Residential Mortgage Lending in Oregon, CY 2007

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1 Introduction Residential Mortgage Lending in Oregon, CY 2007 By Senate Bill 1064 (2008), the Oregon Legislature required that all mortgage banker and mortgage brokers licensed by the Oregon Division of Finance and Corporate Securities file annual reports on their residential mortgage transactions. The first reporting was done during August 2008 and covered loans originated during calendar year This report provides information based on these reports. 1 Over time, this new reporting system may provide a clearer view of the mortgage lending industry in Oregon. Report Highlights A total of 1,438 firms provided data. 1,158 firms originated more than 116,000 loans with a volume of $24.15 billion. Forty-five firms originated more than half of the loans. Half of the firms were located in Oregon; they originated 55 percent of the loans. The average first-lien loan amount was $239,200; the average subordinate-lien amount was $70,900. Legislative History Because of concern about the Oregon housing market, several bills affecting residential mortgage lending were introduced during the 2007 legislative session. Although no bills passed, many people saw a need for statutory changes. As a result, the Governor asked DCBS to convene a work group consisting of legislative, industry, and consumer representatives. The Mortgage Lending Work Group worked from the fall of 2007 through the fall of 2008 to address enhanced enforcement laws and lending practices. Recommendations from the work group resulted in two bills passed during the February 2008 legislative session. HB 3630 modified the regulation of activities by mortgage loan foreclosure consultants and equity purchasers and improved the information that must be provided to homeowners facing foreclosure. SB 1064 increased the regulation of the activities of loan originators, the loan salespeople who are employed by licensed mortgage bankers or mortgage brokers and directly negotiate terms and conditions of mortgage loans with borrowers. The bill also required the department to provide consumers with a registry of information about loan originators, including justified complaints and enforcement actions. SB 1064 also required state-regulated mortgage bankers and mortgage brokers to annually file with the department information about their residential mortgage lending. 2 ORS (3) now reads: On or before May 1 of each year or on a date the director establishes by rule, every mortgage banker and mortgage broker shall file a report with the director in a form prescribed by the director. The report shall contain information the director requires concerning the mortgage banker s or mortgage broker s business and operations related to residential mortgage lending during the preceding calendar year. The information shall include the number and nature of loans originated by loan originators that the mortgage banker or mortgage broker employed. 1 This report was written by staff of the DCBS Information Management Division in March Sections of SB 1064 are provided in Appendix 1.

2 Other sections of the statute forbid the publication of data for any individual lender and impose penalties for non-reporting. Reporting is limited to the companies regulated by the state. Federally chartered financial institutions that originate residential mortgages are not under state regulation and do not report. The administrative rules for data reporting are OAR After considering input from industry stakeholders and consumer groups, the rules were initially adopted in May In response to additional input from industry stakeholders, the rules were revised and adopted in final form in June As a result of discussions with industry representatives about the feasibility of some of the reporting, the department required the reporting of some data items and made optional the reporting of some other items. 4 Revised rules were adopted in December 2008 for the forthcoming annual reports. The rules now require that mortgage bankers and brokers provide the annual data prior to March 31 each year. Data collection summary State-regulated mortgage bankers and brokers did the first reporting of data during August 2008, covering loans originated in calendar year Most companies did not provide responses to the optional questions, so the results are not included in this report. In part because this was the first year that reporting was required, some data submitted by the bankers and brokers required cleanup. To the extent possible, the division asked the companies to clarify their responses. This report is based on these revised data. The department has modified the data reporting requirements for the calendar year 2008 data to reduce reporting errors. 5 Analysis Companies that were licensed during the last half of calendar year 2007 were required to report data. A total of 1,438 companies provided data. Of these, 280 reported that they did not originate any loans during The other 1,158 companies reported that they originated more than 116,000 loans with a volume of $24.18 billion. As shown in Table 1, the majority of firms issued no more than 25 loans during CY They originated 5 percent of the loans. There were 45 companies that originated more than 500 loans; they originated about 53 percent of all loans. The firms were nearly evenly distributed between those located within Oregon and those from outside the state. The Oregon firms originated 55 percent of the loans. In the reporting, the total numbers of loans were reported as either first-lien mortgage loans or subordinate-lien mortgage loans. This second category consists of second mortgages and includes home equity lines of credit. Eighty-one percent of the total loans were first-lien mortgage loans. They accounted for 94 percent of the total loan amount, about $22.66 billion. As shown in Table 2, the average loan amount was $239,200. As illustrated in Figure 1, the average first-lien amount for 78 percent of the firms was between $200,000 and $350, The current language for OAR is shown in Appendix 2. 4 The CY 2007 survey questions are shown in Appendix 3. 5 Details of the data revisions are discussed in Appendix 3, and the CY 2008 survey questions and the revisions to the data collecting process are discussed in Appendix 4. Page 2 of 13

