Financial Update (Fourth Quarter 2008)

New HMDA Data Show Decline in Mortgage Lending

photo of house for sale Changes in the mortgage industry are evident in the newly released 2007 Home Mortgage Disclosure Act (HMDA) data. The HMDA data, released in September 2008 by the Federal Financial Institutions Examination Council (FFIEC), cover mortgage lending transactions of 8,610 lenders in metropolitan statistical areas throughout the nation.

Overall home mortgage market down
One of the most noteworthy findings is the decline in activity in the overall market and in higher-priced lending. The decline appears to be the result of several factors including slower house price appreciation—and, in some markets, declining house prices—and tighter underwriting standards. A mortgage market with fewer reporting institutions also contributed to the change. From 2006 to 2007, a number of institutions reporting data discontinued operations—the 2006 data covered 8,886 lenders, a decline of 276 lenders from 2006 to 2007.

Recent changes to the data allowed comparisons on loan pricing. Differences in the incidence of higher-priced lending (that is, the proportion of loans where the spread between the loan's annual percentage rate and the yield on comparable-maturity Treasury securities exceeds specified thresholds) between racial and ethnic groups continued in 2007, as did differences in denial rates on loan applications. These differences continue to raise concerns about the availability of credit to minority applications.

FFIEC press releaseoff-site image
Board of Governors article on 2007 HMDA dataoff-site image
HMDA data order formoff-site image

HMDA data cannot answer all of the questions
The HMDA data are not, by themselves, a basis for definitive conclusions regarding whether a lender discriminates unlawfully against particular borrowers or takes unfair advantage of them. For example, the HMDA data do not include certain determinants of credit risk that some lenders consider in pricing mortgage loan products, such as the borrower's credit history, loan-to-property-value ratio, and consumer debt-to-income ratio, according to the FFIEC.

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, according to the FFIEC. Nevertheless, the HMDA pricing data are a useful screening tool for identifying institutions that warrant further scrutiny.


October 17, 2008