HMDA Data Robert B Avery Association of Public

HMDA Data Robert B. Avery Association of Public Data Users Annual Conference 2008 September 24, 2008 This presentation reflects the joint work of Robert B. Avery, Kenneth P. Brevoort and Glenn B. Canner. The views expressed here are those of the author and do not necessarily represent those of the Board of Governors of the Federal Reserve System or members of the staff.

HMDA Background n The Home Mortgage Disclosure Act (HMDA) of 1975 enacted to address concerns about redlining practices ¨ Requires most lenders in metropolitan areas to disclose information about their mortgage lending activity each year by census tract and type of loan. n HMDA amended by Congress in 1989 to add application-byapplication disclosure of: 1. Race, ethnicity and sex of applicants 2. Borrower income 3. Disposition of applications (approval, denial, etc. ) and reasons for denial 4. Loan size, type of loan, and census tract 5. Information on the sale of the loan in the secondary market

HMDA Price Disclosures n Federal Reserve amended Regulation C in 2002 to require disclosure of information about loans with prices above designated thresholds; such loans are referred to as “higher-priced loans” but are not equivalent necessarily to “subprime. ” n What is disclosed? 1. 2. 3. 4. Rate spread in percentage points Spread is difference between APR on loan and yield on Treasury security of comparable maturity Spread reported for first lien loans if above 3 percentage points Spread reported for subordinate lien loans if above 5 percentage points

The 2007 HMDA Data n For 2007: 8, 610 lenders reported on roughly 21 million loan applications down about 25 percent from 2006 ¨ Reporters include 6, 858 banking institutions and 1, 752 mortgage companies -- including 1, 124 independent mortgage companies ¨ Number of reporters fell about 3 percent; virtually all the decline due to independent mortgage companies that ceased operations

FHA and Nonowner-Occupant Lending n FHA-lending: ¨ FHA share of market fell from 16 percent as recently as 2000 to only 3 percent in 2006. FHA share rebounded to 5 percent in 2007 and indications are it is growing rapidly in 2008 n Growth of nonowner-occupied lending: ¨ In mid-1990 s share was 5 percent, reached peak in 2006 at 17 percent; share fell to 15 percent in 2007

Piggyback Lending n In recent years, Piggyback loans were a popular financing arrangement for homebuyers seeking to avoid PMI and minimize downpayment ¨ Volume of piggys fell 60 percent from 2006 to 2007 ¨ From 2006 to 2007 the use of piggys changed; more were used to keep the first lien loan within the GSE loan limits and fewer used as a substitute for PMI or as part of subprime 80 -10 -10 loans

Incidence of Higher-Priced Lendinghigher-priced lending has changed over n Incidence of time: Year 2004 2005 2006 2007 n Percent 16 26 29 18 Change in incidence may be caused by: Artifact of how Regulation C determines which loans are higherpriced in combination with the flattening of the yield curve ¨ Changing risk profiles of borrowers ¨ Changing business practices or risk tolerances of lenders ¨ Nonreporting by lenders ceasing operations to the extent they were more focused on the higher-priced segment ¨

Who Extends Higher-Priced Loans n Share of higher-priced lending accounted for by depositories rose sharply in 2007 as independent mortgage company share fell 2005 2006 2007 Type of lender Distribution % Incidence % Independent mortgage company 52 41 46 42 21 20 Depository 23 13 29 19 46 15 Subsidy of depository 13 21 12 23 16 20 Affiliate of depository 12 31 13 38 18 41 Total 100 25 100 28 100 19 Distribution Incidence Distribution % % % Incidence %

Effects of Closed Lenders Loan Counts by Month, 2006 and 2007

Percentage Change in Home Purchase Lending by Race or Ethnicity, 2006. H 1 to 2007. H 2 • Lending to Blacks and Hispanic whites fell more than to non-Hispanic whites • Racial pattern holds across all income groups • Falloff in lending to Blacks driven by decline in higher-priced lending Borrower Race or Ethnicity All Loans Lower-Priced Loans Higher-Priced Loans Black -35 -2 -69 Hispanic whites -49 -27 -76 Non-Hispanic White -22 -14 -60 Total -29 -17 -67

Percentage Changes in Lending by Type of Lender • Independent mortgage companies experienced greater declines than depository institutions regardless of location for all types of lending All Depositories in Assessment Area Depositories Outside Assessment Area Independent Mortgage Company Lower Priced -17 -4 -17 -36 Higher Priced -67 -17 -59 -88 Lower Priced -16 -11 -7 -38 Higher Priced -57 8 -43 -85 Loan Type Home Purchase Refinance

House Price Changes and Changes in Lending n Falloff in lending activity is related to patterns of house price changes in preceding years ¨ MSAs that had larger declines in prices from 2006. Q 4 to 2008. Q 1 experienced larger declines in lending ¨ Falloff in activity was greater for MSAs that had experienced sharp increases in home prices from 2003. Q 1 to 2006. Q 4 n Lending declined 53 percent in MSAs with sharp declines preceded by sharp increases, compared to a 5 percent decline in MSAs with sharp declines preceded by smaller appreciation

Change in House Price Index from December 2006 to March 2008

Percent Change in Lending from the First Half of 2006 to the Second Half of 2007

Incidence of Higher-priced Lending by Race or Ethnicity, 2 nd Half of 2006, 2007 • Wide differences in the incidence of higher priced lending across groups: blacks and Hispanic whites have elevated rates Race or Ethnicit y 2006 Higher-Priced Incidence (%) 2007 Higher-Priced Incidence (%) Gross Incidence Adjusted Incidence Gap Asian 16. 7 16. 5 -. 8 5. 6 7. 8 -1. 4 Black 51. 1 30. 7 13. 4 29. 5 20. 3 11. 1 Hispanic Whites 45. 1 23. 9 6. 6 24. 3 15. 4 6. 2 Non. Hispanic Whites 17. 3 0 9. 2 0

Denial rates by Race and Ethnicity, 2 nd Half of 2006, 2007 n Wide differences in denial rates: blacks, Hispanics have elevated rates of loan denial 2006 Higher-Priced Denial Rate (%) Race or Ethnicity Denial rate 2007 Higher-Priced Denial Rate (%) Adjusted Denial denial rate gap rate Adjusted denial rate gap Asian 16. 8 14. 8 1. 7 17. 7 15. 1 1. 9 Black 32. 3 21. 5 8. 4 34. 2 22. 9 9. 7 Hispanic Whites 26. 2 17. 6 4. 5 30. 0 19. 7 6. 5 Non. Hispanic Whites 13. 1 0 13. 2 0

Modifying HMDA to be Consistent with New HOEPA Rules n Definition of higher-priced lending in HOEPA ¨ APR spread for each loan calculated by comparing APR on loan with mortgage rates for lowest risk prime borrowers n n Prime rates from weekly Freddie Mac PMMS Loan products not included in PMMS are based on a an interpolation of the spread differences between PMMS rate on similar products and Treasury yield and adding the interpolated spread to the comparable Treasury yield ¨ Starting date for the new rule