woodstock institute | october 2012 october 4-5 | birmingham, uk us financial data disclosure policy...
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WOODSTOCK INSTITUTE | October 2012
October 4-5 | Birmingham, UK
US Financial Data Disclosure Policy
Tom Feltner | Vice PresidentWoodstock Institute | Chicago, IllinoisP 312/368.0310 | M 312/927.0391 | [email protected] | @tfeltner
@woodstockinst
WoodstockInstitute
What is redlining?
Overview
Data disclosure requirements and how they are used to advocate for community reinvestment
WOODSTOCK INSTITUTE | October 2012
What is redlining?
WOODSTOCK INSTITUTE | October 2012
Regulatory history of financial services transparency requirements
Overview
Data disclosure requirements and how they are used
to advocate for community reinvestment
What is redlining?
Regulatory history of financial services transparency requirements
How advocates use HMDA and small business disclosure
WOODSTOCK INSTITUTE | October 2012
Overview
Data disclosure requirements and how they are used
to advocate for community reinvestment
What is redlining?
How advocates use HMDA and small business disclosure
Challenges and opportunities
Regulatory history of financial services transparency requirements
WOODSTOCK INSTITUTE | October 2012
Overview
Data disclosure requirements and how they are used
to advocate for community reinvestment
1975
1977
1992-96
1995
Home Mortgage Disclosure Act (HMDA)
1977-87
1990
Community Reinvestment Act (CRA)
Limited adherence to CRA requirements
New data added to HMDA
Boston Fed analyses of CRA reports
Lending, investments, services test added
1989 CRA Exams made public for the first time
2004 Rate spread added to HMDA
Movement towards financial transparency
Expansion of HMDA and the establishment of the Community Reinvestment Act
drive debate on financial services accountability
2010 Dodd-Frank changes, open HMDA regulatory docket
WOODSTOCK INSTITUTE | October 2012
WOODSTOCK INSTITUTE | JUNE 2012
Loan application and origination data
- Financial institutions with assets of at least $41M (£25.3M) – Includes most banks and thrifts
- Loan applications
- Loan disposition (approved, denied, originated, withdrawn, incomplete)
- Loan approval/denial
- Loan amount
- Loan purpose (purchase, refinance, home improvement, multifamily)
- Rate spread (basis points over prime)
- Secondary market (Fannie Mae, Freddie Mac, Ginnie Mae, Private MBS, etc).
- Conventional/government backed
- Lien status (first lien, junior lien)
Borrower data
- Borrower race/ethnicity
- Borrower income
Neighborhood data
-Census tract
- Income
- Minority composition
- County
- Metropolitan Statistical Area
- Small county/rural county
Loan application and origination data
- Loan applications
- Loan disposition (approved, denied, originated, withdrawn, incomplete)
- Loan approval/denial
- Loan amount
- Loan purpose (purchase, refinance, home improvement, multifamily)
- Rate spread (basis points over prime)
- Secondary market (Fannie Mae, Freddie Mac, Ginnie Mae, Private MBS, etc).
- Conventional/government backed
- Lien status (first lien, junior lien)
Home Mortgage Disclosure Act data
HMDA represents the most robust publicly
available mortgage lending data available
Recommendations to regulators
The level of income documentation used when underwriting the mortgage
Debt-to-income ratio
Total applicant income
Close gaps in types of loans that are required to be reported
Require disclosure of a lender’s parent company
Link data on loan performance and loan modifications to HMDA
Current mandate to expand disclosure
Mortgage loans that are delinquent by more than 30 days;
Mortgage loans that are delinquent by more than 90 days;
Properties that are real estate-owned (REO);
Mortgage loans that are in the foreclosure process;
Mortgage loans that have an outstanding principal obligation amount that is greater than the value of the property for which the loan was made (“underwater”)
WOODSTOCK INSTITUTE | October 2012
Dodd-Frank mandates additional disclosures on delinquencies, regulators also held hearings on how HMDA should be expanded
Expansion efforts
Using Home Mortgage Disclosure Act data for market analyses
Change in Prime Home Purchase and Refinance Lending
in Communities of Color, 2006 to 2008
Boston Charlotte Chicago ClevelandLos Ange-
les New York RochesterAvg All Cities
-80%
-70%
-60%
-50%
-40%
-30%
-20%
-10%
0%
-55.8%
-70.9%
-53.7%
-68.5%-64.5%
-56.0%-52.5%
-60.3%
-16.3%
-29.9%
-20.3%
-42.7%
-33.0% -31.2%
-25.3%-28.4%
Census Tracts with 80% or More Residents of Color
Census Tracts with Less Than 10% Residents of Color
