Source: http://www.mortgagetrueview.com/blog/
Timestamp: 2017-08-23 13:37:36
Document Index: 147124724

Matched Legal Cases: ['art 1', 'art 1', 'art 1', '§1003', 'art 1', 'art 1', 'art 2', 'art 2']

HMDA Denial Reason Codes: Trends and Opportunities
by David Moffat • June 27, 2016
The reporting of HMDA Denial Reason Codes (“DRC”) is currently optional for institutions that are not subject to OCC regulations (12 C.F.R 27.3(a)(1)(i) or 128.6) or FDIC regulations (12 C.F.R 390.147).
Mortgage TrueView HMDA Insight Dashboards[1] indicate that the percentage of denied applications providing a Denial Reason Code (“DRC”) has dropped approximately 16% – from approximately 80% to 68% – during the period 2010 – 2014[2] (Chart 1).
Chart 1 – Denied Applications with at least one Denial Reason Code
Analysis confirms that the DRC reporting trend shown in Chart 1 is driven by lenders that are supervised by either the Federal Reserve System or the Department of Housing and Urban Development.
The paradox of lower DRC reporting prior to mandatory[3] DRC reporting identifies a strategic opportunity for those lenders not currently required to provide a DRC. Such lenders have an opportunity to report DRCs prior to January 1, 2020, to provide a more comprehensive understanding of denial activity for the overall market and themselves.
Table 1 details the drop in DRC reporting rates among lenders by supervising regulatory agency. Overall, the percentage of denied applications reporting at least one DRC averaged approximately 80% during the period 2010 – 2012, dropping to 77% in 2013 and 68.00% in 2014.
The drop in DRC reporting presented in Table 1 is attributable to a several factors including (i) changes in market share between DRC reporting lenders and non-DRC reporting lenders, and (ii) lower levels of voluntary DRC reporting by lenders not obligated to report DRCs.
Table 2 highlights the trend in DRC reporting for a representative group of HUD-supervised lenders. Among other things, this table shows that some lenders “refined” their view on reporting DRCs over the five-year period but, in the end, all the lenders in Table 2 reached the conclusion to no longer report DRCs in 2014.
For those lenders reporting DRCs, Table 3 shows that the use of collateral-related DRCs as the primary DRC have declined from 28.97% in 2010 to 21.75% in 2014. Applicant-related DRCs have increased from 56.63% to 68.66% due primarily to an increase is use of the “Credit History” DRC (from 25.24% to 35.58%) and the “Debt-to-income” DRC (from 25.45% to 27.70%). The increase in applicant-related DRCs is, to some extent, due to decreases in the “Other” DRC.
The trend in the use of DRC “Other” – from 14.40% in 2010 to 9.59% in 2014 – is of interest in light of the provision in §1003.4(a)(16) that applications denied on the basis of “Other” include further details in free-form text field. This requirement for further information is likely to reduce – if not eliminate – the number of applications denied on the basis of “Other”.
Table 3 highlights how DRC reporting rates can help lenders evaluate their lending profile through comparison of their denial activity to the broader market. For example, while an individual lender demonstrating the trends in Table 3 might be subjected to questions about their lending profile, this lender-specific pattern in the context of market results such as those shown in Table 3 reduces the lender’s risk for adverse determinations regarding their lending profile[4].
The absence of DRCs makes it more difficult for lenders to benchmark their lending activity. This fact suggests that lenders may be better served to include DRCs in their HMDA filings even if providing such information is not yet required. An indication by a lender as to the basis for denial of an application will provide essential context to any regulatory determinations of a lender’s lending activity.
Our next HMDA Insight provides insight into gender, race, and ethnicity reporting rates and discuss how this information can be used in evaluating lending activity.
[2] This trend is confirmed by the results of Mortgage TrueView’s 2015 HMDA Survey which show that the 2015 DRC reporting rate was 67%, down only slightly from 2014’s 68%.
[3] See 12 C.F.R. 1003.4(a)(16).
[4] Benchmarking also allows a lender to identify and leverage comparative market advantages. For an example of how benchmarking allows for a comparison of mortgage lenders, visit https://lenderscores.com
HMDA Action Taken Rates : Adjusting for Loans Purchased
by David Moffat • June 7, 2016
This is the first in a series entitled HMDA Insights : Capitalizing on New Perspectives prepared to provide mortgage lenders with advanced analytical insight to enhance governance, risk management and compliance activities in a challenging – and changing – environment.
Excluding Loans Purchased (i.e., Action Type 6) in evaluating a lender’s lending profile is necessary as the purchase decision is distinct from the origination decision.
Mortgage TrueView HMDA Insight Dashboards[1] show that differences between the aggregate Action Taken Rates[2] inclusive of all Action Taken codes (i.e., Gross Rate) and aggregate Action Taken Rates excluding Loans Purchased (i.e., Net Rate) are significant (Chart 1).
Chart 1 | Comparative Action Taken Rates | 2010 – 2014
While the overall results are noteworthy, it is essential to evaluate – and understand – the results in the MSAs/MDs where a lender conducts business.
Loans Purchased by all HMDA Respondents and the relationship of such applications to Actioned Applications (i.e., Action Taken Codes 1-5,7 and 8) (“Loans Purchase Rate”) are significant (Table 1).
Mortgage TrueView Insight Dashboards show MSA/MD-specific 2014 Loan Purchase Rates ranging from 1.42% to 37.41% (with the range for the top 20 MSAs based on Actioned Applications ranging from 13.30% to 26.57% as shown in Chart 2).
Chart 2 | Loans Purchased as a Percent of Actioned Applications [Top 20 MSAs/MDs] : 2014
Mortgage TrueView Insight Dashboards show that the St. Louis, MO-IL MSA has the highest 2014 Loan Purchase Rate – 26.57% – among the top 20 MSAs based on Actioned Applications. Table 2 presents the Top 20 lenders (based on Total Applications) in the St. Louis, MO-IL MSA and shows their respective Loans Purchased Rate. Table 2 shows that the St. Louis, MO-IL MSA Loans Purchased Rate of 26.57% is primarily attributable to 8 (highlighted) lenders that have Loans Purchased Rates significantly higher than the average Loans Purchased rate for the St. Louis, MO-IL MSA.
Four of the eight lenders – Respondents 4, 8, 14, and 19 – show significant Loans Purchase Rates with Respondent 19 reporting 1 Actioned Application and 1,359 Loans Purchased.
Despite significant Loans Purchase Rates, two of the eight lenders – Respondents 2 and 10 – also show significant Actioned Applications, 3,973 and 1,028, respectfully.
It is clear from Table 2 that including Loans Purchased as Approved Applications significantly misstates the lending activity for the highlighted lenders. By extension, including Loans Purchased misstates the lending activity for all lenders and provides an inaccurate view of lending activity for the overall market.
Our next HMDA Insight will focus on how adjusting Action Taken rates makes a difference in establishing a more meaningful benchmark for purposes of evaluating lending activities.
[2] Approved includes loans originated, applications approved not accepted, and preapproval requests approved but not accepted. Denied loans include applications denied by the financial institution and preapproval requests denied by financial institution.