Mortgage Lending in St. Louis: From HMDA to Home Improvement

Local community and economic development professionals recently attended a seminar hosted by the Federal Reserve Bank of St. Louis to learn about and share information on the current crisis in the mortgage-lending industry.

Although the focus was on the subprime market and the escalating number of foreclosures throughout the country, the seminar also highlighted local efforts to help homeowners avoid foreclosure and take advantage of programs that make home improvements affordable.

The Bank’s Community Affairs Office invited St. Louis area mortgage-lending experts, economists, community representatives, government officials and Federal Reserve regulators to speak.

Fed economists Andy Meyer and Yuliya Demyanyk presented information on changes to the Home Mortgage Disclosure Act (HMDA) and understanding the subprime mortgage crisis.

HMDA has become a more powerful tool in uncovering discrimination since changes were made in 2004, Meyer said. Mortgage lenders now are required to collect information not only on the race and gender of applicants, but also on loan-pricing. This helps determine whether minorities are paying higher rates for loans than white applicants. He also explained the process for examining a lender’s HMDA data.

Demyanyk’s study on understanding the current subprime mortgage crisis turned up some surprising data. It’s not so current.

“There was a gradual deterioration in the mortgage market every year since 2001,” she said. “It didn’t just happen in 2006. It was happening all along, but was masked by housing appreciation.”

An over-expansion of credit during those years meant an increasing number of risky loans were made, which are now going into foreclosure.

“One of every 20 subprime-financed homes has fallen into foreclosure this year (2007),” said Carol Laslo, senior business developer for Fannie Mae’s St. Louis office.

And, she said, the situation is only going to get worse as an estimated $500 billion in subprime loans will reset between now and the end of 2008.

In an effort to keep homeowners out of foreclosure, Fannie Mae recently introduced its HomeStay^TM Initiative.

The program offers flexible mortgage products that give borrowers options and underwriting guidelines that emphasize the borrower’s ability to repay the debt.

Elizabeth Hayes, assistant vice president of Consumer Affairs Supervision at the Federal Reserve Bank of St. Louis, gave a federal perspective on the subprime mortgage crisis.

Some critics have asked where the Federal Reserve has been during this crisis and why the Fed did not anticipate the crisis, she said.

Although most subprime lenders are not regulated by the Federal Reserve, Fed officials have issued policy statements and testified before Congress about the problem over the last several years.

“The Fed is moving rapidly toward regulation of this issue and will announce significant new rules relating to consumer protection this year,” Hayes said.

Other speakers presented overviews of the mortgage lending crisis in Missouri and Illinois and efforts to reduce the number of foreclosures.

The seminar ended with a discussion among audience members about what else is needed to address the issue and the next steps that need to be taken.