[Federal Register Volume 62, Number 42 (Tuesday, March 4, 1997)]
[Notices]
[Pages 9767-9770]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-5266]


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FEDERAL HOUSING FINANCE BOARD

[97-N-1]


Monthly Survey of Rates and Terms on Conventional 1-Family 
Nonfarm Mortgage Loans

AGENCY: Federal Housing Finance Board.

ACTION: Request for comments.

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SUMMARY: The Federal Housing Finance Board (Finance Board) is seeking 
comments on several aspects of its Monthly Survey of Rates and Terms on 
Conventional 1-Family Nonfarm Mortgage Loans. The Finance Board seeks 
comments on whether it should continue to publish mortgage information 
by lender type. If not, then the Finance Board seeks comments on 
whether the sampling and weighting design for this survey should draw 
lenders without regard to lender type. If so, the Finance Board seeks 
suggestions for alternative sampling and weighting methodologies. The 
Finance Board also seeks comments on the designation of successor 
adjustable-rate mortgage indexes if it decides to stop publishing data 
by lender type.

DATES: Comments must be received by April 18, 1997.

ADDRESSES: Mail comments to Elaine L. Baker, Executive Secretary, 
Federal Housing Finance Board, 1777 F Street, N.W., Washington, D.C. 
20006. Comments will be available for inspection at this address.

FOR FURTHER INFORMATION CONTACT: Joseph A. McKenzie (202) 408-2845, 
Associate Director, Office of Policy, Federal Housing Finance Board, 
1777 F Street, N.W., Washington, D.C. 20006.

SUPPLEMENTARY INFORMATION:

A. Background

    The Finance Board is responsible for conducting the Monthly Survey 
of Rates and Terms on Conventional 1-Family Nonfarm Mortgage Loans. 
This survey, usually called the ``Monthly Interest Rate Survey'' or 
``MIRS,'' asks a sample of approximately 350 mortgage lenders to report 
the terms and conditions on all conventional mortgage loans for the 
purchase of single-family, nonfarm homes that they close during the 
last five working days of the month. The sample of lenders includes 
savings associations, mortgage companies, commercial banks, and savings 
banks that have volunteered to participate in the survey. MIRS provides 
national and regional data on mortgage interest rates, mortgage terms, 
and house prices. The Finance Board's regulations describe MIRS more 
thoroughly. See 12 CFR 902.3.
    From 1963 to September 1989, the former Federal Home Loan Bank 
Board conducted MIRS. Law requires the Finance Board to conduct this 
survey. The statutory mandate to conduct MIRS appears in identical 
provisions in the Federal National Mortgage Association (Fannie Mae) 
Charter Act, 12 U.S.C. 1717(b)(2), and the Federal Home Loan Mortgage 
Corporation (Freddie Mac) Act, 12 U.S.C. 1454(a)(2). These provisions 
allow the two agencies annually to adjust the maximum size of mortgage 
loans that they can purchase or guarantee by the October-over-October 
percentage price change in house prices as reported in MIRS.
    More recently, the 1994 Department of Housing and Urban Development 
(HUD) appropriation act tied the high-cost area limits for Federal 
Housing Administration (FHA)-insured mortgages to the purchase-price 
limitations of Fannie Mae and Freddie

[[Page 9768]]