Source: Home Mortgage Disclosure Act
WOODSTOCK INSTITUTE | October 2012
WOODSTOCK INSTITUTE | October 2012
Market share ratios identify a lender’s presence in low- and moderate-income (LMI) communities
Firm Loans to LMI borrowers / All Loans to LMI borrowers
Firm Loans in Region / All Loans in Region= Market Share Ratio
Using HMDA for firm-level lending analyses
WOODSTOCK INSTITUTE | October 2012
Market share ratios identify a lender’s presence in low- and –moderate income (LMI) communities
Firm Loans to LMI borrowers / All Loans to LMI borrowers
Firm Loans in Region / All Loans in Region
Interpreting the results
= Market Share Ratio
<0.25 - 0.25 - 0.5 - 0.75 - 1.0 - 1.5 - 2.0 - 4.0 - >4.0
Using HMDA for firm-level lending analyses
WOODSTOCK INSTITUTE | October 2012
Market share ratios identify a lender’s presence in low- and –moderate income (LMI) communities
Firm Loans to LMI borrowers / All Loans to LMI borrowers
Firm Loans in Region / All Loans in Region
Interpreting the results
= Market Share Ratio
<0.25 - 0.25 - 0.5 - 0.75 - 1.0 - 1.5 - 2.0 - 4.0 - >4.0
Low Presence in LMI communities
Using HMDA for firm-level lending analyses
WOODSTOCK INSTITUTE | October 2012
Market share ratios identify a lender’s presence in low- and –moderate income (LMI) communities
Firm Loans to LMI borrowers / All Loans to LMI borrowers
Firm Loans in Region / All Loans in Region
Interpreting the results
= Market Share Ratio
<0.25 - 0.25 - 0.5 - 0.75 - 1.0 - 1.5 - 2.0 - 4.0 - >4.0
Low Presence in LMI communities
Good Presence in LMI Communities
Using HMDA for firm-level lending analyses
WOODSTOCK INSTITUTE | October 2012
Market share ratios identify a lender’s presence in low- and –moderate income (LMI) communities
Firm Loans to LMI borrowers / All Loans to LMI borrowers
Firm Loans in Region / All Loans in Region
Interpreting the results
= Market Share Ratio
<0.25 - 0.25 - 0.5 - 0.75 - 1.0 - 1.5 - 2.0 - 4.0 - >4.0
Low Presence in LMI communities
Good Presence in LMI Communities
Overconcentration in LMI Communities
(typical of subprime)
Using HMDA for firm-level lending analyses
Disclosure requirements
- Loan status includes origination and purchase
-Firm turnover - indicate whether a loan is extended to a borrower with annual revenues of $1 million or less
- Loan volume is aggregated into three categories based on loan size and reported at the census tract level
Market coverage
- Reported by financial institutions with assets of at least $1.098B (£677M) – Includes most banks and thrifts
- Small business data reporters represent about 93 percent of the small business loan market
Small business lending data
Disclosure, gaps and
market coverage
Gaps
-No data on applications or denials
-No borrower demographic information
- No loan-level information, only census tract aggregates
- Aggregates by financial institution only available at the MSA region
- Many very small business, particularly start-ups are capitalized through small business or personal credit cards
WOODSTOCK INSTITUTE | October 2012
Recommendation
Disclosure should be expanded to all business loans regardless of business size owners’ race and gender to permit better market sizing
Expanded disclosure mandated by 2010 financial reforms
Requires collection of data for minority-owned businesses, women-owned businesses, and small business of <$750,000 in annual sales:
Type and purpose of credit requested
Amount of credit applied for and approved
Type of action taken and the date of action
Census tract of business
Race, sex, and ethnicity of principal business owners
WOODSTOCK INSTITUTE | October 2012
2010 financial reforms required the adoption of new disclosure rules,
but additional data are still necessary
Dodd-Frank financial reforms expand small business data collection mandate and additional recommendations
MSA, income characteristics, loan count, loan volume,
and loans to smaller businesses
Example of data aggregates (Chicago region, Illinois)
WOODSTOCK INSTITUTE | October 2012
WOODSTOCK INSTITUTE | October 2012
Source: Woodstock Institute and the New Economics Foundation: Full Disclosure: Why Bank Transparency Matters
Using small business data for market-level analyses
Loans per 100 businesses in Chicago region communities
by racial/ethnic composition
WOODSTOCK INSTITUTE | October 2012
Market share ratios identify a lender’s presence in low- and moderate-income (LMI) communities or lending to very small businesses
Firm SBLs to Small Firms / All SBLs to Small Firms
Firm SBLs in Region / All SBLs in Region
Interpreting the results