3 Table 1. Summary of residential mortgage lending activity by state-regulated mortgage bankers and brokers, CY 2007 Table 2. First liens and subordinate lien activity, CY 2007 The remaining 19 percent of the loans were subordinate-lien loans. The average loan amount was $70,900. As the lower portion of Table 2 shows, the largest firms had a slightly higher volume of subordinate-lien loans than did the smallest companies. The difference was not large, however, and there was little difference in average loan amounts among firm sizes. The average subordinate-lien amount was under $100,000 for 84 percent of the firms. Page 3 of 13

4 Figure 1. Distribution of average first and subordinate lien amounts, CY 2007 Types of mortgages Mortgage bankers and brokers reported their loans by category. The analysis of these reports is somewhat difficult. For data on mortgage type, no distinction was made between first-lien and subordinate-lien mortgages. More importantly, some firms reported the same loans in the multiple categories, apparently most often reporting loans as both adjustable rate mortgages and interest-only loans. 6 As a result, the numbers of loans in these categories sum to more than the total number of reported loans. The categories are: Fixed rate mortgage: a mortgage loan where the interest rate on the note remains the same through the term of the loan. Interest-only loan: a loan in which for a set term the borrower pays only the interest on the principal balance, with the principal balance unchanged. At the end of the interest-only term, the borrower gets a new payment amount calculated on an updated amortization schedule. Negative amortization loan: a mortgage loan where the loan payment for any period is less than the interest charged over that period so that the outstanding balance of the loan increases. This method is generally used in an introductory period before loan payments exceed interest and the loan becomes self-amortizing. In this report, this category includes reverse mortgages loans. With these loans, neither the capital nor interest is repaid. The interest is rolled up with the capital, increasing the debt each year. The homeowner's obligation to repay the loan is deferred until the owner leaves the home or the home is sold. Adjustable rate mortgage (ARM): a mortgage loan where the interest rate on the note is periodically adjusted based on an index. The loans often have low initial interest rates. Prepayment penalty loan: a loan that includes a penalty when the borrower repays the principal early. 6 See Appendix 3 for more details of the clean up of this data. Page 4 of 13

5 As shown in Table 3, the majority of the firms made fixed rate, interest-only, and adjustable rate loans. Also, on average, loans that were not the traditional, fixed rate mortgages were for higher amounts. The average fixed rate mortgage was for $210,900, and the average adjustable rate mortgage was for $242,800. Table 3. Summary of types of loans, CY 2007 Nearly half of the firms originated loans that included prepayment penalties. About 10 percent of all loans had prepayment penalties. The category with the fewest loans was negative amortization loans. As mentioned earlier, the analysis of this category is somewhat difficult because it includes reverse mortgage loans. The average negative amortization loan was for $293,600, the highest of any loan type. As illustrated in Figure 2, the negative amortization loans had the least concentration in average loan amounts. Figure 2. Distribution of average loan amounts by loan type, CY 2007 Page 5 of 13

