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Put the Power into the Hands of the People

Adam Rust's picture

Posted August 31, 2009

Let's put the people back in charge of our banking system.

I work with data about mortgage lending that the Federal Financial Institutions Examination Council provides through the Home Mortgage Disclosure Act.  Making this data better would help people in their efforts to seize control over their relationships with their local banks.

HMDA Data Needs to be Fixed

There are a few stories that I can tell with HMDA data.  Sometimes, its a story that seems to make no sense, with one data point contradicting the other.  Sometimes, each additional data point only tells the same story.  In that

instance, the numbers become a refrain - good or bad - that is served little by additional details.  The flourishes can even be confusing, if they get in the way of the main point. And then, there are times when the data lacks relevance. I know what I want ot look for, but I can't find it.  The data doesn't make the way clear.  This last problem mainly concerns subprime loans.

The data itself is somewhat of a problem, because it fails to monitor most of the features that characterize subprime lending.  The data reflects a different set of assumptions among community groups, from a different time.  Back in the 80s and early 90s, subprime lending was just a twinkle in the eyes of traders.  In the minds of those community groups, loans were good.  Loan denials were bad.  The features of home mortgage loans were assumed to be relatively heterogenous.

The Community Reinvestment Modernization Act (HR 1479) would make those changes.  This would be important, because it capitalize upon "the wisdom of crowds" to develop public involvement in the kinds of lending that have now brought our economy to its knees.  It is the kind of behind-the-scenes fix that takes power back from regulators and into the hands of people

Good Data Elevates the Conversation

Talking about saving communities on the upper floors of a skyscraper, in a boardroom with modernist paintings and plush carpet, feels, well at least like a bit of an abstraction.  The scene is  removed from the places where the impacts will be felt.  Yet, these boardrooms are the only chance for community groups to demonstrate the consquences of the decisions that go on inside these buildings.  The 2-28 adjustable rate mortgage causes problems when people can't refinance out of them.  The negatively amortizing loan is a bad deal for the consumer and for the bank, yet they got made because everyone thought that the loans would just be some kind of hot potato that could be handed off quickly to some unknown investor.  Well, it didn't work out that way.

It is my experience that banks don't respond to normative ovations.  "It's the right thing to do!" is the kind of statement that falls on deaf ears.  Data, though, has its own virtues - it provides clarity without bias.  It makes for easy metrics.  It fits with the goal-oriented nature of business culture.

HMDA data can only be a melody, at best.  The points are out there, bright and shining, but without any underlying bass. My hope, whenever I write something with this data, is that it will strike a chord in the hearts and minds of its audiences.  I hope that it is heard deeply, and that it provokes someone to re-evaluate their assumptions about things.

In any community, decisions made at banks ripple throughout the area. We share a common sense of wanting to do more than merely be money-makers.  If we say that we care about "North Carolina," than this means that we have to care about more than ourselves. We are here, I suppose, because we want to produce something - make a common prosperity.