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The Home Mortgage Disclosure Act (HMDA) is a federal law that requires lenders to keep certain information about their mortgage applicants. This information includes race, age, sex, and ethnicity, among other data points about borrowers and loans.
Passed in 1975, the HMDA’s purpose was to aid enforcement of the ECOA and the Fair Housing Act by collecting and making data available for review. The ECOA prohibited lenders from discriminating on a mortgage application based on sex, and the Fair Housing Act made it illegal to discriminate based on race, religion, and national origin.
To ensure lenders were appropriately following these acts, the HMDA was enacted, which required mortgage companies to maintain an open database of information regarding their mortgage applicants and their loans. Since its inception in 1975, the HMDA has seen a series of updates, which include requirements for new data points such as age, total points and fees, rate spread for all loans, origination charges, discount points, interest rate, and debt-to-income ratio, among many others.
In addition to identifying any discriminatory lending practices, such as redlining, HMDA data is also used to help determine whether banks are appropriately servicing their communities and identify locations for in which distributing public funds may generate private interest.
This has been some fairly dense information, so let’s take a look at how this works in practice.
Let’s say a bank has 500 loan applications from a small city in Georgia. The bank approved 300 of those loans and rejected 200. Due to the HMDA, the bank must retain the information for all applications—whether they resulted in a loan or not—and present the information for public review.
Thanks to the data offered by the HMDA, we can know that mortgage loans in rural locations, such as that small city in Georgia, receive fewer lender credits than those in metropolitan areas.
A lender credit is money lenders may provide borrowers to help defray upfront closing costs and fees. This is not free money, however; in exchange for the funds, the lender will boost the interest rate on the loan.
We can also see that median loan costs for rural areas are lower than those in micropolitan and metropolitan areas. We also learn that there are more secondary home purchases in metropolitan areas than there are primary residence purchases in rural areas.
Keeping this information in the public means we’ll be able to see who was rejected for a loan, who paid more in origination fees, in which neighborhoods banks are approving mortgages, and many other factors. All together, this information provides a comprehensive look at lending practices across the nation.
It’s important to note that not every lender reports HMDA data. Banks must meet a series of thresholds in order to fall under required reporting, which include total asset size and location, among other conditions.
The Federal Financial Institutions Examination Council manages the HMDA reporting process and is the body to which banks report their information. You can access the latest reports at the council’s website and download data sets for further review and analysis.
