The Home Mortgage Disclosure Act (HMDA) was first enacted in 1975. It requires most mortgage lenders to collect specific information about the mortgage loans they make and report this information to the public. The Act is an attempt to ensure fair lending practices for all eligible borrowers. HMDA was amended in 2015, at which time new requirements were added and existing ones were clarified.
Fairness in Lending
Information about mortgage lending is made public by The Home Mortgage Disclosure Act in an attempt to ensure fairness in lending regardless of geographic location. Before HDMA was passed, there were concerns that lenders were refusing to lend to borrowers in certain urban areas, making it difficult to avoid a stifled economy and declining home ownership in those areas since so few people could get approved for home loans. An additional concern included the idea that lenders might have been disproportionately turning down minority applicants.
Since the HMDA collects information about the ethnicity, race, and sex of applicants, patterns of discrimination based on these factors become obvious when the data is reported. For example, if a lender perpetually denies mortgage loans to people of color or to women, this pattern will be obvious upon reporting. The same goes for interest rates; if certain groups are continually receiving higher interest rates, this will also come to light upon reporting.
Punishment for Discriminatory Lending
Mortgage lenders that are found to practice discriminatory lending, based on data submitted to comply with the HMDA, can wind up paying millions of dollars in fees, as was the case with Hudson City Bank in New Jersey. The U.S. Justice Department and the Consumer Financial Protection Bureau brought charges against the bank for refusing to do business in certain neighborhoods that were predominately populated by people of color. This case settled out of court for $33 million.
Data reported in HMDA also help reveal mortgage trends such as the total number of mortgage applications submitted in a given year, the average amount borrowed, and which lenders do the most business. While trends like these were not the original intent of the HMDA, industry professionals do utilize the data.
Data acquired from HMDA is also intended to help form public policy decisions, as this information provides a snapshot of what is happening within certain geographic areas. For policy makers, the information collected by HMDA data can reveal valuable information about constituents.
Lenders must report information based on data from mortgage loan officers regarding the loans they make. This information is submitted via Form FR HMDA-LAR. The information this form requires includes, but is not limited to:
- The date the application was received by the lender
- Details of the loan, including amount, type of property, and location of the property
- Information on the applicant, including ethnicity, race, and sex
- Annual income of the applicant
- Reasons for loan denial, if applicable
Depending on the location of the lender, the firm may be required to display a sign in their lobby letting customers know that HMDA information from the lender is available for review.
HMDA and CRA
The Home Mortgage Disclosure Act preceded the Community Reinvestment Act, which is designed to encourage all lenders to provide services to borrowers in low and middle income communities. The CRA was enacted in 1977, two years behind the HMDA.
Accessing HMDA Information
Information collected for The Home Mortgage Disclosure Act by mortgage lenders is publicly available from the Consumer Financial Protection Bureau.
A Safeguard for Borrowers
Some borrowers are uncomfortable responding to questions about their gender and ethnicity when applying for a mortgage, but the information is intended to protect them - not to discriminate against them. Borrowers are not required to furnish this information and loan officers aren't required to guess if the application isn't received in person, yet the information can be helpful to the home buyers and lenders, as well as to the overall community.