Comment on Federal Reserve Analysis of Home Mortgage Disclosure Act Data

For the first time in 2004, lenders were required to report information to the federal government concerning the annual percentage rate (APR) charged borrowers on higher-cost home loans. The same data, collected under the requirements of the Home Mortgage Disclosure Act (HMDA), also detail several aspects of the loan transaction and the identity of the borrower, including race, ethnicity, sex, and income. In this review, we both summarize and comment on a portion of the first report based on the new data that was written by Federal Reserve Board of Governors' researchers. In general, the Federal Reserve Bulletin article provides a helpful overview of the new HMDA data. We raise the following key points of interest:

1. National data confirm initial estimates that African-American and Hispanic whites continue to be much more likely to receive a higher-cost subprime home loan than Non-Hispanic white borrowers. Among borrowers who took a conventional loan to finance the purchase of a home, African-Americans were 3.7 times more likely to receive a higher-cost loan than Non-Hispanic whites. Hispanic white borrowers are 2.3 times more likely than Non-Hispanic white borrowers to receive such a loan.

    

2. These disparities remain large even after accounting for borrower traits such as income, loan amount, location of the property, presence of a co-applicant and sex. For example, African-American borrowers who took a loan to purchase a home are still over three times (3.1) more likely to receive a higher-cost home loan compared to Non-Hispanic white borrowers even after accounting for the contribution of these factors.

    

3. The identity of the originating lender explains more of the disparities relating to whether a loan is higher-cost than do borrower traits such as income or loan amount. As noted by the article's authors, this finding is consistent with three scenarios. One of these scenarios has minority borrowers being unfairly steered into higher-cost home loans. While existing evidence along these lines is not conclusive, the strong disparities evidenced in the data should compel policymakers and all concerned to reexamine whether minority borrowers are being steered and whether sufficient consumer protections are in place to prevent this predatory practice.