July 29, 2014
Good Data Makes Good Mortgages
The CFPB issued a proposed rule about increasing the quality of information that lenders report about mortgage applications. The press release regarding the proposed rule states that these changes will ease the reporting burden on lenders, and that may very well be true. But the contested part of these rules relate to the type of information to be collected:
- Improving market information: In the Dodd-Frank Act, Congress directed the Bureau to update HMDA regulations by having lenders report specific new information that could help identify potential discriminatory lending practices and other issues in the marketplace. This new information includes, for example: the property value; term of the loan; total points and fees; the duration of any teaser or introductory interest rates; and the applicant’s or borrower’s age and credit score.
- Monitoring access to credit: The Bureau is proposing that financial institutions provide more information about underwriting and pricing, such as an applicant’s debt-to-income ratio, the interest rate of the loan, and the total discount points charged for the loan. This information would help regulators determine how the Ability-to-Repay rule is impacting the market, and would also help the Bureau monitor developments in specific markets such as multi-family housing, affordable housing, and manufactured housing. The proposed rule would also require that covered lenders report, with some exceptions, all loans related to dwellings, including reverse mortgages and open-end lines of credit.
Lenders are not going to like this, because this new information may be used against them in a variety of ways — in Fair Housing lawsuits, by the CFPB in enforcement actions, by members of Congress seeking to increase credit access to various constituencies.
I like this because regulators and academic researchers have been hamstrung by limited and stale data on the fast-moving mortgage market. The mortgage market is often driven by the short-term profit-seeking of private actors and by special interests pushing their agendas with the Executive and Legislative Branches. Good data can inform good decision-making that can ensure that the housing finance system is vibrant and provides sustainable credit for households over the long term.
Comments on the proposed rule are due by October 22, 2014.