mark w olson : a look at fair lending through the lens of the new hmda data remarks by mr mark w olson, member of the board of governors of the us federal reserve system, at the consumer bankers association 2005 fair lending conference, arlington, 7 november 2005. * * * i want to thank joe belew and the consumers bankers association for inviting me to be with you here this morning. i am especially pleased to speak at this particular annual fair lending conference because it gives me an opportunity to discuss fair lending in the context of the new pricing data that were collected under the home mortgage disclosure act ( hmda ) for the first time this year. later, federal reserve board staff members will discuss in detail the board's analysis of the 2004 hmda data and fair lending procedures. but now, i want to review the history and purpose of the hmda data collection and offer my perspective on the new pricing data, its impact on fair lending evaluations, and how the data can be used to monitor your institution's lending programs and explore new lending opportunities. as you are all aware, amendments to the regulation implementing hmda required the reporting of loan - pricing data for higher - priced loans, beginning in 2004. these additional requirements reflect significant changes in the mortgage credit market in recent years. technological advancements and the practice of credit scoring have resulted in new strategies for analyzing, underwriting, and pricing mortgage loans. because technology allows lenders to price for risk more efficiently, access to mortgage credit has expanded. this expansion, which is largely in the subprime market, has grown dramatically in the last decade, with generally positive, but sometimes negative effects. the change in reporting requirements was also the result of a fundamental reassessment of the nature of mortgage lending abuses. previously, it was presumed that a potential result of inconsistent mortgage loan administration was denial of credit on the basis of race, sex or other impermissible factors. more recently, the pricing of loans - - not just the availability of loans - - has been a potential source of discriminatory lending practices. home ownership is at record highs among low - income and minority borrowers, many of whom may not have qualified for mortgages prior to the development of risk - based pricing technologies. this is generally viewed as a very positive development, since home ownership is often the single most important step toward asset accumulation and wealth building in this economy. however, the increase in mortgage lending among lower - income and minority borrowers

response by u. s. authorities was fairly quick and complete. the resolute actions of the bush administration in late 2008 and the obama administration early in 2009 helped stabilize banks and begin their recovery in fairly short order. recapitalization proceeded quickly, even as the stress test compelled an early reckoning with actual and potential losses. the forceful monetary policy response, the liquidity programs of the federal reserve, and the fdic ’ s guarantee of bank debt prevented the bottom from dropping out of the badly shaken financial system. the emergency fiscal stimulus of 2009 helped prevent a downward spiral in the real economy from a great recession to another depression. second, and of more relevance for the subject of this conference, was the regulatory reform program put in motion even before the crisis had ended. this program has steadily strengthened the capital, liquidity, and risk management positions of large banks, with progressively more stringent measures applied to the most systemically important institutions. the new regulatory regime for large banks serves two important, complementary goals. one is to ensure that the nation ’ s large financial institutions are sufficiently strong to continue to function effectively as intermediaries, lending to creditworthy businesses and households even in a period of substantial financial and economic stress. if they cannot do so because, for example, their capital positions have been too weakened, the result could be a deepening of what may already be a serious recession. the other goal is to address the too - big - to - fail problem. when core loans grew at an average annual rate of about 7 percent from 1995 to 2004. core loan growth was 5. 4 percent in 2014, 6. 5 percent in 2015, and 7. 1 percent thus far in 2016. some combination of the size, functions, portfolios, and interconnectedness of a financial institution are such as to make authorities fear that its failure could endanger the entire financial system, they will be tempted to rescue the firm through direct capital injections or indirect measures to strengthen its solvency. knowing this, other market actors will be willing to lend to that institution at a premium lower than its actual risks would suggest is warranted, an effect that is particularly apparent during periods of stress. taking both these goals into account, the regulatory regime must aim for much greater resiliency in the large banks than in smaller ones, so that they can continue to function even under serious stress without solvency assistance from the government and, thus, avoid causing more harm to the economy. but the