Highlights: 2010 Home Mortgage Disclosure Data

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1 1. Introdution The last five years have seen tremendous hanges in the volume and omposition of mortgage lending in the United States. The impat of Dodd-Frank legislation on the onentration of mortgage lending, ongoing debate on what role the Government Sponsored Enterprises (GSEs) should play in the mortgage markets, and more general questions about the long term viability of the 30-year fixed rate mortgage provide an interesting bakdrop to looking at reent mortgage market data. The mortgage appliation level data olleted annually as presribed in the Home Mortgage Dislosure At of 1975 (HMDA) by the Federal Finanial Institutions Examination Counil provides an opportunity to observe trends in mortgage lending over the past five years. As has been done eah year sine 2005, the Federal Reserve Board (FRB) has prepared a lengthy artile desribing the 2010 HMDA data. 1 In this paper we present statistis from the 2010 data, as well as provide an examination of several important trends evident in the HMDA data during the period Finally, we examine the trends in lending by rae and ethniity nationally and within seleted geographies. 2. Overall Market At the national level, 2010 saw the ontinuation of a number of trends in the residential mortgage market. Overall originations were down approximately 12% to 7.4 million from 8.4 million in 2009; and 42% from a high of 12.8 million in Refinane ativity ontinued to outpae purhase money mortgages, refleting ontinued low interest rates and tighter lending standards relative to Table 1: Total Originations by Purpose, Total Purhase Total Refinane Total Originations ,726,281 6,082,128 12,808, ,641,158 4,809,508 9,450, ,073,530 3,474,817 6,548, ,673,938 5,765,787 8,439, ,462,720 4,969,622 7,432, See Avery, Robert B., Neil Bhutta, Kenneth P. Brevoort and Glenn B. Canner, September 22, 2011, The Mortgage Market in 2010: Highlights from the Data Reported under the Home Mortgage Dislosure At, forthoming, Federal Reserve Bulletin, Volume 97, Aording to Freddie Ma s 10K report for 2010, the average redit sore of redit guaranteed loans originated was 712 in 2006 and 707 in By 2009 and 2010 the average sore was 755. In 2006, the weighted average original LTV was 73% and in 2010 the same weighted average original LTV was just 67%. See the K at and the K at

2 Interest rates, as refleted in Freddie Ma s Primary Mortgage Market Survey for 30-year fixed rate mortgages, ranged from a high of 5.10 in April 2010 to a low of 4.23 in Otober Despite interest rates being slightly lower in 2010 than in 2009 (when rates ranged from 5.42 to 4.81), refinane ativity slipped from 68 perent of total ativity in 2009 to 67 perent in Mortgage Rates Soure: Freddie Ma, Primary Mortgage Market Survey,Conventional, Conforming 30- Fixed-Rate Interest Rate % HMDA-reportable originations during 2010 were dominated by first lien mortgages with a volume of 7.3 million loans. With the deline in house pries and the ontration of non-ageny lending in 2007 and 2008, the volume of HMDA seond lien mortgages ontinued its steep post-2006 deline registering only 137,811 funded loans by 2010, at just 1.9 perent of mortgage ativity as ompared to 19.4 perent of total ativity in Table 2: Originations Lien Status, Total First Lien Total Seond Lien Total Originations ,321,751 2,486,658 12,808, ,183,679 1,266,987 9,450, ,220, ,535 6,548, ,272, ,653 8,439, ,294, ,811 7,432,342 The government and government sponsored agenies ontinue to be instrumental in residential mortgage markets. As displayed in Table 3, Fannie Mae, Freddie Ma (the GSEs) and Ginnie Mae (seuritizing FHA loans originated) and Farmer Ma ombine for 41% of the market in In 2006, when the subprime market s share of originations was at its height, the ageny share of the market had delined to 3 Charles River Assoiates 2

