What is the Home Mortgage Disclosure Act (HMDA)?
The Home Mortgage Disclosure Act (HMDA) is a U.S. federal law that was enacted in 1975, and it requires financial institutions to provide certain mortgage data to the public. Specifically, the law requires lenders to maintain records of their lending practices. Its goal is to create transparency in mortgage lending practices and protect buyers in the residential mortgage market.
Mortgage lenders are required to keep records relating to loan applications, such as the type of loan, gender of applicants, race, the income of the borrower, status of loan application (whether approved or denied), etc.
Before the U.S. Congress enacted the HMDA law, the public continually raised concerns about mortgages and the absence of mortgage facilities in certain urban, minority neighborhoods.
- The Home Mortgage Disclosure Act (HMDA) is a U.S. law that requires mortgage lenders to maintain and disclose information about lending practices.
- Regulators use HMDA data to create greater transparency in the residential mortgage market and monitor the geographical areas served by mortgage lenders.
- The primary goal of the HMDA act is to provide the public with information on whether mortgage lenders serve the needs of communities where they are located.
Understanding the Home Mortgage Disclosure Act
The Home Mortgage Disclosure Act is contained in Title 12, Chapter 29 of the U.S. Code. Regulation C is also an important component of the HMDA Act, and it was introduced by the Federal Reserve to ensure mortgage lenders comply with the new regulations.
The lenders are required to maintain and disclose their yearly data on the communities they serve and specific borrower characteristics. Making the data public helps regulators evaluate whether mortgage lenders are meeting the needs of borrowers in various communities. Mortgage lenders who meet the required reporting criteria are required to submit yearly mortgage data to their regulatory authorities.
The HMDA requires companies that meet the criteria to maintain a Loan Application Register (LAR). When a borrower applies for a residential mortgage, the lender must create an internal record and a corresponding entry in the Loan Application Register.
In 1980, the Federal Financial Institutions Examination Council (FFIEC) was tasked with the role of facilitating public access to mortgage information based on the HMDA act. For years before 2017, lenders were required to submit their LAR by March 1 to the FFIEC.
Here are some mortgage details recorded in the LAR:
- Date of application
- Type of loan
- Type of property
- Purpose of loan
- Loan amount
- Loan status (approved, withdrawn, or denied)
- Location of the property
- The ethnicity of borrowers (Hispanic or non-Hispanic)
- Race of borrowers
- Gender of borrowers
- Gross annual income
- Rate spread
- If the loan was denied, the reason why it was denied
Purpose of the HMDA
The Home Mortgage Disclosure Act was enacted following increasing concerns about credit shortages in certain urban, often minority, neighborhoods. In formulating the law, Congress believed that some mortgage lending institutions contributed to declining development in certain areas by denying home mortgages to otherwise qualified applicants.
Therefore, the primary purpose of HMDA and Regulation C is to monitor the geographic areas served by mortgage lenders. It also shows whether financial institutions meet the housing needs of the communities around their locations.
The HMDA law also served as an important tool for public officers to track public investments in areas where they are required. The legislation contributes to the oversight of community investment initiatives sponsored by government agencies through timely reporting.
HMDA data shows whether resources are allocated efficiently to benefit community initiatives. The FIRREA amendment of 1989 required lenders to collect and report data regarding applicant characteristics in order to help government officials identify predatory lending practices that may affect fair housing credit access and enforce anti-discrimination statutes.
HMDA data is used to identify the causes of housing credit discrimination. Where there are probable cases of discrimination, the regulatory inquiry focuses on whether specific classes of borrowers were denied housing credit for reasons other than acceptable characteristics, such as inadequate collateral.
The law does not provide guidelines on the specific activities of lenders nor establish a quota system of mortgage loan allocation in any geographical area where mortgage lenders are located.
HMDA disclosure requirements allow regulators to obtain information from mortgage lenders who meet their reporting criteria. The regulators use the reported information on mortgage loans and lending trends to release important statistics.
Examples of statistics released include the average loan amounts, number of home mortgages approved, number of pre-approvals made, and the purpose of the individual mortgage loans.
HMDA reporting is required in the approval of various types of loans, such as the Rural Housing Services, Veteran Affairs loans, and Federal Housing Administration. The statistics are also used by investors as a research tool for analyzing potential investments in the banking and lending sector.
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