Banks need to provide more information about their mortgage lending so regulators and the public can flag risks and potential racism in the housing market, experts say.
Amid the ongoing financial crisis, community advocates and the Obama administration are calling for more data to be supplied under the Home Mortgage Disclosure Act. The additional data would help detect patterns of racial discrimination that may exist. It would also give better insight on types of lending that could lead to another mortgage meltdown.
The HMDA data supplied by banks, for example, doesn't currently include borrowers' credit scores, the down payment amount and other details that would give a clearer picture of a lenders' decisions to make or deny a particular loan. In the past, the banking industry has resisted providing more data, saying the requirements were burdensome and could violate borrowers' privacy.
Rep. Brad Miller, D-N.C., says more data would be useful to help explain long-standing discrepancies between the races in lending – and to perhaps shame lenders into improving their practices.
“Getting more data about what is actually going on would be very helpful in avoiding what has happened in the last few years,” Miller said. “We can't afford to be blindsided again.”
Miller is one of the lawmakers pushing this month for the creation of a new consumer financial protection agency that would oversee HMDA. The move is part of the administration's plan for strengthening financial regulation.
Matthew Lee, executive director of the New York watchdog group Inner City Press/Fair Finance Watch, has long argued the public needs more information about the role race plays in lending. Now that many banks are recipients of federal bailout dollars, he says they should submit to stricter HMDA requirements.
“It's the least they can do,” he said.
In the Observer's study of 2008 HMDA data, nine of the 10 lenders were either bailout recipients or acquired by banks that took federal money.
An industry group that represents large mortgage lenders wants to see a specific proposal on additional HMDA data before taking a stand, said Paul Leonard of the Housing Policy Council. The trade group, however, opposes the creation of a new consumer protection agency, preferring that this task remain under other regulators.
“We're not opposed to more information, but it needs to be done in the right way,” Leonard said. The industry's resources are already stretched in the financial crisis as lenders work to reduce loan losses and report their efforts to regulators, he said. Banks also remain concerned that borrowers' privacy could be violated, he said.
Because HMDA data does not include certain financial details about borrowers, it's impossible to determine whether race was a factor in denying a loan or offering a higher rate.
In 1992, Federal Reserve Bank of Boston researchers collected more details about borrowers' loans and credit histories and found that weaker credit records and other factors accounted for some of the disparity between races but not all of the gap. The report found that minorities with unblemished credit histories were almost certain of being approved, but in other cases, “lenders seem to be more willing to overlook flaws for white applicants than for minority applicants.”
The latest piece of data added to HMDA came when the government required lenders to report information about interest rates for 2004. Those new details revealed that minorities were much more likely to receive loans with higher interest rates than whites.
After examining that data, federal regulators targeted lenders with racial disparities in their lending records for further review. A U.S. Attorney General's report in April said banking regulators have referred a handful of cases to the U.S. Justice Department involving alleged racial discrimination in the pricing of loans. The department continues to investigate potential fair lending violations prompted by HMDA data disclosures, the report said.
Mortgage lending has been at the heart of the global financial crisis. As the housing boom cooled, borrowers weighed down by unaffordable subprime loans began to default and foreclosures soared. Banks, investors and the economy reeled in the aftermath.
The Obama administration has called for more HMDA data such as a “universal loan identifier” that could tie the data to property databases, flags for loans originated by brokers and information about whether the interest rate is fixed or variable.
Keith Ernst, research director at the Center for Responsible Lending in Durham, would like more data on adjustable-rates, pre-payment penalties and other loan terms that were major factors in the financial crisis. “What we need,” Ernst said, “is a way to get more information to regulators to come up with a fire-prevention strategy.”
Amid the ongoing financial crisis, community advocates and the Obama administration are calling for more data to be supplied under the Home Mortgage Disclosure Act. The additional data would help detect patterns of racial discrimination that may exist. It would also give better insight on types of lending that could lead to another mortgage meltdown.
The HMDA data supplied by banks, for example, doesn't currently include borrowers' credit scores, the down payment amount and other details that would give a clearer picture of a lenders' decisions to make or deny a particular loan. In the past, the banking industry has resisted providing more data, saying the requirements were burdensome and could violate borrowers' privacy.
Rep. Brad Miller, D-N.C., says more data would be useful to help explain long-standing discrepancies between the races in lending – and to perhaps shame lenders into improving their practices.
“Getting more data about what is actually going on would be very helpful in avoiding what has happened in the last few years,” Miller said. “We can't afford to be blindsided again.”
Miller is one of the lawmakers pushing this month for the creation of a new consumer financial protection agency that would oversee HMDA. The move is part of the administration's plan for strengthening financial regulation.
Matthew Lee, executive director of the New York watchdog group Inner City Press/Fair Finance Watch, has long argued the public needs more information about the role race plays in lending. Now that many banks are recipients of federal bailout dollars, he says they should submit to stricter HMDA requirements.
“It's the least they can do,” he said.
In the Observer's study of 2008 HMDA data, nine of the 10 lenders were either bailout recipients or acquired by banks that took federal money.
An industry group that represents large mortgage lenders wants to see a specific proposal on additional HMDA data before taking a stand, said Paul Leonard of the Housing Policy Council. The trade group, however, opposes the creation of a new consumer protection agency, preferring that this task remain under other regulators.
“We're not opposed to more information, but it needs to be done in the right way,” Leonard said. The industry's resources are already stretched in the financial crisis as lenders work to reduce loan losses and report their efforts to regulators, he said. Banks also remain concerned that borrowers' privacy could be violated, he said.
Because HMDA data does not include certain financial details about borrowers, it's impossible to determine whether race was a factor in denying a loan or offering a higher rate.
In 1992, Federal Reserve Bank of Boston researchers collected more details about borrowers' loans and credit histories and found that weaker credit records and other factors accounted for some of the disparity between races but not all of the gap. The report found that minorities with unblemished credit histories were almost certain of being approved, but in other cases, “lenders seem to be more willing to overlook flaws for white applicants than for minority applicants.”
The latest piece of data added to HMDA came when the government required lenders to report information about interest rates for 2004. Those new details revealed that minorities were much more likely to receive loans with higher interest rates than whites.
After examining that data, federal regulators targeted lenders with racial disparities in their lending records for further review. A U.S. Attorney General's report in April said banking regulators have referred a handful of cases to the U.S. Justice Department involving alleged racial discrimination in the pricing of loans. The department continues to investigate potential fair lending violations prompted by HMDA data disclosures, the report said.
Mortgage lending has been at the heart of the global financial crisis. As the housing boom cooled, borrowers weighed down by unaffordable subprime loans began to default and foreclosures soared. Banks, investors and the economy reeled in the aftermath.
The Obama administration has called for more HMDA data such as a “universal loan identifier” that could tie the data to property databases, flags for loans originated by brokers and information about whether the interest rate is fixed or variable.
Keith Ernst, research director at the Center for Responsible Lending in Durham, would like more data on adjustable-rates, pre-payment penalties and other loan terms that were major factors in the financial crisis. “What we need,” Ernst said, “is a way to get more information to regulators to come up with a fire-prevention strategy.”
