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Just Thoughts is the blog of the Empire Justice Center, New York’s statewide, multi-issue, multi-strategy public interest law firm focused on changing the “systems” within which poor and low income families live. Here staff and guest authors will share stories, announcements and perspectives on timely issues related to our work.



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The need for more sunlight on the mortgage lending marketplace


Why do borrowers and communities of color get FHA and other government-backed mortgage loans disproportionately more often than white borrowers and communities? This is the question I’ve been hearing and grappling with since the recent publication of our multi-state collaborative report “Paying More for the American Dream VI: Racial Disparities in FHA/VA Lending.” I, too, want to understand why this is happening. More specifically, why did FHA/VA loans make up over 86 percent of the home purchase loans in Rochester’s communities of color in 2010? And why were only 14 percent of the borrowers in these communities able to get conventional mortgages?

 

The data we have available, or the lack thereof, make it difficult to answer these questions. Other than borrower income, the public has little information about the borrower that might shed some light on how lenders make underwriting decisions. If I had information about the borrower’s credit history/credit score, her debt-to-income ratio, the property’s loan-to-value ratio, the loan’s APR, I might begin to know why a borrower obtained the loan she did. Right now, however, I am left wondering.

 

I don’t want to wonder or guess; I want to understand. That is why I am disappointed that the Consumer Financial Protection Bureau recently published a delay in its rulemaking to implement enhancements, like those listed above, to the publicly available data. These enhancements were in the Dodd-Frank financial reform legislation that became law two years ago. It now looks like the earliest we’ll have a rule is April 2013,[1] so we’ll probably have to keep guessing until at least the fall of 2015 when the 2014 data are released.

 

I want to trust that when a borrower walks through the doors of any lender, he or she has full choice of the range of conventional and government-backed mortgage products available from that lender. And I want to see that lenders are putting borrowers into the most affordable loan that fits their individual financial circumstances. Along with vigorous enforcement of our fair lending laws and other regulatory improvements, this increased transparency will improve our understanding of and trust in the process. As Justice Brandeis said, "Publicity is justly commended as a remedy for social and industrial diseases. Sunlight is said to be the best of disinfectants; electric light the most efficient policeman."[2] Too bad we have to wait a bit longer for the sun to shine.



[1] The CFPB’s regulatory schedule notes that the “CFPB expects further action” as of April, 2013. See p.7 of schedule at: http://files.consumerfinance.gov/f/201204_cfpb_semiannual-regulatory-agenda_2012-spring.pdf.

[2] As found at: http://www.brandeis.edu/legacyfund/bio.html under Louis D. Brandeis quotes.



Tags: mortgage lending | lending | HMDA | Dodd-Frank | FHA | lending disparities | redlining | discrimination | fair lending | paying more




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