A new report from the Consumer Financial Protection Bureau (CFPB) examines differences in lending patterns created by the Home Mortgage Disclosure Act (HMDA) rule.
Specifically, the report detailed some of the differences in lending patterns for lenders above and below the threshold, as established by the HMDA. Lenders below the 100-loan threshold appear to make more investment purpose loans to higher-income borrowers as well as trusts, partnerships, and corporations. These findings are consistent with a possible explanation that lenders below the 2020 rule’s 100-loan closed-end threshold make more loans to investors buying up property in low-to-moderate income census tracts for rental or resale.
The HMDA requires that financial institutions that originated no fewer than 25 closed-end mortgage loans in each of the two preceding calendar years and meet other reporting criteria report their closed-end mortgage activities. In May of 2020, the CFPB raised this closed-end reporting threshold from 25 loan originations per year to 100 loan originations per year, effective July 1, 2020.
The CFPB examined 2019 HMDA data, counting 5,473 reporters with at least one closed-end origination. Among those reporters, 4,532 reported fewer than 1,000 closed-end mortgage loans. This report focuses on the 4,532 reporters with closed-end origination volume below 1,000, looking at the general lending patterns of HMDA reporters in this group.
The analysis found differences in terms of the loan and borrower characteristics and lending patterns between the institutions whose origination volume falls below the new 100-loan threshold and those whose origination volume is above that threshold.
Specifically, those lenders newly exempted under the 2020 HMDA Rule — with annual origination volumes exceeding the 25-loan threshold but fall below the 100-loan threshold — do not appear to be more likely to lend to Black non-White Hispanic borrowers than larger volume lenders.
Further, there is some evidence that these lenders might be more likely to lend to non-natural persons, which are trusts, corporations, or partnerships. Also, the analysis found that a higher percentage of their loans are secured by properties in low-to-moderate income (LMI) census tracts, properties in rural areas, second liens, and investment properties. Their borrowers also appear to have higher incomes than larger lenders’ borrowers as well.
CFPB officials note that the analysis is limited and preliminary and is not an assessment of the effectiveness of the thresholds change in meeting HMDA’s objectives. They add that further analysis is required to better understand these findings and explore the impact of the threshold changes on data available for specific markets.
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