Banking

Overall mortgage loan volume rebounded in 2009, following two years of significant declines, according to new Home Mortgage Disclosure Act (HMDA) data. An article by Robert B. Avery, Neil Bhutta, Kenneth P. Brevoort, and Glenn B. Canner of the Federal Reserve Board highlights this fact and provides other insights gleaned from the data. The article, "The 2009 HMDA Data: The Mortgage Market in a Time of Low Interest Rates and Economic Distress," is featured in the Sept. 20 issue of the Federal Reserve Bulletin.

The 2009 HMDA data consists of loan information reported by more than 8,100 home lenders and gathered by the Federal Financial Institutions Examination Council. HMDA requires most mortgage lenders that operate in metropolitan areas to provide disclosure information about their home-lending activity, including the type, purpose, and characteristics of the home mortgages they originate or purchase, as well as loan pricing information and demographic information about the borrowers.

Refinances, new home loans drive loan volumes
According to the authors' analysis of the data, overall loan volume in 2009 remained well below the levels seen earlier in the decade. During the same time period, refinance activity rose sharply, while home-purchasing lending continued to slide. However, the increase in refinance activity "appears to have been somewhat subdued compared to what has historically been observed when mortgage rates sharply decline," noted the authors. Some possible reasons behind the dampened refinance activity include economic distress and low or negative equity among many households.

The decline in home-purchase lending could have been much steeper if not for first-time homebuyers, who took advantage of favorable conditions such as historically low interest rates, falling house prices, and the $8,000 federal tax credit for first-time homebuyers, the authors wrote.

Loans backed by VA, FHA rise sharply
The HMDA data also showed a sharp increase in government-backed loans. Federal government guarantees from the Federal Housing Administration, the Department of Veteran Affairs, and federal farm programs made up 54 percent of all new mortgages in 2009, the report said. The pull-back among the government-sponsored enterprises and private mortgage insurers from the market for high loan-to-value ratios likely contributed to the increase in federal government guarantees, the authors noted.

September 28, 2010