5 Take-aways from the CFPB’s recent HMDA report
The CFPB’s or Consumer Financial Protection Bureau’s most recent release of data from the 2019 Home Mortgage Disclosure Act or HMDA submissions is both enlightening and perplexing. If you’re unfamiliar with the Home Mortgage Disclosure Act it was created in 1975 to gather loan-level data from lending institutions to ensure lenders are serving the housing finance needs of their communities. Late last month the watchdog agency released its updated review including new data points that were captured in HMDA data collected in the calendar year 2019. With reverse mortgages being a niche of the larger mortgage market much of the data is focused on traditional mortgage lending. However, the reported reverse mortgage data provides insight into our market’s demographics, applicant’s financial health, and more. Read More
Before we dive in keep these two things in mind as we proceed. First, the report counts applications, endorsements. Second, the data is reported for the 2019 calendar year. This makes any comparisons to the 2019 fiscal year data somewhat problematic. Second terminology: the mean value is the sum of a set of numbers divided by the number of numbers. For example, the mean value of 10 entries of numerical entries totaling 100 is ten. A median number is stuck in the middle of a long data set. Think of it as the middle value.
Let’s begin our review of the HMDA data with demographics. Nationally 74% percent of all reported reverse mortgage applications were for non-Hispanic white applicants, 7.2% for black applicants, 4.4% for Hispanic whites, 1.7% for Asians, and approximately 10% were missing an ethnicity on the application or listed ‘other’. Of course, the distribution of different races differs widely based on location.
Net, some have long argued that reverse mortgages are a loan of last resort for the house-rich and cash-poor. HMDA data would appear to conflict with such an assumption showing 37% of all reverse mortgages are originated in high-income neighborhoods. Middle-income neighborhoods account for 44% of all applications, while low or moderate areas only account for 18.7% of all reverse mortgage loan activity. With 80% of reverse mortgage applications coming from middle & higher-income neighborhoods, perhaps it’s time to put the ‘loan of last resort’ myth to rest.
However, we cannot overlook the remarkable difference in the median or middle incomes of a traditional HELOC and reverse mortgage applicants. For example, the median income of HELOC applicants is $107,000 versus a modest $28,000 for reverse mortgage applicants. The report adds “which are the lowest among borrowers of all enhanced loan types, perhaps reflecting the unique design of reverse mortgages to help income-constrained seniors convert home equity into cash income”. The percentage of reverse mortgages that are fixed versus adjustable is somewhat skewed when compared to recent CFPB reports on reverse mortgage lending. The report states that 2019 data shows 48% of all reverse mortgages were fixed-rate loans. Contrast that with HUD’s 2019 report to Congress on FHA’s insurance fund which reveals 94% of all endorsements were adjustable-rate HECM loans. This disparity would seem to indicate either reporting errors or challenges in how the data is submitted.
And while the financial assessment has been worrisome for some originators the average or mean credit score of 749 would seem to indicate most reverse applicants have a strong history of on-time payments and few delinquent accounts. But there’s one big caveat…of the 32,000 plus reported loans, only 2,100 reported a credit score in the HMDA data. A small sample size representing 6% of all applications. More complete data would be quite illuminating.
Next are interest rates. Critics continue to decry reverse mortgage loans as exorbitantly expensive, however, the median interest rate charged in 2019 was 4.48%. As the reported median traditional Home Equity Line of Credit loan interest rate is 5.34% a Home Equity Conversion Mortgage’s line of credit is a legitimate competitor to HELOCs, if not a better choice when payment terms are considered.
In conclusion, how can you benefit from this data? Perhaps you’re edified being more informed of the unique borrower profiles, incomes, and loan types being chosen in the marketplace today. All of the information you put into a 1003 uniform residential loan application goes far far beyond your processor and underwriters. What are your thoughts on this data? Leave your thoughts in the comment section below.