Mac, thus linking the FHA limits indirectly to MIRS. See Department of 
Veterans Affairs and Housing and Urban Development, and Independent 
Agencies Appropriations Act, Pub. L. No. 103-327, 108 Stat. 2298 
(1994). In addition, the Internal Revenue Service uses the data from 
MIRS to set the safe-harbor purchase-price limits for mortgages 
purchased with the proceeds of mortgage revenue bond issues. See 26 CFR 
6a.103A-2(f)(5).
    Beyond its use for indexing the conforming loan limit, MIRS 
provides information for general statistical purposes and program 
evaluation. Economic policy makers use the data to determine interest 
rates, down payments, terms to maturity, terms on adjustable-rate 
mortgages (ARMs), initial fees and charges on mortgage loans, and other 
trends in mortgage markets. Information from MIRS regularly appears in 
the popular and trade press.
    On or about the 26th of each month the Finance Board publishes a 
MIRS press release with mortgage rate and term information by property 
type (all, newly built, and previously occupied; Table I), by loan type 
(adjustable-rate and fixed-rate; Table II), and by lender type (savings 
association, mortgage company, commercial bank, savings bank; Table 
III), and a table providing data on 15- and 30-year conforming fixed-
rate loans (Table V). In addition, it publishes quarterly tables with 
rate and term information for metropolitan areas (Table IV) and for 
Federal Home Loan Bank districts (Table VI).
    An ARM index derived from MIRS--the National Average Contract 
Mortgage Rate for the Purchase of Previously Occupied Homes--was the 
only ARM index that Federally chartered savings institutions could use 
for a period in the early 1980's. A very small proportion of existing 
ARMs may use another interest-rate series from MIRS as an index.

B. Sampling and Weighting the Data

    The Finance Board samples all savings associations, mortgage 
companies, commercial bank, and savings banks for MIRS because it 
publishes monthly aggregate data by lender type. In addition, the 
Finance Board samples lenders representing all regions because it 
publishes quarterly data for 32 selected large metropolitan areas, 
quarterly data for the 12 Federal Home Loan Bank districts, and annual 
data for all 50 states and for 60 metropolitan statistical areas 
(MSAs).
    MIRS presents a ``clustered sampling'' problem. The item of 
interest is individual loans, but the Finance Board must sample lenders 
to get the individual loan data. The loans must come from all regions 
and must represent all lender types. Several recent developments have 
improved the geographical dispersion of MIRS loans. First, some large 
national mortgage companies participate in MIRS. This means that one 
lender may report loans from 20 or more states. Second, the continuing 
trend toward the consolidation of depository institutions has resulted 
in large institutions that originate loans in many states.
    As with most survey data, the tabulated MIRS data reflects the 
weighting of the individual responses. The current weighting draws 
depository institutions with equal probabilities of selection from 
``lender-type geo strata'' (for example, commercial banks in Nebraska, 
savings associations from the Cincinnati MSA, or savings banks from the 
Boston CMSA.) Since the sample of loans reported in a given month may 
differ from true lending experience (for example, over -or under-
represent certain regions), the MIRS data is weighted to comport with 
information on lending patterns derived from independent sources:
    (1) The data is adjusted so that the distribution of loans by 
lender type matches the lender-type distribution in the latest release 
of HUD's Survey of Mortgage Lending Activity, and
    (2) The data is adjusted so that the distribution of loans by 
Federal Home Loan Bank district matches the state pattern of mortgage 
originations annually reported by HUD.
    The weighting process builds up the national data from four 
separate subsamples based on lender type, where the shares of loans by 
lender type come from the HUD data. On balance, this weighting process 
significantly increases the importance of loans reported by commercial 
banks and reduces the importance of loans reported by savings 
associations because commercial bank loans are under-represented in the 
sample. Regional adjustment of the data does not have a significant 
effect on the results because the geographic pattern of responses 
approximates aggregate lending patterns.

