It is a good idea to study your top markets and familiarize yourself with the changing demographics in those geographies. But especially now, as the data used in market penetration analyses are changing, it would be wise to devote some attention to demographics.

Recent redlining cases brought by CFPB and DOJ advanced an approach to market penetration analysis that looks at how individual lender’s shares of market activity varies by census tract demographics, specifically between census tracts that are majority white and majority minority census tracts, e.g., majority black and Hispanic (combined) tracts.

Lender activity in Memphis area illustrated using LendingPatterns™ produced layers

Lender activity in Memphis area illustrated using LendingPatterns™ produced layers

There are three components to the analysis advanced by CFPB and DOJ:

  1. A subject or targeted lender’s activity. If you are a lender, that’s your company. If you are a researcher, that’s the lender of interest to you.
  2. The activity for the market or some subset thereof (e.g., a set of peers), and
  3. Census information indicating the racial composition of the areas, i.e., census tract demographics.

The FFIEC indicates tract demographics used to contextualize 2017 application activity will be based on the 2011-2015 American Community Survey (ACS).

The ACS is a 3% annual sample, implying a 15% sample over the five combined years. This is a change from 2016, when race/ethnicity figures were pulled from the 2010 decennial census. This means you will want to make sure the HMDA software you are using is annually updated with the right information. LendingPatterns™ and Fair Lending Magic™ will be updated with the most current ACS data within 30 days of release.

As of now, a lender can analyze its own activity in relation to the 2011-2015 ACS tract demographics.  However, the powerful second piece, the peer activity, will be missing, until HMDA is released around April 1.

The magnitude of these changes is illustrated in the table below in relation to Atlanta MSA, a rapidly growing and changing metro area. Atlanta was  the top market for home purchase loans in the US in 2016:

2016 2017 Change
Majority white census tracts 522 493 – 5.6%
Population residing in tracts 3,020,019 2,920,747 – 3.3%
Majority black and Hispanic census tracts 366 375 + 2.5%
Population residing in tracts 1,939,578 2,098,709 + 8.2%