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CFPB HMDA Data Tool Launches with Banking Regulators' Release of 2012 HMDA Data
On September 18, the CFPB launched a new web-based tool for use in analyzing HMDA data. The CFPB explains that its new HMDA tool focuses on the number of mortgage applications and originations, in addition to loan purposes and loan types for 2010 through 2012, and allows the public to see nationwide summaries or employ interactive features to isolate the information for metropolitan areas. The CFPB is planning additional features for the site, including (i) “easy-to-use tools” that allow users to filter HMDA records and create summary tables and (ii) an application programming interface that will allow researchers and software developers to incorporate the CFPB-provided HMDA data into other applications and visualizations. During a CFPB Consumer Advisory Board meeting at which the new tool was demonstrated, Director Cordray explained that the CFPB’s HMDA tool is designed to enhance the value of the HMDA data to help identify potentially discriminatory lending patterns and determine whether lenders are serving the housing needs of their communities.
The launch corresponded with the FFIEC’s annual HMDA data release. The release provides data on mortgage lending transactions—including applications, originations, purchases and sales of loans, denials, and other actions related to applications—provided by 7,400 U.S. financial institutions covered by HMDA for the 2012 calendar year. The FFIEC release notes that 2012 HMDA data are the first to use the census tract delineations and population and housing characteristic data from the 2010 Census and from the American Community Survey and that the boundaries of many census tracts have been revised in the process of transitioning to the 2010 Census, and cautions users that boundary changes and updates to the population and housing characteristics of census tracts complicate intertemporal analysis of the annual HMDA data. The release further advises users that while the HMDA data can inform analysis of fair lending compliance, the HMDA data alone cannot be used to determine whether a lender is complying with fair lending laws because they do not include many potential determinants of creditworthiness and loan pricing, such as the borrower's credit history, debt-to-income ratio, and the loan-to-value ratio.
August Beach Read Series: Growing Mobile Technology Impacts the Financial Services Industry
As the technology continues to grow and become a part of day-to-day life, smartphones and tablets are reshaping the delivery of financial services to consumers. The mobile device is quickly becoming a full-fledge platform for electronic financial services, especially for mobile payments.
The variety and number of mobile devices and service providers to support them has introduced new and different stakeholders – all of whom are competing with traditional financial institutions for dominance in the mobile commerce/mobile payment space. This new and rapidly evolving environment presents new and operational risks for consumers, payment providers, and the recipients of the payments. It will be vital to identify who has legal responsibility and liability for the various risks associated with payment platforms and payment transactions.
To learn more about the mobile technology issues impacting the financial services industry, please review some of our recent articles on the issue. In “Federal Regulators Issue Guidance on Social Media and Mobile Privacy” Ian Spear discussed the recent guidance and flexible guidelines issued by the FFIEC and FTC.
FFIEC Creates Cyber Security Working Group
On June 6, the Federal Financial Institutions Examination Council (FFIEC) announced the formation of a working group to further promote coordination across the federal and state banking regulatory agencies on critical infrastructure and cybersecurity issues.
FFIEC Publishes Updated HMDA Reporting Guide
On April 18, the Federal Financial Institutions Examination Council published the 2013 Guide to HMDA Reporting. The updated edition reflects the transfer of HMDA and Regulation C authority to the CFPB, updates previously announced asset-size threshold exemption adjustments, and includes minor technical changes.
Comptroller Curry Named FFIEC Chairman
On April 1, the Federal Financial Institutions Examination Council (FFIEC) announced that Comptroller of the Currency Thomas Curry will serve a two-year term as FFIEC Chairman. The FFIEC also selected Federal Reserve Board Member Daniel Tarullo as Vice Chairman, and announced three new State Liaison Committee members: Michael Mach, Division of Banking Administrator for the Wisconsin Department of Financial Institutions; Lauren Kingry, Superintendent of the Arizona Department of Financial Institutions; and Thomas Candon, Deputy Commissioner of Banking and Securities of the Vermont Department of Financial Regulation. The FFIEC is responsible for prescribing uniform principles, standards, and report forms for the federal examination of financial institutions, and for recommending changes to promote uniformity in the supervision of financial institutions. The FFIEC also conducts schools for federal examiners.