C. Sampling by Lender Type

    The Finance Board publishes data by lender type principally because 
the former Federal Home Loan Bank Board published the data that way 
when it conducted MIRS. Accordingly, the Finance Board draws four 
separate subsamples corresponding to savings associations, mortgage 
companies, commercial banks and, savings banks. As the financial 
services sector evolves, the distinctions between commercial banks and 
thrifts continue to erode. If the institutional distinctions between 
commercial bank and thrift are blurred, then published data by lender 
type may no longer be useful or meaningful.
    While the overall samples of savings associations, savings banks, 
and mortgage companies are adequate, the Finance Board has had 
persistent trouble in recruiting commercial banks for the sample. Over 
the past several years, the Finance Board has contacted more than 2,000 
commercial banks, all with at least 10 percent of their assets in 
residential mortgage loans, and asked them to participate in MIRS. Most 
of the banks contacted never responded to the solicitation. Many banks 
that did respond said that either they make no mortgages or that a 
subsidiary mortgage company originates all the loans that they hold. 
Many banks that responded positively never submitted any loan data.
    Despite the Finance Board's recruitment efforts, only 118 
commercial banks reported a total of 5,437 loans in 1996. This 
represents only 4 percent of the total number of loans reported in 
1996. However, HUD's Survey of Mortgage Lending Activity reports that 
commercial banks originate about one-quarter of all single-family 
mortgage loans. As a result, the MIRS weighting process weighs up each 
commercial bank loan by a factor of about six.
    While the MIRS sample has few large commercial banks, the overall 
sample contains many loans originated by the mortgage banking 
subsidiaries of large commercial banks that have large mortgage 
investments.
    The Finance Board specifically requests comments on the following:

--Should it continue to report MIRS data by lender type?
--Should it continue to sample MIRS lenders by lender type?
--Do institutional changes render the data by lender type meaningless?
--Are there alternative ways to increase commercial bank participation 
in the sample?

D. Home Mortgage Disclosure Act Data

    The HUD data on mortgage originations by lender type is crucial to 
the MIRS weighting process. However, some observers believe the HUD 
data may overstate the commercial bank share of mortgage originations. 
Very few large commercial banks originate mortgage loans. Most of the 
large commercial banks with significant portfolio concentrations of 
residential mortgages have purchased these loans from subsidiary 
mortgage companies

[[Page 9769]]

that have significant origination volumes.
    Home Mortgage Disclosure Act (HMDA) data may provide an alternative 
data source for the lender type shares for MIRS. HMDA requires lenders 
to submit information on single-family mortgage applications. The data 
includes a disposition code, so it is possible to use HMDA information 
on loans closed. The scope of the HMDA data includes information on all 
nonmetropolitan mortgage originations but from the smallest lenders. 
The more important of these omissions is loans in nonmetropolitan 
areas. Approximately one-fifth of the nation's population lives outside 
metropolitan areas. Secondly, very small lenders are not subject to 
HMDA reporting. The Finance Board specifically requests comments on 
whether it could or should use the HMDA data as the basis for 
developing the lender-type adjustment in the MIRS weighting process. 
The Finance Board also requests comments on whether another data source 
is available that it could use in developing shares of aggregate 
lending by lender type.
    Beyond the use of the HMDA data to develop the lender-type 
adjustment, the Finance Board requests comments on whether it could 
develop a size-stratified weighting scheme based on individual lender 
origination volumes reported in the HMDA data. A HMDA-based weighting 
scheme would group lenders by origination volume and sample lenders, 
without regard to charter type, with decreasing frequency (and 
increasing weight) as origination volume declines. The implicit 
assumption is that loans originated by one type of lender (for example, 
commercial banks) are no different from loans originated by another 
type of lender.
    The Finance Board requests comments on whether it should change its 
MIRS weighting methodology. Should it adopt a size-stratified weighting 
methodology using HMDA data? If so, how should it surmount the omission 
in the HMDA data of nonmetropolitan lending data and loans from small 
lenders? (The MIRS data now contains loans from nonmetropolitan lenders 
as well as loans made by metropolitan lenders in nonmetropolitan 
areas.) Is there another weighting methodology that is more appropriate 
than either the current methodology or the one suggested that uses the 
HMDA data?

