Using home-mortgage data to identify top 25 subprime lenders
David Donald, data editor for the Center for Public Integrity, explains how he used Home Mortgage Disclosure Act data to identify the nation's top 25 subprime lenders.
David Donald, data editor for the nonprofit Center for Public Integrity, described how he and his colleagues used Home Mortgage Disclosure Act data to identify the nation’s top 25 subprime lenders from 2005 to 2007, a period encompassing the peak and collapse of the subprime boom. Subprime loans are high-interest loans to borrowers with less than sterling creditworthiness.
| Video and presentation: David Donald on Probing Banks and Mortgage Lenders. [Donald's presentation begins at Slide 11. Before that, Maurice Tamman of The Wall Street Journal presents on the same subject, starting about 54 seconds in.]
The center reported in May 2009 in “Who’s Behind the Financial Meltdown?” that “the top subprime lenders whose loans are largely blamed for triggering the global economic meltdown were owned or backed by giant banks now collecting billions of dollars in bailout money — including several that have paid huge fines to settle predatory lending charges.
”The banks that funded the subprime industry were not victims of an unforeseen financial collapse, as they have sometimes portrayed themselves, but enablers that bankrolled the type of lending threatening the financial system.”
In explaining his methodology during a CAR Conference session on probing banks and mortgage lenders, Donald said the Home Mortgage Disclosure Act data are available from the Federal Financial Institutions Examination Council or from IRE.org‘s Database Library. The center analyzed loan application records for nearly 7.2 million subprime loans. The top 25 originators of these loans accounted for nearly $1 trillion, or about 72 percent of such loans made during that period, it reported.
As a starting point to understanding the fields in the data — originally required by the federal government to track potential racial discrimination in lending — he recommended tipsheet #3090 by John Maines, CAR editor of the South Florida Sun Sentinel, available on IRE.org.
The key field to work with in tracking subprime lenders was the one called the spread, he said. Because there is no standard definition of what constitutes a subprime, or high-interest, loan, he considered those loans as subprime that had a spread of three percentage points or more in the loan’s interest rate above the comparable Treasury bond at that time.
He recommended economist Karen Pence, who works for the Federal Reserve System Board of Governors, as a resource in figuring out how to pull subprime lenders out of the home-mortgage data. He also said economist Glenn B. Canner writes a analysis in the Federal Reserve Bulletin each year on what’s going on with the home-mortgage data.
To look how the mortgages were securitized, he suggested searching the Securities and Exchange Commission’s EDGAR database of filings for Form 424B5, a prospectus that outlines the tranches of loans, separated by credit ratings from high-grade to toxic.
Donald can be reached at ddonald@publicintegrity.org.
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