A national law firm which frequently
analyzes actions either coming from or having an impact on the Consumer
Financial Protection Agency raised questions today about one of the Bureau's
most recent moves. Karen Morgan, writing
in the Ballard Spahr's CFPB Monitor,
questioned the motives of the Bureau in creating and releasing a new on-line
tool for analyzing Home Mortgage Disclosure Act Data (HMDA).
(Read More: CPFB Provides Key to Using HMDA Data)
Data collected for 2012 from 7,400
financial institutions under the HMDA were released last week by the Federal
Financial Institutions Examination Council (FFIEC). The data, which covers about 19 million
mortgage loan actions, covers loan level data on loan applications, originations and denials, loan amount, type,
purpose, property type, location, applicant characteristics (race, gender,
income), and pricing related data.
Almost simultaneously CFPB announced
release of its tool which allows researchers, agencies, and consumers to slice
and dice the data to look at individual variables at national and local
levels. In announcing the tools CFPB
said they will "help maximize the impact of this
tremendous public dataset by providing a user-friendly tool to enable consumers
to explore mortgage application and loan data at a local level."
then CFPB went on to say, "The public information is important because it helps
show whether lenders are serving the housing needs of their communities; it
gives public officials information that helps them make decisions and policies;
and it sheds light on lending patterns that could be discriminatory."
And this has Morgan, a member of the
Consumer Finance Services Group at Ballard Spahr concerned. She said the release of the data and the tool
to access the data along with remarks from CFPB Director Richard Cordray "appeared to indicate that HMDA data may be used to identify
institutions that may be discriminating against protected classes of borrowers.
Although the CFPB's emphasis was on the use of the mortgage tool by the public,
at this time the more important message for the industry is that the CFPB
appears to be gearing up to use HMDA data to identify institutions that may be
Institutions are required to collect
certain data on mortgage related lending and the data has always been publicly
available, Morgan said, and the tool released by the CFPB merely repackages the
information into a more consumer-friendly format. But "a number of the data fields,
particularly those regarding the ethnicity, race, and sex of the borrower,
could be used by regulators and plaintiff's attorneys to target lenders for
examinations, enforcement actions, and litigation relating to discrimination."
Morgan says CFPB appears to be
foreshadowing the use of HMDA data to identify institutions that may be
discriminating. She quotes comments from
the press release that the HMDA data "can shed light on lending patterns that
could be discriminatory" and on Cordray's statement that this data "helps shine a spotlight on lending
disparities" and "reveals lending patterns, including some that might be
discriminatory.' Morgan concludes, "This
use of HMDA data may lead to targeted examinations for these institutions and
an increase in enforcement actions under ECOA based on HMDA data."
Further she says it is significant
that Cordray did not state that HMDA lending disparities necessarily establish
discrimination. "A much deeper analysis is required to determine whether and
the extent to which other factors (e.g., credit scores and histories,
loan-to-value ratios, etc.) explain any statistical disparities. And, of
course, we have taken issue in the past with the view that disparate impact on
a protected basis is sufficient to ground an ECOA or Fair Housing claim. Still,
Director Cordray's remarks make it clear that, at a minimum, the CFPB, like the
federal banking agencies before it, will statistically sample HMDA data to
determine whether a lender merits a targeted fair lending examination.'
She fears that plaintiff's attorneys
may also be tempted to cull the data "to identify lenders ripe for class
actions and private litigation based on similar theories. However, private
parties will have a much tougher time using HMDA data in lawsuits since, in
light of the manifold potential legitimate explanations of HMDA statistical
disparities, any violation remains speculative.'
At present there is actually very
little that can be done with the data on the CFPB website. There are three available actions, a heat map
that can be generated to show the difference in the volume of either mortgage
applications or originations from 2010 to 2011 or from 2011 to 2012 and sets of
graphical crosstabs on applications and originations nationally or by metropolitan
statistical area and by loan type (FHA, Conventional, VA) or by loan
purpose. CFPB says it has other tools on
the way and has provided web designer tools for persons who wish to develop
their own applications.