New HMDA data analysis shows what lenders may be missing

by MPA13 Oct 2014
When the 2013 Home Mortgage Disclosure Act (HMDA) was released last month, a lot of analyses were made regarding the disparities between the share of mortgages made to minorities and whites.
While the HMDA data does shed light on the significant drop in minority mortgages, it also shows that many lenders are sacrificing millions of dollars in missed lending opportunities, according to a recent report by Mortgage TrueView.
“Today, the regulators and the advocacy groups look at HMDA data and believe they see that there’s bias in the approval process,” said Becky Walzak, executive vice president at Mortgage TrueView. “In the other corner, lenders look at HMDA data and see that borrowers aren’t qualified, so that’s why loans are denied.  We believe there’s a third leg to this stool, and that at least some of the loan denials are due to the lenders’ process itself, or the way the process is carried out.”
The report shows a significant difference between large lender and small lender approval rates, with some lenders having 11% approval rates on non-conventional loans. Typically, the approval rates of large lenders hover in the range of 60% to 80%.
“The lenders with the highest loan approval rates tend to have either very strong technology, or strong non-conventional lending programs, or both,” Walzak said. “Higher loan approval rates were associated with more technology, better trained people, or a more streamlined process.”
The new report suggests by adding an additional 10% to the rate of loan approvals, a lender could increase revenues significantly, according to the mortgage data provider.
For instance, Mortgage TrueView looked at a small lender with 3,700 loan applications that had a 12% approval rate (445 loans).  If that particular lender were able to increase its approvals to 20%, or 740 loans, the lender would see an additional $150,000 in revenue.
In another example, a large lender had 150,000 applications with an approval rate of 62%, or 93,000 loans. The lender saw revenues of $46.5 million. If that lender increased its approvals to 72%, or 108,000 loans, it would realize revenues of $54 million, according to the mortgage data provider.
(Mortgage TrueView based both estimates by using a conservative $500 per loan profit).
Mortgage TrueView’s flagship product HMDAnalytics helps lenders identify trends in their loan application data, compares that data to other lenders and calls attention to risks that increase the likelihood of a fair lending examination, according to Walzak.
 “We can isolate certain elements and look at how they are influencing loan approval rates,” she said. “A lender should know more about their own HMDA data than the regulators know."


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