HMDA at 35

The improved Home Mortgage Disclosure Act can be a tool for fighting predatory lending, but it could and should go further.

1989 – 2002: Anti-Discrimination

In 1989, in an eerie prelude to the current economic crisis, Congress passed financial reform legislation that included HMDA amendments in response to the widespread failure of savings and loan institutions. The amendments required lenders to disclose the number of home mortgage loan applications they received, the race and income of each applicant, the location of the property, and their decision on each application. With these amendments, Congress expanded HMDA’s mission to include detecting and preventing discrimination against individual loan applicants.

This new HMDA data showed that in 1990, lenders rejected home mortgage loan applications from African Americans more than twice as frequently as those from whites and nearly 1.5 times as frequently as those from Latinos. They also rejected applications for property in predominantly minority neighborhoods twice as frequently as those for property in predominantly white neighborhoods.

In contrast to the earlier HMDA disclosures, these data triggered a chain reaction that led to significant lending increases. Journalists, community groups, and academics published studies that confirmed the HMDA results in their localities. Elected officials took notice, and they pressured governmental agencies to take action against lenders. The governmental agencies, in turn, strengthened their enforcement of the CRA and FHA. The Fed, after initially treating the new HMDA data like it treated the old HMDA data, finally admitted that HMDA data could be used to help identify banks to investigate for lending discrimination. The U.S. Attorney General’s office filed its first lending discrimination case against a bank, followed by 12 more that covered all aspects of the home mortgage lending process and a wide range of lenders.

Lenders, in response to the negative publicity and the increased governmental enforcement, took several steps to increase their lending to minority and low-income individuals and neighborhoods. The results were dramatic. From 1991 to 1998, the overall market share of loan approvals held by blacks, Latinos, and low- and moderate-income (LMI) individuals and located in predominantly minority and LMI neighborhoods increased dramatically (see chart).

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Richard D. Marsico is a professor of law at New York Law School. This article is based on his “Looking Back and Looking Ahead as the Home Mortgage Disclosure Act Turns Thirty-Five: The Role of Public Disclosure of Lending Data in a Time of Financial Crisis,” Review of Banking and Financial Law 29 (2009-2010): 205.

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