Expanded HMDA data on residential lending: one year later - Home Mortgage Disclosure Act - includes related article on lender education

Federal Reserve Bulletin, Nov, 1992 by Glenn B. Canner

Questions about the access of minorities and lower-income households to home mortgage loans continued to draw considerable attention in the past year. Indeed, the release of new data in October 1991 documenting the credit experiences of various groups during 1990 intensified the discussion and stimulated initiatives in the private and public sectors to address perceived inequities. The data on home lending, which cover metropolitan areas throughout the United States, are available as a consequence of the 1989 amendments to the Home Mortgage Disclosure Act (HMDA), which greatly expanded the scope of the act.

Since 1976, when the original act went into effect, most depository institutions--commercial banks, savings banks, savings and loan associations, and credit unions--with offices in metropolitan areas (and their mortgage-lending subsidiaries) have made public information about the geographic distribution of the home mortgage and home improvement loans they originate and purchase. Beginning with lending activity for 1990, reflected in the numbers released in October 1991, covered institutions have also disclosed--in reports prepared by the Federal Financial Institutions Examination Council (FFIEC)--information on the disposition of loan applications and on the race or national origin, gender, and annual income of loan applicants and borrowers.(1)

A first study of the expanded HMDA data, reported in the November 1991 Federal Reserve Bulletin, depicted certain statistical relationships that the data revealed about lending activity nationwide.(2) Among the findings, the one that attracted the most attention was that black and Hispanic loan applicants were denied credit in greater proportions than white applicants, even within the same income groupings. The data showed similar variations in rates of loan disposition among neighborhoods classified by their racial composition and income characteristics. The HMDA data have clear limitations. Foremost among them is the general lack of information about factors important in assessing the creditworthiness of applicants and the adequacy of collateral offered as security on loans. Without such information, determining whether individual applicants have been treated fairly is not possible. Nonetheless, the lending patterns depicted by the data have led many persons to conclude that widespread racial discrimination characterizes the home-lending process.

The HMDA data now available for 1991 present a nationwide picture that is little changed from that in 1990: They continue to reflect wide differences in approval and rejection rates for minorities and whites. Thus, the debate about what the data signify can be expected to persist.

After presenting national aggregates from the 1991 reports, this article describes some of the responses within the public and private sectors to the data released a year ago. These responses include research projects that seek objective explanations of the statistical patterns, investigative and enforcement efforts by federal regulators to ensure compliance with fair-lending and community reinvestment laws, educational measures to increase awareness of lenders' responsibilities and to inform consumers better about the mortgage loan process, and practical ideas for identifying and eliminating lending practices that may discriminate against minority applicants, including a careful examination of any unintended adverse effects of underwriting standards.(3) The article discusses as well the special role that entities in the secondary mortgage market play in the home-lending process and steps such institutions have taken to promote affordable housing.

SUMMARY RESULTS FOR 1991 HMDA DATA

For lending activity in 1991, the FFIEC prepared disclosure statements for 9,358 reporting institutions--5,551 commercial banks, 1,536 savings and loan associations, 1,436 credit unions, and 835 mortgage companies, of which 528 were unaffiliated with a depository institution (table 1).(4) These disclosure statements consisted of 25,934 individual reports, each covering the lending activity of a particular institution in a specific metropolitan statistical area (MSA). Although the number of reporting institutions in 1991 remained about the same as in 1990, the volume of reported applications and loans increased substantially.

1. Residential lending activity reported by financial
   institutions covered by HMDA, 1981-91
                   Number      Number of       Number of
    Year             of        reporting      metropolitan
                   loans(1)    institutions   statistical
                  (millions)                  area reports
   1981              1.28       8,094           10,945
   1982              1.13       8,258           11,357
   1983              1.71       8,050           10,970
   1984              1.86       8,491           11,799
   1985              1.98       9,072           12,567
   1986              2.83       8,898           12,329
   1987              3.42       9,431           13,033
   1988              3.39       9,319           13,919
   1989              3.13       9,203           14,154
   1990(2)           6.59       9,332           24,041
   1991              7.89       9,358           25,934