[Federal Register Volume 67, Number 249 (Friday, December 27, 2002)]
[Notices]
[Pages 79099-79102]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-32752]


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FEDERAL HOUSING FINANCE BOARD

[No. 2002-N-14]
RIN 3069-AB23


Monthly Survey of Rates and Terms on Conventional One-Family Non-
farm Mortgage Loans

AGENCY: Federal Housing Finance Board.

ACTION: Notice of methodological changes to the Monthly Survey of Rates 
and Terms on Conventional One-

[[Page 79100]]

Family, Non-farm Mortgage Loans (Monthly Interest Rate Survey or MIRS), 
and notice of substitution of certain indexes for adjustable-rate 
mortgages (Notice).

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SUMMARY: The Federal Hosing Finance Board (Finance Board) is 
implementing several methodological and reporting changes to MIRS and 
hereby gives notice of the substitution of substantially similar 
adjustable-rate mortgage (ARM) index rates for certain non-standard 
index rates in the survey. As part of these changes, several interest-
rate series that may be used as an ARM index on a very small number of 
non-standard ARMs no longer will be made available.

EFFECTIVE DATE: January 1, 2003.

FOR FURTHER INFORMATION CONTRACT: Joseph A. McKenzie, Deputy Chief 
Economist, (202) 408-2845 or [email protected], Federal Housing 
Finance Board, 1777 F Street, NW., Washington, DC 20006.

SUPPLEMENTARY INFORMATION:

