Opportunities and Issues in Using HMDA Data

Journal of Real Estate Research, The, Oct-Dec 2007 by Avery, Robert B, Brevoort, Kenneth P, Canner, Glenn B

Abstract

Since 1975, the Home Mortgage Disclosure Act (HMDA) has required most mortgage lending institutions to disclose to the public information about the home loans they originate or purchase during a calendar year. In using these data, however, researchers need to be aware of a number of issues and potential problems that characterize HMDA. This article provides a comprehensive enumeration of these issues, focusing on practical problems that can potentially influence choices researchers make in using the data or in interpreting the findings. The article also includes an illustrative example of how the data that is reported in HMDA can be used to gain a better understanding of trends and practices in the home mortgage market.

Since 1975, the Home Mortgage Disclosure Act (HMDA) has required most mortgage lending institutions with offices in metropolitan areas to disclose to the public information about the geographic location and other characteristics of the home loans tiiey originate or purchase during a calendar year. Disclosure of home lending activity is intended to help me public determine whether institutions are adequately serving the housing finance needs of tiieir local communities, to facilitate enforcement of the nation's fair lending laws, and to guide public- and private-sector investment activities. It is estimated that the more than 8,800 lenders currently covered by the law account for approximately 80% of all home lending nationwide. Because of its expansive coverage, the HMDA data likely provide a representative picture of most home lending in the United States. For a previous analysis of HMDA coverage, see Bercovec and Zorn (1996).

Over the years, the Congress has amended HMDA to extend the reach of the law to a broader range of institutions and to expand die types of information that must be reported and disclosed. The most sweeping legislative amendments occurred in 1989; these required the disclosure of application and loan-level information for home loans, including me disposition of applications and me income, sex, and race or ethnicity of the individuals applying for credit. Before that time, HMDA disclosures were limited to summary totals covering loan activity at the census tract level. Analysis of the loan-level information prompted widespread public discussion about the fairness of mortgage lending decisions; the disclosures revealed wide disparities in the rates of approval of loan applications across racial and ethnic lines.1 Since that time, me HMDA data have become an important component of fair lending enforcement reviews and public scrutiny of lender activities in this regard.

The Federal Reserve Board revised Regulation C, which implements HMDA, in 2002.2 As a result of this review, a number of important changes were made to the reporting requirements beginning with me 2004 data. The changes substantially increase the types and the amount of information made available about home lending. The most important change was the requirement mat lenders disclose pricing information for loans with prices (interest rates and fees) above designated thresholds. Loans with prices above the thresholds are referred to here as "higher-priced loans." Other new information being reported include lien status (whether a loan is a first lien, a junior lien, or unsecured) and whether a loan is secured by a manufactured home or is subject to the protections of the Home Ownership and Equity Protection Act (HOEPA) of 1994.

The 2004 HMDA data, me first to reflect the recent Regulation C revisions, were released to the public by individual lending institutions in the spring of 2005. In September 2005 and again in September 2006, the Federal Financial Institutions Examination Council (FFEEC) made available to the public various summary reports (statistical tables) pertaining to each lender and lending activity in each metropolitan statistical area (MSA), along with a comprehensive data file that included all the reported information (except the dates of loan application and of credit decision).3 With me release of the 2004 and 2005 HMDA data, me staff of the Federal Reserve Board prepared assessments of the expanded data, which were published in the Federal Reserve Bulletin.4

Although the HMDA data are quite comprehensive in some respects, in important ways the HMDA data are limited. The data include few items that pertain directly to me credit risks posed by applicants and borrowers and little detail about the types of loans extended. The data also do not include information about the standards lenders use to evaluate credit or about the methods used to establish loan prices or compensate individuals that take and process applications or underwrite loans. Nonetheless, the expanded HMDA data offer many opportunities for researchers and the general public to monitor mortgage market activities in general, as well as the performance of individual lenders. This article details a number of issues and potential problems that researchers need to be aware of in using the HMDA data. It also provides an illustrative example of how the data mat are reported in HMDA can be used to gain a better understanding of trends and practices in the home mortgage market.