By Beth McGuire
There are some new rules coming down the pike for banks that will drastically alter the lending landscape. What are they, and should you care?
I’m amazed that there has not been more talk regarding a big change in banking regulation. There are new regulations being phased in that will impact every borrower in a big way.
What is the new rule? The CFPB issued a new HMDA (Home Mortgage Disclosure Act) rule in October 2015, which vastly expands the data points and fields that are required to be collected and reported. The new data fields include very specific information about the borrower and the property. In a nutshell, the new items include race, gender, age, credit scores, cost of the loan, etc.
The collection of all these data begin in 2018, with the first reports coming out 2019. With the new rules, you will be able to find out at the bank level what loans were made based on age, race, gender, etc., in any given year.
Shouldn’t this be great since the primary purposes of the Home Mortgage Disclosure Act (HMDA) are to help authorities monitor discriminatory and predatory lending practices, as well as to ensure government resources are allocated properly to enforcement? Like many government plans, on the surface, yes—but the issues lurk in the details.
Why should a bank care? The Denver Post ran an article, “Qualifying for a Mortgage Is Getting Easier, but Minority Applicants Still Face Higher Denial Rates.” (Specific banks were not named, since the data was analyzed at a city level.) Under the new rules, let’s say for example there is a bank in a high-end resort town that does 100 loans a year (each loan is over $2 million). The bank gets 10 applicants from people under 30; of those, only two qualify for a loan. The statistics look terrible. I can see the headlines: “Bank X Discriminates Against Young Borrowers Since 80 Percent of All Applications Were Turned Down.” You can substitute the word “young” for a specific minority, gender, etc. This is definitely not a time where the bank wants to be in the news! You can quickly see where this is going to be problematic for lenders.
Why should you care? 2019 will also be the year of the lawsuits for banks. It will not take long for attorneys to begin filing suits based on gender, age, credit score, minority status, zip code, etc. Shouldn’t lawsuits help ensure banks are lending fairly? In theory, yes—but in practice, the results of these changes will definitely not help consumers.
Here are three side effects of the new regulation for banks. All three will negatively impact consumers.
- Lending costs will increase. As banks’ risk (lawsuits, etc.) to lend increases, so will the costs on consumers. Banks will basically build in perceived risks/costs associated with litigation for all borrowers. The banks will not simply absorb the new costs—someone will have to pay! This will be a pass-through cost that every borrower will now pay with increased lending …read more
From:: Real Estate News