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The CFPB’s issuance of Home Mortgage Disclosure Act (HMDA) filing instructions on July 1 reminded financial institutions to get on the stick for the 2017 and 2018 changes the agency announced back in October 2015. The FIGs (filing instruction guides) provide the final piece of the puzzle necessary to program changes for 2017. The 2018 FIG still lacks the HMDA file edits required to fully implement the 2018 changes.
The FIGs take care of the easy part, the technology piece. A bigger challenge looms that few people seem to be anticipating—the release of the 2018 data in 2019.
Readers may remember the Atlanta Constitution’s 1988 series entitled “The Color of Money,” which sparked a nationwide discussion of lending discrimination and the Justice Department’s first fair lending investigation. Every year since, the release of HMDA numbers has prompted critics to argue that discrimination and racism continue to pervade mortgage lending. Others have stressed the limitations of HMDA data, reluctant to leap from disparate rejection rates to premature conclusions about rampant discrimination.
In 2009, the General Accounting Office issued a study addressing regulators’ use of HMDA data to identify lenders that may have violated fair lending laws. But, said the GAO, HMDA data had limitations: “they do not include information on the credit risks of mortgage borrowers, which may limit regulators’ and the public’s capacity to identify lenders most likely to be engaged in discriminatory practices without first conducting labor-intensive reviews.” In 2006, a set of agency HMDA questions and answers noted that “Without information about relevant price determinants, one cannot draw definitive conclusions….HMDA data include some potentially relevant determinants of price, such as lien status, but exclude may other potential determinants, such as borrower credit history, borrower debt-to-income ratio, and the ratio of the loan amount to the value of the property securing the loan (loan-to-value ratio).”
Well, guess what? In 2018, the October 2015 HMDA changes will require the gathering of that missing data, and much more. So when the CFPB makes that data available in 2019, an avalanche of nationwide publicity may leave lenders longing for the days when “The Color of Money” won a Pulitzer Prize for investigative reporting.
Lenders who think they can wait until the last minute to implement the HMDA changes, think again. They need to get started now, if they haven’t already, and they can’t afford to postpone their analysis of the new data points until they send them off to the CFPB. In fact, the sooner their staffs, statisticians, economists, and other social scientists begin looking at their data to identify potential risks and discomforts, the better off their institutions will be.
James Pannabecker is the author of the 2018 Home Mortgage Disclosure Act Manual (LexisNexis 2016, 800-833-9844) and numerous other publications in the areas of truth-in-lending, real estate settlement procedures, equal credit opportunity, community reinvestment, and banking law. He graduated from the University of North Carolina School of Law and has been admitted to practice in North Carolina, Virginia, the District of Columbia, Maryland, Missouri, and Georgia. He served as a senior vice president and general counsel for Citicorp Mortgage, Inc. and as a Professor of Practice at the Washington & Lee University School of Law.