Home Mortgage Disclosure Act (HMDA)
HMDA does not itself prohibit discrimination.
Instead, it requires lenders to collect and report data on applications to purchase or refinance dwellings. Lenders are required to report data about the following:
- Date of application
- Property location
- Lien status
- Action taken
- Pricing information
- Other information
The Main Purposes of HMDA
The primary purpose of HMDA is in:
- Determining whether financial institutions are serving the housing credit needs of the neighborhoods and communities in which they are located
- Aiding public officials in distributing public-sector investments so as to attract private investment to areas where it is needed
- Identifying possible discriminatory lending patterns and enforcing anti-discrimination statutes
The reported data is used by public agencies and policymakers to determine whether lenders are complying with anti-discriminatory statutes like the Equal Credit Opportunity Act and the Fair Housing Act.
HMDA data is also used by many public officials to direct public funds to areas where they are needed.
This data is then used by various community groups to analyze a lender’s performance.
HMDA was designed to provide the public with loan data that can be used to assess how financial institutions are serving the housing needs of their communities.
HMDA plays a role in fair lending as an analysis of how a lender is performing in its fair lending practices. Some of the information required under HMDA is collected on the loan application in Section X. Information for Government Monitoring Purposes.
ECOA Requirements for Requesting Information
Originators are required under ECOA to request, as part of the application, the applicant’s ethnicity, race, sex, marital status and age. This is on all applications where the home is being secured by a loan and is required for both purchase and refinance transactions.
This information is completed in Section X on the loan application or on a separate form that references the application. You must tell the applicant that the federal government asked for the information to monitor compliance with anti-discrimination laws.
Does Not Apply To
This requirement does not apply to loans such as home-improvement or debt-consolidation purposes or to loans to provide temporary financing to construct a dwelling, unless the application for the temporary loan is also accompanied by an application for a permanent mortgage that becomes effective when the construction is completed. Home equity lines of credit are not subject to this section unless it is readily apparent to the creditor at application that the primary purpose is to purchase or refinance a principal dwelling.
What if the Applicant Doesn’t Complete the Information?
If the applicant does not voluntarily provide the information, the financial institution may do the following:
Make a visual observation and complete the information. You must note on the application that it was completed in person.
Telephone or Online Applications
You must note on the application that it was completed online or over the phone.
Accuracy in Reporting
This process of completing the information in Section X of the application may seem counterproductive to the spirit of the law, but the information, collected through the requirement of ECOA, helps lenders report the information more accurately than with the information required under HMDA.
Therefore, HMDA is covered here under fair lending because, it is critical in both the reporting and the analysis of fair lending by organizations and regulators, both state and federal.
Unlike the HMDA, ECOA does not require creditors to aggregate the information into a register or report it.
Section X. Information for Government Monitoring Purposes is more than just a government requirement. If used properly, it’s a way of demonstrating the lender’s commitment to fair and equal treatment for all loan applicants.