More Banks & Non-Bank Lenders are Omitting Racial Information from Home Loan Data — Preventing the Identification of Lending Discrimination

 

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.”

Read the October 4, 2024 Yahoo Finance article.

Read the October 3, 2024 Fortune article.

NCRC and Fintechs Urge Federal Regulators to Use AI to Detect and Eliminate Lending Discrimination

 

The National Community Reinvestment Coalition (NCRC) and a group of financial technology firms submitted a joint letter urging regulators issue clear guidelines to lenders on how the new AI fair lending tools could better evaluate disparities in lending. The letter to the Consumer Financial Protection Bureau (CFPB) and Federal Housing Finance Agency (FHFA) - signed by NCRC, Zest AI, Upstart, Stratyfy, and FairPlay - was issued in response to the White House’s Executive Order on AI in October, 2023.

Some lenders have not adopted these newer tools for underwriting analysis because they believe they can remain compliant with existing fair lending laws despite evidence that suggests older scoring models continue to contribute to systemic discrimination. Newer fair lending tools can allow lenders to conduct searches for new underwriting models that perform as well as older scoring models, while also mitigating the risk of discrimination in their analysis of an LMI credit applicant.

From the companies’ perspective, the power of the new AI tools can help lenders comply with regulations and improve their ability to expand credit access to applicants who have traditionally been underserved or considered too risky by old underwriting models.

The key recommendations of the letter include:

1. Don’t wait for perfect information to act. AI will continue to rapidly evolve. Supervisory highlights should be used by regulators to highlight best practices within the industry.
2. Provide written guidance on activity that triggers fair lending oversight. The CFPB should provide clearer guidelines on the conditions that would require a lender to engage in a Less Discriminatory Alternative (LDA) search, as well as the frequency with which such searches will be conducted.
3. Clarify that fair lending applies not only to how applicants are treated, but also how they are selected. Evaluating the creditworthiness of applicants can happen at the earliest stages of the lending process, including during marketing campaign planning. AI tools that can more comprehensively assess the risk of an applicant should be adopted earlier and favored over older models and tools.
4. The FHFA should continue to build upon its 2022 AI Advisory Opinions. The prior advisory opinions offered AI-specific guidance to the GSEs based on select use cases with potential to improve housing finance for consumers.
5. The CFPB should assert that fair lending compliance should be as high a priority as all other parts of the lending process. For companies using AI in credit decisioning, the CFPB should make clear the usage of outdated tools is not sufficient to remain compliant with fair lending laws.
6. Supervisory examination and training should address routine review of financial institutions’ model testing protocols and results. Fair lending examinations should also include reviews of the models used, testing protocols and positive assessment of LDA searches. Data concerning the efficacy of tools and practices should be shared in a forum with regulators and policymakers.

Photo by BoliviaInteligente on Unsplash

Read the September 30, 2024 NCRC article.

NCRC to Hold Affordable Homeownership and Anti-Displacement Strategies Discussion on September 12th

 

Hi William,  As leaders gather for the Congressional Black Caucus's Annual Legislative Conference, join NCRC and experts from community development, real estate and financial services on the evening of September 12 for a reception and panel discussion, “Bridging the Gap: Affordable Homeownership and Anti-Displacement Strategies.”    In an era where housing affordability is a pressing issue, communities nationwide are grappling with the challenge of creating pathways to homeownership while safeguarding against displacement. Panelists will discuss successful models of affordable housing development, including community land trusts, inclusionary zoning, and public-private partnerships that promote homeownership. They will also delve into effective anti-displacement strategies, such as property tax relief programs, tenant protection policies, and equitable neighborhood planning.

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Moderator and Panelists: Jesse Van Tol, President and CEO, NCRC Rosalyn Clemens, Director of Neighborhoods, City of Toledo  Tiffany Thomas, Councilwoman, City of Houston Dr. Courtney Johnson Rose, President, National Association of Real Estate Brokers, Inc.  Dennis Harold, Vice President of Operations, GROWTH by NCRC Attendees are invited to join the speakers for a rooftop reception following the panel.   *Please note, registration does not guarantee entry. Doors will close once our space is at capacity; thanks in advance for your understanding. We hope to see you there! Team NCRC

KeyBank Criticized by Advocates for Not Improving Performance in Cleveland's Low-Moderate Neighborhoods

Cleveland-based KeyBank - which mortgage lends in Baltimore - has criticized for years that it has systematically failed minority residents in its own hometown. In November, 2023, the National Community Reinvestment Coalition released a critical report on the bank for "betraying" Black applicants in search of home loans. In 2022, the report found, just 2.6% of KeyBank's Cleveland lending went to Black borrowers, down from 3% the year prior.

