Magazine article Mortgage Banking

Experts: Prepare for Legal, Regulatory Fallout from HMDA Data

Magazine article Mortgage Banking

Experts: Prepare for Legal, Regulatory Fallout from HMDA Data

Article excerpt

WHILE THE LONG-AWAITED RELEASE OF THE 2004 Home Mortgage Disclosure Act (HMDA) data has finally come to pass; mortgage lenders should be prepared to deal with the legal and regulatory fallout for weeks or even months following the mid-September circulation of the data, experts predicted.

New information collected for the first time in the 2004 HMDA data--released by the Federal Financial Institutions Examination Council (FFIEC) and analyzed in the aggregate by the Federal Reserve Board--included breakdowns of borrowers' race, ethnicity, annual percentage rate (APR) range and loan pricing, among other categories.

The Mortgage Bankers Association (MBA), which will conduct its own annual analysis of the HMDA data, noted the data do not contain measures that convey important information regarding credit risk associated with a loan.

"The information in the report is valuable to the mortgage industry, but it will take time to fully assess its contents," said Doug Duncan, MBA chief economist and senior vice president. "It is important to point out, however, that HMDA data cannot be used to draw conclusions about why a loan was refused or made at a particular rate."

The Federal Reserve's analysis, in fact, affirms that on a national aggregate basis, mortgage lenders have been making a "good-faith effort to apply racially neutral lending standards," according to attorney Joseph T. Lynyak III, a partner with Reed Smith LLC, Los Angeles.

As expected, following release of the HMDA data, the next day's headlines throughout the mainstream press focused on the loan pricing disparity between minorities and non-minorities. But even as the headlines fade, mortgage lenders should remain prepared, as federal and state regulators, as well as plaintiffs' attorneys, comb through individual lender data in search of any pattern of lending disparity, warned Lynyak.

Andy Sandler, a partner with Skadden, Arps, Slate, Meagher & Flom LLP, Washington, D.C., agreed. Sandler noted that a lender's HMDA data and the perception of that data will go far in determining whether a lender warrants further official scrutiny.

"Where you stand relative to other organizations is really the best indicator you have as to what your risk is with respect to enforcement and litigation," Sandler told attendees at MBA's Regulatory Compliance Conference in Washington, D. …

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