Home Mortgage Disclosure Act

"HMDA" redirects here. For other uses, see HMDA (disambiguation).

The United States Home Mortgage Disclosure Act (or HMDA, pronounced HUM-duh) was passed in 1975. It requires financial institutions to maintain and annually disclose data about home purchases, home purchase pre-approvals, home improvement, and refinance applications involving 1 to 4 unit and multifamily dwellings. It also requires branches and loan centers to display a HMDA poster.

HMDA was designed by the Federal Reserve Board in order to:

• Help public officials to distribute public-sector investments
• Discover if financial institutions are serving housing needs of communities
• Identify where there are discriminatory lending practices

Details of the Law

A US company is covered by HMDA if

• It has at least $37 million in assets (as of 2008; the limit varies each year)
• It has made at least one home mortgage loan in the preceding year
• The company itself is federally insured or regulated or at least one of the loans it made were intended to be sold to Fannie Mae or Freddie Mac

Approximately 8,600 companies are covered by HMDA.

Companies covered under HMDA are required to keep a Loan Application Register (LAR). Each time someone applies for a home mortgage at an institution covered by HMDA, the company is required to make a corresponding entry into the LAR, noting the following information.^{[citation needed]}

• The date of application
• The loan type (conventional loan, FHA loan, VA loan or a loan guaranteed by the Farmers Home Administration)
• The type of property involved (single-family, multifamily)
• The purpose of the loan (home purchase, home improvement, refinancing)
• Owner occupancy of the property (owner occupied or non-owner occupied)
• The loan amount
• Whether or not the application was a request for pre-approval
• The type of action taken (approved, denied, withdrawn etc.)
• The date of action taken
• The location (state, county, MSA and census tract) of the property
• The ethnicity (Hispanic or non-Hispanic) of the borrower(s)
• The race of the borrower(s)
• The gender of the borrower(s)
• The gross annual income of the borrower(s)
• If the loan was subsequently sold in the secondary market, the type of entity that purchased it^{[citation needed]}
• If the loan was denied, the reason why it was denied (this field is optional for entities not regulated by the Office of the Comptroller of the Currency)
• Rate Spread (Rate spread is a metric that assists in reporting if the rate given to the borrower is above a certain threshold of the prevailing rates at the time of the application)
• If the loan is or is not subject to the Home Ownership and Equity Protection Act of 1994
• Lien status of the loan (1st or 2nd lien)

Every March reporting institutions are required to submit their LARs to the Federal Financial Institutions Examination Council (FFIEC), an interagency body empowered to administer HMDA. Nowadays reporting takes place electronically. FFIEC screens the data for errors and the releases it to the public electronically (on CD-ROM and over the internet). Reporting institutions are also required to disclose their individual LARs to members of the public upon request.

HMDA data can be used to identify probable housing discrimination in various ways. It is important to understand that in all cases of possible discrimination, the basic regulatory inquiry revolves around whether a protected class of persons being denied a loan or offered different terms for reasons other than objectively acceptable characteristics (e.g. income, collateral).

• If an institution turns down a disproportionate percentage of applications by certain races (e.g. African Americans), ethnicities (e.g. Hispanics), or genders (typically women), then there is reason to suspect that the institution may be discriminating against these classes of borrowers by unfairly denying them credit.

Such discrimination is illegal in the United States, but has grown increasingly rare vis-a-vis the other forms outlined below. Although well-documented during the period of local bank dominance in American history, the rise of mass financial institutions since the early 1990s has led to increasing investor scrutiny regarding profits, and hence a lower likelihood that a bank can afford to subsidize such outright discrimination by forgoing loan originations.

• If an institution has a disproportionately low percentage of applications by certain races (e.g. African Americans), ethnicities (e.g. Hispanics) or genders (typically women) then there is reason to suspect that the institution may be discriminating against these classes of borrowers by unfairly discouraging them from applying for mortgage loans. Such discrimination is illegal in the United States. However, there is tension in this arena between attempts by banks to attract high quality borrowers and the extent to which borrower quality corresponds with a protected status. This type of monitoring, however, has been particularly effective as reducing implicit or referral based discrimination, where a discriminatory body, e.g. a local sporting club who quietly favors an all white membership, is relied upon to recommend applicants. Banks are now wary of entering such relationships, insofar as they expose the lender to the liability associated with the discriminatory behavior of the partner organization.

• If an institution has a disproportionately low percentage of applications from certain areas, compared to areas immediately surrounding the area in question, then there is reason to suspect that the institution is engaging in redlining. However, note that few banks are found to be in violation of redlining clauses, as many legally valid pricing or approval models are driven by factors only have the implicit effect of redlining geographic areas (i.e. insofar as they areas contain a disproportionate number of poorly qualified borrowers). Rather, redlining must be quite overt to draw attention (e.g. using zip codes as a lending criterion).

• If there is a disproportionate prevalence of high-interest loans to certain classes of borrowers (e.g., Hispanics or women), other attributes equal, then there is a reason to suspect that the institution is engaging in price based discrimination. This is the most active area of compliance monitoring with respect to HMDA data, since risk management policies at many financial institutions are quick to identify outright discrimination by lending officers (i.e. denials based on a protected category).

Simultaneously, this is the area rifest for contention with respect to discriminatory claims, since there are market driven reasons for charging a higher rate that may exhibit discriminatory patterns. For example, a loan officer may query applicants to see if they have applied and been approved for a loan at any other banks. The rate for those that can produce another institution's offer may then be adjusted accordingly to remain competitive. However, if a certain ethnic group is less likely to "shop around" for the best rate, then the mere application of this principal - which is otherwise non-discriminatory in intent - can produce discriminatory effects. Many disputes between lenders and regulators in the context of price discrimination relate to such scenarios. Again, the key litmus test is whether the objective characteristic being used to lower or raise the mortgage rate for a given group is substantive in its own right with respect to the risk or profitability of the potential loan, rather than mere a proxy for racial discrimination.

External links

• FFIEC about HMDA