I. Background and Statutory Authority

    On September 26, 2000, the Finance Board published in the Federal 
Register (65 FR 57813) a notice proposing several changes to the 
Monthly Interest Rate Survey aimed at improving the reliability of MIRS 
data (preliminary notice). Among the proposed changes were: changing 
the sampling and weighting methodology from one based on lender type 
and region to one based solely on lender size, eliminating the monthly 
table of mortgage interest rates and terms by lender type (Table III of 
the monthly MIRS release), and adding and deleting several metropolitan 
areas in the quarterly table of mortgage rates and terms by 
metropolitan area (Table IV of the January, April, July, and October 
MIRS releases) so that only the largest 32 metropolitan areas would be 
reported.
    The Finance Board conducts MIRS, which provides a statistical base 
for certain home price benchmarks.\1\ By law, the Chairman may approve 
the adoption of changes to the methodology to be employed that affect 
the availability of ARM indexes following publication for notice and 
comment. See 12 U.S.C. 1437 note. MIRS is the only national survey of 
mortgage rates and terms for both new and existing home sales. And 
because it reports the terms and conditions on loans closed, which may 
include loan-to-value ratios, term to maturity, number of points 
actually charged, and features of ARMs, MIRS is more comprehensive than 
any similar survey.
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    \1\ The Housing and Community Development Act of 1980 tied the 
Fannie Mae and Freddie Mac conforming loan limits to MIRS. See Pub. 
L. 96-399, Title III, Sec.  313(a), (b), 94 Stat. 1644-45 (Oct. 8, 
1980). Specifically, Fannie Mae and Freddie ZMac are required by 
their respective statues, which are nearly identical, to base the 
change in the annual dollar limit on the ``the national one-family 
house price in the monthly survey of all major lenders conducted by 
the [Finance Board.]'' See 12 U.S.C. 1717(b)(2), 1454(a)(2). The 
Finance Board inherited the task of conducting the MIRS from the 
former Federal Home Loan Bank Board (FHLBB) pursuant to section 
402(e)(3) of the Financial Institutions Reform, Recovery, and 
Enforcement Act of 1989 (``FIRREA''), Pub. L. 101-73, Title VII, 
Sec.  402(e)(3), 103 Stat. 183 (1989), and was substituted for the 
former FHLBB in the conforming loan limit provisions pursuant to 
Sec. Sec.  731(f)(1)(B) and (f)(2)(B) of FIRREA.
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    The Federal Home Loan Bank Act (Act) provides for the on-going 
availability of indexes used to calculate the interest rates on ARMs, 
and authorizes the substitution of substantially similar indexes for 
indexes that may no longer be calculated or made available. See 12 
U.S.C. 1437 note. The Act provides in pertinent part that the 
Chairperson of the Finance Board ``shall take such action as may be 
necessary to assure that the indexes prepared by the * * * Federal Home 
Loan Bank Board * * * immediately prior to the enactment of this 
subsection and used to calculate the interest rate on adjustable-rate 
mortgage instruments continue to be available.'' Id.
    With respect to the substitution of substantially similar indexes, 
the Act provides that as set forth in section 402(e)(4) of FIRREA, 
``[i]f any agency can no longer make available an index,'' it may 
substitute a ``substantially similar'' index ``if the * * * Chairperson 
of the Finance Board * * * determines, after notice and opportunity for 
comment, that--(A) the new index is based on data substantially similar 
to that of the original index; and (B) the substitution of the new 
index will result in an interest rate substantially similar to the rate 
in effect at the time the original index became unavailable.'' See 12 
U.S.C. 1437 note. Thus, the Act provides authority for the changes in 
the methodology and the designation of a substitute index that are the 
subject of this Notice.
    While the Finance Board does not know of any ARMs whose interest 
rate is linked to any of the series proposed to be deleted, it is 
possible that a very small number of non-standard ARMs could be linked 
to these series. Accordingly, the Finance Board proposed the 
designation of successor index rates as follows:
    (1) For any contract mortgage rate listed in Table III of the 
monthly MIRS release (mortgage rates and terms by lender type) the 
proposed successor index was the ``National Average Contract Mortgage 
Rate for All Homes by Combined Lenders'' as reported in the top panel 
of Table I in the monthly MIRS release;
    (2) For any effective mortgage rate listed in Table III of the 
monthly MIRS release (mortgage rates and terms by lender type) the 
proposed successor index was the ``National Average Effective Mortgage 
Rate for All Homes by Combined Lenders'' as reported in the top panel 
of Table I in the monthly MIRS release;
    (3) For any contract mortgage rate listed in Table IV of the 
quarterly MIRS release (mortgage rates and terms by metropolitan area) 
for a metropolitan area no longer reported the proposed successor index 
was the ``National Average Contract Mortgage Rate for All Homes by 
Combined Lenders'' as reported in Table I in the monthly MIRS release; 
and
    (4) For any effective mortgage rate listed in Table IV of the 
quarterly MIRS release (mortgage rates and terms by metropolitan area) 
for a metropolitan area no longer reported the proposed successor index 
was the ``National Average Effective Mortgage Rate for All Homes by 
Combined Lenders'' as reported in Table I in the monthly MIRS release.
    The preliminary notice proposed eliminating Table III from the 
monthly MIRS release, and requested comments on the proposed 
designation of successor index rates, and several other aspects of 
MIRS. In particular, the preliminary notice requested comments on a 
proposed change in MIRS sampling and weighting methodology that would 
sample lenders based solely on lender size as opposed to the current 
sampling based on lender type and region.

II. Analysis of Comment Letters and Changes Made in the Final Notice

    In response to the preliminary notice, the Finance Board received a 
total of five comment letters--two from housing government-sponsored 
enterprises and three from trade associations. The comments were nearly 
unanimous on two points. First, the commenters requested continuation 
of sampling by lender type because mortgage loans originated by savings 
institutions (savings and loan associations and mutual savings banks) 
differ from mortgage loans originated by mortgage companies. Mortgage 
loans originated by savings institutions tend to be larger, more 
frequently ARMs, and more frequently non-conforming than mortgages 
originated by mortgage companies. The commenters feared that

