Consumer Action participates in key housing hearing

Tuesday, August 10, 2010

Consumer Action participated in the Federal Reserve Board Home Mortgage Disclosure Act (HMDA) data hearings in San Francisco on Aug. 5.

HMDA data is collected during mortgage transactions, and there are several purposes for collecting it. These include identifying patterns of discrimination, identifying local housing needs, and directing government resources for investment in housing and homeownership.

The data set was designed by the Federal Reserve Board in the 1970s and first gathered in order to counter the practice of “redlining,” in which banks would refuse to lend money to residents of non-white neighborhoods. Unfortunately, HMDA data in recent years has had less and less value because the government is failing to collect the proper data that would help it fulfill these purposes. During a recent bank merger, the Federal Reserve Board itself dismissed the value of HMDA data (calling the data “an inadequate basis” for determining whether a bank is meeting community credit needs or engaging in discrimination), even though the Board has the power to directly remedy these problems. So the hearing centered on how to make HMDA data more useful in today's lending climate.

Below is the testimony that Consumer Action submitted to the Federal Reserve Board:

Consumer Action is a consumer education and advocacy non-profit which has been fighting for the rights of consumers since 1971.

We offer free publications on housing and consumer rights topics in numerous languages, including Spanish, Vietnamese, Chinese, Korean, Hmong, and Tagalog, and we count over 1,500 community based organizations in our network of housing group CBOs.

HMDA must respond to the evolution of mortgage products and the diversity of homeowners by continuing to evolve itself, so that it can maintain the data’s relevance in an increasingly complex universe of housing needs and mortgage products.

In 1975, relevant mortgage data did not include downstream changes to the mortgage, like collateralized debt obligations. Mortgage modifications were not an important consideration 35 years ago. Subprime lending was many years from being recognized as a threat. The landscape is now vastly different, and the task of data collection must keep pace with the housing needs of the present.

For example, there have been troubling accusations that mortgage modifications are being granted on a racially skewed basis. However, these kinds of claims cannot be properly evaluated unless the data collected keeps pace with the products offered. Modified mortgages must be included in future iterations of HMDA data collection.

We urge the Federal Reserve Board as well to break down the “Asian” category to record the specific ethnicity of the borrower. This overly generic category presents a misleading picture, and masks policy-relevant differences among specific Asian & Pacific Islander groups.

For example, according to the most recent census, the home ownership rate for Japanese and Filipino Americans is over 60%, while for other groups such as the Hmong and Korean Americans, the homeownership rate is 40% or less. As an even more striking example, the poverty rate for Hmong is six times as high as the figure for Filipinos.

Because HMDA currently uses “Asian” as a generic catch-all, many loan performance problems within API communities become 'invisible' and difficult to address.

Specific areas of housing distress include Hmong homeowners in California’s central valley and Minneapolis, MN; Vietnamese homeowners in Orange County and Santa Clara county, CA, and Filipino homeowners in San Diego and San Mateo counties.

These API housing hot spots were confirmed by many advocates, and by an internal analysis done by a senior FRB Community Affairs Analyst in 2008, titled "The Subprime Mortgage Market in API Communities," which cross-referenced 2000 Census tables with 2007 First American Loan Performance data.

There is some evidence that API homeowners are being hit the hardest by the wave of foreclosures. The 2008 U.S. Census Bureau's "American Community Survey" showed that Asian homeownership dropped 1.24%, the largest fall in homeownership among the nation's major ethnicities. By comparison, Blacks saw a 0.88% decline in homeownership, Hispanics dropped 0.80% and Whites 0.40%.

California has one-third of the API population, but there is no available HMDA data that can help identify which specific pockets of Asian communities are being hit hardest—or being helped the most—by particular lending behaviors.

Incomplete data will give birth to misleading conclusions, and thwart our attempts to address social problems. At a time when Americans are suffering through a housing crisis more severe than any in our lifetime, we should take every opportunity to ensure that the information on which we base our housing policy decisions is as thorough and complete as possible.