The Home Mortgage Disclosure Act (HMDA, or regulation C) arose out of public concern over the scarcity of credit for certain urban sectors. Enacted by Congress in 1975, the HMDA sought to counter the belief that some financial institutions avoided granting mortgage loans to specific areas of cities, thereby contributing to their deterioration.
For years, the HMDA required certain financial institutions such as banks, savings banks, cooperatives, and other mortgage lenders to publish statistical information about the loans they granted. In this way, the public can verify that a particular financial institution is lending money fairly and equitably, without discrimination. These are the primary benefits consumers derive from HMDA data:
- Users can determine whether a lender is meeting the housing needs of their communities.
- Public officials can use the data to redistribute public sector investments, as well as attract private investment in areas that require it.
- The consumer can identify possible discriminatory policies of a financier when giving credits. If this happens, they can turn to the competent organisms and demand that anti-discrimination laws and regulations be enforced.
HMDA Information May Be Helpful to the Financier
Since its creation, the use of this regulation has evolved. Over the years, it has developed from a statute for monitoring, supervising and preventing discrimination to a standard used by regulatory agencies as a fair lending tool.
However, although the HMDA data is one of the primary sources of information on the mortgage market until now, it has not been sufficient. Through these data, it was not possible to obtain adequate information regarding some characteristics of mortgages.
Nowadays, the modifications in the information to be collected, allow extracting valuable data that if studied as a whole, can give the financier clear signals of how the mortgage market behaves. These are some of the new information fields requested by HMDA 2018:
- Interest rates
- Age of the borrower
- Application channel
- Identification mortgage loan originator
- Combined loan-to-value ratio
- Borrower's debt-to-income ratio
- Borrower-paid origination charges
- Credit score
- Loan duration
- Non-amortizing loan characteristics
- Prepayment penalties
- Rate spread for all loans
By analyzing the behavior of the market, the different lenders operating in it, and their experience with users, you may be able to identify risks and opportunities within the industry. This analysis will allow you, for example, to observe trends in consumer behavior by sectors, or by demographic groups, to analyze market niches where the risk of granting unsustainable credits is more significant, or in which areas there is less access to credit, among others.
How to Process the Information?
If you want HMDA data to provide you with these valuable market signals, the wisest way is to use specialized software, such as the one we offer you at ComplianceTech. Our LendingPatterns™ is a revolutionary tool that explores and mines HMDA information from millions of loan applications processed by thousands of lenders in the USA. With our tool, getting accurate information about lending patterns and market behavior will be a matter of minutes. If you would like more information contact us, we will be happy to assist you.
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