Plus, a recent banking regulatory policy change and why it matters
One reason why everyone should be paying a little more attention to banking policy is because it drastically effects what banking institutions are required to report to the FDIC and NCUA. Until recently, most banks were required to report what percentage of their housing lending is done in low- and moderate-income census tracts. For us at Better Banking Options, it is vitally important for us to know this data, which is called HMDA data, because low-income neighborhoods are places much more likely to be neglected by traditional banks. Also, housing loans--in these areas in particular--allow families to build generational wealth through equity in their homes, which has been the most common way people actually experience upward mobility.
Before we started this blog, in May 2017, Congress passed a “regulatory relief” act which exempted certain institutions from reporting HMDA data. While this primarily applies to smaller banks and credit unions who may not have the time or resources to calculate these numbers, it still is incredibly vital data when trying to determine which banks are the most effective at building wealth in financially neglected communities.
This has also presented particular challenges to us as we attempt to build a search engine which would weigh all banking institutions with branches in your area, based on how effectively they’re fostering community development through lending. Because only around a third of approximately 10,000 banking institutions are now required to report HMDA data, we have attempted to track possible patterns among two data points we do have access to, for example, DDI (what percentage of branches are in low- and moderate-income census tracts) and housing lending. One would think that banks that locate in certain neighborhoods would be lending for mortgages in those neighborhoods.
We can accomplish this comparison by looking at the institutions that are still required to report HMDA data and seeing whether banks with lots of housing lending and a high DDI percentage are in fact also those banks with higher HMDA percentages. However, that line of thought doesn’t always seem to track. For example, Hanover Bank, who we published an article on earlier this week, previously had no branches in low- and moderate-income census tracts but was still doing an enormous amount of housing lending in these communities. So while we have seen some patterns when comparing these statistics, it’s not as consistent as we would wish.
Regardless of whether you think banking should be more or less regulated, we think anyone on this site could agree that if you are keeping your money at a bank, you should know what your deposits are being used for. We can hope that banks and credit unions learn that this is important to the educated banking customer. Proactively, we can move our money to institutions that encourage and practice transparency, and by asking our banks and credit unions to tell us about their lending portfolio. However, if de-regulation continues to put financial reporting on the backburner, soon we may have mega banks trying to convince us that they invest proportionately in low- and moderate-income communities. In reality, we can only know that if we know how much of their money is being loaned there.