6 Refinancing loans For SB 1064 reporting of calendar year 2007 data, loans for refinancing mortgages were included within the categories of first-lien and subordinate-lien mortgages, rather than as a separate category. As shown in Table 4, 47 percent of the loans reported were for refinancing existing mortgages. Refinancing was a somewhat larger share of the business for small firms than it was for larger firms. Table 4. Summary of refinancing loans, CY 2007 Page 6 of 13

7 Appendix 1. Sections 1 and 5 of SB 1064 (2008) (Sections in bold are language added by SB 1064) SECTION 1. ORS is amended to read: (1) Every mortgage banker and mortgage broker shall make and keep such accounts, correspondence, memoranda, papers, books and other records as the Director of the Department of Consumer and Business Services by rule or order prescribes. All such records shall be preserved for five years unless the director by rule prescribes otherwise. The director may examine all such records within or without this state at any reasonable time or times and may require without subpoena the production of such records at the office of the director as often as is reasonably necessary. (2) Every mortgage banker and mortgage broker shall file financial reports or other information as the director by rule or order may require and shall promptly correct any document filed with the director that is or becomes incomplete or inaccurate in any material respect. (3) On or before May 1 of each year or on a date the director establishes by rule, every mortgage banker and mortgage broker shall file a report with the director in a form prescribed by the director. The report shall contain information the director requires concerning the mortgage banker s or mortgage broker s business and operations related to residential mortgage lending during the preceding calendar year. The information shall include the number and nature of loans originated by loan originators that the mortgage banker or mortgage broker employed. (4) The report and any records submitted to the director under this section are exempt from disclosure or production and are confidential as provided under ORS Notwithstanding the exemption and confidentiality provisions of subsection (4) of this section, the director may abstract information contained in reports submitted under subsection (3) of this section and may make the abstracted information available for public inspection provided that the abstracted information does not identify a particular mortgage banker or mortgage broker as a source of the information. SECTION 5. ORS is amended to read: (1) In addition to all other penalties and enforcement provisions provided by law, any person who violates or who procures, aids or abets in the violation of any provision of ORS to or any rule or order of the Director of the Department of Consumer and Business Services shall be subject to a penalty of not more than $5,000 for every violation, which shall be paid to the General Fund of the State Treasury. (2) Notwithstanding subsection (1) of this section, a person who fails to submit a report required under ORS (3) on the date specified is subject to a penalty of not more than $100 per day for each day after the specified date during which the failure continues. [(2)] (3) Every violation is a separate offense and, in the case of a continuing violation, each day s continuance is a separate violation, but the maximum penalty for any continuing violation shall not exceed $20,000 for each offense. [(3)] (4) Civil penalties under this section shall be imposed as provided in ORS Page 7 of 13

8 Appendix 2. OAR (effective December 2008) Residential Mortgage Lending Reports On or before March 31 of each calendar year, a mortgage banker or a mortgage broker licensed at any time during the preceding calendar year must file a report concerning the banker s or broker s business and operations conducted during the preceding calendar year related to residential mortgage transactions. (1) A licensee must report the total number and dollar amount of all loans made or funded by the licensee in any state and those loans that are Oregon residential mortgage transactions. (2) For loans made or funded for a property located in Oregon, a licensee must report the total number and dollar amount of: (a) First-lien mortgage loans. (b) Subordinate-lien mortgage loans including, but not limited to, home equity lines of credit. (c) Mortgage loans having a fixed periodic payment of principal and interest throughout the mortgage term. (d) Interest-only first-lien mortgage loans having a fixed interest rate. (e) Interest-only first-lien mortgage loans having an adjustable interest rate. (f) Negative amortization mortgage loans. (g) Adjustable rate first-lien mortgage loans. (h) Adjustable rate subordinate-lien mortgage loans. (i) Loans with a prepayment penalty in the contract at the time of closing. (j) Mortgage loans closed for the purchase of a primary owner-occupied residential dwelling. (k) Mortgage loans closed for the purchase of a secondary residence. (L) Mortgage loans closed for the purchase of a non-owner occupied property that is a one-to-four family residential dwelling. (m) Mortgage loans closed for the purpose of refinancing an existing mortgage loan secured by a primary owner-occupied residential dwelling. (n) Mortgage loans closed for the purpose of refinancing an existing mortgage loan secured by a secondary residence. (o) Mortgage loans closed for the purpose of refinance an existing mortgage loan secured by a nonowner occupied property that is a one-to-four family residential dwelling. (p) Mortgage loans insured or guaranteed by a federal agency. (3) For loans made or funded for a property located in Oregon, a licensee may report the total number and dollar amount of: (a) Loans that were originated based on all of the following factors: (A) Income documentation; (B) Employment documentation; and (C) Asset documentation. (b) Loans that were originated based on one or two of the following factors: (A) Income documentation; (B) Employment documentation; or (C) Asset documentation. (c) Loans that were not originated based on any of the following factors: (A) Income documentation; (B) Employment documentation; or (C) Asset documentation. Page 8 of 13

