The Home Mortgage Disclosure Act (HMDA) legally requires 5,000 financial institutions that originated a home loan in the U.S. to collect information about race to help identify potential discrimination against borrowers. The data has in the past year been cited by the Consumer Financial Protection Bureau among others.
However, over 12% of borrowers do not give the information requested by the law and some 90% of loans sold to third parties do not provide the racial data that is acquired, according to the National Community Reinvestment Coalition (NCRC). “The impact is profound,” according to a new NCRC report “as these gaps hinder our ability to understand who is receiving loans and under what terms, which is vital for assessing fairness and inclusivity.”
To help fight the problem, the NCRC has pledged to never again use any data that doesn’t include demographics on race. “Beginning with this report, NCRC is eliminating records without demographic data from our calculations of the percent of loans made to specific races.”
The NCRC and others say the missing data is largely due to loopholes in the HMDA. Passed in 1975, the HMDA rule requires that in-person and phone applicants provide demographic data - but online applicants can opt out.
Third-party loan purchasers are not required to track demographic information. Seven of the top 10 loan-purchasing institutions from 2023 used a loophole that allows them to erase borrower demographic data on the mortgages they bought, according to an NCRC report. “A few years ago, it was rare for lenders to buy loans and strip demographic data, but Citibank pioneered this practice. Now, many lenders who purchase loans use this loophole.” Citi declined to comment.
The NCRC report shows “in what might be a sign of a historic point” that Hispanic lending for home loans -16.5% of all 2023 home purchases - was nearly identical to their overall share of the U.S. adult population. Black borrowers' lending rates improved, though not near to their overall share of the population.
Unfortunately, these seemingly positive trends are difficult to confirm because of the incomplete data. Any increase in data collection about borrowers comes with increased risk of invasion of privacy. Though the CFPB says there’s low, if any, privacy risk in the HMDA, a 2017 report by economist Anthony Yezer stated concerns such data collection could lead to widespread violations of privacy.
To the NCRC. “The extensive benefits of detailed data collection, encompassing income, race, sexual orientation and gender identity, decisively outweigh any concerns over burden or privacy. It’s imperative t hat efforts to curtail this essential data collection be recognized as not just misguided but as detrimental to the health and well-being of our communities.”