= Small Firm Market Share Ratio
<0.25 - 0.25 - 0.5 - 0.75 - 1.0 - 1.5 - 2.0 - 4.0 - >4.0
Low penetration to small firms
Good penetration to small firms
Specialization in small firms (rare)
Using small business lending data for firm-level analysis
WOODSTOCK INSTITUTE | October 2012
Source: Woodstock Institute and the New Economics Foundation: Full Disclosure: Why Bank Transparency Matters
Market share ratios identify a lender’s presence in low- and –moderate income (LMI) communities
Using small business data for firm-level lending analyses
Lending Test
-Market share analysis of:- Home purchase
- Home improvement
- Refinance
- Multi-family lending
- Community Development Lending
- Number and volume of loans to CDFIs
- Responsiveness to community needs
Services Test
-Bank branch locations in low-wealth communities
-Record of opening and closing branches in low-wealth communities
- Use of alternative service delivery among low-wealth customers
- Telephone- Online, mobile banking- prepaid cards
- Community development services
- Housing counseling- Technical assistance- Home purchase counseling
Investment Test
Count and volume of community development investment vehicles
- Low income housing tax credits
- Mortgage revenue bonds
- Investments in CDFIs
- LMI targeted mortgage backed securities
- Investments in new market tax credits
Community Reinvestment Act evaluation
considers three factors
Regulatory evaluations use public data about financial institutions to evaluate reinvestment performance
WOODSTOCK INSTITUTE | October 2012
Non-binding CRA agreements between regional non-profits and financial institutions set reinvestment targets
Using data disclosure to expand reinvestment in low wealth communities: reinvestment agreements
Mortgage lending goals
Small business lending goals
Bank branch targets in low wealth communities
Expanding down-payment assistance programs for low wealth borrowers
Investment in CDFIs and disclosure of CDFI investments
WOODSTOCK INSTITUTE | October 2012
Issues
Fewer CRA exams conducted by regulators
The consolidation of the banking and thrift industry means fewer opportunities for actionable public scrutiny of a bank’s CRA performance.
Fewer mergers of healthy institutions. Many recent mergers happened on an emergency basis with no opportunity for public comment, reinvestment commitments
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
Source: Woodstock Institute Analysis of FDIC data
Number of CRA Exams conducted1990 to 2009
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
0
100
200
300
400
500
600
Bank mergers 1994-2003
Source: Pillof, Steven. “Bank Merger Activity in the United States 1994-2003
WOODSTOCK INSTITUTE | October 2012
Reinvestment obligations tied to depository insurance,
merger opportunities
Challenges to using data disclosure requirements
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
0
1,000
2,000
3,000
4,000
5,000
6,000
Outstanding
Satisfactory
Needs to Improve
Substantial Noncompliance
Source: Woodstock Insti-tute analysis of FDIC data
+ Expansion of CRA obligations
CRA Ratings 1990 to 2009
+ Gramm-Leach-Bliley
+ CRA regs revised
WOODSTOCK INSTITUTE | October 2012
96 percent of all financial institutions receive
either satisfactory or outstanding scores
Fewer opportunities for public impact reduce the effectiveness of data disclosure for advocacy
Source: Avery, et al. “The CRA within a Changing Financial Landscape“
Issues
Percent of household financial assets deposited in CRA-regulated financial institutions continues to decline.
Market share of assets in both large and small banks declines as market share of top 25 lenders more than doubles.
Role of non-CRA-regulated lenders varies with market conditions.
Figure 4. Shares of Households’ Financial Assets
Figure 5. Mortgages Originated by Institution Type
WOODSTOCK INSTITUTE | October 2012
Reinvestment obligations tied to depository insurance, merger opportunities
Fewer opportunities for public impact reduce the effectiveness of data disclosure for advocacy
What is redlining?
Moving forward
Redlining, data disclosure requirements, and public efforts
to increase community reinvestment
How advocates use HMDA and small business disclosure
Challenges and opportunities
Regulatory history of financial services transparency requirements
WOODSTOCK INSTITUTE | October 2012
WOODSTOCK INSTITUTE | October 2012
October 4-5 | Birmingham, UK
US Financial Data Disclosure Policy
Tom Feltner | Vice PresidentWoodstock Institute | Chicago, IllinoisP 312/368.0310 | M 312/[email protected] | @tfeltner
@woodstockinst
WoodstockInstitute