HMDA

[RSumner at AOL.COM]

I believe expending any significant effort trying to analyze HMDA numbers is
a waste of time. Yes disparaties exist and yes they appear to be race based.
How much or how little is unimportant. We must eliminate race as a factor
in the lending process.

HMDA tells us little because it covers so few of the factors that go into a
lending decision. The Boston Fed study used a total of I believe 42 - and
concluded race was a factor. The study has been supported and attacked by
people respected in the field of statistical analysis.

I agree that disparate impact (though not legally impermissible in lending)
must be addresssed.

I disagree that the human factor is not a problem. The Boston study showed
us that applicants clearly creditworthy got the credit and that applicants
clearly not creditworthy were denied - irrespective of race and income.
Problems arise in the large number of applications where some judjement or
coaching was necessary to approve the loan. Here white applicants had a
clear edge. What this means is that loan officers, and anyone else involved
in the process tended to coach whites more than minorities. This is a people
problem, not just an underwritng problem.

It is also a problem that goes far beyond the credit decision. Appraisers,
realtors, hazzard insurance companies, pmi companies, secondary market - all
these and more play a significant role in determining who gets what house.
To say the problem lies only with lenders and can be 'fixed" by addressing
only lending problems denies the realty of the real estate acquistion
process.

It's time to stop pointing fingers and get everyone who is involved in the
process to indentify from their perspective the major barriers to home
ownership faced by low incom people and then develop ways around those
barriers.

FNMA and GNMA have their problems and their programs. In my opinion their
programs to address their problems are not meaningful. So do I continue to
whine or find another way. NHSA has a fantastic secondary market program.
We know it can work. So how do we make it work better for a larger number
of borrowers/lenders.

Let's get creative. I am not a banker - but the continued assault on bankers
(i.e. ....there is a certain myopia in bankers......) is becoming tiresome
and counterproductive. Making universal assumptions about banks and bankers
is no different than making universal assumptions about low income borrowers.
Most of them just aren't true.




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[wlm4 at cornell.edu (Will]

RSumner@AOL.COM writes:
>I believe expending any significant effort trying to analyze HMDA numbers is
>a waste of time. Yes disparaties exist and yes they appear to be race based...
>HMDA tells us little because it covers so few of the factors that go into a
>lending decision...

Let's move off dead center on this one. You don't think HMDA measures
usefully AND disparities do exist.

What are your ideas for building a measurement tool that could tell how well
an institution is doing in getting its services delivered across income and
racial boundaries?
************************************************** **********
William Myers
Alternatives Federal Credit Union
301 West State Street, Ithaca, NY 14850-5431
Voice (607) 273-3582 ext 817 FAX 277-6391
E-Mail Alternatives-Myers@Cornell.edu
************************************************** **********



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[RSumner at aol.com]

Wouldn't we be better off addressing the reason for disparities rather than
trying to find ways to measure them?

I still believe that most disparate treatment is a people problem. No matter
what the activity, people treat other people based, in part, on what they
believe about them. HMDA doesn't measure this.

Disparities also exist in the lending process because of factors that we
don't like to consider such as the fact that many more whites than non whites
have had the benefit of two or more generations of inherited wealth. Not
necessarily big dollars - but enough to make a difference in their net worth.
HMDA doesn't look at net worth - but it's relevant to the lending decision.
Also, and we really hate to admit this one - there is, in every housing
market, a certain level of income required to be a homewner. It varies, of
course, based upon local housing costs. But at some level, a person cannot
afford to buy a home. As a percentage of their respective catagories, more
whites than non whites will fall above the minimum.

We could, I suppose, use the 42 or so elements in the Boston study. But it
would only be fair if it applied to all lenders, bank and non bank. I wonder
what that would do to transaction costs?

My real point is that HMDA can point an activist or a regulator in a
particular direction - but it is far from conclusive. Many banks have been
aggressively seeking out low income borrowers. Which can actually result in
higher rejection rates (low/mod, not minority).

An industry has been created by HMDA and I just believe that significant
resources are going to waste. Resources that could be used by community
groups for such things as borrower counseling and resources that could be
used by financial institutions to lower transaction costs.