3 just 18%. The last two years have seen a signifiant resurgene in ageny ativity. While loans sold diretly to Freddie Ma and Fannie Mae have a share in exess of 40%, revised estimates by the FRB indiate the true share might be over 55%. 4 Total Originations Table 3: Ageny Purhasers, Ageny Purhases Fannie Mae Ginnie Mae Freddie Ma Farmer Ma Total Ageny Ageny Share of Total Originations ,808,409 1,305, , , ,279,353 18% ,450,666 1,361, , , ,445,172 26% ,548,347 1,202, , , ,475,219 38% ,439,725 1,703, ,411 1,396, ,770,148 45% ,432,342 1,428, ,363 1,045, ,056,557 41% FHA and VA programs also ontinue to play a heightened role in the market. For purhase originations, FHA/VA lending aounted for approximately 45% of purhase originations and 24% of first-lien originations. Table 4: FHA/VA Originations by Purpose, FHA/VA Purhase Refinane Total , , , , , , , ,254 1,444, ,207,033 1,002,513 2,209, ,082, ,420 1,742, Market Conentration The trend towards higher market onentration by the largest lenders ontinued in The top 10 mortgage originators aounted for 38% of all originations during the year; up from 34% in After a number of years of onsiderable hange in the omposition of the top 10 originators resulting from aquisitions, bankrupties, et., the top 10 originators were largely unhanged from 2009 to 2010, although their rank order did hange Table 3 likely underrepresents the share of Freddie Ma and Fannie Mae purhases, as noted in Avery (2010) at 25. Either the loans might be sold to the GSEs in subsequent years (and not in the urrent HMDA) or they may be sold through other lenders and later reeive a redit wrap from the GSEs. Citibank re-entered the top 10 during 2010, displaing Provident Funding. In 2007, onentration among the top 10 lenders reahed 44%, dominated by some of the largest lenders in the subprime market segment inluding Countrywide, Washington Mutual and Wells Fargo. Charles River Assoiates 3

4 Lender Table 5: Top 10 Mortgage Lenders, 2010 Count with Count of Share of Reported Originations Originations Rate Spread Share of Originations with Reported Rate Spread Average Level of Reported Rate Spreads WELLS FARGO & CO 1,048,154 14% 12,095 1% 2.24 BANK OF AMER CORP 581,267 8% 9,137 2% 2.15 JPMORGAN CHASE & CO 315,913 4% 2,391 1% 1.87 U S BC 175,596 2% 8,447 5% 3.38 QUICKEN LOANS, INC. 134,640 2% 452 0% 1.68 CITIGROUP 132,923 2% 3,526 3% 5.64 FIFTH THIRD BC 115,087 2% 571 0% 1.73 SUNTRUST BK 99,870 1% 193 0% 2.21 FLAGSTAR BK FSB 98,186 1% 1,788 2% 1.73 METLIFE 88,614 1% 47 0% 1.70 Total Top 10 2,790,250 38% 38,647 1% 2.71 All Other Lenders 4,642,092 62% 180,996 4% 3.23 Total 7,432, % 219,643 3% 3.14 Soure: 2010 HMDA Data 4. Regional Markets At the regional level, several interesting trends were evident over the period from 2006 to While overall origination volume was down in all nine regions reported by HMDA, the and regions fell by 57% and 51%, respetively; nearly twie the rate of the delines in the and New England regions, at 17% and 23% respetively. Table 6: Originations by Region and 6 Change Region from New England 573, , , , ,405-23% Mid 1,261, , , , ,704-40% 1,758,798 1,348,676 1,010,802 1,370,098 1,211,481-31% 727, , , , ,383-17% 3,023,238 2,120,598 1,347,380 1,549,837 1,309,868-57% 586, , , , ,451-34% 1,070, , , , ,298-37% 1,288, , , , ,466-51% Paifi 2,401,134 1,619, ,935 1,406,579 1,352,417-44% Total 12,690,314 9,357,373 6,441,106 8,315,879 7,368,473-42% 6 This table exludes loans from Puerto Rio and where the State of origination was missing. Charles River Assoiates 4

