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Too Big to Hide: The Importance of Public Data on the Mortgage Market

Fair lending is the foundation of a thriving economy, both locally and nationally. Access to credit drives home purchases, revitalizes neighborhoods, and allows families to build wealth for future generations. Since the financial crisis, however, tighter credit standards have made it increasingly difficult to obtain a mortgage, especially for low-income and minority borrowers.  A key challenge facing policymakers is how to reform the housing finance system in a way that provides access to credit for a broad range of households, yet at the same time ensures that homeownership is sustainable over the long-term.  Striking this balance is critical, not only for addressing the widening racial wealth gap, but also for the strength of the U.S. economy.

But we can’t create thoughtful, effective housing policy – nor assess its outcomes – without comprehensive data that reveals where home loans are being made and to whom.   Fortunately, we have this data thanks to the Home Mortgage Disclosure Act of 1975 (also known as HMDA). HMDA requires banks to report on the mortgage applications they receive, including whether they approve or deny the loan, the terms of the loan, and borrower characteristics. HMDA’s roots are in the Civil Rights movement and are a reaction to redlining. It was designed to increase the transparency of bank lending practices by requiring that lenders disclose loan approvals and denials by borrower race and ethnicity.  Since its passage, HMDA has made it possible for regulators, community groups, academic researchers and investigative journalists to understand lending patterns and behavior. It has shed light on discriminatory lending practices nationwide.

HMDA’s value goes beyond providing needed transparency in lending: it is also a finger on the pulse of the U.S. economy.  Mortgage debt is by far the largest component of household debt in the United States, meaning that understanding its ebbs and flows is vital to macroeconomic policy.  For example, researchers use HMDA data to analyze whether borrowers are taking advantage of lower interest rates to refinance their homes, which can speak to the effectiveness of the Federal Reserve’s monetary policies. HMDA also provides data on Federal Housing Administration (FHA) lending, allowing researchers to assess the FHA’s role in providing critical  countercyclical support during the Great Recession. Researchers have also used HMDA data to understand how access to credit is associated with a wide range of social, political and economic issues. For example, using HMDA data, researchers have been able to examine how various aspects of the mortgage market affect outcomes as diverse as presidential elections and maternal health.

Since its implementation, HMDA has been updated to reflect changing social and economic realities in the United States.  For example, in 2004 as subprime lending rose to prominence in the mortgage market, HMDA was enriched to include information on whether a loan could be considered subprime.

Now, the “President” Trump administration wants to curtail HMDA’s value and public accessibility.  The Department of the Treasury recently recommended that HMDA data be hidden from public view, undermining the essential intent of the law. Equally troubling is the effort to delay implementation of a new final rule established by the Consumer Financial Protection Bureau (CFPB) to modernize HMDA.  Legislators in both the House and Senate have also put forth bills that would severely limit the scope of the data collected.

The Department of the Treasury recently recommended that HMDA data be hidden from public view, undermining the essential intent of the law. Equally troubling is the effort to delay implementation of a new final rule established by the Consumer Financial Protection Bureau (CFPB) to modernize HMDA.

We need HMDA to be publicly accessible.  And we need the new CFPB rule to take effect if we hope to understand today’s mortgage lending market and its impact on our nation’s economic health.  Among the most significant elements of the rule is one which adds greater detail to racial and ethnic designations in HMDA data collection. For example, going forward, the designation “Asian” will be broken out into the subcategories of Asian Indian, Chinese, Filipino, Japanese, Korean and Vietnamese. Why does this matter?  Individuals currently designated as “Asian” are now the fastest-growing racial group in America, but though they represent many different cultures and backgrounds, for the purposes of HMDA they are treated as one group.  With more detailed demographic information, lenders will be better able to understand and serve their communities by, for example, providing materials or financial education translated into the appropriate languages.

Another small but mighty piece of information that the new rule will bring concerns reverse mortgages. The rule ensures that all reverse mortgages, in which homeowners relinquish equity in their home in exchange for regular payments, will be reportable to HMDA. This simple addition opens up greater possibilities for data-backed policy solutions that can, for example, help seniors stay in their homes.

Though some are concerned that these new reporting requirements will place an undue burden on banks (especially smaller institutions), during the rule finalizing process, the CFPB carefully weighed the reporting burden against the value of the new data for policy-making. In several instances, the CFPB heeded industry suggestions and eliminated or revised proposed requirements to reduce the industry reporting burden. In fact, most of the new reporting requirements—such as credit score—consist of data that are already collected by lenders during the underwriting decision.

Without the knowledge derived from HMDA, we risk undermining evidence-based public policy with ideological positioning and preconceived beliefs. Let us continue to enable effective policy-making through publicly-owned data that allows for a wide range of stakeholders to assess and debate the evidence. Without this basis in facts, we risk producing inefficient outcomes, or worse, exacerbating social inequalities in the housing market.

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