Dugan: OCC Looking to Expand on HMDA Data for Fair-Lending Screening

Comptroller of the Currency John Dugan said Wednesday that the government regulator will look to utilize expanded information from large banks early on in assessing fair-lending compliance, expanding on the core data set typically included in reporting required under the Home Mortgage Disclosure Act. What’s noteworthy here is the OCC’s assertion that HDMA data doesn’t usually contain the relevant information needed to determine if lending practices are discriminatory; nearly every consumer group that has brought lawsuits to bear against lenders for either “redlining” or “reverse redlining” in recent months has relied on an analysis of HDMA data to buttress its claims. In a speech to an OCC-sponsored conference of bankers and regulators in New Orleans, Dugan reminded the audience that raw disparities in the numbers are not necessarily proof of discrimination, and said that HDMA data alone often lacks key variables needed to assess fair lending in practice. He said that data reported by banks under the HDMA “are a valuable starting point for this analysis, but … HMDA data alone are not enough, and can even be misleading unless interpreted carefully.” He also said that “fairness and potential discrimination can’t be assessed by comparing simple denial rates or average rate spreads across groups. A valid assessment requires the hard work of applying more sophisticated methods from probability and statistics, so that relevant factors are considered in a rigorous and systematic way,.” The OCC is considering a potential change to the fair-lending screening process for the largest national banks, according to Dugan. The OCC has found that additional factors that are not part of HMDA reporting, such as loan-to-value ratios, credit scores, or debt service ratios, are needed to do a more targeted analysis of each lender’s underwriting and pricing decisions. These factors are incorporated during later stages of the supervisory process; but with improvements in data capabilities at large banks, there may be a way to bring these factors into the process much earlier, he said. “In the coming year, through a pilot at some of the largest national banks, we intend to test the feasibility and value of collecting that kind of information from lenders at the same time that they report as required under HMDA,” Comptroller Dugan said. “Getting this information — call it ‘HMDA Plus’ — early enough to use in screening could help us do an even better job of targeting our supervisory resources where they can bring the most benefit for fair lending.” For more information, visit http://www.occ.gov. Related links: text of Dugan’s speech