Home Mortgage Disclosure Act
|Long title||An Act to extend the authority for the flexible regulation of interest rates on deposits and share accounts in depository institutions, to extend the National Commission on Electronic Fund Transfers, and to provide for home mortgage disclosure.|
|Enacted by||the 94th United States Congress|
|Effective||December 31, 1975|
|Statutes at Large||89 Stat. 1124|
|Titles amended||12 U.S.C.: Banks and Banking|
|U.S.C. sections created||12 U.S.C. ch. 29 §§ 2801-2811|
|U.S.C. sections amended||12 U.S.C. ch. 3 § 461 et seq.|
The Home Mortgage Disclosure Act (or HMDA, pronounced HUM-duh) is a United States federal law that requires certain financial institutions to provide mortgage data to the public. Congress enacted HMDA in 1975.
HMDA grew out of public concern over credit shortages in certain urban neighborhoods. Congress believed that some financial institutions had contributed to the decline of some geographic areas by their failure to provide adequate home financing to qualified applicants on reasonable terms and conditions. Thus, one purpose of HMDA and Regulation C is to provide the public with information that will help show whether financial institutions are serving the housing credit needs of the neighborhoods and communities in which they are located. A second purpose is to aid public officials in targeting public investments from the private sector to areas where they are needed. Finally, the FIRREA amendments of 1989 require the collection and disclosure of data about applicant and borrower characteristics to assist in identifying possible discriminatory lending patterns and enforcing antidiscrimination statutes.
As the name implies, HMDA is a disclosure law that relies upon public scrutiny for its effectiveness. It does not prohibit any specific activity of lenders, and it does not establish a quota system of mortgage loans to be made in any Metropolitan Statistical Area (MSA) or other geographic area as defined by the Office of Management and Budget.
Who reports HMDA data?
US financial institutions must report HMDA data to their regulator if they meet certain criteria, such as having assets above a specific threshold. The criteria is different for depository and non-depository institutions and are available on the FFIEC website. In 2012, there were 7,400 institutions that reported a total of 18.7 million HMDA records.
Details of the law
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.
- 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
- 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)
For data from years prior to 2017 reporting institutions were required to submit their LARs by March 1 to the Federal Financial Institutions Examination Council (FFIEC), an interagency body empowered to administer HMDA. Pursuant to the Dodd–Frank Wall Street Reform and Consumer Protection Act as of 2018 HMDA data was to be submitted to the Consumer Financial Protection Bureau via online portal. The first year of data to be submitted via this process includes loans made in 2017.
The Dodd-Frank bill also required several new and formerly non-public items be collected and released as a part of the HMDA dataset. Beginning with January 2018 lenders are required to report the following items that were formerly non-public information:
- Credit score;
- NMLS Identification of the loan originator;
- Loan channel;
- Borrower age;
- Combined loan-to-value (CLTV) ratio;
- Borrower's debt-to-income (DTI) ratio;
- Borrower-paid origination charges;
- Points and fees;
- Discount points;
- Lender credits;
- Loan term;
- Prepayment penalties;
- Non-amortizing loan features;
- Interest rate; and
- Rate spread for all loans.
The new requirements also require the collection of dis-aggregated data on Asian borrowers, identifying their ethnic origins with more precision.
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. 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. Yet several recent studies using HMDA data still detect racial and ethnic disparities in lending activity, even when factors such as income are accounted for statistically.
- 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.
- Home Mortgage Disclosure Act of 1975
- Consumer Financial Protection Bureau's Supervision and Exam Manual
- Consumer Financial Protection Bureau's Supervision and Exam Manual
- Reporting Criteria
- FFIEC Press Release
- Mortgage Banker's Association. "The New Home Mortgage Disclosure Act (HMDA) Rule". Retrieved March 3, 2018.
- Questsoft. "HMDA Frequently Asked Questions". Retrieved March 3, 2018.
- National Community Reinvestment Coalition (November 2015). "Home Mortgage and Small Business Lending in Baltimore and Surrounding Areas" (PDF). Retrieved March 3, 2018.
- Board of Governors of the Federal Reserve System (November 2017). "Residential Mortgage Lending in 2016 Evidence from the Home Mortgage Disclosure Act Data" (PDF). Retrieved March 3, 2018.
- FFIEC about HMDA
- Maps and charts from Consumer Financial Protection Bureau
- HMDA resource center
- Public Law 94-200, 94th Congress, S. 1281: An Act to extend the authority for the flexible regulation of interest rates on deposits and share accounts in depository institutions, to extend the National Commission on Electronic Fund Transfers, and to provide for home mortgage disclosure. [Home Mortgage Disclosure Act]