Get Ready for a New Onslaught of HMDA Data
HMDA wonks of the world, rejoice!
That mammoth spreadsheet of mortgage data from thousands of lenders that you wrestle with every year may get considerably more inclusive.
My colleague Rachel Witkowski of American Banker reports that the Consumer Financial Protection Bureau is considering asking lenders to provide additional Home Mortgage Disclosure Act data so it can determine whether loans meet the new qualified mortgage rule.
Many lenders will automatically groan at the prospect of more regulatory compliance, though this may be several years off and Witkowski writes that the extra data may even be helpful to lenders that want to convince CFPB the QM rules make credit too tight.
Maurice Jourdain-Earl, a fair lending expert and the managing director of ComplianceTech in Arlington, Va., will cop to being a HMDA wonk. He's in favor of adding the new data and agrees this will benefit lenders, not hinder them. Adding transparency through more data, he argues, will help all parties to the transactionólenders, regulators, and community activists.
Many lenders' attitude toward HMDA is that all they need to do is "to fulfill regulatory obligations in a perfunctory way." But "a wealth of information can be derived from HMDA" and it can help lenders improve their operations and profitability, Jourdain-Earl says. "They should welcome it."
I myself am a HMDA wonk, but one with a rather love-hate relationship to the numbers. I love what they reveal, but hate the headaches that come from wrestling with these oceans of data.
I've been covering the mortgage business long enough to remember the big splash that brought HMDA to the forefront in the 1980s and early 1990s. The Atlanta Journal-Constitution did a Pulitzer Prize-winning series in 1988 plotting African-American neighborhoods in the city and overlaying neighborhoods which HMDA data showed were getting few or no mortgages. The two maps were just about a perfect match, and caught-out Atlanta lenders quickly pledged tens of millions of dollars in mortgages to mitigate the fault.
Here at National Mortgage News, I've studied the numbers for many years to determine nationwide rather than local trends in lending to minorities, which is one of the primary reasons for HMDA.
My analysis showed that in 2012 (the most recent period covered), mortgages to minorities were treading water, at 15% to 17% of the total. Since the minority population of the United States is about one-third, there remains a serious disconnect between minority populations and minorities getting mortgages.
Jourdain-Earl agrees that access to credit for communities of color is a key issue in HMDA reporting, and in the new QM rules. He worries QM may "further restrict this" as well as push minority lending away from QM, as typified by Fannie Mae and Freddie Mac, and towards Federal Housing Administration lending.
There is other information to be gleaned from the massive HMDA file. I've seen analyses of Fannie Mae-Freddie Mac share and how many loans were subprime based on HMDA. And in recent years I've expanded NMN's focus to dollar volumes of mortgages being funded versus not funded. The numbers are staggering.
Everyone will tell you, anecdotally, that mortgage lending in the United States has gotten tighter since the mortgage crash. But with HMDA, you can actually back this up with data. The 2011 HMDA report showed that fully 40% of all applications went unfunded. That came to $1 trillion in unfunded loans.
Now with HMDA you always have to guard against what the numbers show and what they don't show. HMDA volumes are always larger than industry estimates of actual volume, for instance, which must reflect some double-counting and doubtless, just plain old errors (hence, those headaches I mentioned above). The HMDA numbers don't tell you how much in loans was denied. They tell you how much in loans was unfunded for any reason: denied, incomplete, withdrawn, etc.
The following year, NMN found that some 34% of mortgage apps went unfunded. That's still a huge number, but it shows credit easing from year to year.
I can't wait for the 2013 HMDA report, which will come out around Labor Day or so. To get ready for it, I'm going to get an eye exam, new glasses, batteries for my calculator and a tall bottle of Excedrin.
Mark Fogarty, Editor at Large at National Mortgage News, is starting a regular blog of analysis and commentary based on his 30 years covering the mortgage industry.