Bankers are wary about new mortgage loan pricing information being collected by the Federal Reserve Board that could draw scrutiny when it is publicly released next year.
In an effort to guard against abusive lending, the Fed overhauled Home Mortgage Disclosure Act reporting requirements in 2002. Banks had to start reporting information on loans that exceed certain spread thresholds in January. Since then, bankers have been warned to prepare to defend their pricing to the public once the data is released.
A Fed official said recently that bankers should evaluate their commission-based lending policies to make sure the incentives they offer their loan officers do not appear discriminatory to the public.
Commission-based loans “are perfectly legal, but they certainly can lead to differences in pricing across individuals, and depending on how that breaks out, it could lead to differential patterns across racial or ethnic groups, or other categories,” said Glenn B. Canner, a senior adviser in the Fed’s division of research and statistics. “I think it is important that you fully understand how the commission incentives are leading to differences in pricing.”
Mr. Canner was speaking to a roomful of bankers two weeks ago at the Consumer Bankers Association’s Fair Lending Conference in Arlington, Va.
Many bankers are preparing for the release of data that will show for the first time whether loan prices vary by borrowers’ race or ethnicity. Previous HMDA data disclosures showed only how frequently minorities were denied mortgages. Mr. Canner said the new data would be released in August or September.
He also said the Fed was close to finalizing the new HMDA reporting tables, which will present information specific to each bank. The Fed will issue about 60 tables of data, double the current number.
“You want to be able to explain what you are doing, why you price things that way, and be able to have a discussion with folks about what you are doing at your institution,” Jeffrey Jaffee, a vice president of fair-lending at Citibank, said at the conference.
Balvinder S. Sangha, a partner at Ernst & Young LLP, said bankers should expect to face questions from consumer groups and the news media. “Reasonable people will develop differing views by looking at this data.”
The Fed, which took comments from lenders and community groups, is still working on the format for the new data tables. For example, Mr. Canner said that it plans to include data on prices for Fair Housing Act and Veterans Administration loans. Under an earlier plan, this data would not have been included.
Acting Comptroller of the Currency Julie Williams also said at the conference that banks should review their HMDA data and identify any areas that raise questions. The industry “could be in trouble again” if the new information shows banks are engaged in discriminatory lending, she said.
“Some observers are predicting that the release of the new data next August will be followed by lawsuits charging that lenders are targeting minorities for high-cost or predatory loans,” she said. “One can easily envision that some costly litigation may result, or that new legislative initiatives may be spurred, if the public reports show racial disparities in loan pricing.”
