Welcome to the Utah Housing Coalition HMDA Training

1. Welcome to the Utah Housing Coalition HMDA Training Presenter: Anita Garrett, CRCM

2. HOME MORTGAGE DISCLOSURE ACT (HMDA) REGULATION C Overview

3. Scope of Presentation The history and purpose of the HMDA data collection The new pricing data Its impact on fair lending evaluations Its impact on affordable housing How the data can be used to monitor an institution's lending programs and explore new lending opportunities.

4. HMDA Background: Enacted by Congress in 1975 Implemented by Federal Reserve Board�s Regulation C Made permanent in 1988 Amended in 1989 to require reporting of data about applications received and about applicant and borrower characteristics Amended in 2002 to add additional fields, including price data. Before we go into recent events, it may be instructive to take a look back at HMDA and see how the current rules have evolved. CLICK HMDA, enacted by Congress in 1975, requires most mortgage lenders located in metropolitan areas to collect data about their housing-related lending activity, report the data annually to the government, and make the data publicly available. Initially, HMDA required reporting of the geographic location of originated and purchased home loans. CLICK In 1989, Congress expanded HMDA data to include information about denied home loan applications, and the race, sex, and income of the applicant or borrower. This was mainly to address possible �redlining� issues. CLICK In 2002, the Federal Reserve Board (the Board) amended the regulation that implements HMDA (Regulation C) to add new data fields, including price data for some loans (see Q. 9). Pricing data was required to be reported in 2004. The aggregate data was first available in September of 2005. Before we go into recent events, it may be instructive to take a look back at HMDA and see how the current rules have evolved. CLICK HMDA, enacted by Congress in 1975, requires most mortgage lenders located in metropolitan areas to collect data about their housing-related lending activity, report the data annually to the government, and make the data publicly available. Initially, HMDA required reporting of the geographic location of originated and purchased home loans. CLICK In 1989, Congress expanded HMDA data to include information about denied home loan applications, and the race, sex, and income of the applicant or borrower. This was mainly to address possible �redlining� issues. CLICK In 2002, the Federal Reserve Board (the Board) amended the regulation that implements HMDA (Regulation C) to add new data fields, including price data for some loans (see Q. 9). Pricing data was required to be reported in 2004. The aggregate data was first available in September of 2005.

5. Purpose of HMDA: Makes information publicly available that shows whether financial institutions are serving housing credit needs of their neighborhoods and communities Helps identify possible discriminatory lending patterns and assists regulatory agencies in enforcing compliance with nondiscrimination statutes Provides private investors and public agencies with information to guide investments in housing

6. What are the HMDA data? HMDA data cover home purchase and home improvement loans and refinancings, and contain information about loan originations, loan purchases, and denied, incomplete or withdrawn applications. With some exceptions, for each transaction the lender reports data about: the loan (or application); the disposition of the application; the property to which the loan relates, and the applicant's ethnicity, race, sex, and income. Such as the type and amount of the loan made (or applied for) and, in limited circumstances, its price Such as whether it was denied or resulted in an origination of a loan Such as its type (single-family vs. multi-family) and location (including the census tract)Such as the type and amount of the loan made (or applied for) and, in limited circumstances, its price Such as whether it was denied or resulted in an origination of a loan Such as its type (single-family vs. multi-family) and location (including the census tract)

