Home Mortgage Disclosure Act
Encyclopedia
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:
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.
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.
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
Home Mortgage Disclosure Act (or HMDA, pronounced HUM-duh) was passed in 1975. It requires financial institutions to maintain and annually disclose
Disclose
Disclose were a Japanese D-beat band from Kōchi City, heavily influenced by Discharge. Their sound heavily replicates Discharge's style, with an increased use of fuzz and distortion guitar effects. The subject matter is also similar to Discharge, in that the songs' themes are primarily about...
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.
- The loan amount
- The purpose of the loan (home purchase, home improvement, refinancing)
- The type of property involved (single-family, multifamily)
- The loan type (conventional loan, FHA loanFHA loanAn FHA insured loan is a Federal Housing Administration mortgage insurance backed mortgage loan which is provided by a FHA-approved lender. FHA insured loans are a type of federal assistance and have historically allowed lower income Americans to borrow money for the purchase of a home that they...
, VA loanVA loanA VA loan is a mortgage loan in the United States guaranteed by the U.S. Department of Veterans Affairs . The loan may be issued by qualified lenders....
or a loan guaranteed by the Farmers Home AdministrationFarmers Home AdministrationIn 1946 Farmers Home Administration replaced the Farm Security Administration which superseded the Resettlement Administration. Its mission and programs involved extending credit for agriculture and rural development. Direct and guaranteed credit went to individual farmers, low-income families,...
) - The location (state, county, MSA and census tractCensus tractA census tract, census area, or census district is a geographic region defined for the purpose of taking a census. Usually these coincide with the limits of cities, towns or other administrative areas and several tracts commonly exist within a county...
) of the property - The race of the borrower(s)
- The ethnicity (Hispanic or non-Hispanic) of the borrower(s)
- The gender of the borrower(s)
- Whether or not the loan was granted
- If the loan was denied, the reason why it was denied
- If the loan was denied, whether the interest rate charged was over a certain threshold
- If the loan was subsequently sold in the secondary marketSecondary marketThe page applies to the finanical term; For the merchandising concept, see Aftermarket .The secondary market, also called aftermarket, is the financial market where previously issued securities and financial instruments such as stock, bonds, options, and futures are bought and sold....
, the type of entity that purchased it
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.