ST. LOUIS • The title of the new federal law that rolls back Obama-era banking regulations includes the words “relief” and “consumer protection.” A close look at the bill, however, suggests that banks are the ones getting relief while consumers are losing protections.
Under the new Economic Growth, Regulatory Relief and Consumer Protection Act, signed by President Donald Trump on May 24, smaller banks no longer are required to report detailed information about mortgage loan applicants.
That change benefits a majority of U.S. banks, which no longer will have to comply with the detailed reporting requirements outlined in the Dodd-Frank Act of 2010.
For those banks, the new law means less regulation and oversight.
But fair-housing advocates — especially in cities like St. Louis with a history of redlining and other discriminatory lending practices — say less information means it’ll be harder to identify problems and push for reforms.
Under Dodd-Frank, which bolstered provisions of the Home Mortgage Disclosure Act of 1975, the number of data fields required for reporting by banks more than doubled to include fields like interest rate information, loan terms, credit score and age of borrower.
Under the new law, smaller banks with fewer than 500 closed-end loans or open-end credit lines do not have to report the additional data fields required by Dodd-Frank. The banks still collect the data, according to a letter sent to Congress by the National Community Reinvestment Coalition, but are not required to report it.
Today there are roughly 5,500 banks in the U.S., according to Julie Stackhouse, an executive vice president at the Federal Reserve Bank of St. Louis. Stackhouse said roughly 20 percent of banks are still required to report all mortgage applicant data, and those banks comprise some of the largest mortgage lenders.
“We estimate that the banks that no longer have to submit the 25 additional items; on average they make about 250 mortgages a year,” Stackhouse said. “They are small mortgage lenders. Banks that still have to report make about 8,400 mortgages a year.”
Elisabeth Risch, director of research at the Metropolitan St. Louis Equal Housing and Opportunity Council thinks the new regulations will cause the loss of a significant amount of data.
“And that data is from banks that are smaller, have less infrastructure and systems to get a large market share, and perhaps are not as savvy as the larger banks in terms of fair lending or Community Reinvestment Act compliance,” Risch said in an email. “All of the redlining cases we’ve filed over the last eight years is evidence that smaller regional community banks have just as much risk for fair-lending violations, if not more.”
Research shows that racism in banking practices is still a concern.
Earlier this year, California-based investigative reporting outlet Reveal took a look at Home Mortgage Disclosure Act data and shared it with the Post-Dispatch through the Associated Press. Reveal’s analysis found that African-Americans who apply for conventional mortgage loans are 2.5 times more likely to be denied than non-Hispanic whites, controlling for loan amount, income and neighborhood.
In St. Louis and elsewhere, poor, underserved communities are often those that are majority black because of lingering effects of historical, racist local and federal housing and zoning policies.
A Post-Dispatch analysis of the data shows where mortgage activity is highest and lowest in the St. Louis area. North St. Louis has little to no mortgage activity. In neighborhoods with broken mortgage markets, like those in north St. Louis, more information is needed about the mortgage loan process, not less.
The new exemptions prevent community groups and the public from seeing data, identifying patterns and making comments on it, Risch said.
Proponents of the new law, including co-sponsor Sen. Claire McCaskill, D-Mo., point to some benefits to consumers, including financial exploitation protection for seniors and children, free credit freezes and unfreezes and protection for tenants when a landlord is foreclosed on.
The data-reporting part of the bill, they say, is meant to reduce burden on smaller community banks that may not have the resources needed to comply with the additional data reporting, which went into effect at the beginning of this year. (The bill was also co-sponsored by Sen. Roy Blunt, R-Mo., and supported by Republican members of Congress in the St. Louis area, including Rep. Ann Wagner, R-Ballwin.)
In a statement to the Post-Dispatch, McCaskill said, “Our country has an ugly history of racial discrimination in housing that we still see today. In an effort to combat this practice, the Dodd-Frank financial reforms that I strongly supported more than doubled the amount of data fields — from 23 to 48 — that lenders of the vast majority of mortgages must collect and report, with a small exception for small banks for whom a doubling of data collection would be so onerous it would render them unable to lend at all.
“The exception in this most recent bill affects less than 4 percent of data collected, and all banks, big and small, continue to collect and report data on the 23 fields including race and ethnicity in lending — critical tools in helping us combat housing discrimination and ensure we don’t return to the days of redlining in St. Louis or anywhere else.”
But Risch says the more rigorous reporting requirements shouldn’t have been a bar to lending, even by smaller banks.
“I do think less regulation means less costs for banks, but it’s far more likely that those cost savings will go to the bank’s profits — not invested back into the community through loans,” Risch said.
Additionally, “the investment in modifying systems to collect the data has already been made and it is unlikely that vendors will revert their systems back for exempted institutions,” according to a report issued by QuestSoft Corp., a company providing automated mortgage lending compliance software to banks. The report, published in April, used the “most recent” Home Mortgage Disclosure Act data.
“This is purportedly a way to reduce burden. However, because the data points covered by the rule are already collected by lenders, the burden associated with the rule is minimal,” according to the National Community Reinvestment Coalition letter. “Further, as with any data collection effort, the primary driver of HMDA costs is in establishing and maintaining systems to collect and report data, and not the costs associated with collecting and reporting a particular data field.”
The report by QuestSoft also notes “the data also strongly suggests opponents may be overstating the negative effects of the HMDA portion of this legislation.”
Small is big here
In the St. Louis area, small banks, credit unions and independent mortgage companies are receiving the most mortgage applications.
Large banks will still have to submit the robust data, but those banks aren’t necessarily receiving the most mortgage applications in the St. Louis area, according to Home Mortgage Disclosure Act data from 2015 and 2016.
The most mortgage applications submitted to one institution in the St. Louis area, or 8 percent, were submitted to USA Mortgage, a division of DAS Acquisition LLC.
The three large banks in St. Louis that received the most mortgage applications out of all large banks in the area — U.S. Bank, Stifel Bank and Trust and Wells Fargo — accounted for about 11 percent of mortgage loan applications.
Large banks may not receive as many mortgage applications from residents in disadvantaged neighborhoods because residents may not have prior experience or comfort working with a large bank that’s not located in their neighborhood.
Other laws designed to address the denial of mortgages in certain neighborhoods, a practice known as redlining, may soon be weakened.
The Community Reinvestment Act, enacted in 1977, requires a financial institution undergo examinations to assure it is lending in all communities it serves.
Because of the way the evaluations are structured and grades are given, some banks may pass examinations despite uneven lending patterns.
“If a bank’s not getting any applications from an area with a higher minority population, that might not trigger their red flag for lending discrimination,” Risch said.
Bankers also may avoid attempting to make loans in areas like north St. Louis because it’s a difficult place to close a loan, said Glenn Burleigh, community engagement specialist for EHOC.
“Are you going to spend time actively marketing and seeking clients in those areas that would potentially simply drive up the denial rate in the case of the next review, which would then potentially be a red flag?” Burleigh said.
A memo from the Treasury Department expresses support for reforming the law, including a provision that would allow banks to pass exams even if the bank has fair lending violations, Risch said.
Burleigh thinks the larger solution to St. Louis’ housing issues requires local officials to tell U.S. senators and representatives the importance of keeping existing regulations in place.
“We need business and civic leaders to step up, name the problem and say, ‘We really need to deal with this and we’re going to put together money for a fund to help with mortgages,’” Burleigh said. “You can’t solve big problems like this with just dollars.”