WASHINGTON -- The Federal Reserve has found significant errors in mortgage-lending data submitted by some banks and is threatening to fine offenders.
The Fed's finding calls into question the accuracy of data that have become a flashpoint for charges of widespread racial discrimination by lenders.
A Fed official said Wednesday it was not clear whether the inaccuracies have made lenders' records appear to be better or worse.
"We have found some astonishing error rates in the state member banks we examine," Michael C. Rouse, the Fed's officer in charge of consumer compliance exams, said at a seminar. "And if the level of errors we are finding is true across the industry, we have some concerns that a true picture is not being shown."
Validity of Data at Stake
Fed examiners are discovering a variety of problems, including incorrect reporting of the race and income level of applicants. They attributed the misinformation to carelessness rather than deliberate falsification. The data are required to be released under the Home Mortgage Disclosure Act. "We're concerned about the integrity of the HMDA data," Mr. Rouse said after a seminar sponsored by the Consumer Bankers Association.
The HMDA data have become the benchmark for gauging the adequacy of a bank's minority lending. The information is also employed in some cases as a test for lending discrimination. Regulators and litigators rely heavily on HMDA date to target banks whose mortgage lending patterns suggest racial bias.
Given the recent focus on the issue, the prospect that both lenders and regulators may be relying on inaccurate data raises serious concerns among many public advocates.
Sloppiness or Intentional?
"We shouldn't be too quick to think this is unintentional," said Allen Fishbein, general counsel for the Center for Community Change. "It's a little too facile to say this is just sloppiness."
Mr. Fishben suggested that if any bank's data has significant inaccuracies, examiners should thoroughly investigate the reason why.
"If there is some kind of conscious effort to deceive, that is a very serious problem and a substantive case of discrimination" he said.
But regulators say they haven't found any evidence of this.
Traced to |Carelessness'
"We haven't found any instance where a bank intentionally misled us," Mr. Rouse said. Rather, the errors resulted from "carelessness and lack of controls," he said.
In the last six months, the Fed has asked several banks to take another look at their data and resubmit it to examiners.
The data sometime look significantly different the second time around. In one instance, the resubmitted data reported more than a thousand fewer loan applications processed at the bank.
"The kinds of errors we have found are limited only by your imagination," he said.
Specter of Money Penalties
While no fines have yet been assessed, Mr. Rouse said that if lenders are asked to shape up their data and do not, or if he inaccuracies recur, civil money penalties could be imposed on the institutions.
The Fed, which analyzes HMDA data on behalf of all the regulators, has several tests built into its computer programs to look for problem records. It can detect, for example, whether banks have inaccurately reported census tract data. More than 4% of the HMDA records had these kinds of errors in 1991, according to the Fed.
In compiling the data, the Fed also notes records that have unusual information, like loans that are much higher than the stated income would predict. The agencies return these questionable records to the banks for their review and correction, if necessary, before releasing the HMDA data in final form.
But errors Fed examiners have found recently go well beyond these problems. Examiners look at the data after it has been compiled and analyzed by the Fed's Washington staff.
The recent problems have been found during consumer compliance exams, when examiners compared lenders' HMDA data with actual loan files at the banks.