Home Mortgage Disclosure Act Data (HMDA)
Lending institutions with assets of more than $10 million* and which have a home or branch office in a metropolitan statistical area (MSA) are required to submit Home Mortgage Disclosure Act (HMDA) data annually to their federal regulators. Non-depository institutions which originate 100 or more purchase loans per year and do business in a MSA are also required to submit HMDA data. HMDA data details the mortgage loan activity of lending institutions in particular communities. Included is information not only on the number of applications received and rejected - - by institution, census tract and race or national origin - - but also individual loan amounts and the status of each application, whether accepted, rejected, closed incomplete or withdrawn.
Using 1995 HMDA data, the ICRC calculated white and minority** denial rates, as well as minority/white rejection ratios involving owner-occupied, single family purchase and refinance loans for each lending institution in each of the eight communities.
The minority/white rejection ratio*** is calculated by dividing the lender's minority rejection rate by the lender's white rejection rate. For example, a lender that rejects minority applicants at a 25% rate and white applicants at a 10% rate would have a minority/white rejection ratio of 2.5. A second lender that rejects minorities at a 15% rate and whites at a 10% rate would have a lower minority/white rejection ratio of 1.5.
Minority/white rejection ratios were calculated based on the income level of the applicants. Five rejection ratios were calculated: low income; moderate income; middle income; upper income; and combined or total. Low income represents less than 50% of the median income for the MSA, moderate income represents 50-79%, middle income represents 80-119%, and upper income represents 120% or more.
Calculating and reporting individual lenders' ratio enables meaningful comparison among lenders. Lenders with relatively high underwriting standards can still be compared to lenders with relatively low underwriting standards. For example, a third lender that rejects minorities at a 30% rate and whites at a 20% rate would also have a rejection ratio of 1.5 even though that lender rejects minority applicants at twice the rate of the second lender.
The ICRC also calculated overall mortgage loan market shares and minority market shares for each lending institution in each of the eight communities, again focusing on purchase and refinance loans only. The ICRC was interested in determining whether individual lenders' minority market shares mirrored their overall market shares.
The ICRC acquired the HMDA data from PciServices, Inc. in Boston, Massachusetts utilized Pci's CRA Wiz software program to help with the analysis.
* In legislation signed by President Clinton on September 30, 1996, the assets level was increased to approximately $29 million.
**Borrowers were considered minority if African American, Asian American or Latino.
***According to Geosegment Systems Corporation, in order for the minroity/white rejection ratio to be statistically significant, the number of applicants must be 20 or more.