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HMDA Reporting of Credit Scores

posted by Kathleen Engel and Patricia McCoy

Since last year, reporters and researchers have been publishing reports on the new Home Mortgage Disclosure Act (HMDA) pricing data that find that blacks and Hispanics pay more than whites for subprime home loans.  Industry dismisses these reports because the findings do not establish causation.  While this is a legitimate criticism, the real problem is the mortgage industry’s refusal to provide -- and the government’s refusal to require -- the reporting of credit score data that would permit more nuanced analyses, including whether race, credit risk, or something else drives the observed differences in the price that people of color pay for mortgage loans.

Why don’t lenders want to make credit score data available?  We asked a representative from a reputable lender that question and his response was, “Why don’t I just lie down in the middle of the road and make it easier for you?”  He was concerned that the data would open the door to fair lending lawsuits, which, as he rightly pointed out, have to be defended even if the lawsuits are not substantiated.  In addition, he expressed concern about borrowers’ privacy.  Arguably, it would be possible to identify property using HMDA data and then learn the borrowers’ credit scores. 

Even if both these arguments were true, it does not follow that we should continue to permit prima facie price discrimination to go unchecked.  The question is not whether lenders should report credit score data, but rather how to make that data available without compromising borrowers’ privacy or exposing lenders to frivolous lawsuits.  One option would be to require lenders to provide the data to an agency such as HUD or the Federal Reserve Board, which would then crunch the numbers and initiate investigations if racial disparities persisted after taking credit histories into account.  A second option would be to make these data available in a model akin to that used for researchers using census data at the individual level.  The Census Bureau has Research Data Centers through which carefully screened researchers who have signed explicit confidentiality agreements can gain access to individual level census data without reporting a respondent’s identity.   These safeguards have already proven successful in the census data context.  Surely, reporting credit scores subject to these or comparable safeguards is a small price to pay for the fair pricing of home loans.


The manner in which you framed the question at hand sounds politically motivated. A more appropriate and objective approach to the question is to ask what variables effect the setting of an interest rate offer to consumers. We can then look specifically at how each variable such as credit impacts the offer decision. We can also then investigate how different groups are potentially impacted. Asked in this manner one can more objectively understand the question at hand. That is, we can understand the variables that impact the interest rate a firm offers a consumer.

What I suspect we will find is that consumers with poor credit scores pay more for loans than those with good credit irrespective of race or ethnicity. This would be a very logical outcome. The vast majority of consumers will recognize and find logical that people with a higher probability of defaulting should pay more for the risk that the company must assume. Such an outcome will not attract the attention you are trying so hard to generate with your suggestive rhetoric. Yes we may find that this will translate to certain races and ethnicities paying more than others. The important point is that we will know that it is not because of race or ethnicity but because of other individual behaviors.

I will offer that the manner in which you ask the question speaks loudly to companies that offer credit to consumers. They can be attacked by drive by lawyers and journalists more concerned with increasing their social and economic standing than improving the human condition. Further, the manner in which you have framed your piece suggests potentially illegal behavior on the part of credit companies. While we may be able to infer motive for acting illegally, such an intellectual position warrants asking why the consumer or lawyer would not also be motivated to act illegally. Clearly a foolish path to take. I thus suggest a more thoughtful and professional framing of this question if we wish to better understand this issue and improve the human condition.

Framing the question so as to not focus on the illegal actions or to suggest that in Governement and Business illegal practices don't or won't transpire is evading the real issue. No established business ever wants to be cited for illegal practices, and governement policy makers don't want to be view as incensitive less discriminatory. Yet the fact remains that results always point to minority groups being on the negative side of an issue. Yes more minorities do get turned down for mortgage loans, credit or insurance then non-minorities at all times. The gaps are not closing and don't seem to be heading in that direction as well. So the results always point to that something of a disparate practice is in fact going on that produces the same results among minorities over and over again in American society. If it is not conscious business or governement practices, what could it be? So the discussion turns to the issue that perhaps it is the minority themselves. Not well assimilated do to poor education, left out of the loop for information that contribute to the good of Human conditions, left to fend for themselves in discovering how to conform or assimilate, without any direction as to where to get the information. So minorities then experience the brunt of the lay-offs in jobs, in ability to get decent stable jobs, inability to depend on already established minorities for help (because they're far and in between an almost non existant), they lack knowledge as where to turn to for help, other then the high cost lawyer. So as the social problems mount on, the living condition is one of reactionary as opposed to planning, critical thinking and prudent action. This then results in not paying attention to personal financial development leading to poor life skills that leads to poor credit ratings that are then used to say no we can not extend credit, loans or insurance to you because of your credit score, not your race or income. Then the question is, so why do minorities always in large numbers experience the same pattern of denials in credit, loans and insurance? Who provides the education that leads to over 50% of all minorities dropping out of high schools and then being left at the mercy of the job market for a self sufficient life style? Of the 50% that do graduate less then 10% are admitted into colleges and universities. The other 90% have to compete with the non graduates and nonminorities for jobs that are by over 75% nonminority owned business. Businesses that will lay-you off first if in fact you are a minority. Income has come to be the universal factor for decission making in America. So in essence one could say its not Race but certainly it is Income. The more you have the better your chances of assimilating, conforming, settling down and able to be service provided you meet the requirements of a high credit score. Improving the Human condition is very vague if you don't undertand the meaning of Human Condition. Some think improving the HUMAN condition is getting rid of those we feel are inferior humans, and of course there are millions of ways of doing just that.

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