Mortgage Lending Fell 10% in 2011 to Lowest Point in 16 Years

Data on lending activity during 2011 at 7,632 financial institutions that are covered by the Home Mortgage Disclosure Act (HDMA) was released today and showed continued heavy reliance on FHA-backed mortgage loans.  The data came from the Federal Financial Institutions Examination Council (FFIEC) and covered banks, savings associations, credit unions, and mortgage companies.  The activity monitored including mortgage applications, originations, purchases and sales of loans.

The total number of originated loans of all types and purposes reported fell by about 780,000, or 10 percent, from 2010, in part because of a 13 percent decline in refinancing. Home purchase lending also fell, but by a more modest 5 percent.

The FHA-related lending that increased several years ago with the onset of problems in the mortgage industry continued at higher than normal levels.  For home purchase lending, FHA's share of first-lien loans, which was at 7 percent in 2007 increased steadily to 37 percent in 2009 and 36 percent in 2010.  In 2011 that share fell to 31 percent, still well above historic levels for the agency

First lien lending for home purchases through the Veterans Administration has also increased in recent years, although it represents a far smaller share of the market than FHAs.  VA-guaranteed loans went from a 3 percent share in 2007 to about 7 percent in 2009 and 2010.  It increased again in 2011 to 8 percent.

The aggregate of reported conventional, FHA, and VA-related refinancing diminished slightly from 2010, but the VA component of this refinancing was up by 41 percent, partially offsetting declines of 12 percent and 37 percent for conventional and FHA-related refinancing respectively.

The number of covered institutions reporting was down nearly 4 percent from 2010, continuing a downward trend since 2006 when just over 8,900 institutions reported.  FFIEC said this decrease reflects mergers, acquisitions, and some bank failures.  The data involves 11.7 million loan applications, 7.1 million originations, and 2.9 million loan purchases.  It also includes information on 186,000 requests for preapprovals that did not result in a loan. 

The 2011 data reflect the second full year of reporting under revised loan pricing rules, which determine whether a loan is classified as "higher priced." Lenders now report loans with annual percentage rates (APRs) that are 1.5 percentage points above the rates reported by Freddie Mac in its Primary Mortgage Market Survey1 rate for first lien loans and 3.5 percentage points for junior liens.  

The data show that a small minority of first lien loans in 2011 have APRs that exceeded the loan price reporting thresholds. The principal exception was for conventional first lien loans used to purchase manufactured homes; for which 82 percent exceeded the reporting threshold in 2011. For conventional first lien loans used to purchase site-built properties, about 3.9 percent of the reported loans exceeded the reporting threshold (up from 3.3 percent in 2010). The incidence of higher-priced lending for FHA-insured loans on site-built properties (3.8 percent in 2011) is virtually the same as for conventional loans. The incidence of higher-priced lending for loans backed by VA guarantees is notably smaller than for either conventional or FHA-insured loans; only about 0.4 percent of VA-guaranteed loans were higher priced in 2011.

Data on the disposition of applications for conventional purchase loans in 2011 showed minority applicants experienced higher loan denial rates than the nearly identical rates for Asian and for non-Hispanic white applicants.  This data has changed little in recent years.

The report notes that the HMDA data cannot be used in isolation to determine if a lender is complying with fair lending laws as they do not include many determinants of creditworthiness and loan pricing.  When examiners conduct fair lending examinations they analyze additional information such as credit history and loan-to-value ratios.

The FFIEC also provides data from the nation's seven largest private mortgage insurance companies. The 2011 private mortgage insurance data include information on nearly 409,000 applications for mortgage insurance, comprised of some 257,000 applications to insure home purchase mortgages, and about 151,000 applications to insure mortgages to refinance existing obligations.

All raw data is available at the FFIEC website  (http://www.ffiec.gov/reports.htm).