Mortgage Daily

Published On: September 14, 2005
Mortgage Groups Weigh In on Fed HMDA AnalysisFederal Reserve Board releases analysis

September 15, 2005


The Federal Reserve Board released Tuesday its analysis of 2004 data under the Home Mortgage Disclosure Act, which for the first time required that lenders disclose pricing information for loans with prices above designated thresholds, as well as disclosures of whether a loan or application relates to manufactured housing, and whether a loan is secured or not by a first or subordinate lien.

Review of the data indicated that the incidence of higher-priced conventional purchase loans was more than twice as likely for blacks, at 32%, than for non-Hispanic whites, at 9%. While gaps narrowed when controlling for borrower-related factors, such as income and loan amounts, minorities were still more likely to receive higher-priced mortgages, according to the report.

However, the Fed pointed out that only 2 percent of the 8,853 lenders covered by HMDA “exhibited a statistically significant difference in the incidence of higher-priced loans” between black and Hispanic borrowers and non-Hispanic white borrowers, after accounting for borrower-related factors that are available through HMDA data.

“Much of the initial public review of the data will, however, undoubtedly focus on loan pricing and particularly on the incidence of higher-priced lending and the comparison of prices paid by borrowers grouped by race, ethnicity, and sex,” the Fed said in the report.

“The most likely initial public focus will be on the incidence of higher-priced lending among minorities (particularly blacks) and among non-Hispanic whites,” it added.

Indeed, the subprime mortgage market, which the Fed says has quadrupled its share of total home loan originations over the past decade to 19% in 2004, has constantly been accused of engaging in “predatory lending” practices.

But, “HMDA data are not, by themselves, a basis for definitive conclusions regarding whether a lender discriminates cannot conclude whether a lender discriminates unlawfully against particular borrowers or takes unfair advantage of them,” the Fed and other banking-regulating member agencies of the Federal Financial Institutions Examination Council stated in an announcement Tuesday.

“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,” the council continued. “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.”

The National Home Equity Mortgage Association, which represents the nonprime lending market, said it “concur[s] strongly” with the council’s statements.

“NHEMA and its members are committed to ensuring that only factors directly related to credit risk determine mortgage loan pricing,” said the association’s president Jeffrey Zeltzer in an announcement. “The new government data will help guide our ongoing work with lenders, sister trade associations, nonprofit organizations, policymakers and others to make sure that all loans are priced on the basis of risk, not race or other inappropriate factors.”

In its announcement, NHEMA also said it understood that some borrowers may be unfamiliar with loan options and intimidated by the mortgage process and thus “will continue to work to help borrowers better understand how mortgage pricing works and help policymakers as they develop regulations that truly protect consumers against abusive practices while preserving access to credit.”

The Mortgage Bankers Association, which will conduct its own review of the HMDA data, focused its announcement regarding the Fed report on the conclusion that the availability of home loans to all borrowers has expanded and that “the vast majority of the differences in loan pricing and approval are explained even in the absence of detailed credit factors.”

“The information in the report is valuable to the mortgage industry, but it will take time to fully assess its contents,” said MBA chief economist Doug Duncan in the announcement. “It is important to point out, however, that HMDA data cannot be used to draw conclusions about why a loan was refused or made at a particular rate.”

The Consumer Bankers Association, which represents retail banking industry, stated “it is clear that substantial progress has been made” in expanding mortgage credit to all segments of society.

“The Federal Reserve’s analysis illustrates the complications of pricing factors that are the nature of mortgage lending; as a result, one borrower may pay a different price than another,” said CBA President Joe Belew in an announcement.

“This new information also shows that we need to intensify already substantial financial education efforts, to help ensure that the benefits of competition reach all sectors of the public,” he added.

Coco Salazar is an assistant editor and staff writer for [email protected]

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