Independent mortgage banks have been inconsistent in reporting race information when filing Home Mortgage Disclosure Act data, an analysis by the California Reinvestment Coalition found.
The CRC argues in its report that the lack of race-related data minimizes the ability of researchers to study lending patterns, and puts into question whether nonbanks actually reign supreme in
A comparison of 2021 HMDA data filed by nonbanks with those of banks and credit unions showed that independent mortgage banks lagged behind their counterparts in reporting race-related details. Per the report, 24.2% of the portfolios provided by nonbank mortgage companies had unknown race data, while 20.3% of portfolios provided by banks and credit unions had unknown race data.
A partial contributor to this development stems from nonbanks not being privy to race because they often do not see their borrowers in person.
"Banks and credit unions, who originate loans in person with loan officers working directly with borrowers, are mandated by HMDA to identify a borrower's race based on observation of the borrower. By nature of being a wholly online business, online mortgage companies and other fintech lenders escape this requirement," the report said.
An executive of Polygon Research, a data analytics firm, noted that her company's analysis of HMDA data stemming from 2018 to 2022 has found similar reporting patterns.
"We also see that the trend is upward for all types of lenders, but IMBs have the highest share of Race NA," said Lyubomira Buresch, CEO of Polygon. "My running theory is that IMBs use large call centers and use online portals to collect the application data, which might make it more difficult to make visual or surname observations when the applicants do not fill out their demographics information."
Buresch added that in contrast, banks and credit unions "have more physical branches in local markets, sometimes multiple relationships with their customers so they could be able to more readily fill out the visual observation."
Because IMBs fall behind in reporting race-related data, and
CRC's report found that in 2021 90% of loans made by the top 20 banks to low-to-moderate income Black borrowers were conventional loans, compared to 55.92% of conventional loans being made to the same group by nonbanks.
"If traditional banks can lend conventional mortgages to both [lower] and middle-to-upper-income Black borrowers, why can't mortgage companies? The disparities in lending by loan type as well as closing costs raise concerns of steering conventional-qualified borrowers into FHA loans," the CRC said.
Lending patterns could be better observed, the group argues, by increasing IMB oversight.
Some industry stakeholders, including Scott Olson, executive director of the Community Home Lenders of America, believe that the CRC's call for greater IMB oversight represents a "hidden agenda to extend CRA to IMBs."
"It would make more sense for CRC to focus on the fact that CRA has been a complete bust for banks when it comes to mortgage lending than to focus their energies on extending this same failed framework to IMBs, which would only divert IMBs energies away from being the acknowledged market leaders on mortgage access to credit," he said.
In an email, a CRC research analyst responded that "IMBs were essentially created to get around the regulation that governs home lending."
"We have advocated, and continue to advocate, around federal CRA reform for traditional banks and for strengthened oversight of institutions currently covered under federal CRA," Jamie Buell, research analyst at CRC said. "Until federal regulatory agencies catch up, we are advocating for a state-level CRA that would strengthen the framework for all state-chartered institutions, including banks and credit unions, not just IMB's."
Its report also posits that the incomplete data might put into question the assertion that
"Because of the missing race data, community groups and researchers alike are incapable of knowing the full scale of mortgage companies lending to [minority] borrowers…non-Hispanic white borrowers may make up a large amount of this loan sample, which could negate the observation that mortgage companies have a higher share of loans going to BIPOC borrowers," the report said.
