The Seven Lessons of HMDA

$393 billion. That’s the amount banks have committed to lend in low and moderate income communities nationwide since the Community Reinvestment Act (CRA) went into effect 20 years ago. By anybody’s calculation, that’s a lot of money. The commitments are the result of efforts by community groups, using opportunities presented by CRA. But the fuel in the CRA engine has been the data that lenders are required to disclose under the Home Mortgage Disclosure Act (HMDA).

HMDA was actually passed in 1975, two years before the CRA. It requires lenders to disclose to the public information about their home mortgage lending activity. In the hands of community groups, this data has proven extremely powerful. Perhaps the first major victory that can be attributed to HMDA is the enactment of CRA. The data disclosed under HMDA enabled community leaders to prove to Congress, banking regulators, and the public what their constituents had always known through personal experience, namely, that low- and moderate-income people, minorities, inner-city residents, and other underserved communities were not receiving their fair share of mortgage dollars. Before CRA, the federal banking regulators had no tools to address this problem. CRA has given them, and community groups, that tool. Virtually every assessment of a bank’s CRA performance and every CRA challenge to a bank’s application to expand in the last 20 years has been based on an analysis of the HMDA data. The beauty of putting the data into the hands of grassroots groups is that it allows them to make their own judgments about lenders’ performance, and not have to rely on those made by federal regulators.

Over the years, community groups have learned many lessons from HMDA, several of which are applicable to other types of information.

Lesson #1. Expect opposition. Any industry or institution will resist disclosing information about its operations. The banking industry and banking regulators opposed HMDA when it was first enacted, and at every legislative landmark since. A strong grassroots coalition overcame this opposition by pointing to the harm done to credit-starved neighborhoods by lenders that the government had supposedly chartered to serve their local communities.

Lesson #2. Be vigilant. Having won disclosure legislation, groups must make an active effort to hold onto those laws. HMDA was originally scheduled to expire in 1980. Community groups fought to keep it alive, which Congress did with a series of continuing resolutions until 1987, when it was finally made permanent. HMDA came under further attack in the 104th Congress, when, despite the efforts of community groups, it was scaled back somewhat.

Lesson #3. When the time is ripe, build on your victory. HMDA has been expanded a number of times over the years. The biggest expansion came in 1989, when lenders were required to report on all applications received, not just loans extended, and when borrower characteristics (race, gender, income level) were included, rather than just the census tract of the loan. This was possible by a unique combination of circumstances: among other things, Congress was bailing out the S&L insurance fund; a Pulitzer-winning newspaper series on racial redlining appeared in the Atlanta Journal-Constitution; and the Federal Reserve Bank of Boston released a study that found racial disparities in mortgage lending patterns in that city. ACORN, the Center for Community Change (CCC), and other national community and consumer groups took advantage of this situation to push Congress, among other things, to expand HMDA.

Lesson #4. Build in a delivery system. Data is only useful if people can get their hands on it. In the early days of HMDA, people had to go to each individual lender to get a (paper only) copy of its HMDA statement. This was extremely cumbersome, and more than a little intimidating. In 1980, community groups got Congress to require the banking regulators to set up a system of central depositories in every metropolitan area across the country-one stop shopping for HMDA data-which made the data much easier to get. Other battles for better access have resulted in the Federal Reserve distributing the data on diskette, city by city, and at a reasonable cost.

Lesson #5. Use it or lose it. If no one uses the data, it may be taken away. HMDA opponents regularly asserted that few people used the data, and therefore the law wasn’t needed. The banking regulators surveyed all the HMDA central depositories in the 1980s to find out how many people had requested the data. The numbers were small. Fortunately, community groups were able to counter those findings with evidence of a “ripple effect.” A study conducted by Calvin Bradford, then at the University of Minnesota, found that for each request at a central depository, many people had access to the data. Often, one group’s HMDA analysis was shared with many other organizations. These days, no one questions the extent to which HMDA data are used. Community groups in New York, North Carolina, Illinois, Texas, California, and elsewhere use HMDA data to analyze bank performance. Some groups issue annual reports based on the data. HMDA data is also being used for fair housing impediments analyses for HUD and to target lenders for fair lending investigations, among other purposes.

Lesson #6. Technology can be your friend. In the 1970s, HMDA data was analyzed with hand-held calculators. In the 80s, regulators were forced to computerize the data, but that improved access only for people with mainframe computers. After the dramatic expansion of the data in 1989, its shear bulk made it inaccessible for many community groups. Fortunately, the proliferation of PCs and the distribution of the data on diskette and CD ROM have eased access somewhat. New technological tools have also been developed-including HMDA Works (TM), software for analyzing HMDA data designed by CCC; and RTK Net, an online data source-to help groups use the data.

Lesson #7. Training is crucial. As important as access to the data may be, helping groups understand how to interpret it is even more important. In the end, when community leaders sit across the table from bank officials discussing the bank’s lending record in their neighborhood and ways to improve its performance, they have to understand what the numbers mean and how they were developed. Very little funding has been available for this kind of technical assistance, even from funders who have been willing to support some HMDA-related technology. What little funding there has been has paid off many times over-$393 billion worth, in fact. Think what could happen if there were even just a little more support for this work.

Over time, and with much effort, HMDA has become institutionalized. It has shown how information that responds to an identified need and is readily available and widely used can-with the proper tools and training and a strong grassroots constituency-provide substantial benefits for local communities. The seven lessons of HMDA can have many other applications.

 

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