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HMDA: Approval Rates Vary by Income and Race

The total number of originated mortgages of all types and purposes declined by about 2.7 million, or 31 percent, but in 2014 but home purchase lending increased by about 4 percent. Refinance originations declined by 55 percent, according to the latest Home Mortgage Disclosure Act (HMDA) Data released by the Federal Financial Institutions Examination Council.

The 2014 data include information on 9.9 million home loan applications—of which, nearly 6.0 million resulted in loan originations—that’s an approval rate of 62.5 percent for both refinance and purchase originations.  Approval rates for conventional purchase applications as well as government backed loans –FHA, VA and Rural Housing Service— were about 69 percent.

In a report on the HMDA data issued yesterday, the Center for Responsible Lending said that despite a number of industry predictions, new data from the HMDA report revealed that Dodd-Frank’s mortgage protections and the Consumer Financial Protection Bureau’s related new mortgage regulations did not produce a decrease in mortgage accessibility for homebuyers…but “the data also show that borrowers of color and families with low-to-moderate incomes continue to be underserved in the mortgage market, especially by lenders who sell loans to Fannie Mae and Freddie Mac.”


Government-backed Lending Rose 9 Percent

Homebuyers relied heavily on government-backed mortgages, particularly those insured by the FHA or guaranteed by the VA, to finance their purchases, but this reliance has declined somewhat in recent years. In 2014, the FHA-insured share of first-lien home purchase loans for 1-4 family, site-built owner-occupied properties was 21 percent—down from 24 percent in 2013, and down from its peak of 42 percent in 2009.  However, the number of all originated government-backed purchase loans increased 9 percent last year from 2013.

The VA-guaranteed share of such loans for 2014 was approximately 10 percent, increasing from 9 percent in 2013. Including Rural Housing Service loans, the overall government-backed share of such loans was 37 percent in 2014, edging down from 38 percent in 2013, and down from 54 percent in 2009.

FHA-insured and VA-guaranteed loans tend to play a less prominent role in the refinance market compared to the home purchase market. In 2014, conventional loans accounted for 81 percent of all first-lien refinance mortgages for 1-4 family, site-built owner-occupied properties, down from about 84 percent in 2013, while FHA-insured loans accounted for about 9 percent—similar to 2013. The VA-guaranteed share of refinance loans increased from 6 percent to 10 percent since 2013.

Nearly Half of FHA Loans had High Rates

The majority of higher-priced first-lien loans in 2014 were FHA-insured. About 45 percent of FHA-insured first-lien home purchase loans had APRs above the reporting threshold, similar to the percentage in the latter half of 2013. The FHA raised its annual mortgage insurance premium (MIP) slightly in April 2013, and extended the period over which MIP is required to be paid by borrowers in June 2013. These changes, particularly the latter, led to higher APRs for FHA loans. About three-quarters of FHA-insured purchase loans that met the higher-priced definition in 2014 had APRs that were less than 0.5 percentage points above the higher-priced threshold. As noted above, the HMDA data indicate which loans are covered by HOEPA. Under HOEPA, certain types of mortgage loans that have interest rates or total points and fees above specified levels provide special consumer protections such as additional disclosures and various restrictions on loan terms.

About 501,000 home buyers requested preapprovals for home purchase loans.   That’s about 10.7 percent of the total 4,662,272 purchase applications received by lenders.

Lower Income Borrowers Less Likely to be approved

In terms of borrower income, the share of 1-4 family home purchase loans made to low- and moderate-income borrowers (those with income of less than 80 percent of area median income) declined slightly from about 26 percent in 2013 to roughly 25 percent in 2014. Approval rates were significantly lower for lower income applicants.  Only 49 percent of applicants making less than 50 percent of median area income levels received loans from government-backed programs like FHA and VA and 57.5 percent of lower income applicants received conventional purchase loans.

Higher Denials Rates for Blacks and Hispanics

In 2014, black and Hispanic white applicants experienced higher denial rates for conventional home purchase loans than non-Hispanic white applicants.  Among African American applicants for conventional purchase loans, only 49.5 percent were approved, compared to 58 percent for Hispanics and 73 percent for whites. For government-backed loans, approval rates were closer: 62 percent for African Americans, 66 percent for Hispanics and 71.65 percent for whites.

Some 7,062 financial institutions provided information required by the Home Mortgage Disclosure Act (HMDA). Covered institutions include banks, savings associations, credit unions, and mortgage companies. The HMDA data cover 2014 lending activity, and include applications, originations, purchases and sales of loans, denials, and other actions related to applications.

CRC: Minorities and Lower Income Receive Far Lower Share of Loans

The Center for Responsible Lending report refused to blame higher lending standards for the higher denial rates for lower income and minority borrowers.  The Center said the HMDA data show that implementation of federal mortgage underwriting standards (known as Ability-to-Repay or “ATR” and the Qualified Mortgage rule or “QM”) in early 2014 did not cause a departure from mortgage lending trends in recent years.

“However, access to credit remains tight; people of color and low and moderate-income families continue to receive a far lower share of home purchase loans than they have historically than would be expected based on their share of the population. These borrowers also are much more likely to be served by government-backed loan programs than by the conventional market, and are increasingly paying more for mortgages than other borrowers,” the CRC said.

Government-backed loans were critical for minorities, CRC said. “The market also continued to rely less on government-backed loan programs. The share of government-backed purchase loans fell from 45% in 2012 to 38% in 2013 to 36% in 2014. However, these programs continued to be critical – the majority of loans to African-Americans, Latinos and low and moderate-income borrowers were under these programs.”

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