In my opinion, any proposed expansion of the ARC should be supported by data indicating that the extension to IMCs is necessary and will be effective in achieving an appropriate objective. In this case, the data simply does not support such expansion. Each year, the CFPB analyzes data from the Home Mortgage Disclosure Act and publishes a report that includes an analysis of the lending activities of deposit-taking institutions and independent mortgage companies. In its most recent report, the CFPB concluded that deposit-taking institutions do not have a greater market presence to serve minority borrowers or low-to-moderate income borrowers, who have historically been underserved, stating that “smaller shares of loans issued by [depository institutions] went to minority borrowers, LMI (low to moderate income) borrowers, and in LMI neighborhoods that [non-depository institutions].”
The fact that deposit-taking institutions, which have now been subject to the CRA for over 40 years, are NOT outperforming their non-custodial counterparts in meeting the needs of minorities and low-to-middle income borrowers, clearly indicates that the expansion proposed from ARC to IMC is unlikely to achieve the intended objective.
Likewise, the state-specific application data of an ARC equivalent also does not offer compelling justification for further expansion. Although Illinois and New York only recently adopted a CRA requirement for non-banks, Massachusetts has had one on the books since 2007. According to Mortgage Banker Association data, Massachusetts IMCs enjoyed an overall market share of 55% of purchase loans in 2020, yet IMCs provided 62% of loans to minority homebuyers and low-to-moderate income borrowers, surpassing their share of 7% overall market.
While this performance may seem impressive at first glance, it is not superior to IMC’s performance in states without state ARCs for non-banks. For example, IMCs in Texas had a 70% market share for purchase packages, but made 77% of purchase loans to minority buyers and 76% of loans to low-to-moderate income buyers. In Florida, IMCs held an overall market share of 71%, but provided 81% of purchase loans to minority buyers and 77% of purchase loans to low-to-moderate income borrowers. Other states show similar results. Therefore, there appears to be nothing in the data to support the conclusion that a broader application of CRA to non-banks results in a tangible benefit for underserved markets, based on the Massachusetts results.
I understand that proponents of ARC expansion are driven by the desire of all segments of society – and especially historically underserved areas – to have sufficient credit to buy homes, finance businesses and expand opportunities, which is a very laudable goal. But the value of this goal does not warrant the conclusion that expanding ARC is the appropriate course of action, especially in the absence of supporting data and when the fundamental premise of ARC, the reception deposits, does not exist.