Software Aids Mortgage Reporting

Federal regulators' renewed emphasis on policing mortgage lending practices has spawned yet another family of software to ease banks' reporting burden.

Under the Home Mortgage Disclosure Act of 1976, most financial institutions with offices in major metropolitan areas are required to disclose the geographic distribution and ethnic background of mortgage applicants.

In response to charges that mortgage lenders discriminate against minority group members and applicants who live in low-income neighborhoods, the Federal Reserve in 1989 greatly expanded the amount of information that banks must file.

A Pyramid of Paper

The flood of documents the Fed processes has become nearly unmanageable. Fed Governor John P. LaWare said a stack of 1990 HMDA documents would stand 30 feet higher than the Washington Monument.

Thus, the central bank has begun strongly encouraging financial institutions to file their mortgage data through electronic media such as magnetic tape and computer diskettes. And many observers believe the Fed will soon require such filings, if necessary to get results.

"We do not believe it is necessary to require by regulatory amendments that HMDA [documents] be submitted in a machine-readable format," said Stephen M. Cross, deputy comptroller at the Office of the Comptroller of the Currency. However, the OCC is not ruling out such a requirement, and it is considering imposing substantial processing fees on banks that continue to file reports on paper.

The Fed now offers a barebones software package that allows financial institutions to collect, edit, and print HMDA data on a personal computer disk. Although this software costs only $20, it does little to verify data, and it is incapable of data manipulation.

Stricter Policing Vowed

In light of 1990 HMDA data that showed that blacks were rejected for mortgages 2.4 times more often than whites with comparable incomes, Comptroller of the Currency Robert L. Clarke has promised that his agency will police discriminatory lending more strictly.

That increased scrutiny, coupled with pressure from the Fed for more efficient reporting methods, has increased demand for sophisticated HMDA reporting programs.

A number of companies - including Harte-Hanks Data Technologies, Billerica, Mass.; GIS Corp., Vienna, Va.; and others - have developed software packages designed not only to satisfy the Fed's demand for electronic reports but also to let banks find discriminatory lending patterns as they develop.

Creating Accurate Files

"If a bank is getting its overall picture on its lending patterns from the regulators, that spells trouble," said Dick W. Man, vice president of product support at Harte-Hanks. "That's like asking the judge what you did wrong."

The first function of HMDA reporting software is to create an accurate computer file of all loan applications received by an institution and the disposition on each application, plus the applicant's race, gender, and annual income. After being reviewed for accuracy, these data are stored on a disk or magnetic tape and shipped to the Fed.

In addition, the software packages let financial institutions track loan activity in specific geographic areas so they can develop improvement plans for problem areas before disclosure to regulators.

The OCC said most software packages cost $100 to $1,000, but prices quoted by vendors were slightly higher. Packages are available for both personal computers and mainframes.

Despite the software's relatively low cost, some bankers still want the option of filing paper reports. "Our stance is that the OCC should allow some latitude for those institutions that do not wish to file electronically," said Viveca Wave, a spokeswoman for the Independent Bankers Association of America in Washington.

The association mainly represents community banks with assets of less than $500 million, and such institutions should be given the chance to pick the most economical filing method, Ms. Wave said.

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