New information reported under HMDA and its application in fair lending enforcement

Federal Reserve Bulletin, Summer, 2005 by Robert B. Avery, Glenn B. Canner, Robert E. Cook, Shannon C. Mok, Caitlin G. Coslett, Patricia J. Dykes, Sylvia A. Freeland

We also describe how the Federal Reserve uses the HMDA data as part of a screening tool to facilitate the enforcement of the fair lending laws. In this regard, we discuss the way the expanded HMDA data, particularly the information on loan pricing, enhance the utility of the screening tool. At the same time, we emphasize that, although these data present valuable new opportunities for researchers and others to learn more about the home-loan market and for the regulatory agencies to improve the enforcement of fair lending laws, the data are not sufficient by themselves for drawing conclusions about the fairness of the lending process or the activities of any individual lender. For example, credit history scores and other factors not included in the HMDA data can be critical in determining loan prices. With regard to this issue, we collaborated with researchers at the Credit Research Center of Georgetown University, which has data on credit history scores and other loan-level factors relevant to loan pricing. The loan-level data were supplied to the Credit Research Center by a small group of lenders that are covered by HMDA and are active originators of loans in the higher-priced segment of the home-loan market.

Our examination of the 2004 data also focuses on the newly reported information about loans on manufactured homes. The disposition of applications for loans to buy, refinance, or improve such units has an important influence on the pattern of denial rates of all loans reported under HMDA. We also discuss the new information on HOEPA-related lending and certain requests for pre-approvals of home-purchase loans and assess their overall significance in the market. Finally, in the article's summary and conclusions, we review our key findings and emphasize that users of the data should exercise particular caution in drawing conclusions about lending patterns from HMDA data alone.

THE REQUIREMENTS OF REGULATION C

The Federal Reserve Board's Regulation C, which implements HMDA, applies to most depository institutions (commercial banks, savings institutions, and credit unions--hereafter, "banks") with a home or branch office in a metropolitan area. Banks that are exempt from Regulation C are small (currently those with assets of less than $34 million), or are not in the home-lending business, or have offices exclusively in rural (nonmetropolitan) areas. (4) Regulation C also extends to mortgage and consumer finance companies--hereafter, "mortgage companies"--whether such companies are independent or are subsidiaries of banks or affiliates of bank holding companies. Coverage of mortgage companies applies mainly to those that are active in the home-loan market--that is, those that extend 100 or more home-purchase or home-refinancing loans per year and operate in at least one metropolitan area. (5)

The HMDA data include information about applicants and borrowers, the home-loan products they seek, the disposition of their requests for credit, and details about the location of the property that relate to the application. For information about the channels through which the HMDA data are released and for a description of the data that were required of lenders before the 2002 revisions, see box "Distribution of HMDA Data and Pre-2004 Requirements of Regulation C."