The Consumer Financial Protection Bureau announced its proposal for 37 new data requirements in Home Mortgage Disclosure Act information. The agencies’ stated goals for this substantial increase include improved identification of risk factors for default and enhanced ability to effectively regulate these risks. To be sure, these are legitimate goals and one can envision how some of this data could legitimately be useful and beneficial for all concerned.
However, the CFPB also requests significant data pertaining to pricing, compensation, property uses, and other factors that if used too zealously could cause a massive restriction in the market and a reduction in the type and amount of lenders. For instance, while it is certainly legitimate to be able to compare discount points to undiscounted rates to determine the bona fide nature of a “discount,” cross referencing compensation to spreads, interest rates, and credit risk factors compared amongst similar lenders in similar communities, would allow certain conclusions about a lenders profitability vis a vis its competitors.
While I recognize that enhanced access to information is critical to any properly functioning economic market, the type of data is usually limited to end-user data. In other words, the data that the consumer needs to know to compare apples and oranges as it pertains to his ultimate circumstances. Here, however, the data being requested could be used to regulate how much a lender makes or streamline and constrict across the board revenues. Worse, the data could be used for regulatory agendas in terms of which lenders could “afford” to be subjected to enforcement. All of this would ultimately reduce the number and type of competitors in the market. Similarly, the data could have a chilling effect on the variety of market-players, reducing the choices and options for borrowers.
From an outsider’s perspective enhanced knowledge about every facet of a lenders operations may seem positive. However, what other non-public companies literally have their profitability scrutinized? It is not unthinkable that this type of information gathering, when used inappropriately, could resulting in the elimination of meaningful competition in our mortgage markets, with the government playing the role of the official to make sure it was objectively fair to consumers. While such an Orwellian outcome is neither predetermined nor unavoidable, lenders should carefully review the CFPB’s proposals. While there are certainly legitimate uses for much of the information, the potential for governmental intrusion is dramatic. As one who believes in the functioning and efficiencies of the free market economy, the HMDA proposals could potentially enhance the markets, but my concern is the possibility that subjective political and moral agendas could use such information in a manner that would be highly unproductive to borrowers and lenders alike. As set forth above, review the proposal and provide comments as you deem appropriate.