Exagerating subprime using HMDA rate spreads

Do you believe that the HMDA data's rate spread values define the mortgage as subprime?

You frequently find news articles and web sites that count mortgages containing an interest rate spread value in HMDA data as a subprime mortgage. Often, perhaps most of the time, these rate spread reportable mortgages are subprime mortgages. The goal of the federal regulators was to have rate spreads reported for subprime mortgages and avoid having lenders report rate spreads for prime mortgages in their HMDA data submission. Not all mortgages in the HMDA data base having rate spreads are subprime.

Here is an example where the volume of subprime mortgages is over reported. The authors state "In 2006 alone, subprime lenders refinanced more than 60,000 Ohio mortgages. "

This is going to get a little technical but it is important to be fair!

Since 2004, any mortgage having an annual percentage interest rate exceeding the rate on treasury securities of comparable maturity by a threshold (3% for first lien and 5% for subordinate lien) must report that rate spread in their HMDA data submission. So the OHIO report for 2006 containing all conventional refinance mortgages having a rate spread finds 60,072 mortgages.

While HMDA lacks data items such as credit scores and loan to value ratios wich impact costs of mortgages(hence interest rates and spreeads), they do provide indicators of home occupancy status, manufactured home status, and loan amount. Mortgages typically charge higher rates on non-owner occupied homes or manufactured homes. (They charge more on jumbos but I am leaving that out for now). Most of the news articles and web sites ignore all these attributes when reporting subprime mortgage volume from HMDA data.

An adjusted report for Ohio, excluds non-owner occupied mortgages and manaufactured home mortgages. This results in reporting about 7,500 fewer subprime mortgages from the report in the June 2nd Columbus Dispatch article.

Return of Mortgage Finance by Local Banks in Slavic Village, Cleveland, Ohio

Two recent articles (CNN and Newsweek) tell the sad truth about predatory lending and its impact on Slavic Village, a community in Cleveland, Ohio. The data reports show the contribution of mortgage loan misery made by Argent, New Century, and other out of town subprime mortgage lenders from 2004 through 2006.

While Slavic Village still suffers, there is some encouraging news. Mortgage lenders continue to lend in Slavic Village. The difference between the period before 2007 and now is the share of lending by local banks in Cleveland. Michael Hirsh's "Mortgages and Madness" article ends with the hope that mortgage finance will return to local lenders. The data shows that local lenders are the leaders in mortgage finance for Slavic Village.

Tell us what you are seeing in your communities. Has mortgage lending returned to the local retail banks ?