While KeyBank denied the report's findings and cited recent improvements, Cleveland City Councilman Richard Starr, whose Ward 5 has had decades of disinvestment, criticized the bank. Starr describes his ward as “a low moderate neighborhood” that is diverse. The median household income is around $13,000. He agreed with the report's stance that KeyBank did not meet the criteria of what was supposed to be a promise to promote and work towards social and racial equity for Black and low-income homebuyers.

In 2016, KeyBank made a $16.5 billion dollar community benefits agreement, with a goal to invest $5 billion in lending to Black and low-income neighborhoods, but reports show it failed to do this. Starr also said "...they have shown that they have redlined in the neighborhoods that majority African Americans live in, and that is no way to call yourself a key player in the community.”

KeyBank denies Starr’s claims, saying that it has acted to increase Black and minority lending in Cleveland. “Nationally, our percentage of applications from Black borrowers has grown from 2.6% in FY20 to 7.6% YTD 2024,” according to KeyBank, adding that Black borrowers in Cleveland grew from 5.7% to 27% since 2020, and that the bank has hired a Community Lending team to create support for underserved communities in Cleveland and launched the Neighbors First Credit program in 2023, providing more than $200,000 in credits to homebuyers, and has helped 41 clients in the Cleveland metro.

Starr says the Black community has not seen the results of any of KeyBank’s investments: “Despite being headquartered in Cleveland, KeyBank has not made significant investments in our major underserved neighborhoods, leaving many areas in economic stagnation.” Starr says KeyBank’s performance under the Community Reinvestment Act (CRA) has been “unsatisfactory,” and they have not met the credit needs of low- and moderate-income neighborhoods.

He calls on KeyBank to improve their efforts and create real investments for Cleveland’s underserved communities. He asks how the bank has supported financial literacy, provide transparency in how much it has reinvested in Cleveland's poor neighborhoods recently, better support affordable housing projects, improve supplier diversity, and make more firm commitments.

Read the July 26, 2024 Cleveland Scene article.

Detroit Redlining Conference on September 24th

 

The Detroit Reinvestment Coalition, Community Development Advocates of Detroit (CDAD, and the National Community Reinvestment Coalition (NCRC) will convene a Just Economy: Detroit on September 24th. The one-day summit will center a question with no simple answer: What will it take to make a Just Economy a local reality in Detroit? The legacy of redlining continues to reverberate throughout the city through uneven investment in community development, inequitable impacts of climate change and a shortage of housing within reach of the average Detroiter. Join local and national leaders to explore opportunities to change the flow of capital in the city.

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While this event is focused on the Detroit metro area, it may still be beneficial for Marylanders to attend. For additional information on Just Economy: Detroit, visit here. Read the July 9, 2024 NCRC notice of Just Economy: Detroit.

New Study Finds Redlining Continues in 2024

A new study by the National Community Reinvestment Coalition (NCRC), entitled Decades of Disinvestment: Historic Redlining and Mortgage Lending Since 1981 (May 2024), has found that lenders "continue to reinforce patterns of structural racism in formerly redlined neighborhoods, regardless of local market dynamics. Fifty-five years after Congress outlawed using discriminatory maps to guide mortgage lending, race-based exclusion from homeownership is still a de facto reality."

To enable policymakers and analysts to definitively and precisely connect present-day conditions to past structural discrimination, the NCRC developed a new HMDA Longitudinal Dataset (HLD). It was created to utilize in this report and correct data deficiencies that have blocked our complete understanding of redlining for decades.

The NCRC urges because of these findings the need to implement and firmly enforce better-designed policy measures aimed at mitigating the impact of redlining and addressing residential segregation. Recent improvements to the Community Reinvestment Act (CRA), and the long-awaited Affirmatively Furthering Fair Housing (AFFH) rules - yet to be finalized by the US Department of Housing and Urban Development (HUD) - are important steps to combat the impact of redlining and lessen residential segregation in communities. However, they may not be sufficient, given the stickiness of redlining’s legacy over the half century since the Fair Housing Act (FHA) became law.

Read the May 2024 NCRC Report

Read about NCRC's new HMDA tool

There will be four focused sessions on changes to the Community Reinvestment Act (CRA) at NCRC's April 3-4 2024 Just Economy Conference.

 

The National Community Reinvestment Coalition (NCRC) will be hosting four focused sessions on changes to the Community Reinvestment Act (CRA) at its 2024 Just Economy Conference. The CRA requires banks to lend in the communities where they do business. The federal regulators overseeing CRA announced late in 2023 a much-needed overhaul of this important economic justice law. These sessions will treat the changes as well as the implications for community development and equity.