I've seen some excellent training films which highlight for line staff the
ways in which customers are perceived. Whether it's an elderly person
wanting investment advice (i.e. old people can afford no risk) or a woman
wanting a business loan (make the husband sign the note) or the minority
applying for the mortgage (must be low income), people make judgments that
are incorrect. Measure it all you want - but measurement and legislation
won't fix it. I'd suggest training staff in how to recognize and eliminate
their own biases rather than training them in how to manipulate HMDA numbers.

If we must measure, then the regression analysis applied to matched pairs of
accepted/rejected applications is probably the most telling. Though not
fully developed, these techniques suggest that, at least in large samples,
the rate of improper denials is somewhere around one in a hundred. This is
the process that DOJ and bank regulators are beginning to embrace.




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[wlm4 at cornell.edu (Will]

>Wouldn't we be better off addressing the reason for disparities rather than
>trying to find ways to measure them?
I'm out here in the field, a banker, hearing bankers say "We're doing a
great job" and SEEING WITH MY OWN EYES that middle class and mid-tier
business is really their only focus. In our county 60% of the residents do
not own their own homes. The research of my interns (a review of ALL
lending in the public record) shows that locally banks are devoting about
1/2% of their assets on the bottom 60% of the population. We need
measurement to bring a breath of reality into this discussion. I don't see
banks making an effort to use this public asset for the benefit of the whole
community.

> Also, and we really hate to admit this one - there is, in every housing
>market, a certain level of income required to be a homewner. It varies, of
>course, based upon local housing costs. But at some level, a person cannot
>afford to buy a home. As a percentage of their respective catagories, more
>whites than non whites will fall above the minimum.
ReThink this statement from the bottom up. There are people who aren't
ready for home ownership, but there are PLENTY of renters who pay a landlord
to buy a house for the landlord. If a person can "afford" to rent, let's
assume they can "afford" to build equity through purchasing.

>An industry has been created by HMDA and I just believe that significant
>resources are going to waste. Resources that could be used by community
>groups for such things as borrower counseling and resources that could be
>used by financial institutions to lower transaction costs.
I'm not convinced banks are even making an effort (beyond what is required
by law, by charity). Our institution developed its own set of analytic
tools to measure how far we can have our products penetrate into under
served communities. Yes, it takes time and effort to gather this data, but
without feedback, we're just shooting in the dark. I'll publish the 1994
data here when it is available.

>. Measure it all you want - but measurement and legislation
>won't fix it.
I think this is the point behind federal CDFI legislation: Banks are not
going to do the job so a special class of financial institutions should be
chartered to concentrate on lending to lowincome and minority communities.

************************************************** **********
William Myers
Alternatives Federal Credit Union
301 West State Street, Ithaca, NY 14850-5431
Voice (607) 273-3582 ext 817 FAX 277-6391
E-Mail Alternatives-Myers@Cornell.edu
************************************************** **********



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[wlm4 at cornell.edu (Will]

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Instead of looking externally at the community for issues regarding
rejection of low income and minorities for loans, let's look internally to
the banking industry itself:

1) banks use other people's monies- the "prudent person rule or portfolilo
management requires that the manager control the risk in making
investments. Sure, in the banking industry, there is insurance. But, until
the persons or entities placing monies in these insitituions issue the
mandate to put their funds at risk, what can you do? act conservatively.

Or the other option is to provide some sort of training or support which
would allow the parties responsible for the investments in the form of
loans to be able to better place the risk assessment in perspective and be
able to justify that all laons made have the same degree of risk

2) we all make judgements every day, to make such judgements, we often use
rules of thumb, consciously or unconsciously. The same holds for parties
making loans. By providing shifting perceptions, mayube such loans for low
income can be made

thus we have two points, new tools to give loan committes and officers the
ability to shift their decison criteria and support from those providing
the funds givilng permission to go in a new direction

I think that this is the issue in the commlunity. It can not be done
staisfactorily by rules made by a distant bureaucrat or some insurance
policy to off set risks (these only encourage the status quo in perception
and action using some sort of tmporary over-ride mechanism.

This has been shown to be the case as cited by others from experience in
the thrid world- Grameen bank in Bangledesh, Fundacion Social in Columbia
and elsewhere- Maybe it is time that the firt world bankers really looked
at what the thrid world is saying

tom abeles
tabeles@tmn.com




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