Pub. 6 2018 Issue 4

2016 HMDA Data – What it Tells the Industry By Bill Elliott, CRCM, Manager of Compliance Services T he Financial Institutions Examination Council (FFIEC) announced the avail- ability of data on mortgage lending transactions at 6,762 U.S. financial institutions (a decline of about two percent) covered by the Home Mortgage Disclosure Act (HMDA). Covered institutions include banks, savings associations, credit unions, and mortgage companies. The HMDA data just released cover 2016 lending activity. Data overview The 2016 data include information on 13.9 million home loan applications, of which 8.4 million resulted in loan originations, and 2.2 million in purchased loans, for a total of over 16.1 million actions. The data also include in- formation on approximately 530,000 requests for preapprovals for home purchase loans. The total number of originated loans of all types and purposes increased by almost 1 million between 2015 and 2016, or 13 percent. Refinance originations increased by 16 percent, and home purchase lending increased by almost 11 percent. From 2015 to 2016, the share of 1-4 family home purchase loans made to low- and mod- erate-income (LMI) borrowers (those with in- come of less than 80 percent of area median income) fell from about 27 percent to roughly 25 percent, and the share of refinance loans to LMI borrowers decreased from 22 percent to 19 percent. This may be the result of many factors, including increases in home prices in some areas of the country. Demographics In terms of borrower race and ethnicity, the share of home purchase loans for 1-4 family properties made to black borrowers rose from 5.2 percent in 2015 to 5.6 percent in 2016, the share made to Hispanic-white bor- rowers rose from 7.9 percent to 8.4 percent, and those made to Asian borrowers rose from 5.5 percent to 5.7 percent. The share of refinance loans made to black borrowers remained at 4.9 percent in 2016, the share made to Hispanic-white borrowers remained at 6.1 percent, and those made to Asian bor- rowers rose from 5.1 percent to 5.6 percent. These are all positive trends. In 2016, black and Hispanic-white appli- cants experienced higher denial rates for conventional home purchase loans than non-Hispanic white applicants. The denial rate for Asian applicants is more comparable to the denial rate for non-Hispanic white applicants. These relationships are similar to those found in earlier years and do not take into account potential differences in risk char- acteristics across demographic groups. Government-backed lending The overall government-backed share of such purchase loans, including Federal Housing Administration (FHA), Veterans Administration (VA), Rural Housing Service (RHS), and Farm Service Agency (FSA) loans, was 39 percent in 2016, matching the share in 2015. The FHA-insured share of first-lien refinance mortgages for 1-4 family, site-built owner-occupied properties fell to 12 percent in 2016 from 14 percent in 2015, while the VA-guaranteed share of such refinance loans increased from nine percent in 2015 to 12 percent in 2016. Loan pricing data The 2016 HMDA data also include infor- mation on loan pricing for loans classified as “higher-priced.” Higher-priced loans are defined as loans with annual percentage rates (APR) that exceed the comparable average prime offer rates (APOR) by at least 1.5 percentage points for first-lien loans and at least 3.5 percentage points for subordi- nate lien loans. The data on the incidence of higher-priced lending shows that about 5.5 percent of first-lien loans originated in 2016 have APRs that exceed the loan price report- ing thresholds, down slightly from about 6 percent in 2015. For high cost (HOEPA loans) for 2016, 1,905 loan originations were reported: 1,118 home purchase loans, 285 home improvement loans, and 502 refinance loans. If you look at Regula- tion Z, there are large portions of the rule that govern what amounts to a handful of loans. In looking at the overall results, it was a pos- itive year for the industry – and the consumer. Using the data The FFIEC states that HMDA data can facilitate the fair lending examination and enforcement process and promote market transparency. When federal banking agency examiners evaluate an institution’s fair lending risk, they analyze HMDA data in conjunction with other information and risk factors, in accordance with the Interagency Fair Lending Examination Procedures. Risk factors for pric- ing discrimination include, but are not limited to, the relationship between loan pricing and compensation of loan officers or mortgage brokers, the presence of broad pricing discre- tion, and consumer complaints. The HMDA data alone, according to the FFIEC, cannot be used to determine wheth- er a lender is complying with fair lending laws. They do not include many potential determinants of creditworthiness and loan pricing, such as the borrower’s credit history, debt-to-income ratio, and the loan-to-value ratio. Many of these data elements are being added to the HMDA data collection process beginning in 2018. Therefore, when the federal banking agencies conduct fair lending examinations, including ones involving loan pricing, they analyze additional information before reach- ing a determination regarding institutions’ compliance with fair lending laws. Obtaining & disclosing HMDA data Lenders are required to make the disclo- sure statements available at their home offic- es within three business days after receiving the statements. In addition, for other MSAs in which they have offices, lenders must either make a copy of the statements available at one branch per MSA or provide a copy upon written request. The HMDA availability requirement is changing with the new year. Beginning in 2018, HMDA lenders will be able to direct the public to the Consumer Financial Protection Bureau’s (CFPB) HMDA website for any HMDA disclosure statements and modified loan/ application registers (LAR) that are available there, including those from past years, rather than making actual copies available in the lender’s offices. Disclosure statements and aggregate reports are currently available on the FFIEC’s HMDA website – www.ffiec.gov/hmda. Item descriptions and formats are spelled out for the HMDA data products at www.ffiec.gov/ hmda/hmdaproducts.htm. More information about HMDA data reporting requirements is available in the Frequently Asked Questions on the FFIEC website at www.ffiec.gov/hmda/faq.htm. Questions about a HMDA report for a specific lender should be directed to the lender’s supervisory agency. 17 Winter 2018 The Community Banker