9 (d) Loans with a combined loan-to-value ratio of 80% or lower made to an individual having a middle credit bureau risk score of 620 or above. (e) Loans with a combined loan-to-value ratio of 80% or lower made to an individual having a middle credit bureau risk score below 620. (f) Loans with a loan-to-value ratio of greater than 80% made to an individual having a middle credit bureau risk score of 620 or above. (g) Loans with a loan-to-value ratio of greater than 80% made to an individual having a middle credit bureau risk score below 620. (4) For purposes of this rule: (a) Loan-to-value ratio means the ratio between the amount of a mortgage loan and the value of the property pledged as security, expressed as a percentage. (b) Residential mortgage transaction has the same meaning as ORS Page 9 of 13

10 Appendix 3. CY 2007 reporting and data revisions The calendar year 2007 annual report questions were: Provide the number and dollar amount of: 1. First-Lien Mortgage Loans 2. Subordinate-Lien Mortgage Loans 3. Conventional Loans 4. Interest-Only Mortgage Loans 5. Negative-Amortization Mortgage Loans 6. Adjustable Rate Mortgage Loans 7. Loans with Prepayment Penalties 8. Loans for Purchasing a Primary Owner-Occupied Residential Dwelling 9. Loans for Refinancing an Existing Home Loan The information listed in items 10 through 14 is voluntary 10. Mortgage loans insured or guaranteed by a federal agency 11. Loans that were originated based on: a. Income, employment and asset documentation b. Income, employment or asset documentation 12. Loans not based on income, employment or asset documentation. 13. Loans with a low combined loan-to-value (80% or lower) ratio made: a. For person with an average credit score of 620 or above b. For person with an average credit score of 620 or below 14. Loans with a high combined loan-to-value (over 80%) ratio made: a. For person with an average credit score of 620 or above b. For person with an average credit score of 620 or below The first reporting of state-regulated mortgage lending firms under SB1064 took place during August It resulted in 1,438 firms reporting data. Of these firms, 280 reported that they had made no loans during The validity of reported data for 150 of the 1,158 licensees reporting loan data was questioned. Four licensees reported loan averages greater than $1,000,000. In 141 cases, the sum of reported fixed and adjustable-rate loan numbers and volumes was greater than their reported loan number or volume total. Finally, 13 licensees reported individual numbers or volumes greater than their respective total. (Some licensees had more than one error.) Data were cleaned to the extent possible. Firms were contacted and asked about their responses. For cases in which this did not produce reasonable data, several rules were applied. Where the erroneous data was 100 times larger than a plausible entry, a decimal error was assumed and the entry was divided by 100. In cases where individual data were erroneous and where a decimal error was not plausible, the bad data were deleted while other, good, data from the same licensee were retained. In cases where the sum of the fixed and adjustable-rate loan number or volume exceeded the firm s respective total, a sum of 10 percent above the total was allowed. If the fixed and adjustable-rate sum was more than 10 percent above the total, then the fixed and adjustable-rate loan data were removed; the other data from the same licensee were retained. A consequence of this method is that fixed loan and adjustable-rate loan statistics may be somewhat understated. The information provided in this report is based on these revised data. Page 10 of 13

