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FEATURE Disclosing the HMDA Evaluating the Home Mortgage Disclosure Act can offer insights into the government's initiatives to stimulate recovery in the real estate and mortgage industries. By Mark Lieberman D espite reports of and research showing tighter lending standards in the wake of the Great Recession, conventional resi- dential mortgage applications in 2010 re- sulted in a higher percentage of loans than in any year since 2004, according to an analysis of Home Mortgage Disclosure Act (HMDA) filings for 2010. The HMDA was enacted by Congress in 1975 to track mort- gage lending and implemented by the Federal Reserve. The initial law has been modified numerous times in more than 35 years, with the last major change coming in 2011 when the Fed's rule-writing authority for HMDA was transferred to the Consumer Financial Protection Bureau (CFPB), created by the Dodd-Frank financial reform act. The 2010 HMDA data, analyzed by four economists at the Federal Reserve—Robert B. Avery, Neil Bhutta, Kenneth P. Brevoort, and Glenn B. Canner— offered insight into efforts by the government to resuscitate the housing and, more specifically, the mortgage industry. Among other things, the HMDA data showed a sharp 26 | THE M REPORT drop in home-purchase lending activity in the middle of 2010, coinciding with the June closing deadline (although the dead- line was retroactively extended to September) of the federal first-time homebuyer tax credit program. (The conclusion of this program during 2010 may help explain the decline in the incidence of home-purchase lend- ing to lower-income borrowers between the first and second halves of the year.) "We have seen a major retreat in the mortgage lending busi- ness, particularly among large banks, over the past few years," according to Guy Cecala, CEO of Inside Mortgage Finance. "The regulatory burden and liability facing mortgage lenders has nev- er been greater. If you add in the risk of buyback requests from Fannie Mae and Freddie Mac, the outlook for mortgage lending is quite dismal. And it doesn't help matters that not only are home sales at near record lows but a record share of home sales—about one-third—are cash transactions with no mortgages. The result is a mortgage market environment where demand or volume is expected to remain low for several more years." The 2010 filings showed: • While residential mortgage originations decreased between 2009 and 2010 in the HMDA data from 8.5 million loans to 7.5 million loans (excluding home improvement), a greater percentage of all applications were approved. • Though refinance loans de- clined, the percentage of refi applications approved in 2010 increased, while purchase ap- plication approvals fell slightly. • Loans originated un- der the Federal Housing Administration (FHA) mort- gage insurance program and the Department of Veterans Affairs (VA) loan guarantee program continue to account for a historically large propor- tion of loans, but such lending fell more than did other types of lending. • Home-purchase lending in highly distressed census tracts—identified by the Neighborhood Stabilization Program (NSP)—was 75 per- cent lower in 2010 than it had been in these same tracts in 2005. This decline, according to an analysis of the HMDA data by the Federal Reserve, was "notably larger than that experienced in other tracts and appears to primarily reflect a much sharper decrease in lending to higher-income bor- rowers in the highly distressed neighborhoods." • The share of loans that origina- tors hold in their portfolios rather than sell into the secondary market—especially among owner- occupant refinance loans—has risen since the beginning of 2009 but is still well below levels seen around the mid-2000s. • National single-family home loan limits on both FHA loans and Freddie Mac and Fannie Mae purchases were scheduled to fall on October 1, 2011. Analysis of the 2010 HMDA data by the Federal Reserve suggested the number of loans affected by these limit