Ben Giumarra

First enacted in 1975, the Home Mortgage Disclosure Act (HMDA) requires most mortgage lending institutions to report loan-level information to a centralized database to allow for the detection of illegal discrimination and predatory lending. Mortgage lending institutions collect data over the course of the year but submit it all annually to the government. The data, or at least some parts of it, are then made available publicly.

The Dodd-Frank Act in 2010 required that significant updates be made to HMDA regulations and put the Consumer Financial Protection Bureau (CFPB) in charge of doing so. Most importantly, these changes drastically increased the amount of data that institutions were required to report pursuant to HMDA, with the number of data fields jumping from 39 to 110. The CFPB finalized rules to implement these changes in 2015, and this year, 2018, has been the first year where this data has been collected. This data will be reported to the CFPB for the first time in 2019.

While there was a lot of griping over the data collection reporting requirements themselves, there also remains an industry concern – perhaps morbid fascination – with how this data is going to be used and who will have access to it. Institutions have to report all this information to the CFPB, and it will be available to other regulators and pursuant to lawsuits and such, but to what extent will competitors, consumer advocate groups, and the general public have access?

This concern stems from two perspectives.

First, there is an interest in protecting individual consumer privacy. Imagine if all data was released. Imagine you move into a new home. Your new next-door neighbor looks at Zillow to see the details around your property value, taxes, amenities, etc. He then similarly checks out the CFPB’s HMDA database. If all HMDA data was publicly released, he could see your credit score, income, loan amount, race, ethnicity, gender, age and more, just as easily as he looked up the other information on Zillow.

Second, there is an interest among those in the real estate industry in how this may impact competition. For example, one of the new fields is the individual loan officer’s NMLS license number. If this was made available publicly, you could see a newspaper headline “Massachusetts loan officer Joe Smith ranks lowest in nation in percentage of loans to Hispanic borrowers” or “Boston loan officer Robert Smith identified as largest gap between mortgage lending costs between male and female borrowers, with female borrowers paying on average an extra $30,000 per loan.”

This should strike a chord with any mortgage industry bad actors because HMDA data, even the limited current amount in comparison to the future, has already been used by private groups to call out fair lending violations.

For example, the Pennsylvania Attorney General opened a fair lending investigation after the investigative podcast “Reveal” used HMDA data to identify apparent discrimination against mortgage loan applications in a dozen or more large metropolitan areas. Indeed, there have been rumors that some consumer protection groups already have a blueprint laid out on how to use this data in 2019.

Despite the high stakes, official guidance on this has yet to arrive from the CFPB. To be fair, final answers were anticipated to arrive in late 2018, so there’s still time. But while the initial proposal – issued Sept. 25, 2017 – did propose to exclude some data points and limit others, it didn’t go far enough for many in the industry.

To summarize, some of the key data points that would be excluded under the initial proposal are:

• Loan number
• Application date
• Action taken date
• Property address
• Credit score
• Originator’s NMLS number
• AUS result
• Free-form text fields, such as when a borrower provides a custom response to ethnicity or when an institution uses an AUS not on the recognized list provided in HMDA.

Additionally, the proposal would limit the precision of other data points to increase privacy by only providing generic, not specific, information:

• Loan amount rounded to nearest $5,000.
• Borrower age reported by category as 25 to 34 years old, 35 to 44 years old, etc.
• DTI reported in ranges including under 20 percent, 20 percent to 30 percent, 30 percent to 40 percent, 50 percent to 60 percent, 60 percent and higher.
• Property value rounded to nearest $10,000.

But there is still a great amount of key information that would be publicly available, such as company name, pricing and loan costs, and borrower demographic information.

This is certainly enough to be an interesting, or potentially disruptive, moment on the competitive landscape. If this goes forward, we’re all going to know exactly who offers the best rates and lowest costs. Some are also arguing that even under this proposal, the data released, when combined with other data sources, can be “reverse engineered” and connected to specific transactions, and therefore specific consumers (and not only by those in the real estate industry).

Curious to consider – are we more worried about predatory lending or consumer privacy/data security?

Ben Giumarra is the director of legal and regulatory affairs at Embrace Home Loans. He may be reached at bgiumarra@embracehomeloans.com.