Feds Want More Data From Home Loan Applicants
LOS ANGELES (MarketWatch) — The government already collects information about you and your mortgage when you apply for a home loan, including your race, sex, income level, and the tract of land on which the house sits.
But soon it may ask for more, including your credit score and other details about your loan. Some in the mortgage industry are concerned homeowner privacy may suffer.
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The Dodd-Frank Wall Street Reform and Consumer Protection Act enacted this summer called for additional data to be submitted under the Home Mortgage Disclosure Act, and gave the Consumer Financial Protection Bureau the final call on which pieces of information should be collected. The Board of Governors of the Federal Reserve System this week wraps up a series of four public hearings on what should be included in that data-collection process.
"Dodd-Frank requires the collection and reporting of credit scores and, as the [Consumer Financial Protection Bureau] may determine appropriate, parcel identification numbers, and other loan data directly dealing with the individual data from consumers," said John Courson, president of the Mortgage Bankers Association, according to his submitted testimony for the hearing in San Francisco last month. "We are very concerned about the need for privacy."
Greg Ohlendorf, president and chief executive of First Community Bank and Trust, based in Beecher, Ill., stated similar concerns, speaking at a Chicago hearing last week. "It's like handing your loan application to your neighbor," he said.
The Home Mortgage Disclosure Act was enacted in 1975. The Dodd-Frank additions to HMDA reporting include credit score, points and fees at origination, the difference between the APR for the loan and the benchmark rate for all loans, and loan features such as prepayment penalties, according to the MBA.
Loan-to-value ratios could be another addition, said J. Michael Collins, assistant professor of consumer science at the University of Wisconsin at Madison.
But don't stress too much: Sensitive information such as names, Social Security numbers or birth dates aren't collected through HMDA, as Collins pointed out. And currently, only the Census tract and the year in which the mortgage originated identifies the property — but even if parcel numbers were used and collected, your neighbor still couldn't get at those three very sensitive pieces of information, he said.
"I can go to the county clerk's office and find more on you," Collins said, after participating in the Chicago hearing.
If semi-sensitive pieces of information, including credit scores, are collected, some participants at the Chicago hearing suggested that they be reported to the public in ranges instead of exact numbers to protect borrower privacy.
The pieces of data already collected through HMDA form a rich pool of information that can explain how consumers fare in credit markets.
With HMDA data, researchers can determine if financial institutions are serving the housing needs of their communities, and detect discriminatory lending practices. HMDA also can help public officials distribute public-sector investments to attract private investment in areas where it's needed, according to the Federal Financial Institutions Examination Council.
An analysis released this week of the 2009 HMDA data, soon to appear in the Federal Reserve Bulletin, reported mortgage-lending trends including:
—Overall loan volume rebounded in 2009. But while refinance activity increased as a result of low interest rates, home-purchase lending declined.
—The portion of loans backed by the FHA, VA or federal farm programs during 2009 accounted for 54% of all home-purchase lending.
—Lending activity in areas with high foreclosure activity has declined more than in other areas.
But more extensive data could help researchers draw more conclusions. For example, while mortgage denial rate differences persist across racial and ethnic groups, current HMDA data can't show the extent to which the differences stem from illegal discrimination, according to the analysis.
"We are in an era of some of the most complicated mortgage products to date, and given the strain that bad mortgage loans have put on our economy, lenders should be examined with a microscope now more than ever," said John Taylor, president of the National Community Reinvestment Coalition, in a news release prepared in response to the report.
"In the era of reckless and corrupt lending, it is crucial that HMDA actually does what it was enacted to do, which is identify discriminatory lending patterns and determine if financial institutions are meeting local housing needs," he said.
Collecting more HMDA information about the borrower's financial position could help that cause, he said.
Others said the data likely will remain only a starting point for research, as studies often "use the HMDA data to focus the deep dive" into other data to draw conclusions about lending patterns, said Marsha Courchane, vice president of the consulting firm Charles River Associates, at the hearing in Chicago.
Or, as Collins said, HMDA data is like a doctor's stethoscope; it can help identify potential problems in lending but other tests may be required for a full diagnosis.
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