CFPB Announces Plan for Mortgage Rule Implementation
On February 13, the CFPB announced a plan to implement its recently adopted mortgage rules, which go into effect in January 2014. To assist financial institutions with implementing the rules, the CFPB will (i) coordinate with other agencies that conduct examinations of mortgage companies to ensure all regulators have a shared understanding of the CFPB's new rules, (ii) publish plain-language guides in the spring, (iii) publish updates to the official interpretations, with priority given to issues that are important to a large number of providers or consumers, and that critically affect mortgage companies' implementation decisions, (iv) publish readiness guides, available this summer, and (v) work with the FFIEC to develop more in-depth examination procedures.
Federal Regulators Propose Guidance for Social Media Use
On January 22, the FFIEC proposed guidance on the applicability of consumer protection and compliance laws, regulations, and policies to activities conducted via social media by federally supervised financial institutions, as well as nonbanks supervised by the CFPB. With regard to compliance and legal risks, the guidance addresses (i) the applicability of existing federal laws and regulations to the use of social media for marketing and originating new deposit and lending products and the use of social media to facilitate consumer use of payment systems; (ii) the need to apply BSA/AML internal controls to customers engaging in electronic banking through the use of social media, and e-banking products and services offered in the context of social media, as well as BSA/AML risks emerging through the growing use of social media; (iii) CRA monitoring of social media sites run by an institution; and (vi) customer privacy issues associated with social media. The guidance also reviews reputational risks related to social media, including risks related to (i) fraud and brand identity; (ii) social media vendor monitoring; (iii) privacy; (iv) consumer complaints; and (v) employee use of social media. Finally, the guidance addresses the vulnerability of social media to malware and the resultant operational risk. The FFIEC is accepting comments for 60 days after publication in the Federal Register. After the comment period, the agencies will issue supervisory guidance and will urge state regulators to follow.
Spotlight on HDMA: Your Institution's Public HMDA Data and What to Do with It
In an annual rite of autumn, on September 18 the Federal Financial Institutions Examination Council released 2011 Home Mortgage Disclosure Act (HMDA) data for U.S. mortgage lenders. The public data contains information regarding nearly all home mortgage applications acted on in the prior calendar year, designated by loan purpose (i.e., home purchase, home refinance and home improvement). The HMDA data covers home loan applications made to over 7,600 U.S. financial institutions, including banks, savings associations, credit unions and mortgage companies, and contains information on approximately 11.7 million applications, 7.1 million originations and 2.9 million purchases.
HMDA data provides a wealth of mortgage industry-related information, including data on application and loan volume, the proportion of loans backed by the Fair Housing Administration and Veterans Administration, and lender concentration in the mortgage market. However, its most important function and the reason HMDA was enacted is the role the data plays in fair lending enforcement. Toward this end, the outcome of each home mortgage loan application is classified according to the applicant’s race, ethnicity and gender. HMDA data further allows analyses based on the site of the subject property, as well as the location of the lender.
It is important to recognize that while HMDA data alone does not prove or disprove discrimination, it is an important component of fair lending examinations. According to the Federal Reverse Board, which provides a lengthy analysis that accompanies the annual release of HMDA data:
Although the HMDA data include some detailed information about each mortgage transaction, many key factors that are considered by lenders in credit underwriting and pricing are not included. Accordingly, it is not possible to determine from HMDA data alone whether racial and ethnic pricing disparities reflect illegal discrimination. However, analysis using the HMDA data can account for some factors that are likely related to the lending process.
In other words, notwithstanding its limitations, HMDA data is often the starting point for regulators seeking indicia of possible discrimination. Additionally, advocacy groups and the media frequently focus on lending disparities suggested by HMDA data. These factors, and the very public nature of HMDA data, make it important that lenders fully understand their own data and consider it in the context of what the national HMDA data suggests.
Here’s a list of the key fair lending-related findings from the 2011 data:
- Denial Rates - Black applicants and Hispanic-white applicants had notably higher denial rates than non-Hispanic white applicants. The denial rates for conventional home-purchase loans were 30.9 percent for blacks, 21.7 percent for Hispanic whites, 14.8 percent for Asians, and 11.9 percent for non-Hispanic whites.
