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What is a Home Mortgage Disclosure Act?

In the United States, the Home Mortgage Disclosure Act refers to federal legislation that requires financial institutions to report information about public loan applications. This legislation has been in place since 1975, when it was implemented by the Federal Reserve Board under Regulation C. Four types of institutions are specifically outlined as being subject to these regulations: banks, savings associations, credit unions, and mortgage lending institutions. The information that they must report includes the number of applications received and the gender and race of applicants.

The Home Mortgage Disclosure Act is often referred to by the acronym HMDA. This legislation has three outlined goals. First, the legislation aims to help determine whether financial institutions are serving the needs of their communities. Second, it can be used to attract private investment to areas where it is needed. Third, it can highlight lending practices which may be discriminatory.

Achieving the aims of the Home Mortgage Disclosure Act is dependent on two primary factors. To begin with, the necessary information needs to be properly and consistently submitted by those who are required to make such reports. Then, the information needs to be analyzed and organized in a competent manner. It should be noted that every lending institution is not obligated by these regulations.

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Lenders who are required to submit information must do so regarding more than just approved loans. These financial institutions are required to report on all applications made for loans. There are a number of possible action codes that can be used to help categorize the results of these applications; these include application denied, applications withdrawn, and file closed for incompleteness.

The behaviors of both the applicant and the financial institution can affect coding. For example, the applicant may be primarily responsible for a file being coded as closed for incompleteness. Such a code often results when a financial institution could not continue to process an application due to an applicant's failure to submit requested information. In addition to the outcome of an application, lending institutions are required to report on the characteristics of those who have applied for home loans and the areas for which the loans were requested.

In accordance with the Home Mortgage Disclosure Act, the submitted information is then used by the Federal Financial Institutions Examination Council (FFIEC) to create informative tables. These tables organize information as it pertains to certain areas and also to certain institutions. These tables are required to have data that communicates lending activities based on characteristics such as income level, sex, and race. This information to be made public on an annual basis.

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