Problems with HMDA


      Anyone who uses HMDA data to assess if a bank is redlining or illegally discriminating will soon realize the limits of the data. One can quickly show that minority borrowers are typically denied loans at more than twice the rate of white borrowers. It is also often true that the highest income minority borrowers are denied home loans at a higher rate than the lowest income white borrowers.

      The banks and the regulators will be quick to point out, however, that this disparity by itself doesn't prove that discrimination has occurred, since it doesn't take into account differences in the credit histories of the applicants. In court, some believe that a case of lending discrimination can only be proven by someone who has access to all the borrower files and can show that minority and white applicants with similar income and credit history characteristics were nonetheless treated differently when applying for the same kind of loan.

Subprime Lenders:

    Furthermore, within the last few years many subprime lenders have begun targeting low and moderate income neighborhoods and communities of color with home loan products that have a higher interest rate than loans being provided by banks in middle and upper income neighborhoods. The subprime lenders sometimes loan to a higher percentage of minority applicants than white applicants. This kind of discrimination in pricing rather than in access may confuse anyone trying to make a simplistic lending discrimination argument based on loan denials.

    ICP can provide some assistance for groups attempting to develop strategies for dealing with lending discrimination. You can contact us directly with your requests.

Limited Small Business Loan Data:

     Community reinvestment activists have long sought data similar to HMDA for small business and farm lending. With the introduction of the new CRA regulations banks have begun collecting a very simple set of CRA data on small business and farm lending with which you can make a few broad generalizations. Unfortunately this data does not include race, gender or income of the borrower but rather focuses on geography characteristics. Since many downtown business districts are technically in low or moderate income census tracts this data currently provides a skewed perception of how well banks are serving low and moderate income neighborhoods with business loans.

    While there are no immediate prospects of correcting the problems with HMDA and CRA data, reinvestment activists are attempting to do so. A request to amend Regulation B to allow banks to collect race and gender data on small business and farm lending voluntarily is currently being held up by the Federal Reserve. Proposed improvements to HMDA data collection include disclosure of the interest rate of each loan and the credit score or other credit-related information for each application. These additional disclosures would help activists pinpoint discrimination more easily.

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