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US Financial Data Disclosure Policy. October 4-5 | Birmingham, UK. Tom Feltner | Vice President Woodstock Institute | Chicago, Illinois P 312/368.0310 | M 312/927.0391 | tfeltner@woodstockinst.org | @ tfeltner. @ woodstockinst. WoodstockInstitute. Overview.

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us financial data disclosure policy

US Financial Data Disclosure Policy

October 4-5 | Birmingham, UK

  • Tom Feltner | Vice President
  • Woodstock Institute | Chicago, Illinois
  • P 312/368.0310 | M 312/927.0391 |
  • tfeltner@woodstockinst.org | @tfeltner
  • @woodstockinst
  • WoodstockInstitute

WOODSTOCK INSTITUTE | October 2012

overview
Overview
  • Data disclosure requirements and how they are used to advocate for community reinvestment

What is redlining?

WOODSTOCK INSTITUTE | October 2012

overview1
Overview
  • Data disclosure requirements and how they are used
  • to advocate for community reinvestment

What is redlining?

Regulatory history of financial services transparency requirements

WOODSTOCK INSTITUTE | October 2012

overview2
Overview
  • Data disclosure requirements and how they are used
  • to advocate for community reinvestment

What is redlining?

Regulatory history of financial services transparency requirements

How advocates use HMDA and small business disclosure

WOODSTOCK INSTITUTE | October 2012

overview3
Overview
  • Data disclosure requirements and how they are used
  • to advocate for community reinvestment

What is redlining?

Regulatory history of financial services transparency requirements

How advocates use HMDA and small business disclosure

Challenges and opportunities

WOODSTOCK INSTITUTE | October 2012

movement towards financial transparency
Movement towards financial transparency
  • Expansion of HMDA and the establishment of the Community Reinvestment Act
  • drive debate on financial services accountability

Home Mortgage Disclosure Act (HMDA)

1975

1977

Community Reinvestment Act (CRA)

1977-87

Limited adherence to CRA requirements

1989

CRA Exams made public for the first time

1990

New data added to HMDA

1992-96

Boston Fed analyses of CRA reports

Lending, investments, services test

added

1995

2004

Rate spread added to HMDA

Dodd-Frank changes, open HMDA regulatory docket

2010

WOODSTOCK INSTITUTE | October 2012

home mortgage disclosure act data
Home Mortgage Disclosure Act data
  • HMDA represents the most robust publicly
  • available mortgage lending data available
  • Loan application and origination data
  • - Financial institutions with assets of at least $41M (£25.3M) – Includes most banks and thrifts
  • Loan applications
  • Loan disposition (approved, denied, originated, withdrawn, incomplete)
  • Loan approval/denial
  • Loan amount
  • Loan purpose (purchase, refinance, home improvement, multifamily)
  • Rate spread (basis points over prime)
  • Secondary market (Fannie Mae, Freddie Mac, Ginnie Mae, Private MBS, etc).
  • Conventional/government backed
  • Lien status (first lien, junior lien)
  • Borrower data
  • Borrower race/ethnicity
  • Borrower income
  • Loan application and origination data
  • Loan applications
  • Loan disposition (approved, denied, originated, withdrawn, incomplete)
  • Loan approval/denial
  • Loan amount
  • Loan purpose (purchase, refinance, home improvement, multifamily)
  • Rate spread (basis points over prime)
  • Secondary market (Fannie Mae, Freddie Mac, Ginnie Mae, Private MBS, etc).
  • Conventional/government backed
  • Lien status (first lien, junior lien)
  • Neighborhood data
  • Census tract
    • Income
    • Minority composition
  • County
  • Metropolitan Statistical Area
  • Small county/rural county

WOODSTOCK INSTITUTE | JUNE 2012

expansion efforts
Expansion efforts
  • Dodd-Frank mandates additional disclosures on delinquencies, regulators also held hearings on how HMDA should be expanded

Current mandate to expand disclosure

Mortgage loans that are delinquent by more than 30 days;Mortgage loans that are delinquent by more than 90 days;Properties that are real estate-owned (REO);Mortgage loans that are in the foreclosure process;Mortgage loans that have an outstanding principal obligation amount that is greater than the value of the property for which the loan was made (“underwater”)

Recommendations to regulators

The level of income documentation used when underwriting the mortgage

Debt-to-income ratio

Total applicant income

Close gaps in types of loans that are required to be reported

Require disclosure of a lender’s parent company

Link data on loan performance and loan modifications to HMDA

WOODSTOCK INSTITUTE | October 2012

using home mortgage disclosure act data for market analyses
Using Home Mortgage Disclosure Act data for market analyses
  • Change in Prime Home Purchase and Refinance Lending
  • in Communities of Color, 2006 to 2008

