The LA Times reports that Massachusetts filed suit charging H&R Block/Option One Mortgage with "unfair and deceptive conduct". The complaint alleges that Option One targeted minorities with subprime loan products and charged minorities higher points and fees on mortgages than they charged white borrowers.
Does the 2006 HMDA data support those charges? In order to compare apples to apples we looked at conventional first lien purchase and owner occupied refinance mortgages having mortgage amounts under the conforming loan limits ($417,000 for year 2006). Then we looked at HMDA reportable interest rate spreads. For these mortgages the rate spread would be 3% over treasuries with comparable maturities. Rate spreads for first lien mortgages below 3% are not reported in HMDA data. In Massachusetts, Option One originated 3,169 mortgages with reported rate spreads out of 3,329 mortgages (95%). All lenders originated 35,388 reportable rate spread mortgages out of 154,952 ( 23%). It is obvious that Option One has operated in the sub prime mortgage product space.
When we look further at Option One's data, we found that White borrowers represented 2,102 of the total 3,329 (63%) of interest spread reportable mortgages. Minority borrowers represented 427 of 3,329 (13%). The remainder of Option One's borrowers did not disclose race or ethnicity. A mortgagor was classified as minority if the applicant or co-applicant reported ethnicity as Hispanic or race as either Native American, Asian American, African American, or Hawaiian/Pacific Islander. A mortgage was classified as white borrower if the applicant reported not Hispanic for ethnicity and race white and co applicant was reported as white or there was no co-applicant. Of the mortgages originated to minority borrowers, the mean rate spread was 5.96 while the mean rate spread for white borrowers was 5.94.
Looking at the communities where Option One originated HMDA rate spread reportable loans, 2,231 of 3,329 mortgages were in census tracts where the minority population was less than 20%. 346 of 3,329 mortgages were in census tracts having minority populations exceeding 50%. With respect to income of the communities, 910 of Option One's mortgages were in census tracts having median incomes of less than 80% of their metropolitan area income, 462 mortgages were in census tracts having median incomes exceeding 120% of their metropolitan areas income.
The data we do not have includes loan to value ratios for these mortgages nor FICO scores of the applicants. The HMDA data does not report on loan terms such as pre-payment penalties, cash out refinances, or balloon payments. Perhaps the Masssachusetts case has its evidence in that data.
So what are we to conclude from the HMDA data? Looks to me like Option One provides abusively high cost mortgages on an equal opportunity basis.
Schedule for Week of June 25, 2017
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