The enhanced ability of lenders to assess credit risk gave rise to a segment of the mortgage market often referred to as subprime lending. In the subprime market, higher-risk borrowers pay higher prices. Subprime lending has grown rapidly, from less than 5 percent of all mortgage lending in 1994 to an estimated 20 percent in 2005, or over $600 billion. The wider range of loan pricing available in the subprime market helped to expand consumers’ homeownership opportunities and to increase their access to home equity. But this same price variability has raised concerns about unequal treatment of borrowers. It also has raised concerns about whether certain loan terms and lending practices are appropriate, whether consumers have the ability and knowledge to shop for the most beneficial loan terms, and whether the subprime market is sufficiently competitive.
The Board responded to these concerns by amending Regulation C, the regulation that implements HMDA, to expand the available data on higher-priced lending. The data released by the FFIEC in September 2005, which covered lending activity in 2004, contained the first loan-level information on loan pricing ever available to the general public. The data contain price information for loans whose prices exceeded thresholds set by the Board. The thresholds were selected to target segments of the home loan market that have raised the most concern, taking into consideration the cost and burden of reporting. The thresholds generally correspond to an unofficial line separating the prime and subprime markets. But that line of separation is not always clear, and its correspondence with the reporting thresholds is in any event imprecise. Therefore, we call loans whose prices exceed the reporting threshold "higher-priced loans" rather than "subprime loans."