Residential: What does your HMDA data say about your fair lending?

The Federal Financial Institutions Examination Council (FFIEC) just released Home Mortgage Disclosure Act (HMDA) data on nearly 13 million home loan applications, including 48 different data points.

While the collection and reporting of the mortgage origination data may feel routine, “lenders need to understand the story their HMDA data tells and be ready to explain their fair lending practices,” said Ericka Bartsch, Managing Director at The Collingwood Group, a SitusAMC company.

FFIEC explained, “HMDA data alone cannot be used to determine whether a lender is complying with fair lending laws.” However, HMDA data represents one piece of the larger picture regulators look at when conducting fair lending examinations.

The newly released HMDA data covering 2018 originations includes information on applicants, property type, loan type, and other identifiers provided by more than 5,600 mortgage lenders.

The data shows the number of reporting lenders shrank by 3% from 2017 to 2018, due in part to exemptions provided by the Economic Growth, Regulatory Relief and Consumer Protection Act (EGRRCPA). Refinance originations decreased by 23.1%, while purchases increased by 0.3%.

The share of purchase loans made to low- and moderate-income households increased slightly in 2018, from 26.3% in the prior year to 28.1%, and the share of purchase loans to black borrowers rose 6.4%. Loans to Hispanic-white borrowers increased slightly from 8.8% in 2017 to 8.9% in 2018. However, the data reveals that black and Hispanic-white applicants experienced higher rates of loan denials than other applicants.

“These relationships are similar to those found in earlier years,” the Consumer Financial Protection Bureau (CFPB) stated, adding, however, that the data reported “cannot take into account all legitimate credit risk considerations for loan approval and loan pricing.”

In terms of credit scores, the median applicant credit score for originated loans was between 738 and 746 (using Equifax, Experian and FICO). The median credit scores for denied applicants ranged from 682 to 686.

It’s important lenders stay attuned to HMDA data and understand how their own reporting fits into larger industry trends. Especially with minority homeownership at record lows, “fair lending practices are likely to face increased scrutiny,” said Bartsch, particularly as states take a more activist approach to enforcement.

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