5 The differenes in hanges in origination volume by region during the period may be explained, in part, by hanges in home pries and unemployment. The following two harts present the Federal Housing Finane Ageny s house prie index and Bureau of Labor Statistis unemployment rates, respetively, over the period for the same nine regions. It appears that regions with the largest delines in mortgage originations, and, appear to have relatively larger delines in the housing pries and relatively larger inreases in unemployment during the period. Conversely, the regions with the smallest delines in mortgage originations, and New England, also enjoyed relatively lower delines in housing pries and relatively smaller inreases in unemployment during the period. 350 Census Region Seasonally Adjusted Quarterly House Prie Indexes ( ) Soure: Federal Housing Finane Ageny, Expanded Data Indexes House Prie Index Mid New England Paifi Charles River Assoiates 5

6 12.00 Unemployment Rate by Census Region Seasonally Adjusted; Soure: Bureau of Labor Statistis Unemployment Rate (%) E E Mid New England Paifi W W 3.00 Additionally, the inreased prominene of FHA loans was not refleted equally aross the nine regions. The volume of FHA originations in the Paifi region inreased dramatially between 2006 and 2010, from 17,341 to 226,809. As a result, the Paifi region moved from 8 th in FHA origination volume in 2006 to the 2 nd highest ranking region in 2010, lagging in volume behind only the region. Table 7: FHA Originations by Region and Change from Region New England 9,896 12,857 42,718 73,302 57, % Mid 36,406 43, , , , % 72,061 84, , , , % 29,980 34,664 97, , , % 78, , , , , % 31,117 36,785 83, ,447 84, % 66,687 70, , , , % 39,941 48, , , , % Paifi 17,341 23, , , , % Total 382, ,798 1,231,119 1,819,646 1,409, % Charles River Assoiates 6

7 This may reflet an underlying demand for mortgages requiring relatively smaller down payments (higher loan-to-value ratios) and a general derease in the supply of mortgage alternatives other than FHA that ould meet this need. 5. Denial Rates Interestingly, overall denial rates in 2010 were at their lowest levels of the last five years in nearly every region. For those borrowers who omplete HMDA loan appliations, a lower perentage is denied. This may reflet, however, that borrowers are disouraged from applying for loans either beause their homes are worth less than the existing mortgages so that refinane options are not available or beause their reditworthiness would not meet urrent standards for suessful originations. The urrent hange in the Administration s Home Affordable Refinane Program (HARP) is meant to address the first of these issues. 7 Table 8: Denial Rates by Region and - All Appliants Region New England 26% 29% 27% 20% 19% Mid 29% 32% 31% 25% 24% 30% 32% 30% 20% 22% 27% 28% 25% 18% 18% 27% 32% 32% 24% 24% 29% 31% 30% 23% 26% 28% 30% 29% 23% 23% 25% 30% 30% 21% 20% Paifi 26% 31% 31% 21% 20% This pattern of delining denial rates was also observed in the denial rates for ethni and raial groups. Denial rates in 2010 were at the lowest observed during the period for eah group. 8 This should not, however, be interpreted to mean that aess for redit has improved for these targeted minority groups. 9 Table 9: Denial Rates by Rae/Ethniity and Rae/Ethniity Afrian Amerian 37% 45% 47% 36% 35% Hispani 30% 38% 41% 30% 28% Asian 22% 26% 26% 20% 19% Non-Hispani White 23% 26% 26% 19% 19% After peaking in 2007 and 2008, denial rates on onventional mortgage appliations in 2010 returned to levels below 2006 for both purhase and refinane appliations, albeit on signifiantly lower overall appliation volume See details of the new program at The denial rates by rae/ethniity and by region are presented in the Appendix. See Courhane, Marsha J. and Peter M. Zorn, The Differential Aess to and Priing of Mortgages: , Forthoming, Real Estate Eonomis, Charles River Assoiates 7

