MORTGAGE MARKET CHANNELS AND FAIR LENDING: AN ANALYSIS OF HMDA DATA

JOINT CENTER FOR HOUSING STUDIES
HARVARD UNIVERSITY

AUTHOR:
William Apgar
Amal Bendimerad
Ren S. Essene

KEY FINDING:

The rise of subprime mortgage lending is linked to the rise of new mortgage banking organizations and delivery systems, including mortgage wholesale operations and their networks of mortgage brokers. In 2004, HMDA required lenders to disclose pricing information for first lien mortgages with an Annual Percentage Rate (APR) that is three percentage points above a typical prime loan for the first time. These loans are called “rate-spread” or “higher-priced” mortgages and are roughly equivalent to what industry sources call non-prime or subprime loans. The findings based on these newly released HMDA data include:

• Most lending organizations make relatively few higher-priced mortgages. For example, in 2004 58.8 percent of all lenders (4,154 organizations) made 40.7 of all lower-priced prime loans (2.7 million), while these same organizations made just 2 percent of all higher-priced loans (27 thousand).
• At the other end of the spectrum 905 lenders specialized in higher-priced lending, meaning that higher-priced loans accounted for more than 50 percent of their overall lending activity in 2004. Of these, 17 large independent mortgage companies collectively originated 506 thousand loans, or 39 percent of all higher-priced loans originated that year. As non-bank lenders, these independent mortgage companies are less closely monitored by the Community Reinvestment Act and other federal-level regulations that focus on banks and thrifts and their subsidiaries and affiliates.
• Channel specialization extends to secondary market outlets. For example, the GSEs (Fannie Mae and Freddie Mac) largely limit their purchase of whole loans to the prime segment of the market. In 2004, HMDA data suggest that the GSEs directly purchased only 22 thousand (or 1.7 percent) of the nearly 1.3 million higher-priced loans originated. In contrast, the bulk of higher-priced mortgages flow through less heavily regulated non-bank mortgage conduits.
• The general characteristics of the mortgage channel and the specific characteristics of the organization originating the loan are correlated with racial and ethnic difference in the share of  borrowers obtaining higher-priced mortgages. For example white borrowers are 50 percent more likely (28.5 versus 17.4 percent) than black borrowers to obtain a loan from a bank or thrift regulated by the Community Reinvestment Act (CRA). In contrast some 44.2 percent of all blacks (versus 30.1 percent of whites) obtain a loan from a less heavily regulated independent mortgage companies.

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