Financial Update (Third Quarter 2007)

New HMDA Data Show Changes in Mortgage Market

HMDA graphicWhat kinds of mortgages are people getting? Where are people getting loans? The 2006 Home Mortgage Disclosure Act (HMDA) data, released in September 2007 by the Federal Financial Institutions Examination Council (FFIEC), answer these questions and provide other insights into the mortgage market.

The data cover mortgage lending transactions of 8,886 lenders in metropolitan statistical areas throughout the nation, which accounts for about 80 percent of all home lending nationwide.

Mortgage companies gain ground
The report shows the growth of mortgage companies as lenders of choice. While almost 80 percent of the reporting institutions were depository institutions in 2004 and 2005, these institutions represented only about 40 percent of the loans and applications. Mortgage companies, which make up only 22 percent of the reporting institutions, accounted for more than 60 percent of the reported mortgage loans and applications.

Related
FFIEC press release:
Board of Governors article on 2006 HMDA data
HMDA data order form

Recent changes to the data allowed comparisons of loan pricing. The information showed greater incidence of higher-priced lending—loans where the spread between the annual percentage rate, or APR, and the yield on comparable-maturity Treasury securities exceeded specified thresholds—for borrowers residing in census tracts with higher populations of lower credit scores and in census tracts with larger proportions of lower-income and minority households.

Some questions remain unanswered
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.

The absence of this type of information doesn't allow definitive conclusions about whether a lender discriminates unlawfully against particular borrowers or takes unfair advantage of them. Therefore, sound conclusions about a financial institution's lending practices should not be based solely on HMDA data, according to the FFIEC. But the data should be useful as a screening tool for identifying institutions that warrant further scrutiny.

September 25, 2007