The Home Mortgage and Disclosure Act (HMDA) requires mortgage lenders to provide detailed reports of their lending activities to regulators and the public. HMDA data have long served as a powerful mechanism that identifies unfair lending practices, such as discriminating against minority families, women, and low-income borrowers. HMDA is 35 years old, however, and Congress recognized it was time for a tune-up. Now it is the job of the Federal Reserve to revamp HMDA to keep pace with an ever-evolving mortgage market.
Next Thursday, September 16, the Woodstock Institute and the National Council of La Raza (NCLR) will testify at the Federal Reserve Bank of Chicago about enhancing HMDA data collection. Woodstock, who seeks equal opportunity for modest-income families and communities of color to achieve economic security, and NCLR, focused on helping Latino families find safe loans and equality in the mortgage market, share the following three recommendations to enhance HMDA and better serve vulnerable communities.
• Collect “back-end ratios” that take debt into account. These include other types of monthly payment obligations in addition to the mortgage, and are a better reflection of a borrower’s overall debt burden.
• Require lenders to report how they documented a family’s income when underwriting the mortgage, and how they measured a borrower’s debt load. A strong concentration of “no-doc” loans in a low-income community, for example, could indicate that a lender might be systematically using lax documentation requirements to put borrowers in loans they are unable to afford.
• Collect loan performance and servicing records. The bursting of the housing bubble and the subsequent rise in foreclosures have demonstrated that initial loan origination is only half of the story. Lenders were able to skirt regulations and disclosure requirements by adjusting the initial payment structure of a loan. The initial origination told us little about the potential success or failure of the loan, which is critical to determining whether a lender is meeting the community’s mortgage needs or whether discrimination is occurring.
HMDA is a crucial tool in the fight against predatory lending. If you’ve read any of Woodstock’s reports on mortgage lending or used the community lending fact book, or followed NCLR’s banking reform updates, you’ve seen how important clear data can be in targeting discriminatory lending practices. If done right, improved HMDA data will be the most effective portal of information that tracks and ultimately helps prevent a ballooning crisis. Without this increased transparency and lender accountability, whole neighborhoods, and minority homeowners in particular, will again bear the brunt of risky lending practices.
HMDA certainly proves that there is safety in numbers. First, with proper updates, HMDA will generate critical numbers that can ultimately prove disparate practices among specific lenders. Second, the more practitioners, advocates, and members of the concerned public who get involved, the better. Call your local bank regulator. Register here to attend the Chicago public hearings on HMDA. And don’t forget to keep an eye out in this space for further HMDA activity.