury securities of comparable maturity if that spread exceeds three percentage points for first liens or five percentage points for junior liens.
In addition to rate spread, the 2004 changes required lenders to report a loan’s lien status; the type of property that secures a mortgage; whether a loan is subject to the Home Ownership and Equity Protection Act; and whether a loan application was subject to a request for pre-approval. Additionally, the method of recording data on the race and ethnicity of applicants was changed to reflect standards established by the Office of Management and Budget (OMB).
Race and ethnicity began being reported separately, giving applicants the opportunity to state whether they are of Hispanic or Latino origin. Also of note is a change implemented in 2003 that required lenders to ask applicants for information on their race and ethnicity on telephone, internet, and mail applications.
In 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act in response to the 2008 financial crisis. The Act transferred HMDA data rulemaking authority to the Consumer Financial Protection Bureau (CFPB), which was created by the Act. In 2015, the CFPB issued new rules expanding the data points to be collected and reported by mortgage lenders. Some of the new data fields that institutions are now required to report include: age of the borrower; credit score provider; combined loan-to-value ratio; borrower’s debt-to-income ratio; loan points and fees; loan term; prepayment penalties; and interest rate.
The rules also changed the coverage requirements for institutions, transactions, and reporting. These new rules first went into effect for data reported in 2018, which was released in 2019, and for all subsequent years. The data on loan-to-value, debt-to-income, and total loan costs are now included in the Fact Book. In May of 2018, Congress passed legislation that exempts small of lenders from having to report these new data fields, which means that the data are not available from a significant percentage of all lenders, although they are for most loans.
CRA
The Fact Book also includes data on small loans made to businesses. These data come from CRA regulations that require lending institutions to make data on business, farm, and community development lending available to the public. Congress passed the CRA in 1977. It requires insured depository institutions to meet the credit needs of their local communities, including low- and moderate-income neighborhoods.
Banks are held accountable for lending in traditionally underserved areas through a regulatory system of CRA exams, merger and acquisition application reviews, and public participation.
Small business, small farm, and community development lending activity data collection requirements were added to the CRA in 1995, with 1996 marking the first year these data were collected. All FDIC-insured institutions with total assets over $250 million were required to report data. Beginning in 2005, only institutions with over $1 billion in assets were required to report data. This threshold is adjusted annually to reflect inflation. The reporting threshold for 2019 data was $1.284 billion. Some banks voluntarily report small business lending data.