1. WOODSTOCK INSTITUTE | October 2012 October 4-5 | Birmingham, UK US Financial Data Disclosure Policy Tom Feltner | Vice President Woodstock Institute | Chicago, Illinois P 312/368.0310 | M 312/927.0391 | tfeltner@woodstockinst.org | @tfeltner @woodstockinst WoodstockInstitute

2. What is redlining? Overview Data disclosure requirements and how they are used to advocate for community reinvestment WOODSTOCK INSTITUTE | October 2012

3. What is redlining? WOODSTOCK INSTITUTE | October 2012 Regulatory history of financial services transparency requirements Overview Data disclosure requirements and how they are used to advocate for community reinvestment

4. What is redlining? Regulatory history of financial services transparency requirements How advocates use HMDA and small business disclosure WOODSTOCK INSTITUTE | October 2012 Overview Data disclosure requirements and how they are used to advocate for community reinvestment

5. What is redlining? How advocates use HMDA and small business disclosure Challenges and opportunities Regulatory history of financial services transparency requirements WOODSTOCK INSTITUTE | October 2012 Overview Data disclosure requirements and how they are used to advocate for community reinvestment

6. 1975 1977 1992-96 1995 Home Mortgage Disclosure Act (HMDA) 1977-87 1990 Community Reinvestment Act (CRA) Limited adherence to CRA requirements New data added to HMDA Boston Fed analyses of CRA reports Lending, investments, services test added 1989 CRA Exams made pub lic for the first time 2004 Rate spread added to HMDA Movement towards financial transparency Expansion of HMDA and the establishment of the Community Reinvestment Act drive debate on financial services accountability 2010 Dodd-Frank changes, open HMDA regulatory docket WOODSTOCK INSTITUTE | October 2012

7. WOODSTOCK INSTITUTE | JUNE 2012 Loan application and origination data - Financial institutions with assets of at least $41M (£25.3M) – Includes most banks and thrifts - Loan applications - Loan disposition (approved, denied, originated, withdrawn, incomplete) - Loan approval/denial - Loan amount - Loan purpose (purchase, refinance, home improvement, multifamily) - Rate spread (basis points over prime) - Secondary market (Fannie Mae, Freddie Mac, Ginnie Mae, Private MBS, etc). - Conventional/government backed - Lien status (first lien, junior lien) Borrower data - Borrower race/ethnicity - Borrower income Neighborhood data -Census tract - Income - Minority composition - County - Metropolitan Statistical Area - Small county/rural county Loan application and origination data - Loan applications - Loan disposition (approved, denied, originated, withdrawn, incomplete) - Loan approval/denial - Loan amount - Loan purpose (purchase, refinance, home improvement, multifamily) - Rate spread (basis points over prime) - Secondary market (Fannie Mae, Freddie Mac, Ginnie Mae, Private MBS, etc). - Conventional/government backed - Lien status (first lien, junior lien) Home Mortgage Disclosure Act data HMDA represents the most robust publicly available mortgage lending data available

8. Recommendations to regulators The level of income documentation used when underwriting the mortgage Debt-to-income ratio Total applicant income Close gaps in types of loans that are required to be reported Require disclosure of a lender’s parent company Link data on loan performance and loan modifications to HMDA Current mandate to expand disclosure Mortgage loans that are delinquent by more than 30 days; Mortgage loans that are delinquent by more than 90 days; Properties that are real estate-owned (REO); Mortgage loans that are in the foreclosure process; Mortgage loans that have an outstanding principal obligation amount that is greater than the value of the property for which the loan was made (“underwater”) WOODSTOCK INSTITUTE | October 2012 Dodd-Frank mandates additional disclosures on delinquencies, regulators also held hearings on how HMDA should be expanded Expansion efforts

9. Using Home Mortgage Disclosure Act data for market analyses Change in Prime Home Purchase and Refinance Lending in Communities of Color, 2006 to 2008 Source: Home Mortgage Disclosure Act WOODSTOCK INSTITUTE | October 2012

10. Market share ratios identify a lender’s presence in low- and moderate-income (LMI) communities Firm Loans to LMI borrowers / All Loans to LMI borrowers Firm Loans in Region / All Loans in Region = Market Share Ratio Using HMDA for firm-level lending analyses

11. WOODSTOCK INSTITUTE | October 2012 Market share ratios identify a lender’s presence in low- and –moderate income (LMI) communities Firm Loans to LMI borrowers / All Loans to LMI borrowers Firm Loans in Region / All Loans in Region Interpreting the results = Market Share Ratio 4.0 Using HMDA for firm-level lending analyses

12. WOODSTOCK INSTITUTE | October 2012 Market share ratios identify a lender’s presence in low- and –moderate income (LMI) communities Firm Loans to LMI borrowers / All Loans to LMI borrowers Firm Loans in Region / All Loans in Region Interpreting the results = Market Share Ratio 4.0 Low Presence in LMI communities Using HMDA for firm-level lending analyses

13. WOODSTOCK INSTITUTE | October 2012 Market share ratios identify a lender’s presence in low- and –moderate income (LMI) communities Firm Loans to LMI borrowers / All Loans to LMI borrowers Firm Loans in Region / All Loans in Region Interpreting the results = Market Share Ratio 4.0 Low Presence in LMI communities Good Presence in LMI Communities Using HMDA for firm-level lending analyses

14. WOODSTOCK INSTITUTE | October 2012 Market share ratios identify a lender’s presence in low- and –moderate income (LMI) communities Firm Loans to LMI borrowers / All Loans to LMI borrowers Firm Loans in Region / All Loans in Region Interpreting the results = Market Share Ratio 4.0 Low Presence in LMI communities Good Presence in LMI Communities Overconcentration in LMI Communities (typical of subprime) Using HMDA for firm-level lending analyses