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The sessions are:   The New CRA 101 (ROUND 1) This session covers the updated CRA, which encourages financial institutions to meet the credit needs of low- and moderate-income (LMI) neighborhoods and requires federal banking agencies to assess the record of meeting these standards and evaluate their efforts. We will explore how CRA can be used to increase affordable housing and small business reinvestment in your communities, including crucial updates to the rule announced in late 2023.    The New CRA 101 (ROUND 2) Addressing the Climate Crisis through CRA and federal funding Climate change is increasing the frequency and severity of storms, heat waves, fires and other weather-related disasters, with communities of color and low-income households the most affected. CRA’s definition of community development was recently updated to encourage banks to finance weather resiliency. This session will cover climate/weather resiliency projects and priorities, including how best to work with communities to prevent bluelining, a trend where financial institutions withdraw services or increase costs due to climate change.    What's Next With The CRA Final Rule This session will focus on what's coming next with CRA reform and upcoming opportunities to further shape the development of the new CRA rule. Speakers will be covering topics including: developing a statistical model that identifies markets where all banks are underperforming, best practices for reviewing the impact of community development on neighborhoods, and how the regulators can be proactive in preventing a decline in critical investments.   State CRA And Non-Banks Community advocates, along with state and local elected officials, are increasingly pushing for state CRA laws that bring in more resources and fix gaps in the federal CRA rules, especially since more and more lending is done by institutions not covered by federal CRA. This session will explore how state CRA laws include a review of credit unions and mortgage companies' loans and investments in underserved people and neighborhoods, in addition to banks.    Register now.

Register for NCRC's 2024 Just Economy Conference

 

Are you passionate about building a more just and equitable future? If so, would you be interested in becoming an NCRC member and enjoying discounted tickets for the 2024 Just Economy Conference?    The 2024 Just Economy Conference is the leading national conference for economic and social justice. Don’t miss your chance to join activists, elected officials, policymakers, community leaders, civil rights groups, faith-based organizations and economic and social justice advocates from across the nation. This is your chance to connect with a vibrant community of individuals dedicated to making a difference.   Join NCRC today and gain access to exclusive member benefits, including discounted tickets for the conference. NCRC members will also have the opportunity to participate in our Hill Day on April 2.    Treat yourself to a holiday gift of a Just Economy Conference ticket today!    We can’t wait to see you there, Team NCRC P.S. If your organization doesn’t qualify for NCRC membership, you can join our Just Economy Club, and still enjoy some of the perks of membership, like discounted tickets to the Just Economy Conference!

***** Source: National Community Reinvestment Coalition (NCRC) email, December 14, 2023.

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 KeyBank Provided Less Loans to Black And Low-Income Homebuyers in 2022

A National Community Reinvestment Coalition (NCRC) analysis of the most recent federal data on mortgage lending has found that Black borrowers were 2.6% of the Cleveland-based bank’s home purchase mortgage lending in 2022, down from 3% in 2021. KeyBank has provided fewer percentage of its loans to Blacks each year since 2018, when 6.5% were to Blacks.

In 2022, KeyBank made 19.2% of its home purchase loans to low- and moderate-income (LMI) borrowers, down from 19.7% in 2021. In 2018 more than 38% of such KeyBank loans went to an LMI borrower. Other top lenders made more than 30% of their 2022 purchase mortgages to LMI borrowers and about 7% of them to Black borrowers. 

This performance by KeyBank is "counter to the spirit of the agreement it made with community leaders while seeking clearance for a merger in 2016," as a report NCRC published last year documented. From 2018 to 2022, the Bank's executives hiked shareholder dividends using the new profits from the merger. NCRC's 2022 report detailed KeyBank’s failure in serving low and moderate-income (LMI) and Black borrowers within the communities it pledged to assist. KeyBank in 2016 signed a Community Benefits Agreement (CBA) with the NCRC and various community groups representing those same borrowers’ interests across the U.S. The deal was instrumental in satisfying legal and regulatory requirements in KeyBank’s merger with First Niagara Bank.  

By 2021, KeyBank had become the worst major mortgage lender for Black borrowers. NCRC cut ties with KeyBank after discovering the bank’s lower performance regarding Black and LMI borrowers, and notified regulators that the bank should receive a downgraded Community Reinvestment Act rating. The Bank first released "misleading and inaccurate responses asserting it had not done what the numbers show, it was later forced to commission a racial equity audit once shareholders applied pressure."

Read the November 9, 2023 NCRC article.