Source: Home Mortgage Disclosure Act

WOODSTOCK INSTITUTE | October 2012

using hmda for firm level lending analyses
Using HMDA for firm-level lending analyses
  • Market share ratios identify a lender’s presence in low- and moderate-income (LMI) communities

Firm Loans to LMI borrowers / All Loans to LMI borrowers

Firm Loans in Region / All Loans in Region

=

Market Share Ratio

WOODSTOCK INSTITUTE | October 2012

using hmda for firm level lending analyses1
Using HMDA for firm-level lending analyses
  • Market share ratios identify a lender’s presence in low- and –moderate income (LMI) communities

Firm Loans to LMI borrowers / All Loans to LMI borrowers

Firm Loans in Region / All Loans in Region

=

Market Share Ratio

Interpreting the results

<0.25 - 0.25 - 0.5 - 0.75 - 1.0 - 1.5 - 2.0 - 4.0 - >4.0

WOODSTOCK INSTITUTE | October 2012

using hmda for firm level lending analyses2
Using HMDA for firm-level lending analyses
  • Market share ratios identify a lender’s presence in low- and –moderate income (LMI) communities

Firm Loans to LMI borrowers / All Loans to LMI borrowers

Firm Loans in Region / All Loans in Region

=

Market Share Ratio

Interpreting the results

<0.25 - 0.25 - 0.5 - 0.75 - 1.0 - 1.5 - 2.0 - 4.0 - >4.0

Low Presence in

LMI communities

WOODSTOCK INSTITUTE | October 2012

using hmda for firm level lending analyses3
Using HMDA for firm-level lending analyses
  • Market share ratios identify a lender’s presence in low- and –moderate income (LMI) communities

Firm Loans to LMI borrowers / All Loans to LMI borrowers

Firm Loans in Region / All Loans in Region

=

Market Share Ratio

Interpreting the results

<0.25 - 0.25 - 0.5 - 0.75 - 1.0 - 1.5 - 2.0 - 4.0 - >4.0

Low Presence in

LMI communities

Good Presence in

LMI Communities

WOODSTOCK INSTITUTE | October 2012

using hmda for firm level lending analyses4
Using HMDA for firm-level lending analyses
  • Market share ratios identify a lender’s presence in low- and –moderate income (LMI) communities

Firm Loans to LMI borrowers / All Loans to LMI borrowers

Firm Loans in Region / All Loans in Region

=

Market Share Ratio

Interpreting the results

<0.25 - 0.25 - 0.5 - 0.75 - 1.0 - 1.5 - 2.0 - 4.0 - >4.0

Low Presence in

LMI communities

Good Presence in

LMI Communities

Overconcentration in

LMI Communities

(typical of subprime)

WOODSTOCK INSTITUTE | October 2012

small business lending data
Small business lending data
  • Disclosure, gaps and
  • market coverage
  • Disclosure requirements
  • - Loan status includes origination and purchase
  • Firm turnover - indicate whether a loan is extended to a borrower with annual revenues of $1 million or less
  • - Loan volume is aggregated into three categories based on loan size and reported at the census tract level

Market coverage

- Reported by financial institutions with assets of at least $1.098B (£677M) – Includes most banks and thrifts

- Small business data reporters represent about 93 percent of the small business loan market

  • Gaps
  • -No data on applications or denials
  • No borrower demographic information
  • No loan-level information, only census tract aggregates
  • Aggregates by financial institution only available at the MSA region
  • Many very small business, particularly start-ups are capitalized through small business or personal credit cards

WOODSTOCK INSTITUTE | October 2012

slide16
Dodd-Frank financial reforms expand small business data collection mandate and additional recommendations
  • 2010 financial reforms required the adoption of new disclosure rules,
  • but additional data are still necessary

Expanded disclosure mandated by 2010 financial reforms

Requires collection of data for minority-owned businesses, women-owned businesses, and small business of <$750,000 in annual sales:

Type and purpose of credit requested

Amount of credit applied for and approved

Type of action taken and the date of action

Census tract of business

Race, sex, and ethnicity of principal business owners

Recommendation

Disclosure should be expanded to all business loans regardless of business size owners’ race and gender to permit better market sizing

WOODSTOCK INSTITUTE | October 2012

example of data aggregates chicago region illinois
Example of data aggregates (Chicago region, Illinois)
  • MSA, income characteristics, loan count, loan volume,
  • and loans to smaller businesses

WOODSTOCK INSTITUTE | October 2012

using small business data for market level analyses
Using small business data for market-level analyses
  • Loans per 100 businesses in Chicago region communities
  • by racial/ethnic composition

Source: Woodstock Institute and the New Economics Foundation: Full Disclosure: Why Bank Transparency Matters