15. Disclosure requirements - Loan status includes origination and purchase -Firm turnover - indicate whether a loan is extended to a borrower with annual revenues of $1 million or less - Loan volume is aggregated into three categories based on loan size and reported at the census tract level Market coverage - Reported by financial institutions with assets of at least $1.098B (£677M) – Includes most banks and thrifts - Small business data reporters represent about 93 percent of the small business loan market Small business lending data Disclosure, gaps and market coverage Gaps -No data on applications or denials -No borrower demographic information - No loan-level information, only census tract aggregates - Aggregates by financial institution only available at the MSA region - Many very small business, particularly start-ups are capitalized through small business or personal credit cards WOODSTOCK INSTITUTE | October 2012

16. Recommendation Disclosure should be expanded to all business loans regardless of business size owners’ race and gender to permit better market sizing Expanded disclosure mandated by 2010 financial reforms Requires collection of data for minority-owned businesses, women-owned businesses, and small business of <$750,000 in annual sales: Type and purpose of credit requested Amount of credit applied for and approved Type of action taken and the date of action Census tract of business Race, sex, and ethnicity of principal business owners WOODSTOCK INSTITUTE | October 2012 2010 financial reforms required the adoption of new disclosure rules, but additional data are still necessary Dodd-Frank financial reforms expand small business data collection mandate and additional recommendations

17. MSA, income characteristics, loan count, loan volume, and loans to smaller businesses Example of data aggregates (Chicago region, Illinois) WOODSTOCK INSTITUTE | October 2012

18. Source: Woodstock Institute and the New Economics Foundation: Full Disclosure: Why Bank Transparency Matters Using small business data for market-level analyses Loans per 100 businesses in Chicago region communities by racial/ethnic composition

19. WOODSTOCK INSTITUTE | October 2012 Market share ratios identify a lender’s presence in low- and moderate-income (LMI) communities or lending to very small businesses Firm SBLs to Small Firms / All SBLs to Small Firms Firm SBLs in Region / All SBLs in Region Interpreting the results = Small Firm Market Share Ratio 4.0 Low penetration to small firms Good penetration to small firms Specialization in small firms (rare) Using small business lending data for firm-level analysis

20. WOODSTOCK INSTITUTE | October 2012 Source: Woodstock Institute and the New Economics Foundation: Full Disclosure: Why Bank Transparency Matters Market share ratios identify a lender’s presence in low- and –moderate income (LMI) communities Using small business data for firm-level lending analyses

21. Lending Test -Market share analysis of: -Home purchase -Home improvement -Refinance -Multi-family lending - Community Development Lending -Number and volume of loans to CDFIs -Responsiveness to community needs Services Test -Bank branch locations in low-wealth communities -Record of opening and closing branches in low-wealth communities - Use of alternative service delivery among low-wealth customers - Telephone - Online, mobile banking - prepaid cards - Community development services - Housing counseling - Technical assistance -Home purchase counseling Investment Test Count and volume of community development investment vehicles -Low income housing tax credits -Mortgage revenue bonds -Investments in CDFIs -LMI targeted mortgage backed securities -Investments in new market tax credits Community Reinvestment Act evaluation considers three factors Regulatory evaluations use public data about financial institutions to evaluate reinvestment performance WOODSTOCK INSTITUTE | October 2012

22. Non-binding CRA agreements between regional non-profits and financial institutions set reinvestment targets Using data disclosure to expand reinvestment in low wealth communities: reinvestment agreements Mortgage lending goals Small business lending goals Bank branch targets in low wealth communities Expanding down-payment assistance programs for low wealth borrowers Investment in CDFIs and disclosure of CDFI investments WOODSTOCK INSTITUTE | October 2012

23. Issues Fewer CRA exams conducted by regulators The consolidation of the banking and thrift industry means fewer opportunities for actionable public scrutiny of a bank’s CRA performance. Fewer mergers of healthy institutions. Many recent mergers happened on an emergency basis with no opportunity for public comment, reinvestment commitments Number of CRA Exams conducted1990 to 2009 WOODSTOCK INSTITUTE | October 2012 Reinvestment obligations tied to depository insurance, merger opportunities Challenges to using data disclosure requirements

24. WOODSTOCK INSTITUTE | October 2012 96 percent of all financial institutions receive either satisfactory or outstanding scores Fewer opportunities for public impact reduce the effectiveness of data disclosure for advocacy

25. WOODSTOCK INSTITUTE | MONTH YEAR Source: Avery, et al. “The CRA within a Changing Financial Landscape“ Issues Percent of household financial assets deposited in CRA-regulated financial institutions continues to decline. Market share of assets in both large and small banks declines as market share of top 25 lenders more than doubles. Role of non-CRA-regulated lenders varies with market conditions. Figure 4. Shares of Households’ Financial Assets Figure 5. Mortgages Originated by Institution Type WOODSTOCK INSTITUTE | October 2012 Reinvestment obligations tied to depository insurance, merger opportunities Fewer opportunities for public impact reduce the effectiveness of data disclosure for advocacy

26. What is redlining? Moving forward Redlining, data disclosure requirements, and public efforts to increase community reinvestment How advocates use HMDA and small business disclosure Challenges and opportunities Regulatory history of financial services transparency requirements WOODSTOCK INSTITUTE | October 2012

27. October 4-5 | Birmingham, UK US Financial Data Disclosure Policy Tom Feltner | Vice President Woodstock Institute | Chicago, Illinois P 312/368.0310 | M 312/927.0391 tfeltner@woodstockinst.org | @tfeltner @woodstockinst WoodstockInstitute