September 23, 2015

Home refinancing fell off a cliff in 2014

Overall loan originations declined 31 percent from 2013 to 2014, according to just-released federal data. The drop-off masks a slight rise in home purchase originations, which was offset by a radical pullback in refinancing.

Those are just two of the takeaways from this year's release of Home Mortgage Disclosure Act data. Each September, the government makes public a giant trove of data drawn from the information borrowers and would-be borrowers must give banks.

Everyone had refinanced already
Here are the basics: Mortgage originations fell from 8.7 million in 2013 to just 6 million in 2014. The cause? Home mortgage interest rates rose in 2014 from the historically-low levels of the two preceding years. Homeowners in the market for refinancing had largely already done so when 2014 rolled around. Refinancing for four-family homes and smaller dived a whopping 55 percent. The number of refinancing agreements plummeted by 2.8 million.

Originations for home purchase, however, continued to advance. These rose from 2.68 million in 2013 to 2.8 million in 2014.

Uses of HMDA data
One of the primary uses for HMDA data is to determine if particular communities are being adequately served by their banks. The government groups data by metropolitan statistical area to tease out such trends. Individual financial institutions must make copies of the data available to customers.

While the data does not drill down to match a particular loan with a person's name or a property's exact street address, the data does capture the race, sex and ethnicity of the borrower plus the Census tract of the property. Organizations across the country are crunching this data now and regional trends may soon become more clear. For example, reports from 2009-2013 showed California as the epicenter of loan applications for home improvements.

Qualified praise for 'Qualified Mortgage' rule
As banks and other stakeholders digest this year's data, one disagreement has already arisen, according to American Banker. Regulators say the data supports the idea that new consumer protections have not crimped lenders' freedom of action on making loans. "Qualified Mortgage" and "ability to repay" rules came into effect in January 2014. A report by the data's custodian, the Federal Financial Institutions Examination Council, concluded that the changes "provide little indication that the new ATR and QM rules significantly curtailed mortgage credit availability."

Bob Davis of the American Bankers Association isn't buying it.

"Maybe someone's trying to jump to the inference that, because there was not a big change, there must not have been an effect," said Davis, who is executive vice president of the trade group. "Our bankers disagree with that. They think that using the HMDA data to make that determination is a misguided effort."

Small business loans are next
There's also change afoot for how the government requires banks to gather HMDA information. The Consumer Financial Protection Bureau is expected this fall to come out with the specific rules. Similarly, it's worth remembering that regulators are in the process of codifying HMDA-style data mandates on small business loans. 

Any data's usefulness is determined by whether it can inform decisions, like which parts of a loan portfolio to sell. Loan sale advisory firm Garnet Capital Advisors is continually monitoring the loan market and can put the welter of data in context to guide your bank's decisions.