2008 HMDA Data Revisions Reflect Economic Downturn

2008 HMDA Data Revisions Reflect Economic Downturn

photo of homebuyers and realtor

Following the release of adjusted Home Mortgage Disclosure Act (HMDA) data, the Federal Reserve Board of Governors, in the Federal Reserve Bulletin, released an analysis of the 2008 HMDA data. The April 2010 article, "The 2008 HMDA Data: The Mortgage Market during a Turbulent Year," reviews the HMDA data from 2008. The HMDA data cover mortgage lending transactions of almost 8,400 lenders in metropolitan statistical areas throughout the nation.

The article finds that the 2008 HMDA data, released in September 2009 by the Federal Financial Institutions Examination Council (FFIEC), reflected the economic crisis in a number of ways. One of the most obvious was a sharp drop in reported loan application and origination volumes, which fell sharply from 2007 to 2008 after already falling considerably from 2006 to 2007. The reduction occurred among all groups of borrowers regardless of race, ethnicity, or income.

FHA's role in the mortgage market expanded in 2008
The HMDA data also showed that the Federal Housing Administration's (FHA) role in the mortgage market expanded 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 and their pullback 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 subprime lending. The distortion caused by fluctuating interest rates led to an increase in the reporting of higher-priced loans for FHA even though it appears that FHA pricing was relatively unchanged.

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. 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.

May 26, 2010