[[Page 79101]]

this important mortgage market detail would be lost if savings 
institutions were not separately sampled. Second, the commenters 
objected to the immediate adoption of the proposed weighting 
methodology because there was no information on how the new sampling 
and weighting methodology would affect the reported data.
    Several of the commenters suggested collapsing the ``Savings and 
Loan Association'' and the ``Mutual Savings Bank'' categories on Table 
III of the monthly MIRS release. Only one of the commenters addressed 
the issue of ARM indexes, and that comment urged the elimination of 
Table IV.
    In light of the comments received, the Finance Board will implement 
a number of changes to MIRS beginning with the January 2003 data that 
will be available in late February 2003. Several of these changes 
differ from the changes proposed in the preliminary notice. In 
particular, the major changes that the Finance Board will adopt are as 
follows:
    (1) MIRS data will use a sampling and weighting methodology based 
on lender size and lender type. There will be four lender-size classes 
and three lender-type classes (commercial banks, mortgage companies, 
and savings institutions). This will give a total of 12 cells to sample 
lenders from;
    (2) Table III of the monthly MIRS release will continue to be made 
available, but the ``Savings and Loan Association'' and ``Mutual 
Savings Bank'' categories will be collapsed in to a single ``Savings 
Institutions'' category; and
    (3) Table IV that presents quarterly data by metropolitan area will 
be changed by the addition of the following metropolitan statistical 
areas (MSAs) or consolidated metropolitan statistical areas (CMSAs):

Cincinnati--Hamilton, OH-KY-IN CMSA
Sacramento--Yolo, CA CMSA
Orlando, FL MSA
San Antonio, TX MSA
Las Vegas, NV--AZ MSA
Norfolk-Virginia Beach-Newport News, VA-NC MSA;

 and by the deletion of the following MSAs:Salt Lake City--Ogden, UT MS
Greensboro--Winston Salem--High Point, NC MSA
Rochester, NY MSA
Louisville, KY-IN MSA
Honolulu, HI MSA.

    The Finance Board is adopting the suggestion made by the commenters 
to retain sampling and weighting by lender type. The Finance Board 
entered into a Memorandum of Understanding (``MOU'') with the Census 
Bureau to design a revised sampling and weighting methodology for MIRS. 
The Census Bureau recommended a methodology similar to those they use 
in establishment (i.e., non-household) surveys. The new sampling and 
weighting design will be by lender type and lender size instead of by 
lender type and region. The new methodology selects the largest 
institutions in each of the three lender-type classes with certainty. 
The probability of selection declines (and the weight increases) as 
lender size in terms of the number of conventional single-family 
mortgages originated gets smaller.
    Mortgage market developments since the last major revision to the 
MIRS methodology in 1991 include the pervasive presence of interstate 
activities, conducted either through depositories with interstate 
branches or through mortgage companies with multi-state origination 
capabilities. Indeed, there now are mortgage companies with truly 
national scope of their operations. Because of widespread interstate 
operations, it is no longer necessary to sample lenders based on region 
to achieve an adequate regional dispersion of reported loans each 
month.
    Several of the commenters objected to the adoption of a revised 
methodology because they were uncertain of the effect the revised 
methodology would have on the reported data. In response to the 
commenters' concerns, the Finance Board calculated the effect of the 
revised methodology on the data: the lender-size/lender-type weighting 
methodology recommended by the Census Bureau was applied to the raw 
MIRS loans for the period of August 2001 through August 2002 and 
compared to the existing reported data. Using 13-month averages for 
both data sets, the existing methodology data was subtracted from the 
new methodology data, and the following differences were noted:

Contract mortgage rate.........................................    0.04%
Effective mortgage rate........................................    0.04%
Initial fees and charges.......................................    0.02%
Principal......................................................   $1,573
Purchase price.................................................   $1,730
Term to maturity (years).......................................     0.16
Loan-to-value ratio............................................    0.06%
 

