This article discusses the prevention of lender discrimination under federal law.

Lenders release home loan data

The federal Home Mortgage Disclosure Act (HMDA) seeks to prevent lending discrimination and unlawful redlining practices on residential loans or home improvement loans by requiring lenders to disclose home loan origination information to the public. [Department of Housing and Urban Development Mortgagee Letter 94-22]

State and federally regulated banks, and persons engaged in the business of making home loans for profit, are required by the HMDA to compile home loan origination data for submission to their respective supervisory agencies. [12 United States Code §§2802; 2803; Calif. Health and Safety Code §35816]

Completed loan applications and loan originations to finance the purchase, construction, improvement of the loan applicant’s home or to refinance an existing home loan are considered home loan originations. [12 USC §2803(a)]

Federal disclosure requirements

For lenders with total assets of more than $28 million and for-profit mortgage lenders with total assets of more than $10 million, the lender is required to compile data and make it available to the public. The data will include:

  • the type and purpose of the loan;
  • the owner-occupancy status of the real estate securing the loan;
  • the amount of the loan;
  • the action taken by the lender on the application;
  • the sex and race or national origin of the loan applicant; and
  • the income of the loan applicant. [12 Code of Federal Regulations §203.4(a)]

The data is then grouped according to census tracts to determine the lender’s activity with the tract. [12 USC §2803(j)(2)(C)]

However, lenders are exempt from HMDA disclosure requirements if:

  • the lender does not have a branch office in a metropolitan statistical area (MSA);
  • the lender’s assets on the preceding December 31 totalled less than $28 million. [12 CFR §203.3(a)(1)]

For-profit mortgage lenders are exempt from HMDA disclosure requirements if on the preceding December 31:

  • the mortgage lender did not have a branch office in a MSA; or
  • the mortgage lender’s assets totalled less than $10 million and the lender originated less than 100 home purchase loans in the preceding year. [12 CFR §203.3(a)(2)]

Regardless of exemptions, all lenders approved by the Department of Housing and Urban Development (HUD) must report to HUD and disclose the census tract information on all Federal Housing Administration (FHA) loans they originate. [HUD Mortgagee Letter 94-22]

The data is then compiled by the Federal Financial Institutions Council into a disclosure statement which is sent to the lender. [12 CFR §203.5(b)]

The disclosure statement must be posted in a conspicuous location in the lender’s home office where it is readily accessible to the public. The disclosure must remain posted for five years. [12 USC §2803(a)(2),(b),(c)]

On request from a broker, or any other member of the public, the lender must make available a copy of the disclosure statement data. [12 USC §2803(a)(1)]

California state regulated lenders

Lenders who regularly originate residential loans and do not report to a federal or state regulatory agency are required to compile data on the number and dollar amount of loan originations – actual originations and completed loan applications – for each fiscal year. [21 Calif. Code of Regulations §7118(a)]

Examples of state regulated lenders who fall into this category include insurers, mortgage bankers, investment bankers and credit unions that do not make federally related mortgage loans.

The data is first categorized by geographical area, then by census tract. For each census tract, loan originations are grouped according to:

  • FHA, FmHA and Veterans Administration (VA) loan originations on owner-occupied, one-to-four unit dwellings;
  • conventional purchase-assist loan originations on owner-occupied, one-to-four unit dwellings;
  • home improvement loan originations on owner-occupied, one-to-four unit dwellings; and
  • home improvement loan originations on occupied, one-to-four unit dwellings not occupied by the owner. [21 CCR §7118(b)(2)]

California regulated lenders exempt from loan origination disclosures are:

  • lenders whose originations of purchase-assist loans totalled less than 10% of the lender’s loan volume during the current reporting year; and
  • licensed real estate brokers who negotiate or arrange purchase-assist and home improvement loans. [21 CCR §7121]

Monitoring federally regulated lenders

Federally regulated lenders are subject to investigation and penalties by federal authorities. [12 USC §2803(h)]

While disclosure of home loan statistics helps to identify lending patterns, loan statistics alone are not sufficient to determine whether a lender is unlawfully practicing redlining or discrimination.

The loan statistic disclosures may be relevant when considered in conjunction with other evidence, such as the credit histories of denied loan applicants and debt ratios. [HUD Mortgagee Letter 94-22]

Monitoring lending patterns of state lenders

The California Secretary of the Business, Transportation and Housing Agency monitors the practices and patterns of state regulated lenders to identify lenders whose lending practices warrant further investigation. The patterns of loan originations for loans secured by all types of real estate are monitored. [Health & S C §35815]

If the lender is licensed under a state agency, the state licensing agency monitors the lender for redlining and discrimination violations. [Health & S C §35814]

For example, mortgage bankers and lenders who use their real estate license to arrange loans are monitored by the Department of Real Estate (DRE). [21 CCR §7117(b)(1)]

The state secretary or agency monitoring a lender can enforce compliance with anti-redlining and anti-discrimination laws by imposing penalties, including a recommendation to the state treasurer not to deposit state funds with a lender who is in violation of the law. [Health & S C §35815(a)]