What is HMDA?
The Home Mortgage Disclosure Act (HMDA) is a United States federal law enacted in 1975. It requires lenders to maintain and disclose data on their mortgage lending practices.
This law was created to provide transparency and accountability in the U.S. mortgage market, ensuring that lenders serve the housing needs of their communities fairly and without discrimination.
That’s a fancy way of saying that the law was put in place so that the government can collect data on the race, sexual orientation, ethnicity…of people who apply for home loans.
Purpose of HMDA: Monitoring and Preventing Discrimination
HMDA’s primary objective is to prevent credit discrimination in the mortgage lending process. Historically, Black people and other people of color have faced significant barriers in accessing homeownership.
In the 1930s, for example, the practice of “redlining” involved denying mortgages to residents in neighborhoods with high populations of Black people or immigrants. Despite the outlawing of such practices, disparities in mortgage approvals based on race continued.
Investigations have shown that Black applicants are more likely to be denied mortgages or charged higher rates than White applicants with similar financial profile.
HMDA and Racial Protection
The Act plays a role in protecting Black homebuyers by requiring lenders to report information that includes racial demographics. This data helps in identifying discriminatory lending patterns.
For instance, a report found that Black applicants are nearly twice as likely to be denied conventional mortgages as similarly qualified White applicants. This persistent trend underscores the importance of HMDA in highlighting and addressing racial disparities in mortgage lending.
Mortgage Lending Data and Fair Lending Compliance
In 2015, the Consumer Financial Protection Bureau (CFPB) expanded the types of data reported under HMDA. This included more comprehensive racial and ethnic data to improve market information and assist in fair lending compliance monitoring.
The CFPB uses this data to analyze patterns in mortgage lending and identify potential discrimination against Black, Hispanic, Asian American Pacific Islander (AAPI), and other minority groups.
The Role of Loan Officers
For loan officers at mortgage lenders, HMDA imposes an unusual but necessary requirement: they must ask applicants about their race.
This might feel uncomfortable or peculiar for both the loan officer and the applicant. However, it is a crucial part of HMDA’s mandate to ensure fair lending practices.
By collecting this data, lenders and regulatory bodies can work towards a more equitable mortgage market where race does not unfairly influence lending decisions.
In other words, it may seem weird to see questions about your race and ethnicity on the application to your mortgage, but theoretically at least, this is in order to collect data to ensure no funny business is happening.
Even if you don’t answer these questions, loan officers are expected to report this data based on visual observation. In other words, if they meet with you or see your picture of your ID says Leroy Johnson (no offense to the Leroys out there, we love ya’ll), they basically know what to report.
Our advice, apply with at least 2-3 mortgage lenders to see who you’re more comfortable with and who offers you the best terms. No, it won’t hurt your credit score unnecessarily as long as you apply to all of them within around 30-45 days.
We have a directory of black loan officers and black mortgage lenders here.