[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