Recently released data from the Home Mortgage Disclosure Act (HMDA) signals a changing home finance market across the nation and rural America too. The 2015 HMDA figures, which reflect calendar year 2014 mortgage lending applications, show a substantial nationwide decline in overall mortgage activity. In fact, the total number of HMDA reported loan records in 2014 was the lowest level in the past 17 years.
Consistent with national trends, the number of rural mortgage loans decreased by 28 percent between 2013 and 2014 to approximately 910,861 loans. This represents a decline of approximately 348,547 rural loans from 2013. Refinancing accounted for 99 percent of the decline both nationally and in rural areas. There were fewer than half as many rural refinance loans in 2014 compared to 2013 levels. The drop is partly attributable to recent interest rate increases, according to a Federal Reserve Bulletin. The decline in refinance loans also represents the first time since 2006 that home purchase origination s represented a majority of loans (rural and nationally).
The number of loans for home purchases, in contrast, increased both nationally and in rural communities. Rural home purchase originations grew by almost 7 percent in 2014, higher than the national increase in home purchases at 4 percent. Rural home purchase loan volume (440,489) still remains less than half of what it was before the Great Recession in 2006 (926,156).
The trend of higher cost lending in rural America continues. “High cost” loans have interest rates that are significantly higher than the prime rates charged for similar loans (1.5 percentage points higher for a first lien and 3.5 percentage points higher for a second lien). Approximately 15 percent of rural home purchase loans were classified as high cost in 2014, up from 11 percent for calendar year 2013. The rate of rural high cost lending is approximately four and three percentage points higher than the rate for suburban and urban loans respectively.
High cost loans are particularly prevalent in manufactured home lending, a market segment important to rural communities. In 2014, nearly two-thirds of rural manufactured home purchase loans were classified as high cost loans — six times the high cost rate for single family home loans. Manufactured homes are largely financed with personal property, or “chattel,” loans which frequently carry higher interest rates than conventional home purchase mortgages. Approximately half of all manufactured home loans occurred in rural communities which elevates the overall high cost lending levels in rural areas.
Keith Wiley, Ph.D., is the senior research associate at the Housing Assistance Council (HAC) in Washington, D.C.