Mortgage lenders should expect a higher proportion of their originations to be classified as subprime loans in their Home Mortgage Disclosure Act reports for 2005, according to the Federal Reserve Board.Owing to the flattening of the yield curve in 2005, "one would expect a higher proportion of loans originated in 2005 than originated in 2004 to be reported under HMDA as higher-priced loans," the Fed said in an update of its "Frequently Asked Questions about the New HMDA Data." Loans with an interest rate 3.0 percentage points above the comparable Treasury security rate are consider higher-priced loans. The Fed created this category to find out who is originating subprime loans and what the pricing of the loans is. Since short-term rates rose during 2005 and long-term rates remained relatively stable, the "proportion of loans reported as higher-priced will increase," the Fed said, if most other factors remain constant. Total originations increased in 2005 by 16.6% compared with those of 2004 on a dollar basis, according to the Quarterly Data Report, a MortgageWire affiliate. In 2004, lenders included 33.3 million loans in their 2004 HMDA reports, and 2.18 million loans (or 15.5%) fell into the subprime bucket.
