Banking

Ongoing difficulties in the housing and mortgage industry are evident in the newly released 2008 Home Mortgage Disclosure Act (HMDA) data. The HMDA data, released in September 2009 by the Federal Financial Institutions Examination Council (FFIEC), cover mortgage lending transactions of almost 8,400 lenders in metropolitan statistical areas throughout the nation.

Data reveal declining activity
One of the noteworthy findings is the continued decline in activity in the overall market, a decline that occurred among all groups of borrowers regardless of race, ethnicity, or income, although lending for some groups declined more sharply than for others. Also, from 2007 to 2008 the number of reporting institutions and originated loans fell.

The data also showed that the Federal Housing Administration's (FHA) role in the mortgage market expanded considerably during 2008. The increasing use of FHA-insured loans in 2008 appears to be related to a number of factors, including difficulties faced by private mortgage insurers as they pull back from the marketplace.

Finally, atypical changes in the interest rate environment resulted in a large number of loans being reported as higher priced in 2008 that would not have been so reported a year earlier. As a result, the decline in the incidence of reported higher-priced lending between 2007 and 2008 actually understates the true extent of the decline in higher-priced lending.

HMDA data cannot answer all of the questions
The HMDA data are not, by themselves, a basis for definitive conclusions regarding whether a lender is complying with fair lending laws. For example, the HMDA data do not include certain determinants of creditworthiness that some lenders consider in pricing mortgage loan products, such as the borrower's credit history, loan-to-value ratio, and consumer debt-to-income ratio.

Conclusions from the HMDA data alone, therefore, run the risk of being unsound, which in turn may reduce the data's effectiveness in promoting HMDA's objectives. Nevertheless, the HMDA pricing data are a useful screening tool for identifying institutions that warrant further scrutiny.

October 28, 2009