The Finance Board does not view any of these differences to be 
economically significant.
    The preliminary notice proposed eliminating Table III from the 
monthly MIRS release. Because the Finance Board is adopting the 
suggestion of the commenters to retain a sampling and weighting 
methodology based in part on lender type, the agency also will retain 
Table III of the monthly MIRS release with mortgage rates and terms by 
lender type. Additionally, in response to the comments, Table III will 
be modified to collapse the former ``Savings and Loan Association'' and 
``Mutual Savings Bank'' categories into one category called savings 
institutions. The change is appropriate, in the Finance Board's view, 
because distinctions between savings and loan associations and savings 
banks have eroded, and there is little, if any, practical difference 
between the two charter types. As is discussed below, the decision to 
retain Table III affects the designation of successor index rates.
    In connection with the proposed elimination of Table III, the 
preliminary notice proposed successor ARM index rates for any interest-
rate series from Table III that may be used as an ARM index rate. By 
retaining a modified Table III, the Finance Board will be able to 
designate substitute index rates that are more similar to the series 
deleted than the successor series proposed in the preliminary notice.
    In particular, The Finance Board designates successor series as 
follows:
    (1) The designated successor series for the contract mortgage rate 
for either savings and loan associations (top panel of Table III) or 
for mutual savings banks (bottom panel of Table III) is the contract 
rate for savings institutions in the revised Table III;
    (2) The designated successor series for the effective mortgage rate 
for either savings and loan associations (top panel of Table III) or 
for mutual savings banks (bottom panel of Table III) is the effective 
rate for savings institutions in the revised Table III;
    (3) The designated successor series for any contract mortgage rate 
listed in Table IV of the quarterly MIRS release for any of the five 
metropolitan areas no longer reported is the ``National Average 
Contract Mortgage Rate for All Homes by Combined Lenders'' as reported 
in the top panel of Table I in the monthly MIRS release; and
    (4) The designated successor series for any effective mortgage rate 
listed in Table IV of the quarterly MIRS release for any of the five 
metropolitan areas no longer reported is the ``National Average 
Effective Mortgage Rate for All Homes by Combined Lenders'' as reported 
in the top panel of Table I in the monthly MIRS release.
    Thus, for the metropolitan area rates, the successor series are the 
same as those proposed in the preliminary notice, but the successor 
series relating to savings and loan associations and mutual savings 
banks differ from those proposed in the preliminary notice. The Finance 
Board believes that a contract

[[Page 79102]]

(effective) mortgage rate series for savings institutions is 
substantially similar, in accordance with 12 U.S.C. 1437 note, to the 
contract (effective) mortgage rate for savings and loan associations 
(or mutual savings banks), and more so than would be true of the 
national contract (effective) mortgage rate for all lenders. Savings 
and loan data constitutes about 80 percent of the proposed savings 
institutions series and mutual savings bank data constitutes the other 
20 percent. In contrast, combined savings and loan association and 
mutual savings bank data constitute only about 20 percent of the data 
for all lenders.
    The Finance Board also is using this opportunity to modify the MSAs 
listed in the quarterly Table IV that lists rates and terms by 
metropolitan area. The change is the deletion of five MSAs and the 
addition of six MSAs so that the quarterly table presents information 
for the 32 largest MSAs. Based on 2000 population data, the ranking of 
the deleted MSAs is as follows:

Salt Lake City-Ogden, UT (35)
Greensboro-1 Winston Salem-1 High Point, NC (36)
Rochester, NY (46)
Louisville, KY-IN (49)
Honolulu, HI (55).

    The changes to MIRS sampling and weighting methodology and tables 
will occur with the January 2003 data that will be published in late 
February 2003. The January 2003 implementation will allow the MIRS data 
to be weighted using a consistent methodology within each calendar 
year, and permit all interested parties to become familiar with the 
changes.

    Dated: December 20, 2002
John T. Korsmo,
Chairman, Federal Housing Finance Board.
[FR Doc. 02-32752 Filed 12-26-02; 8:45 am]
BILLING CODE 6725-01-P