What does this indicator measure?

This indicator reports information about the demographic characteristics of applicants for home mortgage loans, as well as information on the results of loan applications, such as approval, denial, and withdrawal.  These data are collected in accordance with the Home Mortgage Disclosure Act (HMDA) and compiled by the Federal Financial Institutions Examination Council (FFIEC).

The HMDA collects data on the home loan industry and its clients.  This indicator includes only loans made to an individual or couple for the purchase of a home intended to be used as the purchaser’s primary residence.  The home may be a single-family house, a townhouse, or a high-rise condominium, but loans made for the financing of rental properties are excluded from the data set.   Also excluded are loans made for refinancing, remodeling, or other home equity loans.  The majority of loans are conventional home purchase loans—loans made by private mortgage companies without government subsidies.  However, the data set does include loans insured by the Federal Housing Authority (FHA) and the Veteran’s Administration (VA).  These governmental programs make it possible for low-income households and veterans to obtain home loans for which they would otherwise be unlikely to qualify.  Although the private mortgage market is quite flexible, borrowers who do not have the cash to make a 20% down payment may make a smaller down payment, but must pay private mortgage insurance (PMI) in addition to interest.  The PMI insures the lender against the higher risk of default associated with a high loan-to-value mortgage, resulting in a higher monthly payment.  The FHA and VA provide mortgage insurance to program participants, allowing them to make very small down payments without the additional fees.

It is important, however, to understand what this information indicates and what it does not.  It does reveal to what extent different racial and ethnic groups are applying for home loans, and to what degree they are succeeding in obtaining financing once they have applied.  It does not tell us why certain groups may be faring better than others.  There are many complex factors involved into approving or denying a home loan application.  The data presented here are not intended to evidence racial discrimination in the mortgage industry, but rather to provide a profile of current mortgage loan access.

The following data apply to Dallas County:  

• In Dallas County, 64,581 applications for home purchase mortgages were submitted during 2004.
• More than 7,000 applications were withdrawn or incomplete, leaving only 57,354 applications considered by lending institutions.
• The number of applications ultimately resulting in a loan was 39,722 applications, or 69.3% of applications considered and 61.5% of all applications submitted. 

• The overall approval rate for applications considered by lending institutions was 80.6%.  The denial rate was 19.4%.
• Denial rates varied significantly across income levels and racial/ethnic categories.
• The highest denial rate was for Black households with less than $30,000 in income, at 44.52%.
• The lowest denial rate was for White households with $100,000 to $150,000 in income, at 7.46%.
• In every income category except the less than $30,000 category, Black denial rates were highest, White denial rates were lowest, and Hispanic denial rates were in the middle.
• In the less than $30,000 income category, Hispanic denial rates were the lowest.  Interestingly, more than 3 times as many Hispanic households in this income category applied for loans as did White or Black households (2,512 compared to 821 and 831, respectively).
• A total of 9,143 applicants did not provide complete racial/ethnic information.  Comparisons among racial/ethnic groups do not include these applicants in the data set.
• The overwhelmingly most common reason for denial across all racial/ethnic categories and income categories was poor or insufficient credit history, accounting for between 25 and 55% of denials among every demographic group.
• Debt-to-income ratios accounted for a large number of denials in the less than $30,000 income category, with 32.8% for Whites, 24.2% for Blacks, and 35.3% for Hispanics.
• Insufficient collateral—asking for a loan amount that is not justified by the value of the home—resulted in approximately 22.5% of denials among Hispanic and White applicants with more than $150,000 in income.
• Among Blacks with more than $150,000 in income, collateral accounted for only a small percentage of denials, while unverifiable information resulted in 27.7% of denials.