I have always been shocked by the reluctance of lenders to use HMDA data for reasons other than fair lending.  Too often the mention of the four letters, H M D A, causes heartburn among lenders.  I suppose this is understandable because HMDA is associated with compliance, regulation, race, and lawsuits.  HMDA data are really a blessing to the mortgage lending industry by providing a national digital trail of every mortgage application and its underwriting outcome.  Can you think of another private industry that makes public the who, what, and where of every transaction with consumers?  I can’t think of any.

So, I thought it might be helpful to tick off a few of the ways HMDA data analysis could be used, operationally, to help lenders strategize, plan, compete and make managerial decisions.

  1. Sizing the market.  Before a lender enters a market, it needs to gauge the size of the business opportunity.  An accurate understanding of historical loan production in each metro area, county, state, city, and even census tract can help size the opportunity and the amount or location of resources needed to seize it.  All of this is available in the HMDA data. Sizing the market is just one of many ways HMDA data can be utilized in our tool LendingPatterns.™
  2. Penetrating the market.  Demand for mortgage credit is likely to vary, not only by geography but also by the profile of the applicant.  The HMDA, with its associated census data, allows lenders to discern such profiles based on income, loan amount, product, race/ethnicity, and gender.
  3. Assessing the competition.  Some people might debate whether lenders really compete or whether consumers really shop.  The public HMDA data creates the ability to do both.  HMDA data can tell a lender how they rank in performance among their peers overall or for a specific type of lending.  It can also reveal a competitor’s product mix and whether they sell their products in the secondary market or retain it in a portfolio.  Consumers who have access to HMDA data can see whether a lender has a high or low approval rate, among other things.
  4. Evaluating loan origination efficiencies.  Another great thing about HMDA data is that it can inform a lender (and the public) how efficient it is in processing and closing mortgage applications.  The HMDA “Action” field can be used to calculate origination, denial, and fallout rates for applications.  The lender is in business to make originations.  Any outcome other than an origination is at a loss.  HMDA data provides operating metrics to manage the non-origination expenses.
  5. Anticipate the impact of business combinations.  Suppose a lender is considering acquiring another lender.  Wouldn’t it be great to have some idea about the lending distribution of the combined entities?  This can easily be done with HMDA data by simply merging the institutions’ loan application registers. For example, we modeled the recent impact of the New York Community Bank and Flagstar Merger utilizing HMDA data in LendingPatterns™.

These are just a few of the many ways the existing HMDA data can be used for business purposes, without regard to fair lending.  Lenders would be well-served to incorporate the use of HMDA data into departments other than compliance.  In the end, although not the focus, fair lending will still be furthered by making the lender more efficient. Please don’t hesitate to reach out to us at support@compliancetech.com.