Posted by Kevin Danielson on 11/18/15 3:21 PM
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Over the past several weeks, we explored fair lending regulations and mortgage finance practices here on the Summit Blog. Today, we round out the blog series by acknowledging potential borrower concerns about the Consumer Financial Protection Bureau’s (CFPB’s) amendment to Regulation C. Read on to explore these revised reporting requirements. We will also discuss how home buyers might benefit (and maybe even save money) from the coming data windfall.
How often do you think about the local sanitation department's efforts to purify your water? Unless you are a department employee, you probably just assume they do a good job. So it stands to reason that unless you are mortgage lender, you do not give much thought to the amended Home Mortgage Disclosure Act (HMDA) data CFPB will collect. Yet if CFPB does not collect enough of the necessary mortgage data or mishandles the data it does collect, homeowners (and potential homeowners) have reason for concern.
Addressing Privacy Concerns
Common knee-jerk reactions to the new HMDA amendment are likely to focus on privacy concerns, given the current age of big data collection. Commercial loan borrowers can take a deep breath; they are still excluded from HDMA reporting. But residential mortgage borrowers, including home equity line of credit and reverse mortgage borrowers, need to pay attention. The amended HMDA regulations require lenders to report sensitive financial information about borrowers, such as credit score and debt-to-income ratio. Paired with the additional property reporting requirements of borrower address and loan-to-value ratio, sophisticated malcontents could potentially identify individual borrowers based on these newly disclosed HMDA attributes.
Though the actual risk cannot yet be observed, CFPB recognizes the potential for such privacy violations and may redact information prior to public disclosure. Alternatively, this information need not be disclosed at the granular (i.e. borrower, property, and loan) level of collection. Credit scores could be combined into ranges and addresses could be reported by zip code or county to reduce privacy exposure. CFPB has yet to determine the optimal solution but also has quite a bit of time to prepare. For institutions originating at least 25 mortgages or 100 credit lines per year, the guidelines must be fully implemented as of 2018, making 2019 the first date of public disclosure.
Empowering Home Buyers
Aside from privacy challenges, our first concern should be whether actionable data are available to assert fairness in lending. This HMDA amendment is a giant leap forward in achieving transparency, without which the public has a limited ability to identify fair lending violations. Critical elements previously absent from HMDA public disclosure data (particularly credit score, loan-to-value ratio, automated underwriting results, loan product, fees, and note rate) are mandatory under the new amendment. These elements provide borrowers with a robust means for comparing their mortgage structures and payments relative to similar credit and property profiles. If you ever questioned whether your loan was commensurate with your financial situation, the new HMDA rule will give you the ability to find out. Further, prospective applicants can research these data to gain an understanding of what products, terms, and fees could be available to them.
An educated mortgage applicant makes for an adept negotiator. Using these data, buyers can demonstrate a keen knowledge of their own mortgage or credit line eligibility. Thoughtful research into the new HMDA data could help a buyer lower their loan payments and prevent experiences of lending discrimination in the application and underwriting processes. With this new data available in the coming years, why should home buyers risk paying more and getting less than they deserve?
Here at Summit, we offer various packages of statistical techniques to analyze HMDA data and assess fair lending concerns on behalf of Federal and private clients. Reach out to our Fair Lending Team if you would like to learn more.
Catch up on Summit's other HMDA-related blog posts:
- HMDA's New Rule and What It Means
- A Brief HIstory of HMDA and Fair Lending
- What Is Redlining and How Does It Relate to HMDA?
- Monitoring the Mortgage Market for Discrimination: Changing Uses of HMDA Data