7. The New Price Data The 2002 Amendment, which added the new price data, was enacted in order to keep pace with changes in the industry in recent years, including: Technological advancements and the practice of credit scoring resulting in new strategies for analyzing, underwriting, and pricing mortgage loans. The reassessment of the nature of mortgage lending abuses. Because technology allows lenders to price for risk more efficiently, access to mortgage credit has expanded. This expansion, which is largely in the subprime market, has grown dramatically in the last decade, with generally positive, but sometimes negative effects. CLICK Previously, it was presumed that a potential result of inconsistent mortgage loan administration was denial of credit on the basis of race, sex or other impermissible factors. More recently, the pricing of loans--not just the availability of loans--has been a potential source of discriminatory lending practices. Home ownership is at record highs among low-income and minority borrowers, many of whom may not have qualified for mortgages prior to the development of risk-based pricing technologies. This is generally viewed as a very positive development, since home ownership is often the single most important step toward asset accumulation and wealth building in this economy. However, the increase in mortgage lending among lower-income and minority borrowers has also been accompanied by reports of abusive, unethical--and in some cases illegal--lending practices. Given these concerns, and after considering public comments, the Federal Reserve determined that information on loan prices was critical to gaining insight into the functioning of the higher-cost mortgage market. The Board's amendments to its HMDA regulation require the collection and reporting of pricing data, among other things, and are consistent with the need to keep HMDA data relevant to the fair lending issues presented by today's marketplace. Because technology allows lenders to price for risk more efficiently, access to mortgage credit has expanded. This expansion, which is largely in the subprime market, has grown dramatically in the last decade, with generally positive, but sometimes negative effects. CLICK Previously, it was presumed that a potential result of inconsistent mortgage loan administration was denial of credit on the basis of race, sex or other impermissible factors. More recently, the pricing of loans--not just the availability of loans--has been a potential source of discriminatory lending practices. Home ownership is at record highs among low-income and minority borrowers, many of whom may not have qualified for mortgages prior to the development of risk-based pricing technologies. This is generally viewed as a very positive development, since home ownership is often the single most important step toward asset accumulation and wealth building in this economy. However, the increase in mortgage lending among lower-income and minority borrowers has also been accompanied by reports of abusive, unethical--and in some cases illegal--lending practices. Given these concerns, and after considering public comments, the Federal Reserve determined that information on loan prices was critical to gaining insight into the functioning of the higher-cost mortgage market. The Board's amendments to its HMDA regulation require the collection and reporting of pricing data, among other things, and are consistent with the need to keep HMDA data relevant to the fair lending issues presented by today's marketplace.

8. The New Price Data In general, the price data are the adjusted annual percentage rates (APRs) of higher-priced loans, loans with rates that exceed certain thresholds set by the Federal Reserve Board. They take the form of a �rate spread.�

9. The New Price Data Lenders must report the spread (difference) between the annual percentage rate on a loan and the rate on Treasury securities of comparable maturity � but only for loans with spreads above designated thresholds. So prices will be reported for some, but not all, home loans. � So that the price of a loan originated in, say, December, can be compared to the price of a loan originated in, say, June even if interest rates have changed in the interim. Before CLICK to next slide: We now have the data from 2004 to look at and . . . According . . . � So that the price of a loan originated in, say, December, can be compared to the price of a loan originated in, say, June even if interest rates have changed in the interim. Before CLICK to next slide: We now have the data from 2004 to look at and . . . According . . .

10. The Impact on Fair Lending Evaluations According to the Federal Reserve, only 2% of the 8,853 lenders that submitted data had a �statistically significant difference in the incidence of higher-priced loans � after accounting for factors included in the HMDA data.� Source: HMDA Data Explain Most Variations in Price, �American Banker,� Wednesday, September 14, 2005

11. The Impact on Fair Lending Evaluations Some of those discrepancies could be explained by other factors not contained in the data, such as: Borrower�s Credit History Debt-to-Income Ratio Ratio of the Loan Amount to the Value of the Property It is important to realize that such a disparity does not prove discrimination but may warrant further scrutiny by the regulators that have access to these other factors. Without information about relevant price determinants, one cannot draw definitive conclusions about whether particular lenders discriminate unlawfully or take unfair advantage of consumers. Though the price data do not support definitive conclusions, they are a useful screen, previously unavailable, to identify lenders, products, applicants, and geographic markets where price differences among racial or other groups are sufficiently large to warrant further investigation. Enforcement and supervisory agencies can use this screen to better target their resources.It is important to realize that such a disparity does not prove discrimination but may warrant further scrutiny by the regulators that have access to these other factors. Without information about relevant price determinants, one cannot draw definitive conclusions about whether particular lenders discriminate unlawfully or take unfair advantage of consumers. Though the price data do not support definitive conclusions, they are a useful screen, previously unavailable, to identify lenders, products, applicants, and geographic markets where price differences among racial or other groups are sufficiently large to warrant further investigation. Enforcement and supervisory agencies can use this screen to better target their resources.

