Government-backed loans continued to grab a larger slice of the mortgage market last year, according to new Home Mortgage Disclosure Act (HMDA) data released Monday.

Federal support for home lending was already expansive in 2008 with the government takeovers of Fannie Mae and Freddie Mac. But the latest HMDA report found government guarantees only intensifed in 2009 as loans backed by the Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA) skyrocketed.

The HMDA report, published by the Federal Reserve Board and compiled from data collected from all the agencies, said the number of government-insured loans rose 250% between 2007 and 2009 to exceed 1.1 million.

Of those, such loans made in so-called distressed areas — typically suffering from employment and home-price declines — rose nearly 500%, to about 543,000.

The Fed said loans backed by the FHA, VA or federal farm programs made up 54% of all new mortgages in 2009.

"The big story here is the same story," said Tom LaMalfa, president of TSL Consulting, a research mortgage group based in Cleveland, Ohio. "The government continues to dominate the mortgage business."

Mortgage data is reported annually by regulators under HMDA, and provides a comprehensive picture of mortgage trends regarding loans types and borrower demographics.

In addition to high totals for government-insured loans, the report noted that even though overall loan volume in 2009 rebounded from the prior two years, it still remained well below levels seen earlier in the millennium. Last year, loan volume rose 12% to 19.5 million after experiencing consecutive declines in 2007 and 2008. The report attributed the higher volume to historically low interest rates driving up refinancing activities, with refinancings rising by 29%, to 9.9 million, even though home purchases fell last year.

The Fed said refinancing activity could have been even stronger.

"The increase in refinancing activity in 2009 appears to have been somewhat subdued compared to what has historically been observed when mortgage rates sharply decline," the report said.

"Evidence presented in this article suggests that the more muted growth stems from several factors, including economic distress and low or negative equity among many households that could have benefited from lower rates."

Meanwhile, the percentage of borrowers taking new home loans that were classified as "lower-income" — typically less than 80% of median income — rose significantly in 2009. Of home loans made in distressed areas, which totaled about 1.1 million in 2009, about 41% went to lower-income borrowers, compared with 30% in 2007. The report also said low-income borrowers were the most likely group to take out an FHA or VA loan.

The report said differenes in loan denial rates along racial and ethnic lines "persist," but added that "the HMDA data do not include sufficient information to determine the extent to which these differences stem from illegal discrimination."

The overall rise in FHA- and VA-backed loans is attributed to several factors. For one thing, the report observed that the two agencies have picked up the slack as Fannie and Freddie, in addition to private mortgage insurers, have pulled back from supporting loans with high loan-to-value ratios. Moreover, some observers said the FHA has benefited from being able to guarantee higher limits for loans in high-cost areas.

The higher loan limits have "enabled FHA in particular to help borrowers who would not otherwise have been able to get financing," said Mike Fratantoni, the vice president of single family research for the Mortgage Bankers Association (MBA).

Fratantoni said the HMDA findings for government-backed loans exceeded the MBA's estimates. He added, however, that the government's influence will likely subside.

"As housing markets recover over the next few years, we do expect that private capital — both lenders and private mortgage insurers — will return to the market to a greater extent, and the government housing programs will be a smaller presence," MBA's Fratantoni said.

The report said while lending for new home purchases continued to slip in 2009, the decline could have been more dramatic and purchases were aided by the growing number of first-time homebuyers attracted to the $8,000 tax credit for first-time purchases.

The HMDA data also suggested high foreclosure rates in certain areas is constraining new loan activity.

"Lending activity in census tracts with high foreclosure activity has declined more than in other neighborhoods," the report said. "This decline has been particularly severe for refinance lending."

The 2009 report came as some observers have called for an update in the type of data reported under HMDA to keep pace with changes in the mortgage industry.

Separately, the Fed announced a Sept. 24 public hearing on potential revisions to Regulation C, which implements the law.

The central bank said the hearing, one in a series of public forums, "will help the Board gather information about whether its current regulations are working as intended and what changes might be needed."

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