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

The agencies believe it is time to move beyond debating about whether unequal treatment may be taking place to discussing efforts to ensure that minorities have equal access to credit. Achieving this objective, they noted, will require action by the supervisory agencies and by financial institutions and their trade associations--to refine and strengthen enforcement of fair-lending laws, to provide needed education and training, and to identify and promote successful techniques that ensure equal treatment of loan applicants. For lenders, initiatives might include the use of internal systems to conduct independent second reviews of denied applications from minorities to ensure fair treatment; development of training programs to ensure fair treatment of prospective borrowers; credit counseling for groups of prospective loan applicants'. participation on mortgage review boards; and use of "shoppers" hired by an institution to test its personnel's adherence to its own procedures.(16)

Fair-Lending and CRA Compliance

In evaluating compliance with the fair-lending laws, bank examiners assess mortgage decisions in the context of the lending institution's underwriting standards. They look at a sample of approved and denied applications and check whether an institution, in applying its lending criteria, has implemented standards consistently and fairly, particularly in its treatment of minority applicants. When examiners find exceptions, they seek to determine whether differences in the decision to grant or deny credit have a legitimate basis or whether they suggest discriminatory treatment that warrants further investigation. Because they have access to all of a lender's files on loan applications and to related information, agency staff overcome most of the limitations of the HMDA data regarding applicant creditworthiness and property characteristics.

The new HMDA data enable the banking regulators to augment the procedures already in place for identifying loan application samples for review, to target lending institutions for more intensive examination of lending policies and practices, and to make peer comparisons of lending patterns. The data provide the basis for the use of more heavily computerized and sophisticated statistical tools. Through sorting capabilities in the analytical software they use, for instance, the regulators can readily determine the race or ethnic origin of borrowers and applicants for purposes of comparison.

The FFIEC has retained an outside consultant to review the agencies' programs of civil rights enforcement. The consultant will look at current training and examination procedures and will suggest improvements. In the meantime, the FFIEC's task force on consumer compliance is revising the policy statement that sets some common guidelines for the agencies' enforcement of ECOA and the Fair Housing Act. The task force is also working on the supervisory enforcement policy for these two statutes; this statement spells out the types of corrective action required to prevent violations from recurring and to correct conditions that result from violations.