It has been a busy week in the fair lending space. Last week, the CFPB issued a white paper describing its proxying methodology for imputing race and ethnicity when analyzing fair lending compliance on non-mortgage credit products along with a proposed rule to oversee nonbank auto finance companies. This week, the Federal Financial Institutions Examination Council released the 2013 Home Mortgage Disclosure Act (“HMDA”) data, and the Federal Reserve released its own analysis of the data.
HMDA requires covered mortgage lending institutions to collect and report certain information, including applicant race and ethnicity, about residential home mortgage applicants. The data released this week contains covered institutions’ 2013 lending activity, including applications, originations, purchases and sales of loans, and disposition of loan applications. The data is broken down by loan amount, loan type, purpose, property type, location, applicant demographics, and pricing. The Federal Reserve’s preliminary analysis of the data indicates that mortgage originations hit an historic low in 2013, due primarily to a decline in refinance mortgages. The number of reporting institutions also declined in 2013.
Among other matters, regulators use HMDA data to identify institutions that have potential fair lending issues, such as disparities in underwriting outcomes, for further investigation and potential enforcement. HMDA data is particularly useful for so-called “redlining” analyses, which involve evaluating whether a lender is underperforming its peer lenders in serving consumers who live in high-minority areas. Due in part to a concern about the decreased access to credit for certain already underserved borrower groups, in recent years we have observed a significant increase in redlining investigations and enforcement, including a recent New York Attorney General lawsuit against a regional New York bank.
With the release of the 2013 HMDA data, lenders can now evaluate their own 2013 redlining risk by comparing their applications and originations in high-minority census tracts to those of their peers. Given the increased focus on this issue, mortgage lenders should consider adding redlining analyses to their fair lending compliance testing programs.