Letter regarding S. 2155, the Economic Growth, Regulatory Relief, and Consumer Protection Act

Dear Senator Donnelly and Senator Young,

As a statewide coalition working to build assets for low-wealth Hoosiers, the Indiana Assets & Opportunity Network (The Network), we have several urgent concerns to bring to your attention regarding S. 2155, the Economic Growth, Regulatory Relief, and Consumer Protection Act.

 Home Mortgage Disclosure Act:

While the bill is aimed at providing regulatory relief for small banks and credit unions, the practical impact is that the legislation would exempt about 85 percent of the nation’s banks and credit unions from having to fully report on their mortgage lending under the Home Mortgage Disclosure Act (HMDA).  HMDA data is essential to fair lending oversight and investment in underserved communities. 

Recent redlining lawsuits, such as the Department of Justice vs. Eagle Bank and Trust, highlight the persistent problems related to inequitable lending practices. The Dodd-Frank Wall Street Reform and Consumer Protection Act’s expanded requirements for HMDA data collection are aimed at addressing those practices to ensure transparency in lending patterns and to monitor for violations of the Fair Housing Act and Equal Credit Opportunity Act (as well as state fair lending laws).  

The Government Accountability Office has already recognized the limitations of historical HMDA data requirements. The office stated the requirements “do not include information on the credit risks of mortgage borrowers, which may limit regulators’ and the public’s capacity to identify lenders most likely to be engaged in discriminatory practices without first conducting labor-intensive reviews. Another data limitation is that lenders are not required to report data on the race, ethnicity, and sex of non-mortgage loan borrowers—such as small businesses, which limits oversight of such lending.”

It is important to note that almost every piece of information required under the new HMDA rule is already being collected by the lender for either its own underwriting purposes or for compliance with other regulatory requirements.  We do not believe this is an overly burdensome requirement to report these details when balanced against the fact that this data is central to identifying and pursuing corrective action against lending discrimination, which is a relevant concern across Indiana.

Information already collected for underwriting:

  • Street address of the collateral property (Also required for TILA-RESPA Integrated Disclosure (TRID))
  • Credit score
  • Total loan costs or total points and fees (Also required for TRID)
  • Origination charges (Also required for TRID)
  • Discount points (Also required for TRID)
  • Lender credits (Also required for TRID)
  • Interest rate (Also required for TRID)
  • Prepayment penalty term (Also required for TRID)
  • Income
  • Debt-to-Income Ratio (Also required for Qualified Mortgage Rules)
  • Cumulative Loan to Value Ratio
  • Loan term (Also required for TRID)
  • Non-amortizing features (Also required for TRID)
  • Introductory Rate Period (Also required for TRID)
  • Property value
  • Application channel
  • Nationwide Mortgage Licensing System and Registry Identifier (Also required for TRID)
  • Automated Underwriting system used  
  • Reverse mortgage indicator
  • Open-end Line of credit indicator
  • Business or commercial purpose

These categories may have been partially required or not explicitly required for compliance beforehand, but this information would likely be already collected for underwriting to some extent:

  • Manufactured home secured property type
  • Manufactured home land property interest
  • Total units
  • Multifamily affordable units
  • Occupancy type
  • Ethnicity, race and sex

New data:

  • Borrower’s age. This is new, but we do not believe it is an undue burden.

S. 2155’s harmful provision to restrict HMDA data disclosure comes at a tumultuous time for fair lending enforcement more broadly, as the Consumer Financial Protection Bureau’s (CFPB) Acting Director, Mick Mulvaney, recently stripped the Bureau’s Office of Fair Lending and Equal Opportunity of its enforcement and supervisory powers. This Office has pursued actions resulting in a number of redlining and lending discrimination settlements with financial institutions. This is the wrong direction for Hoosier consumers and communities.

We recommend removing the HMDA reporting exemptions contained in Section 104.

Ability-to-Repay:

We also have concerns regarding this legislation’s weakening of the Ability-to-Repay standard for residential mortgage loans. By expanding the safe harbor exemption to include loans that are held in portfolio by institutions with up to $10 billion in assets, many more lenders will be protected in court against future claims of unaffordable mortgage origination. This high standard was put into place to require lenders to assess a borrower’s income and expenses before making a loan.  Provisions in Section 101, however, undermine the strength of that measure. If this is enacted, Hoosiers could again see increased rates of foreclosure due to unscrupulous lending practices, just a decade after the Great Recession hit our communities.

We believe preserving a strong Ability-to-Repay standard is sound financial policy and oppose efforts to weaken it in Section 101.

Manufactured Housing:

Lastly, we are also concerned that the bill will create problems in the manufactured housing market, which disproportionately affects low-income Hoosiers. Under provisions in S. 2155, when manufactured home sellers also offer financing, sellers can promote their own higher-cost loan products over a competitor’s more affordable one. While Section 107 does require a seller to disclose its relationships and offer at least one loan product from an unassociated lender, we still have concerns. With a requirement to offer only one alternative, there is little incentive to offer a product option that is more favorable to the buyer; as a result, the seller’s loan product will likely be presented as more appealing, thereby eliminating any consumer benefit implied by the requirement. Furthermore, Section 107 does not prevent indirect compensation between lenders and sellers, so lenders may reward retailers for marketing their loan products. All of this sets borrowers up to pay more for their loans.

We recommend that Section 107 be deleted and that Senators continue to work to find better solutions to address affordability and competition in the manufactured housing market.

We appreciate attempts to expand access to credit, but believe legislators must guard against abuses that could take advantage of consumers.

Sincerely,

Indiana’s Assets & Opportunity Network Partners

For more information please contact Erin Macey, Policy Analyst at Indiana Institute for Working Families at emacey@incap.org, or Kathleen Lara, Policy Director at Prosperity Indiana at klara@prosperityindiana.org.