Piggybacks Boosting HMDA B&C Loans

Newly released Home Mortgage Disclosure Act data show a big increase in subprime lending in 2005, and regulators are pointing to a jump in piggyback loans as one reason.More than one-half of all African-American borrowers purchasing a home in 2005 paid subprime interest rates, compared with 17.2% of whites, according to HMDA. It shows that 54.7% of blacks and 46.1% of Hispanics received subprime loans to buy a home -- a dramatic jump from 2004 results, when 32.4% of blacks and 20.3% of Hispanics received subprime purchase loans. Earlier this year, Federal Reserve Board officials warned that the flattening of the yield curve would increase the number of HMDA-reported loans with subprime rates, defined as 300 basis points or more above the rates of comparable Treasury securities. However, Fed researchers concluded that the yield-curve effect was not that large. A bigger factor was the 57% increase in piggyback loans from 2004 to 2005. "[T]he increase in the number of high-priced piggy-back loans in 2005 accounted for more than half of the increase in the number of all higher-priced loans," the Fed says in its analysis of the HMDA data.