The Home Mortgage Disclosure Act is a critical tool that allows the public to hold lenders and regulators accountable for the types of loans available in our communities. Congress passed the HMDA in 1975 to identify discriminatory lending patterns, determine if financial institutions are meeting local housing needs and help local officials allocate resources and direct investments. For years, community groups and advocacy organizations have used data collected under the HMDA to identify discriminatory lending practices, track changes in neighborhood investment and hold individual banks accountable for abusive lending practices.
Changes to the mortgage industry and the emergence of increasingly complicated products, however, mean that improvements must be made to HMDA data to increase transparency and ensure that all communities have equal access to fairly priced credit.
Currently, mortgage lenders are required to report certain data on borrower demographics, basic information on loan characteristics and general information on the property and its location. This data allows advocates, regulators and the public to figure out whether certain populations or communities, such as people of color, women or low-income communities, are facing credit gaps for various types of home finance. But too many harmful products and practices can be determined only by digging deeper into a borrower’s risk profile or mortgage terms, limiting the value of current HMDA disclosures.
The Dodd-Frank Act does much to close these gaps by mandating that additional essential data be collected on loan terms and borrower characteristics. If these new data points are made public for all loan applications, they would allow the public to detect more effectively trends in high-cost and abusive lending, while new data on creditworthiness would allow the public to detect discrimination — for example, it would raise flags if creditworthy African-American borrowers or older persons were consistently denied mortgages or offered loan products with higher costs or riskier loan terms.
Further enhancements are needed to enable the HMDA to fully meet its objectives of assessing whether financial institutions are meeting community needs and identifying discriminatory lending patterns. One of the factors driving the predatory lending crisis was lenders putting borrowers into loans they could not reasonably afford, requiring little or no income documentation when underwriting the loan and disregarding how much debt a borrower already had to pay every month.
This is the type of unsustainable and abusive lending that the HMDA was established to prevent, but it can do so only if data is collected on the level of income documentation and a borrower’s ability to repay a loan. Lenders should be required to report data on home equity products that are sources of possible future abuse, like reverse mortgages and home equity lines of credit.
HMDA loan origination data should be linked to loan performance data in order to better identify potentially risky product lines and lenders before they become problems. HMDA origination data should also be linked to loan modification data to track characteristics of loans and borrowers who are receiving modifications.
Finally, HMDA data must continue to be publicly reported at the loan application level to allow regulators, policymakers and the public to meaningfully analyze the data and identify potentially discriminatory or unfair practices, such as steering, and abusive lending institutions.
Requiring lenders to report these and other data elements will increase transparency in lending and allow the public to better hold lenders and regulators accountable for ensuring that all communities have access to safe and sustainable credit — and for stopping predatory lending before it balloons into another crisis.