WOODSTOCK INSTITUTE | October 2012

slide19

Using small business lending data for firm-level analysis

  • Market share ratios identify a lender’s presence in low- and moderate-income (LMI) communities or lending to very small businesses

Firm SBLs to Small Firms / All SBLs to Small Firms

Firm SBLs in Region / All SBLs in Region

=

Small Firm

Market Share Ratio

Interpreting the results

<0.25 - 0.25 - 0.5 - 0.75 - 1.0 - 1.5 - 2.0 - 4.0 - >4.0

Low penetration

to small firms

Good penetration

to small firms

Specialization

in small firms (rare)

WOODSTOCK INSTITUTE | October 2012

using small business data for firm level lending analyses
Using small business data for firm-level lending analyses
  • Market share ratios identify a lender’s presence in low- and –moderate income (LMI) communities

Source: Woodstock Institute and the New Economics Foundation: Full Disclosure: Why Bank Transparency Matters

WOODSTOCK INSTITUTE | October 2012

slide21
Regulatory evaluations use public data about financial institutions to evaluate reinvestment performance
  • Community Reinvestment Act evaluation
  • considers three factors
  • Lending Test
  • Market share analysis of:
    • Home purchase
    • Home improvement
    • Refinance
    • Multi-family lending
  • Community Development Lending
    • Number and volume of loans to CDFIs
    • Responsiveness to community needs
  • Services Test
  • Bank branch locations in low-wealth communities
  • Record of opening and closing branches in low-wealth communities
  • Use of alternative service delivery among low-wealth customers
    • Telephone
    • Online, mobile banking
    • prepaid cards
  • Community development services
    • Housing counseling
    • Technical assistance
    • Home purchase counseling
  • Investment Test
  • Count and volume of community development investment vehicles
    • Low income housing tax credits
    • Mortgage revenue bonds
    • Investments in CDFIs
    • LMI targeted mortgage backed securities
    • Investments in new market tax credits

WOODSTOCK INSTITUTE | October 2012

using data disclosure to expand reinvestment in low wealth communities reinvestment agreements
Using data disclosure to expand reinvestment in low wealth communities: reinvestment agreements
  • Non-binding CRA agreements between regional non-profits and financial institutions set reinvestment targets

Mortgage lending goals

Small business lending goals

Bank branch targets in low wealth communities

Expanding down-payment assistance programs for low wealth borrowers

Investment in CDFIs and disclosure of CDFI investments

WOODSTOCK INSTITUTE | October 2012

challenges to using data disclosure requirements
Challenges to using data disclosure requirements
  • Reinvestment obligations tied to depository insurance,
  • merger opportunities

Issues

Fewer CRA exams conducted by regulators

The consolidation of the banking and thrift industry means fewer opportunities for actionable public scrutiny of a bank’s CRA performance.

Fewer mergers of healthy institutions. Many recent mergers happened on an emergency basis with no opportunity for public comment, reinvestment commitments

Number of CRA Exams conducted1990 to 2009

WOODSTOCK INSTITUTE | October 2012

fewer opportunities for public impact reduce the effectiveness of data disclosure for advocacy
Fewer opportunities for public impact reduce the effectiveness of data disclosure for advocacy
  • 96 percent of all financial institutions receive
  • either satisfactory or outstanding scores

WOODSTOCK INSTITUTE | October 2012

fewer opportunities for public impact reduce the effectiveness of data disclosure for advocacy1
Fewer opportunities for public impact reduce the effectiveness of data disclosure for advocacy
  • Reinvestment obligations tied to depository insurance, merger opportunities

Figure 4. Shares of Households’ Financial Assets

Issues

Percent of household financial assets deposited in CRA-regulated financial institutions continues to decline.

Market share of assets in both large and small banks declines as market share of top 25 lenders more than doubles.

Role of non-CRA-regulated lenders varies with market conditions.

Figure 5. Mortgages Originated by Institution Type

Source: Avery, et al. “The CRA within a Changing Financial Landscape“

WOODSTOCK INSTITUTE | October 2012

WOODSTOCK INSTITUTE | MONTH YEAR

moving forward
Moving forward
  • Redlining, data disclosure requirements, and public efforts
  • to increase community reinvestment

What is redlining?

Regulatory history of financial services transparency requirements

How advocates use HMDA and small business disclosure

Challenges and opportunities

WOODSTOCK INSTITUTE | October 2012

us financial data disclosure policy1

US Financial Data Disclosure Policy

October 4-5 | Birmingham, UK

  • Tom Feltner | Vice President
  • Woodstock Institute | Chicago, Illinois
  • P 312/368.0310 | M 312/927.0391
  • tfeltner@woodstockinst.org | @tfeltner
  • @woodstockinst
  • WoodstockInstitute

WOODSTOCK INSTITUTE | October 2012