Figure 3. HMDA price-reporting threshold, interest rates for fixed- and adjustable-rate loans, and spreads between the threshold and such rates, 2004-05. Data plotted as curves. Units are percentage points. In the figure, the annual percentage rate (APR) of the HMDA threshold starts at 8.13 in 2004 and fluctuates in a narrow range (between 7.47 and 8.54) through 2005. Both the APR of the thirty-year fixed-rate loan and the spread between the loan and the threshold mirror the contour of the HMDA threshold, but they do so at lower levels: The APR of the thirty-year fixed-rate loan starts at 5.94 in early 2004 and fluctuates in a narrow range (between 5.58 and 6.43) through 2005, while the spread between the loan and the threshold starts at 2.19 and also fluctuates in a narrow range (between 1.35 and 2.46).

The APRs for the one- and five-year adjustable-rate loans are roughly upward sloping: The APR for the one-year adjustable-rate loan starts at 4.09 in early 2004 and reaches 7.0 by the end of 2005; the APR for the five-year adjustable-rate loan starts at 4.41 and reaches 6.65.

In contrast, the spreads between the APRs of the adjustable-rate loans and the APR of the HMDA threshold are roughly downward sloping: The spread for the one-year adjustable-rate loan starts at 4.04 in early 2004 and arrives at 0.75 by the end of 2005, while the spread for the five-year adjustable-rate loan starts at 3.72 and arrives at 1.10.

As shown in the figure, the reporting gap between the typical prime fixed-rate thirty-year loan and the HMDA threshold narrowed from 215 basis points at the beginning of 2004 to 140 basis points at the end of 2005. For one-year adjustable-rate loans, the gap narrowed much more, from 404 basis points at the beginning of 2004 to only 75 basis points at the end of 2005. Although the differences between the APRs on fixed- and adjustable-rate loans and the threshold decreased for both types of loans, the decrease for adjustable-rate loans was much larger. Thus, the gap between the APRs on fixed- and adjustable-rate loans, which was substantial at the beginning of 2004, had been virtually eliminated by the beginning of 2005.

Note: For explanation of HMDA price-reporting threshold, refer to text. Threshold and annual percentage rates (APRs) are for conventional first-lien thirty-year prime loans.

Source: APRs are estimated from Freddie Mac, Primary Mortgage Market Survey.