is poised to roll back rules meant to root out discrimination by mortgage lenders.
The Senate is poised to pass a bill this week that would weaken the government’s ability to enforce fair-lending requirements, making it easier for community banks to hide discrimination against minority mortgage applicants and harder for regulators to root out predatory lenders.
The bill rolls back banking rules passed after the 2008 financial crisis, including a little-known part of the Dodd-Frank Act that required banks and credit unions to report more detailed lending data.
The bipartisan plan would exempt 85 percent of banks and credit unions from the requirement, according to a Consumer Financial Protection Bureau analysis of 2013 data.
The mortgage industry says the expanded data requirements are onerous and costly, especially for small lenders. But civil rights and consumer advocates say the information is critical to identifying troubling patterns that warrant further investigation by regulators.
“The data operates as a canary in the coal mine, functioning as a check on banks’ practices,” said Catherine Lhamon, chair of the U.S. Commission on Civil Rights. “The loss of that sunlight allows discrimination to proliferate undetected.”
For decades, banks have been required under the 1975 Home Mortgage Disclosure Act to report borrowers’ race, ethnicity and Zip code to help identify racist lending practices such as redlining.
But discriminatory practices continued, with the financial industry disproportionately targeting black and Hispanic borrowers with subprime mortgages loaded with high fees and adjustable interest rates that skyrocketed after the stock market crashed in 2008.
“The experience of the financial crisis taught us that we really need to know more about the loan terms and conditions, not just a borrower’s race,” said Josh Silver, senior adviser at the National Community Reinvestment Coalition.
Lenders were supposed to start gathering extra information about borrowers’ ages and credit scores, as well as interest rates and other loan-pricing features, in January.
Congress had charged the CFPB, an independent watchdog agency formed after the financial crisis, with collecting, analyzing and publishing the data. But White House budget director Mick Mulvaney, named the CFPB’s acting director in November, said the agency plans to reconsider the new requirements.
The Senate bill would repeal many of the new reporting requirements, exempting small lenders making 500 or fewer mortgages a year from the expanded data disclosure.
“Banks say they don’t treat borrowers differently, but the data shows a different story,” Sen. Catherine Cortez Masto (D-Nev.) said on the Senate floor Thursday. “Redlining remains a major problem for communities of color.”
Nevada had the highest foreclosure rate during the Great Recession, especially in minority communities, said Cortez Masto, a former state attorney general. More than 219,000 families lost their homes, she said. “I’ve seen what happens when you don’t have strong enough protections against housing discrimination.”
But 12 of her Democratic colleagues have co-sponsored the bill, including 2016 vice presidential candidate Tim Kaine ( Va.), a former fair-housing lawyer. The bill’s supporters say they don’t think it would widen the door for discriminatory lending, arguing that mortgage data such as race and gender would still be gathered.
The Mortgage Bankers Association estimates that expanded data would still be collected on 95 percent of loans.
“If you want to provide some regulatory relief, it makes sense to do it for these institutions that aren’t making a lot of loans,” said Mike Fratantoni, chief economist for the Mortgage Bankers Association. “You’re not losing much in terms of your visibility into trends in the market.”
Advocates say banks often blamed racial lending discrepancies on borrowers’ credit scores or other characteristics that were impossible to verify without additional data.
“Lending discrimination is occurring in real time, and we have to have the tools to be able to address it,” said Vanita Gupta, who headed the Justice Department’s civil rights division during the Obama administration and now is the president of the Leadership Conference on Civil and Human Rights. “It’s not just happening in the context of big banks, it’s also happening in community banks and credit unions.”
“Lending discrimination is occurring in real time, and we have to have the tools to be able to address it.” Vanita Gupta, Leadership Conference on Civil and Human Rights