HMDA Data Dilemma

February 18, 2002

Should Annual Percentage Rate Spread Trigger Additional Data Reporting?

By Marcie Geffner
Inman News Features

The Federal Reserve has a plan to quantify information about high-cost mortgage loans through amendments that change the implementation of the Home Mortgage Disclosure Act.

But the lending industry isn?t keen on the Fed?s new rule or the additional changes the Fed has proposed.

One question in the debate is whether the annual percentage rate on mortgage loans should be used as part of a trigger that would determine whether additional data must be reported on certain loans.

The Fed already has promulgated a rule that will require lenders to report the spread between the APR on loan originations and the yield on comparable Treasury securities when the APR exceeds the Treasury yield by a to-be-decided amount.

A Fed memorandum said the new requirements will "help inform the public about developments in the mortgage market by revealing pricing information on higher-cost home loans," in addition to other benefits.

But most of the lenders who submitted comments on the final rule opposed the price data reporting requirements because of systems changes, paperwork and "potential public misinterpretation of the data," according to the Fed memorandum.

The Fed tentatively has set the threshold spread amount at 3 percent for first-lien loans and 5 percent for subordinate-lien loans. But the agency is soliciting comment on those thresholds and several other matters.

Questions posed by the Fed concern the dates on which the APR spread should be determined, whether certain loan product lines might be susceptible to misclassification under the rule and the appropriateness of the proposed 2-percentage point difference between the first-lien loan and subordinate-lien loan thresholds for triggering the reporting requirement.

John A. Courson, chairman-elect of the Mortgage Bankers Association and CEO of Central Pacific Mortgage Co., indicated the industry isn?t enthusiastic about the new price spread reporting requirements, regardless of the thresholds.

"The APR is not a valid measurement of the quality of the loan," he said. "If one of the fields (in the HMDA report) is merely an expression of a spread over the APR, that in no way gives any factual information as to how the APR relates to the specifics of each mortgage transaction."

Courson argued that the Fed?s reliance on the APR makes the new HMDA data process inherently faulty. "The whole concept of the APR is flawed," he said. "It doesn?t include all the costs of the transaction. It is not consumer friendly and it is not a standard that reflects all the facts of the underwriting of a credit transaction."

The industry doesn?t appear to have much recourse, but the mortgage bankers group isn?t backing off the issue.

"The Fed is the regulator designated to deal with HMDA, and that?s where we have to make our comments and make our case," Courson said.

HMDA mandates collection of data that is used to analyze whether lenders are serving the housing needs of communities where they do business and to help public officials better target public housing investment, identify possible discriminatory lending patterns and enforce fair housing statues, according to the Federal Reserve. The Federal Financial Institutions Examination Council compiles the data, then prepares and disseminates a number of reports.

Copyright: Inman News Service

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