- Higher-Priced Loans - The incidence of higher-priced lending across all products in 2011 was about 3.7 percent, up from 3.2 percent in 2010. Black and Hispanic-white borrowers were more likely to obtain higher-priced loans than were non-Hispanic white borrowers.
- Loan Penetration in Distressed Areas - Lending activity has not yet rebounded in neighborhoods experiencing high levels of distress. Home purchase lending in census tracts identified by the Neighborhood Stabilization Program as being highly distressed declined by a larger percentage since 2010 than less-distressed tracts. This decline was particularly pronounced for lower- and middle-income borrowers.
These industry-wide findings help guide the analyses that individual lenders should conduct on their own HMDA data. Here are three basic statistical reviews that we recommend each lender undertake to better understand what the data shows:
- Evaluate the share of applications received from protected class applicants.
- Compare denial rates for minority applicants and non-Hispanic white applicants.
- Determine the proportion of higher priced loans originated to minority applicants and non-Hispanic white applicants.
We reiterate that HMDA data alone does not prove or disprove mortgage lending discrimination. A HMDA review that suggests fair lending concerns should be followed by further statistical analysis that considers credit-related factors that are not part of HMDA, such as credit score and loan-to-value ratios. Review of individual loan files may also be necessary before making a final determination that there are lending patterns that cannot be explained, and that ameliorative action is necessary.
Nevertheless, it is important to understand your institution’s raw, public HMDA data and be prepared to defend and follow-up on any lending disparities it may suggest. Put simply, the best way to avoid getting blind-sided by a regulator, community group, or media representative is to know your HMDA data better than they do.
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Warren W. Traiger, counsel at BuckleySandler LLP, advises clients on consumer regulatory matters, particularly fair lending and Community Reinvestment Act (“CRA”) compliance. Mr. Traiger is a nationally recognized expert in CRA and fair lending issues. His research and analysis of mortgage lending data has been cited in publications of the Federal Reserve Banks of San Francisco, Boston, and Dallas, the Federal Deposit Insurance Corporation, and in testimony before the U.S. House Financial Services Committee.
Federal Banking Regulators Issue Guidance Regarding Supervision of Technology Service Providers
On October 31, the Federal Financial Institutions Examination Council (FFIEC) issued a revised Supervision of Technology Service Providers Booklet (TSP Booklet). The revised TSP Booklet, which is part of the FFIEC Information Technology Examination Handbook, provides guidance for examiners and financial institutions on the supervision of technology service providers by describing the federal banking regulators’ statutory authority to supervise third-party service providers, outlining the regulators’ risk-based supervision program, and providing the Uniform Rating System for examinations. The TSP Booklet clarifies that outsourced activities should be subject to the same risk management, security, privacy, and other internal controls and compliance policies as if such functions were performed internally, and that a financial institution’s board of directors and management have the responsibility for ensuring that outsourced activities are conducted in a safe and sound manner and in compliance with applicable laws and regulations.
Concurrent with the release of the updated TSP Booklet, the Federal Reserve Board, the FDIC, and the OCC issued new Administrative Guidelines for the Implementation of Interagency Programs for the Supervision of Technology Service Providers. The Guidelines are separate from the FFIEC IT Examination Handbook and describe how the agencies implement their interagency supervisory programs. The Guidelines are primarily a resource for examiners and include the reporting templates used by examiners.
FFIEC Releases 2011 HMDA Data
On September 18, the Federal Financial Institutions Examination Council (FFIEC) released data collected in 2011 under the Home Mortgage Disclosure Act (HMDA). The data include information on loan amount, loan type and purpose, property type and location, pricing, and applicant characteristics. The FFIEC release notes that the 2011 data reflect that (i) the FHA’s share of first-lien loans declined in 2011, but there remains a heavy reliance on the FHA program, (ii) only a small minority of first lien loans had APRs above the loan price reporting thresholds, and (iii) for conventional home-purchase loans, black and Hispanic white applicants experienced higher denial rates than non-Hispanic white applicants, similar to in prior years. While examiners consider HMDA data when assessing lender compliance with fair lending laws, the FFIEC cautions that such data do not include many potential determinants of creditworthiness and loan pricing, such as the borrower's credit history, debt-to-income ratio, and the loan-to-value ratio.