Senate Banking Deregulation Bill Would Hide Impact of Mortgage Lending Disparities

By Barry Zigas, CFA Director of Housing Policy

One of the most controversial provisions in S. 2155 would exempt a large number of creditors from new Home Mortgage Disclosure Act (HMDA) reporting requirements mandated by Dodd Frank and executed in Consumer Financial Protection Bureau (CFPB) regulations last year. According to an analysis of 2015 and 2016 HMDA data by an industry publication, Inside the CFPB, some 4,710 institutions originated fewer than 500 loans in those years and would therefore be exempted from the new requirements. The group represented 72 percent of all HMDA reporters, but only accounted for 8 percent of mortgage origination volume. These lenders would not be required to report new data fields including consumer credit scores, debt-to-income ratios, property value, borrower age and significantly more detailed information about the property’s location.

Our friends at the National Community Reinvestment Coalition (NCRC) have published a map detailing how each state might be affected by this change. In six states alone as much as 20 percent of originations in 2014 and 2015 would have been exempt from these new reporting requirements.

Why does this matter?  Congress adopted HMDA in 1975 in response to widespread concerns that conventional lenders were deliberately withholding credit from low and moderate income (LMI) neighborhoods, and those with high shares of minority residents.  Until HMDA, advocates could only present anecdotal evidence to back up these claims. HMDA showed where mortgage loans were being made; the early results were a major driver of the Community Reinvestment Act (CRA) in 1977 to address the differences in mortgage lending that the data revealed.

HMDA data remains the primary tool that regulators, lenders and consumers can use to understand income and racial patterns in mortgage lending. While the provision in S. 2155 may seem reasonable by exempting only institutions with fewer than 500 loans from only the new data reporting requirements, in the aggregate this provision would hide significant amounts of lending and impair efforts to understand the full picture of mortgage lending.

Proponents of this change have argued that it would be burdensome for the affected lenders.  But as Georgetown University law professor Adam Levitin has written persuasively, “This just doesn’t seem to be a game changer for small financial institutions, and it will cause some serious damage to HMDA data in some communities and even some entire states in which large financial institutions don’t have much of a presence.”