4 minute read | November.07.2012
In an annual rite of autumn, on September 18 the Federal Financial Institutions Examination Council released 2011 Home Mortgage Disclosure Act (HMDA) data for U.S. mortgage lenders. The public data contains information regarding nearly all home mortgage applications acted on in the prior calendar year, designated by loan purpose (i.e., home purchase, home refinance and home improvement). The HMDA data covers home loan applications made to over 7,600 U.S. financial institutions, including banks, savings associations, credit unions and mortgage companies, and contains information on approximately 11.7 million applications, 7.1 million originations and 2.9 million purchases.
HMDA data provides a wealth of mortgage industry-related information, including data on application and loan volume, the proportion of loans backed by the Fair Housing Administration and Veterans Administration, and lender concentration in the mortgage market. However, its most important function and the reason HMDA was enacted is the role the data plays in fair lending enforcement. Toward this end, the outcome of each home mortgage loan application is classified according to the applicant’s race, ethnicity and gender. HMDA data further allows analyses based on the site of the subject property, as well as the location of the lender.
It is important to recognize that while HMDA data alone does not prove or disprove discrimination, it is an important component of fair lending examinations. According to the Federal Reverse Board, which provides a lengthy analysis that accompanies the annual release of HMDA data:
Although the HMDA data include some detailed information about each mortgage transaction, many key factors that are considered by lenders in credit underwriting and pricing are not included. Accordingly, it is not possible to determine from HMDA data alone whether racial and ethnic pricing disparities reflect illegal discrimination. However, analysis using the HMDA data can account for some factors that are likely related to the lending process.
In other words, notwithstanding its limitations, HMDA data is often the starting point for regulators seeking indicia of possible discrimination. Additionally, advocacy groups and the media frequently focus on lending disparities suggested by HMDA data. These factors, and the very public nature of HMDA data, make it important that lenders fully understand their own data and consider it in the context of what the national HMDA data suggests.
Here’s a list of the key fair lending-related findings from the 2011 data:
These industry-wide findings help guide the analyses that individual lenders should conduct on their own HMDA data. Here are three basic statistical reviews that we recommend each lender undertake to better understand what the data shows:
We reiterate that HMDA data alone does not prove or disprove mortgage lending discrimination. A HMDA review that suggests fair lending concerns should be followed by further statistical analysis that considers credit-related factors that are not part of HMDA, such as credit score and loan-to-value ratios. Review of individual loan files may also be necessary before making a final determination that there are lending patterns that cannot be explained, and that ameliorative action is necessary.
Nevertheless, it is important to understand your institution’s raw, public HMDA data and be prepared to defend and follow-up on any lending disparities it may suggest. Put simply, the best way to avoid getting blind-sided by a regulator, community group, or media representative is to know your HMDA data better than they do.