Attorney Warren Traiger thinks that the proposed CFPB changes to HMDA will be “a
fair lending game-changer” (paid subscription required).
Information that is currently proprietary, like applicants’ credit scores and debt-to-income ratios and loan fees and interest rates, will now be shared annually with the CFPB and other regulators. The proposal will also allow regulators and potentially the public to analyze mortgage lending practices by applicants’ age as well as by race, ethnicity and sex.
Regulators will no longer need to wait until examination time to assess a lender’s compliance with the anti-discrimination laws, since they will have annual access to a panoply of sensitive data from almost every mortgage lender. Agencies will be able to routinely crunch and compare data from across the industry and in any geographic area.
Moreover, it may be only a matter of time until the enhanced data becomes public. While the CFPB has delayed consideration of what data should be released, its proposal states that “public HMDA data [should] be modified only when the release of the unmodified data creates risks to applicant and borrower privacy interests that are not justified by the benefits of such release to the public.” In other words, protecting the privacy of mortgage applicants will be the only limit on how the data is released.
Warren warns that what all this looks like is a replay of 1991, when the initial release of HMDA information ignited a firestorm of “fair lending mortgage litigation and regulatory enforcement actions that continue unabated to this day.” In the past, at least lenders could argue that raw data of discrepancies in loan denials between ethnic, racial, gender or age groups could not alone prove discrimination because of a lack of “control variables.” Warren contends that the additional data regarding the credit profile of applicants and details of the mortgaged property will make it harder to make the argument that there are a lack of “control variables.” Obviously, that’s the intent of the new requirements, which are mandated by Franken-Dodd.
Warren suggests that lenders use the expected interval until the effective date (expected to be January 1, 2017 to run the numbers using the new categories to see if they show disparity in approval rates, do some digging into the story behind the numbers with respect to any disparities shown, and change training, underwriting, or other practices to correct any potential problems before the regulators or a class action lawsuit beats you to the punch. He omits prayer as a potential course of action, which I assume is the result of secular humanist bent of the American Banker, the trade publication in which his opinion piece was published last week. He also omitted one of my favorite remedies for all things even tangentially related to the CFPB: get out of mortgage lending and consumer financial products and services altogether. Unless, of course, you like feeding the families of class action trial attorneys, regulatory enforcement lawyers, and those “saints-in-the-making” at the CFPB who might not be able to define “abusive” with any degree of precision, but, as with pornography, know it when they see it.