The blog of the Urban Institute
December 3, 2019

New Mortgage Data Show Business Borrowing Is Key to Affordable Multifamily Housing

In August 2019, the Consumer Financial Protection Bureau (CFPB) released the Home Mortgage Disclosure Act (HMDA) data, which comprises submissions from 5,683 financial institutions about mortgage lending they conducted in 2018.

The 2018 HMDA data include 48 data points, many of which were collected and published for the first time (PDF). In this and several upcoming posts on Urban Wire, we’ll examine the information revealed by these new data, with a focus on what we’ve learned from these new data points.

The 2018 HMDA data reveal three important facts about multifamily lending:

1. Multifamily lending financed or refinanced between 1.5 and 3.4 million housing units in 2018

The financial institutions reported making 51,380 multifamily (defined as property with more than 4 units) loans in 2018. Although this number might seem small compared with the nearly 6.5 million single-family loans made last year, as shown in table 1, multifamily loans represent between 1.5 and 3.4 million housing units.

2. We could estimate multifamily lending more accurately if the CFPB would release all the data it has collected

We do not know the exact number of units these multifamily loans support because the CFPB reports the number of units in five groups, with the smallest group covering properties with 5 to 24 units and the largest group covering properties with 150 units or more.

As shown in table 1, if we assume an upper limit of 300 units on properties with 150 units or more, we estimate that the number of units multifamily purchase loans support is anywhere between 650,295 and nearly 1.5 million units.

Using the midpoint of the unit bins, we estimate that purchase loans backed about 1 million units of multifamily housing in 2018. If we include refinance loans as well—which play an important role in preserving housing in older units—we estimate that the total number of units created and preserved by multifamily lending in 2018 was about 2.3 million.

This is a significant part of 2018 financing, as measured by the number of units. Comparing this 2.3 million to the 6.3 million 1-unit loans and the 407,000 2–4 building units financed in 2018, the more than 51,000 multifamily loans constitute about 26 percent of the total 9 million housing units financed in 2018.

We could significantly reduce this 1.9 million range in our housing unit estimate if the CFPC would release all the data it collects for each unit size, instead of aggregating the reporting into five groups. All of these data have been collected, so releasing them more comprehensively imposes no additional burden on lenders but would significantly improve the accuracy of our information on this lending sector.

table 1

3. Business lending is crucial to the development and preservation of affordable apartments

We also examined the new data to determine the significance of lending to nonnatural borrowers, or business borrowers, and confirmed that business borrowers are crucial to the creation and support of multifamily units, particularly affordable multifamily units.

This determination is significant because the CFPB is considering dropping the requirement that lenders report their lending to these business borrowers (PDF), citing concerns with the costs of this reporting and a belief that this information might not be needed to fulfill HMDA’s purpose of showing how lenders are serving the housing needs of their communities.

Using a broad definition of business borrowers—borrowers who are missing information on income and debt-to-income (DTI) ratios—we estimate that 73 percent of all multifamily loans, including purchase, refinance, and home improvement loans, were made to business borrowers. Using a narrow definition of business borrowers—borrowers who are missing information on income, DTI ratios, race or ethnicity, age, and sex— we estimate that 66 percent of loans were made to business borrowers.

Looking at the number of impacted units, we find that business borrowers are even more significant because they often have multifamily units with higher unit counts: the share of units supported by business borrowers comprises between 80 and 84 percent of multifamily units, using the narrow and broader definitions, respectively.

Most significantly and alarmingly, eliminating reporting on business borrowers with multifamily loans would eliminate reporting on 87 percent of the affordable multifamily housing units supported by multifamily lending in 2018, as shown in table 2. In buildings with higher unit counts, virtually all structures with affordable units were financed by loans made to businesses.

table 2

The bottom line is that this newest HMDA data confirms what we stated in our comment letter to the CFPB: exempting nonnatural borrowers from data collection would gut multifamily coverage. Eliminating the reporting on these loans to businesses would, at best, leave us with information on less than 460,000 of the 2.3 million multifamily units supported by lending in 2018.

Exempting nonnatural borrowers from data collection would gut multifamily coverage.

We cannot think of anything more central to HMDA’s purpose than multifamily lending, which supports the rental market, the country’s largest source of affordable housing.

HMDA data from 2018 represent a big improvement that could go further

The Home Mortgage Disclosure Act, enacted by Congress in 1975, has been one of the single most important sources of loan-level data on residential mortgage lending, covering single-family homes, manufactured homes, and multifamily lending. Although multifamily lending makes up a small portion of the records in the yearly data release, it represents a disproportionate amount of the housing stock available to renters, who are, by and large, less affluent than homeowners.

Within the rental universe, multifamily represents a disproportionate amount of the affordable housing stock. Accordingly, good data on multifamily lending are essential to our understanding of how well low- and moderate-income communities are served by multifamily lenders, as well as our understanding of which lenders are serving low- and moderate-income communities.

In this regard, the 2018 data are a big upgrade from years past, when information given on the number of units in a structure was more limited, and no information on affordable units was provided. This year, there are more descriptive groups for the number of units, and affordability was reported as the share of affordable units in the property.

However, as discussed above, the reporting format limits our ability to provide precise estimates. More granular data on the number of units and the number of affordable units will increase visibility on an important segment of the housing market, and because lenders are already reporting these data, public information can be improved with no additional burden on lenders.

Most importantly, curtailing data collection on multifamily lending by eliminating reporting on lending to business borrowers would be a big step in the wrong direction. Losing accurate and complete HMDA data would make it more difficult for both the regulatory agencies and the public to monitor the lending that backs rental housing; which is the housing tenure alternative for the most vulnerable part of the population.  

Photo by Modfos via Getty Images.

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