Government Monitoring Program
As required by applicable law, a bank is required to request and maintain information from loan applicants on race, ethnicity, and sex or any other questions that may create a sensitivity that will lead to discrimination of any sort to allow the government to monitor compliance with nondiscrimination laws.
Fair Lending Training
Bank personnel involved in lending are required to receive appropriate training on fair lending laws and regulations periodically from the bank.
Regulation C: Home Mortgage Disclosure Act (HMDA)
The instinct of owning a place in which to live and to produce a livelihood is a natural dream for every individual and family. The engine that powers economic development throughout history has been the desire to have a place to live and a means of transportation. In today's language, that means owning a house and an automobile. That is why the twin backbones of major developed countries and societies have been the housing and automobile industries. The development of mortgage financing in the United Kingdom, Germany, and the United States has helped propel the economies directly and indirectly:
■ Economies are propelled directly by increasing demand for the products, industries, and services associated with building homes.
■ Economies are propelled indirectly by satisfying the citizen's natural instinct for ownership by making him/her feel that he/she owns a house — “a piece of the rock.” This feeling of ownership makes the citizen proud of his/her citizenship, deepens the feeling of belonging to the country, and enhances the value of the real estate in general, as owners strive to beautify their owned properties by continually maintaining and improving them. Owning a home strengthens the feeling of responsibility toward the country, the citizens' own families, and the community at large.
One of the important parameters used by the U.S. Federal Reserve System in its decision regarding interest rate and monetary policy is setting the interest rates (as discussed in Chapter 5) and its impact on the housing and automobile industries.
In an effort by the government to monitor home financing activities in every small town, neighborhood, or city throughout the United States, each home mortgage financing participant — including each bank and mortgage finance company — is required to complete a special government form designed to reveal any implicit or systematic discrimination against any minority when it comes to home financing. This act was designed to eradicate to the best possible ability of the government any discrimination activity, such as the most well-known scheme (practiced in the 1970s) called red zoning. In this scheme, different areas in a city were red-zoned to indicate that such areas were high-risk areas and that lending there would be dangerous because of the ethnic character of those who lived there. This practice, of course, made the low-income and poor neighborhoods suffer. The Home Mortgage Disclosure Act (HMDA) was enacted by the Congress in 1975 (as amended) and is implemented by the Federal Reserve Board's Regulation C (12 CFR 203). HMDA requires financial institutions to maintain and annually disclose data about home purchases, home purchase preapprovals, home improvement, and refinance applications involving one- to four-unit and multifamily dwellings. It also requires branches and loan centers to display a special HMDA logo on all its communications, publications, website, and advertising materials.