HMDA Data Could Misclassify Prime

The Federal Reserve Board needs to adjust its benchmark for subprime loans so it does not "misclassify" prime jumbo loans, as well as prime loans with government or private mortgage insurance, and reduce the availably of mortgage credit, according to five major trade groups. Without adjustments for these types of loans, the Home Mortgage Disclosure Act data will misclassify prime loans and many prime loans will be treated as subprime under the Home Ownership and Equity Protection Act, according to their comment letter. The American Bankers Association, American Financial Services Association, Consumer Bankers Association, Consumer Mortgage Association and Mortgage Bankers Association sent the Aug. 29 letter in response to a HMDA proposal. "Applying the new HOEPA rules - and liability - to large segments of the prime market will decrease the availability and affordability of mortgages," the signers warn. As part of an overhaul of its HOEPA regulations in July to stop deceptive subprime lending practices, the Fed adopted the weekly Freddie Mac primary mortgage market survey plus 150 basis points as its benchmark for determining subprime loans. Now the Fed is proposing to use the same benchmark for HMDA reporting. The industry commenters point out that the interest rate on the average jumbo loan has exceeded the benchmark for almost every week for the past six months.