E. Data Edit Limits

    Most statistical surveys incorporate certain validity checks that 
the data must pass. MIRS contains validity checks or edits on allowable 
interest-rate ranges, loan sizes, purchase prices, loan fee amounts, 
and consistency of ZIP code with state of the property. The Finance 
Board established the current maximum allowable value of $500,000 for 
loan size and $750,000 for property price in November 1991. These edits 
would reject loans where the responding lender omitted a decimal point 
from dollar values, which would have the effect of reporting a loan 
amount or purchase price 100 times larger than the actual amount. The 
edits also exclude certain typographical errors, especially when the 
purchase price contains an extra zero. For example, a reported $50,000 
loan on a $900,000 property is more likely to be a $50,000 loan on a 
$90,000 property. The current edits would reject this transaction.
    While the edits screen out incorrect transactions, they also may 
exclude some valid transactions. Since the Finance Board established 
the current price and loan-size limits in November 1991, housing prices 
have increased modestly. The Finance Board seeks comments on an 
appropriate methodology to adjust the house size and loan amount edit 
limits to allow for housing price appreciation. The Finance Board does 
not plan to change the lower loan size and property price limit of 
$10,000.
    While it is not possible precisely to quantify the effect that the 
changes in the edit limits will have on the reported average house 
prices, the Finance Board believes the effect will be small because the 
proportion of loans between the old and any higher new edit limits is 
likely to be small. MIRS now has few transactions in bands just below 
the current edit limits. In 1996, only 0.7 percent of MIRS loans had 
balances between $400,000 and $500,000, and only 1.2 percent of MIRS 
loans financed homes with prices between $500,000 and $750,000. 
Transactions in these bands are skewed toward the lower end of the 
bands. Therefore, the Finance Board expects that only a small fraction 
of 1 percent of the survey's loans will fall between the old and any 
higher new edit limits.

F. Adjustable-Rate Mortgage Index

    A very small number of ARMs may use as an index a MIRS interest 
rate series by lender type. This information appears on Table III of 
the regular monthly MIRS release. If the Finance Board were to adopt a 
changed MIRS sampling methodology that no longer separately sampled 
lenders by lender type, then it probably would stop the publication of 
Table III in the monthly MIRS release.
    Section 402(e)(4) of the Financial Institutions Reform, Recovery 
and Enforcement Act of 1989 ``FIRREA,'' Public Law No. 101-73, 103 
Stat. 183 (August 9, 1989), requires the Chairperson of the Finance 
Board to designate a ``substantially similar'' successor index if the 
Finance Board no longer makes available any index from MIRS. If the 
Finance Board were to stop Table III, then it proposes to designate 
that the National Average Contract Mortgage Rate for the Purchase of 
All Homes by Combined Lenders be the successor index for any ARM index 
that uses a contract rate from Table III. It also proposes to designate 
the National Average Effective Mortgage Rate for the Purchase of All 
Homes by Combined Lenders be the successor index for any ARM index that 
uses an effective rate from Table III. The Finance Board publishes both 
of the proposed successor index rates in the top panel of Table I in 
the monthly MIRS release, and the current value of both interest rates 
is available on a recording maintained by the Finance Board.
    The Finance Board is proposing these successor index rates because 
the loans reported in Table III by lender type include loans on both 
newly built and previously occupied homes. The proposed successor index 
rates also include loans on both newly built and previously occupied 
homes. The only difference is that the data in Table I combines loans 
from all types of lenders whereas Table III reports mortgage data by 
type of lender.
    The Finance Board seeks comments on these proposed successor index 
rates.

G. Effective Date and Transition Provisions

    The Finance Board would adopt any changes to the MIRS sampling and 
weighting methodology effective at the beginning of 1998. Before 
implementing any changes, the Finance Board would consult with the 
technical staff of other Federal agencies and instrumentalities to 
obtain their views and suggestions about the MIRS sampling and 
weighting methodology.
    The Finance Board also would make available special tabulations so 
that Fannie Mae and Freddie Mac would have data calculated on the same 
basis for their determination of the conforming loan limit for 1999. 
This calculation would occur in November 1998.

    By the Federal Housing Finance Board.


[[Page 9770]]


    Dated: February 26, 1997.
Rita I. Fair,
Managing Director.
[FR Doc. 97-5266 Filed 3-3-97; 8:45 am]
BILLING CODE 6725-01-P