11 In addition to these revisions, some other reported data is not included in the report. Question 8 asked for the number and amount of loans for purchasing a primary owner-occupied residential dwelling. The results showed that 44 percent of all loans were for this purpose. This is substantially lower than other estimates. For example, data gathered under the Home Mortgage Disclosure Act indicates that owner occupied mortgages accounted for 88 percent of total mortgages in Oregon in Therefore, the results from this question did not seem reasonable and are not reported in the body of this report. Also, fewer than 30 percent of the firms reported data for the optional questions Therefore, the results from these questions are not provided in this report. 7 IMD analysis of 2007 Oregon data reported by financial institutions required by the Home Mortgage Disclosure Act and provided by the Federal Financial Examinations Council. Page 11 of 13

12 Appendix 4. CY 2008 data reporting The calendar year 2008 annual report questions are: Provide the number and amount of: 1. All loans on property secured by real estate in any state 2. All Oregon loans The information listed in items 3 through 15 is for Oregon loans only. 3. First-lien mortgage loans 4. Subordinate-lien mortgage loans 5. Fixed-rate mortgage loans 6. a. Interest-only fixed-rate first-lien mortgages b. Interest-only adjustable-rate first-lien mortgages 7. Negative-amortization mortgage loans 8. a. Adjustable rate first-lien mortgage loans b. Adjustable rate second-lien mortgage loans 9. Loans with prepayment penalties 10. a. Loans for purchasing a primary owner-occupied residence b. Loans for purchasing a secondary owner-occupied home c. Loans for purchasing a non-owner occupied residence 11. a. Loans for refinancing a primary owner-occupied residence b. Loans for refinancing a secondary owner-occupied home c. Loans for refinancing a non-owner occupied residence 12. Mortgage loans insured or guaranteed by a federal agency The information listed in items 13 through 15 is voluntary. 13. a. Loans that were originated based upon income, employment and asset documentation b. Loans that were originated based upon income, employment or asset documentation c. Loans that were not originated based upon income, employment or asset documentation 14. a. Loans with a combined loan-to-value of 80% or less made for a person with a middle credit score of 620 or greater b. Loans with a combined loan-to-value of 80% or less made for a person with a middle credit score of less than a. Loans with a combined loan-to-value higher than 80% made for a person with a middle credit score of 620 or greater b. Loans with a combined loan-to-value higher than 80% made for a person with a middle credit score of less than 620 The calendar year 2008 data will be collected during March and April The questions have been revised by asking explicitly for the total number and volume of Oregon loans by asking for two categories of interest-only loans and adjustable rate loans, and by asking whether the loans are for purchasing or refinancing primary residences, secondary residences, or non-owner-occupied homes. Page 12 of 13

13 Appendix 5. Other sources of mortgage lending data We are not aware of sources that provide national or state-by-state data similar to the data contained in this report. Following are several other sources of mortgage data. Mortgage Lending Workgroup Information about the Mortgage Lending Workgroup is available on the department s website at Mortgage Banker Association The Mortgage Banker Association has historical data for all loans since 1979 and for subprime loans since They have annual and quarterly data for Oregon and the U.S. The website is New York Federal Reserve reporting of Subprime and Alt-A Loan information The New York Federal Reserve tracks inventories of subprime and Alt-A mortgages by state including delinquency rates and loan characteristics. The data along with interactive maps can be accessed at Home Mortgage Disclosure Act Data The Home Mortgage Disclosure Act enacted by Congress in 1975 requires lending institutions to report public loan data. Data is reported for Oregon s 6 Metropolitan Statistical Areas. The Portland MSA includes Clark and Skamania counties. The data is available about a year after reporting and includes different loan types, demographics, owner occupied lending and incidence of higher priced lending. The website is at American Community Survey The American Community Survey is an ongoing survey conducted by the U.S. Census Bureau to collect data between the decennial census. It has demographic information about mortgages and home prices. Page 13 of 13