Gramlich: New Pricing Data Collected by the Fed Under HMDA to Help Identify Lending Discrimination

WASHINGTON – Federal Reserve Governor Edward Gramlich, speaking to the National Association of Real Estate Editors June 3, said broader categories of mortgage data being collected by the agency will make it easier to discover when discrimination is being practiced in mortgage lending. Gramlich told attendees that the new information being collected under HMDA has been required since March 31 and was first reported for loans originated in 2004. Although it won’t be ready for publication until September, lenders are required to make their individual data available to anyone who submits a request, and in fact some community organizations have already gotten a copy of the data and analyzed the data of some of the large lenders. They’ve gone on to publish reports indicating their opinion that the data reveal discrimination in pricing. “The public disclosure of price information under HMDA – in the form of spreads between the annual percentage rate on a loan and the rate on Treasury securities of comparable maturity – is designed to ensure that the data continue to be useful in improving market efficiency and legal compliance.,” said Gramlich. He emphasized that, “Although the addition of the price data significantly increases the robustness of HMDA data, the data alone do not prove discrimination. Instead, the data will be used as a screen to identify any aspects of the higher-priced end of the mortgage market that warrant closer scrutiny. “The new HMDA data are clearly limited: they do not include credit scores, loan-to-value ratio, or consumer debt-to-income ratio – all factors relevant to the cost of credit. Because these important determinants of price are missing, one cannot draw definitive conclusions about whether particular lenders discriminate unlawfully or take unfair advantage of consumers based solely on a review of the HMDA data.”. Still, according to Gramlich, an early look at the data suggests an increase in subprime lending. “The initial data also suggest that prevalence of higher-priced loans differs notably across racial and ethnic groups. The data indicate that black and Hispanics are more likely to take out higher-priced loans than non-Hispanic whites and that Asians are the least likely to have higher priced loans,” Gramlich reported. In 1994, he explained, the subprime market – defined as high-cost mortgage loans – amounted to $35 billion, or 5% of total mortgage originations. By 2004, that market had “exploded” to $530 billion, or 19% of total mortgage originations. The annual subprime market growth rate over this time, said Gramlich, was a “whopping” 27%. [email protected]