What is the HMDA?
The Home Mortgage Disclosure Act (HMDA) was passed into U.S. law in 1975 and mandates that mortgage lenders, brokers, and other financial institutions compile any and all data related to mortgage transactions and release it for public consumption. Banks and lenders submit the data directly to the Consumer Financial Protection Bureau (CFPB), ensuring that the data is submitted as well as accurate. The CFPB requests that mortgage lenders hand over information on a case-by-case basis, detailing the following for each client or transaction completed: demography, financial situation, and loan terms. Demography refers to characteristics such as race, ethnicity, age, and gender. Information regarding a borrower’s financial situation includes income level, debt, home value, etc. The disclosure also details information regarding the loan terms of a client, such as loan amounts, interest rates, payment terms, and down payments.
Why Release This Information?
The law mandates this disclosure and the CFPB enforces it for a variety of reasons, all centered around informing and protecting the consumer. There are three primary reasons for this disclosure:
1. Inform Policy Decisions
This data is particularly useful to lawmakers and helps them craft policies to address any problems apparent in the data. Additionally, think tanks and other independent political organizations use this data to lobby for important issues or advance arguments in favor of certain policies. This data is also useful for evaluating the efficacy of policies by comparing past results with current ones.
2. Encourage Company Transparency
By requiring companies to release information both about their clients and how they’ve treated their clients, the CFPB is helping to create a culture of corporate transparency. Banks and other financial institutions will be worried about potentially damaging information being released, and so they work to provide the best service to their customers, even if they are just attempting to avoid a PR nightmare. Complying with the HMDA’s disclosure rules could also encourage these companies to exceed the CFPB’s transparency standards and release even more information.
3. Empower Investigators and Experts
This information is very useful for investigators, as it allows them to study financial institutions and look into claims regarding discriminatory practices. They can detect trends and patterns in this data, drawing conclusions about a company’s behavior. Additionally, this data is useful to financial experts, providing them with tools to evaluate a company’s performance and predict what it might do in the future.