Read Among Banks, Banks Omit Race Data From Home Loans — Depriving Researchers of Both Positive and Negative Trends

The significance of the data, which is collected under the Home Mortgage Disclosure Act, is further reflected in the fact that in the past year alone, it has been subpoenaed by the Consumer Financial Protection Bureau, the Federal Financial Institutions Review Board, the Office of the Comptroller Coins, among others.

The problem is that more than 12% of borrowers do not voluntarily provide the information required by law and that 90% of loans sold to third parties are stripped of the data that is purchased. That’s according to the National Coalition for Community Reinvestment, a non-profit organization that studies racial and social economic issues.

“The impact is profound,” according to an NCRC report released today, “as these gaps hinder our ability to understand who is receiving loans and under what conditions, which is vital to assessing equity and inclusion.”

To help combat the problem, the NCRC committed today to no longer use data that does not include race demographics. “Beginning with this report, NCRC removes records without demographic data from our calculations of the percentage of loans made to specific races,” the researchers wrote.

The NCRC and others say the missing data is largely due to loopholes in HMDA. Passed in 1975 to ensure a more equitable distribution of loans, the HMDA rule requires in-person and telephone applicants to provide demographic data. But online applicants can opt out.

“In the past, it was assumed that those who chose not to choose a race were more likely to be white,” Richardson said. “However, in this report, we demonstrate that data-free loans likely reflect racial diversity more accurately than previously thought. Thus, the correct approach is to exclude these loans.”

Exacerbating erratic data, third-party loan buyers don’t need to track demographic information at all. Seven of the top 10 loan-buying institutions last year used a loophole that allows them to delete borrower demographics on the mortgages they bought, according to report co-author and NCRC principal investigator Jason Richardson in -a conversation with wealth.

“A few years ago, it was rare for lenders to shop loans and remove demographics, but Citibank pioneered this practice,” Richardson said. “Now, many loan originator lenders are taking advantage of this loophole.” Citi did not respond to a request for comment.

Certainly, many biased lenders may be hiding behind this black hole of data, but some more positive trends are also hidden.

The NCRC report shows “in what could be a sign of a watershed moment” that Hispanic home loan originations — 16.5 percent of all home purchases last year — were nearly identical to their overall share of the U.S. adult population . Black borrowers saw their loan rates improve, though not nearly as much as their overall share of the population.

Unfortunately, these apparently positive trends are difficult to confirm due to incomplete data.

“We urgently need more comprehensive data on small business and community investment to effectively craft policies that mitigate the harsh realities of redlining,” according to the report.

Of course, any increase in the collection of borrower data comes with an increased risk of privacy invasion. Although the CFPB says there is “low, if any, risk to privacy” under HMDA, a 2017 report by economist Anthony Yezer expressed concern that such data collection could lead to widespread privacy violations.

NCRC is not interested in that. “The broad benefits of collecting detailed data, encompassing income, race, sexual orientation, and gender identity, decisively outweigh any burden or privacy concerns,” the authors wrote. “It is imperative that efforts to curtail this essential data collection be recognized not only as wrong, but as harmful to the health and well-being of our communities.”