Arlington, VA Chief Counsel and First Senior Deputy
Comptroller Julie L. Williams told bankers today that new Home Mortgage
Disclosure Act (HMDA) reporting requirements
present challenges, but also offer banks an opportunity to grow and
enhance their business.
The more you learn about your customers and where their
dreams hope to take them, the better situated you are to shape financial
products and services to fit their needsand help make those dreams a reality,
Ms. Williams said in a speech before a meeting of the Consumer Bankers
Association. And the more perspectives
you have on how you are doing that job, and where you may need to improve, the
better positioned you are to adjust your practices to better achieve your
goals.
Next year, lenders will be required to publicly report new
data concerning their home mortgage lending.
For the first time, lenders must report pricing information for
higher-priced loans by borrower characteristics, and the racial and ethnic
composition and income level of the census tract in which the property is
located. Reporting is also required for
higher-priced loans for home purchase loan originations, secured home
improvement loans and refinancing. In
addition, lenders must report whether a loan is subject to the Home Ownership
and Equity Protection Act, on the lien status of applications and
originations, and on whether the mortgage is for a manufactured home.
Right now, you may not be thinking about these requirements
as an opportunity to understand your customers better, she said. And you may be thinking less in terms of
how the new data might ultimately reduce your risk than of how it might expose
you to risk. All those perspectives may
have validity, but thinking about the new requirements only from a narrow
perspective, strictly as a risk and a burden, would be a mistake.
While noting that economists have said that the HMDA
reporting requirements have played a critical role in encouraging low-and
moderate-incoming lendingand in identifying and developing new markets for
financial institution in low-and moderate communities, Ms. Williams
acknowledged that the new HMDA requirements present major challenges for
bankers.
For financial institution that now spend what they see as
way too much time and energy complying with disclosure requirements, the newest
HMDA requirements will undoubtedly represent an unwelcome addition to what
feels like an already excessively heavy load, said Ms. Williams. Community banks especially might notice the
increase as they make the necessary initial adjustments to their systems to
generate the new data.
Ms. Williams cautioned that all banks should be doing some
form of preliminary analysis of their HMDA data by now as the challenges will
become more difficult in August 2005, when the new HMDA data becomes
public.
Ms. Williams recalled warnings she gave six years ago
raising concerns about privacy and information security, and customer service
and competition, suggesting that the industry needed to confront the issues
early and rise to the challenge of self-regulations, or government would be
compelled to step in.
What worries me here is that this may be yet another case
in which such a failure of preparednessa failure, if you will, to anticipate
and understand consequenceswill wind up being enormously costly, not only for
individual financial institutions, but for the entire banking industry, Ms.
Williams said. The exposure here is not
necessarily dollars out-of-pocketalthough that may well be the casebut the
loss of a more precious and consequential commoditythe good name of your
institution and the reputation of the banks at large.
If you find a problemCorrect it! said Ms. Williams. Better you find it and correct it promptly,
than we find a festering problem and have to order it fixed.
The new HMDA data offers a new set of clues on how well
each of your institutions is doing, Ms. Williams concluded. The new data is by no means a dispositive
judgment on a banks lending practices.
But it will give bank managers another set of signals about their banks
operations; a set of signals that may point to successes to build on, to issues
that should be addressed, or to problems that must be corrected.
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