Residential lending to low-income and minority families: evidence from the 1992 HMDA data - Home Mortgage Disclosure Act - includes related articles on access to the data, how data is collected and educational material on fair lending

Federal Reserve Bulletin, Feb, 1994 by Glenn B. Canner, Wayne Passmore, Dolores S. Smith

HMDA DATA AND THE SUPERVISION OF DEPOSITORY INSTITUTIONS

Although the HMDA data alone are not sufficient for assessing the fairness of the mortgage lending process or determining whether institutions have violated the fair lending laws, they are a valuable tool used extensively by the Federal Reserve and other federal agencies in the enforcement of fair lending laws. Because these agencies have access to lenders' files on loan applications and to information about applicable credit standards, they can overcome many of the limitations of the HMDA data regarding the assessment of applicant credit-worthiness and of property characteristics.

The Federal Reserve's program for enforcing fair lending, like that of the other agencies, focuses on examining for compliance with fair lending laws and more broadly on ensuring that credit is made available to low- and moderate-income areas, including areas with substantial minority populations. It involves an aggressive approach to investigating consumer complaints. It also extends to providing consumer and creditor education and gaining insight into the mortgage markets through research (see the box "Educational Material on Fair Lending").

Fair Lending Enforcement

The Federal Reserve System's program of consumer compliance examinations began in 1977. These examinations, carried out by specially trained examiners, emphasize identifying potential discrimination of the kind prohibited by the Equal Credit Opportunity and Fair Housing acts. On average, the Reserve Banks examine about two-thirds of all state member banks each year.

Procedures for fair lending enforcement focus primarily on comparing the treatment of members of a minority or protected class with other loan applicants. Starting with a review of loan policies and procedures and interviews with lending personnel, an examiner seeks to determine, among other things, the bank's credit standards. Then, using a sample of actual loan applicants, the examiner judges whether bank personnel apply those standards uniformly in evaluating loan applications from minorities, women, and others whom the fair lending laws were designed to protect.

The examiner attempts to look at the same information the bank used to make its credit decision, including credit history, income stability, and total debt burden. If it appears that credit standards were not followed or were not applied consistently, these findings are discussed with bank management and a more intensive investigation is undertaken. Violations discovered through any of these techniques will result in correction by the institution, notification of the applicant, and referral of the matter to the Department of Justice or HUD when appropriate.

Examiners also meet with members of the bank's community, including private citizens and local government officials who may have knowledge about the credit concerns of their community. Examiners thus can learn about public perceptions of credit availability for minorities and low- and moderate-income persons. These meetings may suggest additional scrutiny of particular areas and may provide insight into the way a bank is serving its local community.