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HMDA data show more high-priced loans in 2005.

The overall incidence of higher-priced lending was significantly higher in 2005 than in 2004, while the differences in the incidence of higher-priced lending between racial and ethnic groups also increased during the same period, according to a government analysis of Home Mortgage Disclosure Act (HMDA) data.

The report from the Federal Reserve, Higher Priced Home Lending and the 2005 HMDA Data, examined aggregate data released by the Federal Financial Institutions Examination Council (FFIEC) regarding mortgage transactions at 8,848 lending institutions covered by HMDA throughout the country.

Most loans reported in 2005 were not higher-priced as defined under the Federal Reserve's Regulation C, which implements HMDA, although the incidence of higher-priced lending was significantly greater in 2005 than in 2004, the report found.

For 2005, 26.2 percent of all reported loans (excluding loans with application dates before 2004) were higher-priced--an increase of nearly 70 percent over the 15.5 percent rate in 2005, noted the Fed report.

The 2005 HMDA data marked the second year in which new details were collected, including information related to loan pricing, whether a loan is subject to the Home Ownership and Equity Protection Act (HOEPA) and whether a loan was secured by a first or subordinate lien or was unsecured, as well as more a more specific classification of applicants by ethnicity and race.

In 2005, 54.7 percent of blacks and 46.1 percent of Hispanics took out high-cost loans compared with 32.4 percent and 20.3 percent, respectively, in 2004. Whites accounted for 17.2 percent of high-cost loans in 2005 compared with 8.7 percent the year before, while the percentage of Asian high-cost borrowers was 16.6 percent in 2005 compared with 5.9 percent in 2004.

While nominal differences in the incidence of higher-priced lending between whites and blacks or Hispanics in the report are large, the differences are substantially reduced after taking into account both a borrower's risk characteristics and the loan criteria of the lending company involved, noted Michael Fratantoni, senior director of single-family research and economics for the Mortgage Bankers Association (MBA).

"Rates appear to vary more across lenders than within the same lender, indicating the extreme importance that borrowers shop across more than one lender," said Fratantoni.

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Caution should be exercised when examining the report's comparison of lending along racial lines, as the omissions in the data collected--including credit scores and other risk factors--make it far from clear whether the demographic differences are due to unfair discrimination or market forces, Kathleen Ryan, counsel for the Federal Reserve Board's division of consumer and community affairs, told attendees at MBA's Regulatory Compliance Conference in September.

"The data continue to show disparities in race in the incidence of higher-priced lending. Understanding those disparities is a challenge," said Ryan. "The data don't contain enough information to tell us whether those disparities were the result of legitimate pricing considerations or of discrimination. But we are committed to understanding the causes of the disparities so we can address them appropriately."

The Fed's report noted that lenders during 2005 approved most of the applications they received, although the proportion approved or denied varied somewhat by loan purpose, loan product or lien status.

"Compared with denial rates in 2004, those in 2005 are slightly higher for conventional home-purchase and refinance loans, and are either unchanged or slightly lower for other loan products," stated the report. "Overall, the denial rate for all loans in 2005 was 27.1 percent, compared to 26.5 percent in 2004."

The report cautions that part of the increase in higher-priced lending in 2005 was due to changes in the interest-rate environment, changes in lenders' business practices, and shifts in how borrowers borrowed and their credit-risk profiles.

"Some of that increase from 2004 to 2005 doesn't reflect a real change in the market, but is simply the result of more reporting," said Ryan. "The reason for that more reporting is the change in the interest-rate environment; specifically, there's the flattening of the yield curve, and that effectively lowered the HMDA regulation's trigger for reporting a loan as higher-priced."

The 8,848 HMDA-reporting lenders accounted for about 80 percent of home loans extended in 2005. Broken down, 2,904 of the HMDA-reporting lenders were commercial banks, 2,047 were credit unions, 1,923 were mortgage companies and 974 were savings institutions.
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Title Annotation:Home Mortgage Disclosure Act
Publication:Mortgage Banking
Geographic Code:1USA
Date:Oct 1, 2006
Words:725
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