Statement by Lawrence B. Lindsey, member, Board of Governors of the Federal Reserve System, before the Subcommittee on Housing and Community Development and the Subcommittee on Consumer Affairs and Coinage of the Committee on Banking, Finance and Urban Affairs, U.S. House of Representatives, May 14, 1992 - Statements to the Congress - Transcript

Federal Reserve Bulletin, July, 1992

Many banks have found that HMDA data provide valuable marketing information, enabling them to compare their performance with that of competitors. We have strongly encouraged banks to study their own HMDA data as a way to spot apparent "gaps" where credit services may not be reaching certain segments of their communities.

Community groups have often used the data to assess the home lending performance of institutions currently doing business in their neighborhoods, as well as those seeking to do so by merging with or acquiring a local institution. Through the CRA protest mechanism and other means, these groups and others have the opportunity to use the HMDA data and voice their concerns about a banking organization's CRA performance. HMDA data have also provided the basis for numerous studies over the years--by community groups, academic and news organizations, the Federal Reserve, and others--of how home loans are distributed across neighborhoods and income and racial groups.

With the statutory changes that took effect in 1990, HMDA data now provide an even more valuable tool to all parties concerned--especially to us, the regulators. For the first time, HMDA data collected for 1990 included information about applications that are denied or withdrawn; about the race, gender, and income of applicants; and about the secondary market purchasers of loans sold by lending institutions. The data also include, in about 60 percent of cases, the principal reasons cited by lenders for credit denial.

Gathering and analyzing these new data represent a substantial commitment of resources by all the agencies. In fact, the new HMDA data were the most massive data collection effort ever undertaken by the Federal Reserve, involving nearly 9,300 reporting institutions, representing about 24,000 reports for metropolitan areas and more than 1.2 million pages of data. About $2.8 million has been spent to develop the system to process the HMDA data, and as of September of last year the agencies had spent an additional $2.6 million to process the 1990 HMDA data. Last year we were able to release the data to the public about six months after the reporting deadline, and we are looking at ways to speed up the processing time beginning with the 1991 data.

CAUTION REGARDING RAW DATA AND THE BOSTON STUDY

Although the HMDA data provide very useful information, the data are not perfect, and we urge caution in drawing too many conclusions from a preliminary review of the data. The problem with drawing conclusions from the raw data is not just theoretical. It would be a mistake to discount the effect of a variety of factors that are at work in the loan process. According to the HMDA reports filed for 1990, credit history was the single most common reason for credit denial. However, the HMDA data do not contain any 'information regarding applicants' credit histories or a wide range of other factors that lenders consider in evaluating loan applications, such as debt-to-income ratio or job experience and tenure.