8 Table 10: Denial Rates by Loan Purpose by Conventional All Purhase Refinane % 20% 34% % 21% 39% % 21% 37% % 20% 23% % 19% 22% Denial rates alone, however, do not likely tell the whole story. In omparison to 2006, lending standards in 2010 were relatively tight and overall onsumer redit worthiness was lower due to unemployment levels, delining wages, and insuffiient time to reover from derogatory redit experienes. A number of these fators are examined by Brevoort and Cooper. 10 Given this environment, it is likely that lower denial rates were driven, in part, by self-seletion out of the market by at least some less-qualified onsumers. Denial rates on FHA loan appliations in 2010, while below the 2008 peak, were still above 2006 levels. Perhaps this was to be expeted given the signifiant inrease in volume of FHA loan appliations during the period. Further, the denial rates on FHA purhase appliations during the period were both lower and less varied than denial rates on FHA refinane appliations. Table 11: Denial Rates by Loan Purpose by FHA All Purhase Refinane % 15% 22% % 19% 32% % 18% 42% % 16% 33% % 17% 36% Denial rates by rae/ethniity demonstrated a number of thought provoking trends. Overall denial rates in 2010, as shown in Table 9, were at their lowest levels of the last five years for Afrian Amerian, Hispani, Asian and Non-Hispani White appliants. This finding was onsistent aross nearly all regions for eah of these rae/ethniity groups (see Appendix 1). Also onsistent with the overall results, denial rates peaked in 2007 and 2008 for eah of these rae/ethniity groups. Denial rates in 2010 demonstrated a relatively high level of intra-rae/ethniity group variability (olumn variability) aross the Census regions (see Table 12). For example, Afrian Amerian loan appliants experiened widely divergent denial rates aross the regions; from a high of 41% in the region to a low of 24% in the region. Hispani, Asian and Non-Hispani White appliants experiened similar intra-group variability aross regions. Additionally, denial rates in Forelosure s Wake: The Credit Experienes of Individuals Following Forelosure Kenneth P. Brevoort, Senior Eonomist, Federal Reserve Board, and Cheryl R. Cooper, Researh Assoiate II, The Urban Institute. Available at: Charles River Assoiates 8

9 displayed signifiant variability aross rae/ethniity groups: ranging from 35% for Afrian Amerian appliants to 19% for Asian appliants. Table 12: 2010 Denial Rates by Rae/Ethniity and Region Region Afrian Amerian Hispani Amerian Indian Paifi Islander Asian Other Rae Non- Hispani White New England 32% 28% 33% 25% 17% 25% 18% Mid 38% 33% 38% 33% 23% 31% 21% 39% 31% 35% 29% 19% 31% 19% 32% 25% 31% 22% 18% 25% 16% 35% 30% 35% 28% 20% 29% 21% 41% 29% 33% 28% 22% 35% 23% 35% 31% 30% 25% 21% 29% 20% 24% 26% 31% 22% 20% 28% 18% Paifi 27% 24% 25% 23% 17% 25% 18% All Regions 35% 28% 31% 25% 19% 28% 19% Soure: 2010 HMDA Data While the researhers at the Federal Reserve noted in their Deember 2010 FRB Bulletin that the HMDA data do not inlude suffiient information to determine the extent to whih these differenes stem from illegal disrimination this inter-group variability in denial rates was observed in the earlier years of the study period (see Appendix 1). 11 Inter-group variability reflets the variation within a region aross the raial and ethni groups (row variability). While many of these patterns were onsistent within and aross rae/ethniity groups, an area of divergene an be seen in the omparison of Conventional and FHA denial rates by rae/ethniity group. Afrian Amerian, Hispani and Amerian Indian appliants experiened lower intra-group denial rates on FHA appliations as ompared with Conventional Conforming appliations, while the opposite was true for Asian, Non-Hispani White, and Other appliants. Table 13: Denial Rates by Loan Type and Rae/Ethniity, 2010 Conventional Rae/Ethniity FHA Conforming Afrian Amerian 33% 41% 36% Hispani 25% 31% 28% Amerian Indian 27% 34% 31% Paifi Islander 25% 26% 25% Asian 23% 18% 19% Other Rae 39% 26% 28% Non-Hispani White 22% 19% 20% All 25% 21% 22% Soure: 2010 HMDA Data All 11 The 2009 HMDA Data: The Mortgage Market in a Time of Low Interest Rates and Eonomi Distress, Robert B. Avery, et. al., Federal Reserve Bulletin, Deember Available at: Charles River Assoiates 9

