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Every March, LARs from reporting institutions must reach the FFIEC or the Federal Financial Institutions Examination Council;this being the interagency body administering HMDA or Home Mortgage Disclosure Act. Since reporting is nowadays electronic, the data is screened for errors and FFIEC releases it to the public via the internet or on CDs. On public request, reporting institutions must also disclose their specific LARs to members.
Probable housing discrimination that happens in different ways can be identified by the use of HMDA data. In most cases of possible discrimination, the inquiry from the basic regulatory bodies tries to check if the denial of loans or proposal of different terms to a class of persons was for reasons other than of objective acceptance of characteristics, such as collateral or income.
Take for example an institution turning down a large number of applications from certain races, such as African Americans, or ethnicities such as Hispanics, or women. There is sufficient reason to believe that this institution is discriminating against the borrowers and denying them credit, which is unfair.
In the US, such discrimination is not legal. Over the years, such discrimination has become rare, but other forms have become more prominent. In the US history, such cases have been well documented, especially during the period of dominance of the local banks. The early 90s saw the emergence of mass financial institutes. They regarded profits with increasing investor scrutiny leading to a lower likelihood of the bank affording subsidies through the outright discrimination through forgoing loan originations.
Again, it may be observed that an institution has very few applications from certain races, such as African Americans, or ethnicities such as Hispanics, or women. The conclusion could be the institution may be unfairly discouraging these classes of borrowers and therefore may be discriminating against them. This form of discrimination is again illegal in the US.
Some amount of tension does exist in this area. Banks prefer to attract borrowers of high quality, and there is certainly an extent on the quality of the borrower corresponding to his or her protected status. In this monitoring, there has been an effective reduction in referral or implicit discrimination.
Nowadays, banks are not ready to enter into such relationships, since they tend to expose the lender to liabilities related to the discriminating behavior or the partner. Banks are also not in favor of violating the redlining clause. This refers to a substantially lower percentage of applications from a certain area, as compared to areas that are immediately surrounding it.