12. The Impact on Affordable Housing

13. The Mortgage Loan Spectrum Today's mortgage market offers a broad spectrum of loan products, ranging from prime loans for borrowers with indisputably solid credit histories, on one end, to what have come to be known as predatory loans, on the other. In between are a variety of higher-cost loans for borrowers who have impaired credit ratings, high debt-to-income ratios, high loan-to-value ratios, or some other risk characteristic for which lenders may legitimately charge a higher rate as protection against default. But it is the abusive end of the spectrum that has drawn so much attention and generated the discussion about discrimination in pricing and terms. Predatory lending is an issue that clearly needs to be addressed, but in a way that preserves the incentives for responsible subprime lenders to continue making home ownership possible for worthy borrowers who may have some credit problems. Not only is home ownership an integral part of what many refer to as the "American dream," it also strengthens communities by turning mere residents into investors with an ownership interest in the places they live. Moreover, in our society, home equity, built up over time, is one of the most important means of accumulating wealth. Is it working?Today's mortgage market offers a broad spectrum of loan products, ranging from prime loans for borrowers with indisputably solid credit histories, on one end, to what have come to be known as predatory loans, on the other. In between are a variety of higher-cost loans for borrowers who have impaired credit ratings, high debt-to-income ratios, high loan-to-value ratios, or some other risk characteristic for which lenders may legitimately charge a higher rate as protection against default. But it is the abusive end of the spectrum that has drawn so much attention and generated the discussion about discrimination in pricing and terms. Predatory lending is an issue that clearly needs to be addressed, but in a way that preserves the incentives for responsible subprime lenders to continue making home ownership possible for worthy borrowers who may have some credit problems. Not only is home ownership an integral part of what many refer to as the "American dream," it also strengthens communities by turning mere residents into investors with an ownership interest in the places they live. Moreover, in our society, home equity, built up over time, is one of the most important means of accumulating wealth. Is it working?

14. Last year 19% of all home-loan originations were subprime, up from just 5% in 1994. Source: HMDA Data Explain Most Variations in Price, �American Banker,� Wednesday, September 14, 2005 This would indicate a good trend assuming that these loans were priced according to their risk.This would indicate a good trend assuming that these loans were priced according to their risk.

15. The Need For Financial Education Several recent studies of consumer behavior suggest that borrowers with poor credit ratings are at a disadvantage for a number of reasons--in particular, a lack of financial education. But even more troubling is evidence that many of these borrowers assume that their credit standing is worse than it actually is and, as a result, don't shop and negotiate for the best terms possible.

16. Working Together . . . Using HMDA information, lenders and community groups can work together to identify the particular segments of their communities that may need additional financial education or, perhaps, new, more-competitive products.

17. Public Availability of HMDA Data Data must be maintained on a LAR in a format prescribed by Regulation C A modified register must be made available to the public upon request (application or loan number, application date and action date removed to protect applicant�s privacy) Community Groups need to know that the HMDA data is available to them.Community Groups need to know that the HMDA data is available to them.

18. Data Submission: HMDA data must be submitted to the Bank�s regulatory agency by March 1 each year March 31st is the earliest date that data from the previous calendar year are publicly available

19. Disclosure Statement: A Disclosure Statement is prepared by the FFIEC using HMDA data submitted by the institution.  The Institution must make the Statement available to the public upon request. The Disclosure Statement must remain available to the public for five years.

20. Aggregate Tables: Aggregate Tables are prepared by FFIEC and made available at a central data depository in each MSA. They are also available online at www.FFIEC.gov.

21. In Summary A cooperative review of the HMDA data between lenders and community groups can: Identify credit demand that might otherwise have been overlooked; Encourage the establishment of partnerships between lenders and community organizations to meet credit needs; and Identify geographic areas where financial education is needed.

22. Questions?