10 6. Conlusions The 2010 HMDA data reflets a number of hanges important to residential mortgage markets. These inlude the following: Inreased onentration among top lenders Inreased importane of ageny originations (inluding onventional, onforming produts seuritized through Freddie Ma and Fannie Mae) and FHA produts seuritized through Ginnie Mae Tightened underwriting standards (inluding higher qualifying redit sores and lower average loan-to-value ratios) Potential self-seletion out of the mortgage markets by onsumers who do not believe they ould meet urrent standards for either refinane loans (due, perhaps to having outstanding unpaid prinipal balanes in exess of their home s value or due, perhaps to having reditworthiness below urrent aeptable underwriting guidelines) Signifiant redution in the availability of seond lien loans Signifiant redutions in private market seuritizations The intra-group and inter-group differenes in raw denial rates by rae/ethniity groups suggests ontinued regulatory fous on fair lending issues. In onlusion, there are many lessons to be learned from observation of market trends in residential mortgage lending. The problems observed in housing markets over the past few years have not dissipated. Delinquenies and forelosures remain high. Litigation osts remain signifiant. Borrowers have lost not only signifiant wealth due to falling house pries, but have also lost onfidene in their ability to improve their eonomi situation. As noted reently by Lawrene Summers, Losses on owneroupied housing have redued onsumers' wealth by more than $7 trillion over the past five years, and unertainty about homes' future value as well as the inability to refinane at reasonable rates deters household outlays on durable goods. The ontinuing weakness of the housing setor is an important soure of risk for major U.S. finanial institutions, signifiantly raising the osts of the loans they offer. 12 Continuing to analyze these markets, to learn from the past, and to make deisions that improve the future are important goals for all of us. For assistane with analysis of HMDA data, mortgage origination, priing, or serviing data, ompliane or redit risk issues in either regulatory or litigation disputes, please ontat the Finanial Eonomis Pratie of Charles River Assoiates: Dr. Marsha J. Courhane Vie President & Pratie Leader, Finanial Eonomis, Charles River Assoiates 1201 F Street NW, Suite 700, Washington, DC mourhane@rai.om 12 See Lawrene Summers, The Washington Post, Otober 24, 2011, How to Stabilize the Housing Market. Charles River Assoiates 10

11 Appendix 1: Denial Rates by Rae/Ethniity and Region by New Englan d Mid Afrian Amerian Paifi All Regio ns % 37% 42% 41% 35% 41% 39% 33% 35% 37% % 45% 49% 46% 43% 45% 45% 42% 43% 45% % 48% 51% 48% 45% 48% 45% 42% 47% 47% % 40% 38% 33% 36% 39% 37% 28% 32% 36% % 38% 39% 32% 35% 41% 35% 24% 27% 35% Hispani New Englan d Mid Paifi All Regio ns % 31% 32% 31% 27% 26% 33% 31% 30% 30% % 39% 38% 35% 37% 31% 38% 38% 40% 38% % 41% 41% 35% 42% 34% 40% 41% 41% 41% % 34% 31% 26% 32% 28% 33% 28% 28% 30% % 33% 31% 25% 30% 29% 31% 26% 24% 28% Asian New Englan d Mid Paifi All Regio ns % 23% 22% 25% 20% 19% 18% 21% 23% 22% % 25% 24% 29% 25% 22% 23% 29% 26% 26% % 27% 26% 27% 28% 26% 25% 31% 25% 26% % 23% 19% 19% 22% 21% 20% 22% 19% 20% % 23% 19% 18% 20% 22% 21% 20% 17% 19% Non-Hispani White New Englan d Mid Paifi All Regio ns % 25% 25% 23% 21% 24% 22% 21% 21% 23% % 27% 27% 25% 25% 26% 23% 25% 25% 26% % 28% 26% 23% 26% 26% 23% 26% 26% 26% % 22% 18% 16% 21% 20% 18% 19% 19% 19% % 21% 19% 16% 21% 23% 20% 18% 18% 19% The onlusions set forth herein are based on independent researh and publily available material. The views expressed herein are the views and opinions of the authors and do not reflet or represent the views of Charles River Assoiates or any of the organizations with whih the authors are affiliated. Charles River Assoiates 11