Kriston Capps is a staff writer for CityLab covering housing, architecture, and politics. He previously worked as a senior editor for Architect magazine.
Nevada Senator Catherine Cortez Masto is trying to restore a Dodd-Frank rule designed to help protect homebuyers from discriminatory lending practices.
When the bottom fell out of the mortgage market in the run-up to the Great Recession, Las Vegas homeowners found themselves at the epicenter of a catastrophe. Nearly one in four who bought new homes at the housing market’s peak in 2007 fell into foreclosure. For buyers of existing homes, whose values plunged even more dramatically, default claimed closer to half. Nevada led the nation in foreclosures for 62 straight months during the Great Recession.
Catherine Cortez Masto was the state’s attorney general at that time, and she remembers how discriminatory lending—predatory loans, shaky financial products—struck communities of color in particular. She and other attorneys general fought for consumer protections that were introduced in 2010 as part of the Dodd-Frank financial reform package, which was designed to prevent another such crisis. Elected to the Senate in 2016, Cortez Masto also witnessed firsthand as Republicans in Congress stripped some of those protections away last year.
Now she’s trying to restore one Dodd-Frank rule in particular—a reform to protect homeowners by providing lending data to the public. On Tuesday, Cortez Masto introduced the Home Loan Quality Transparency Act, a bill that would re-establish transparency requirements for banks and mortgage lenders, resetting a Dodd-Frank rule to safeguard against abuses that disproportionately harm homebuyers of color, from classic redlining to a practice known as “steering”—a process whereby listing agents steer consumers to a specific lender by requiring that any buyer to pre-qualify with that particular lender.
“There was a reason for the rule—because [discrimination] was happening,” Cortez Masto says. “Why aren’t we ensuring that we’re guarding against it and putting those data criteria in place so we can have the accurate information to ensure against any type of discrimination or redlining?”
Under the original Dodd-Frank legislation, any bank or lender that issues more than 25 mortgage loans per year (or 100 home equity lines of credit) was required to release a raft of public data about those loans and purchases. Last year, Republicans moved those goalposts, changing the standard from 25 mortgages to 500 and from 100 home equity loans to 500. Effectively, that exempted some 85 percent of all banks and lenders from full reporting.
A dozen other Democrats (including presidential hopefuls Elizabeth Warren, Cory Booker, Kirsten Gillibrand, and Kamala Harris) are co-sponsoring the Nevada senator’s bill, which would restore the original reporting requirements under Dodd-Frank. “My concern is that [discriminatory lending practices] did happen and we have the data for it,” says Cortez Masto. “We had banks in the past, from IndyMac to Evolve Bank and Trust to BancorpSouth, that were engaging in them. That’s the very reason why we needed this legislation.”
She has reason to be angry: In 2010, when she was still serving as attorney general, nearly 70 percent of Las Vegas homeowners were underwater on their mortgages. Many of these borrowers had some equity in their homes, but they lost it to lenders who targeted them in refinancing schemes that involved unsustainably high fees and payments. Last year’s revisions to Dodd Frank shield thousands of banks from data-reporting requirements that can help regulators suss out discriminatory lending. Restoring anti-discrimination monitoring standards are crucial going forward: Between 2020 and 2030, 88 percent of new household growth will be among nonwhite households.
The data at the center of this legislative back-and-forth were first mandated by the Home Mortgage Disclosure Act (HMDA) of 1975. That law, passed as a response to redlining, requires banks to record certain data any time someone applies for a mortgage, including loan category, home type, and the race, gender, and ethnicity of the buyer. Dodd-Frank both expanded and refined this dataset, and ordered banks to report this data to the Consumer Financial Protection Bureau (another Dodd-Frank production).
With Senate Bill 2155, Republicans exempted some 3,600 banks and credit unions from these reporting requirements last year. Cortez Masto’s 160-word bill would simply undo that change.
Public access to HMDA data is critical for tracking discrimination in lending, according to Vivek Sah, director of the Lied Institute for Real Estate Studies at the University of Nevada, Las Vegas, and the author of a working paper on steering practices by banks. According to Sah’s research, some 13 percent of single-family home and condo sales in the Las Vegas metropolitan statistical area sold between 2008 to 2018 were subject to steering, a number that peaked in 2009 at 30 percent.
For borrowers, steering practices (or “write-ins”) introduce a hidden cost, since buyers may have to seek a second pre-qualification at higher cost. Or they may not get pre-approval from the preferred lender at all. The use of steering has drawn scrutiny from federal regulators and has a disparate impact on African-American and Hispanic borrowers—a finding that Sah can track, thanks to open access to HMDA data.
“Leading up to the financial crisis, research shows that ethnic minorities have been targeted by certain institutions on the subprime side, but also by charging them more in borrowing costs,” Sah says. “If there is more data from HMDA that shows where banks who are doing this can later be identified, then it will create more transparency and decrease predatory lending.”
One of Cortez Masto’s biggest frustrations as a member of the Senate Banking Committee, she says, is watching the Trump administration scale back fair housing enforcement. Between efforts by Mick Mulvaney to strip fair lending and equal opportunity enforcement authority from the CFPB to Ben Carson’s work to slow-roll fair housing rules at the U.S. Department of Housing and Urban Development, oversight has suffered a blow. Her bill would be an effort to reverse the trend in accountability.
“This is a start for me,” she says. “Transparency helps with the accountability to ensure that individuals have access to loans that are not predatory, loans that are not discriminatory in general.”