[Federal Register Volume 59, Number 112 (Monday, June 13, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-14262]


[[Page Unknown]]

[Federal Register: June 13, 1994]


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FEDERAL RESERVE SYSTEM

12 CFR Part 203

[Regulation C; Docket No. R-0839]

 

Home Mortgage Disclosure

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Proposed rule.

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SUMMARY: The Board is publishing for public comment proposed changes to 
Regulation C (Home Mortgage Disclosure) and to the instructions and 
reporting forms that financial institutions must use in complying with 
the annual reporting requirements under the regulation. The principal 
reasons for the proposed amendments are to respond to the statutory 
provisions regarding earlier availability of the HMDA disclosure 
statements to the public; help improve the quality of the HMDA data; 
and provide clarifications requested by financial institutions that 
report under HMDA. The amendments would set an earlier deadline for 
reporting HMDA data to supervisory agencies; require reporting in 
machine-readable format; require institutions to keep their loan 
application registers current during the year as data are being 
collected; and make a number of other changes.

DATES: Comments must be received on or before August 10, 1994.

ADDRESSES: Comments should refer to Docket No. R-0839 and be sent to 
William W. Wiles, Secretary, Board of Governors of the Federal Reserve 
System, Washington, DC 20551. They may also be delivered to the guard 
station in the Eccles Building courtyard on 20th Street, NW. (between 
Constitution Avenue and C Street on 20th Street NW (between 
Constitution Avenue and C Street, NW.) between 8:45 a.m. and 5:15 p.m. 
weekdays. Comments received will be available for inspection and 
copying by any member of the public in the Freedom of Information 
Office, room B-1122 of the Eccles Building, between 9 a.m. and 5 p.m. 
weekdays.

FOR FURTHER INFORMATION CONTACT: Jane Jensen Gell or W. Kurt 
Schumacher, Staff Attorneys, or John C. Wood, Senior Attorney, Division 
of Consumer and Community Affairs, Board of Governors of the Federal 
Reserve System, Washington, DC 20551, at 202/452-2412; for the hearing 
impaired only, contact Dorothea Thompson, Telecommunications Device for 
the Deaf, at 202/452-3544.

SUPPLEMENTARY INFORMATION:

(1) Background

    The Board's Regulation C (12 CFR part 203) implements the Home 
Mortgage Disclosure Act of 1975 (HMDA) (12 U.S.C. 2801 et seq.). The 
regulation requires most mortgage lenders located in metropolitan 
statistical areas (MSAs) to report annually to federal supervisory 
agencies, and disclose to the public, information about their home 
mortgage and home improvement lending activity. The reports and 
disclosures cover loan originations, applications that do not result in 
originations (for example, applications that are denied or withdrawn), 
and purchases of loans. Information reported includes the location of 
the property to which the loan or application relates; the race or 
national origin, gender, and income of the applicant; and the type of 
purchaser for loans sold in the secondary market. For denied 
applications, lenders are also permitted to report the reasons for 
denial.
    Lenders are required to report originations, applications, and 
purchased loans for each calendar year to their supervisory agency by 
March 1 of the following year. The reports are made on a HMDA Loan/
Application Register (HMDA-LAR) in a transaction-by-transaction format; 
for reports containing more than 100 entries, lenders currently are 
expected to submit the data in automated form (magnetic tape or 
diskette). The lender's supervisory agency submits the data to the 
Federal Reserve Board, which processes the data on behalf of member 
agencies of the Federal Financial Institutions Examination Council 
(FFIEC) and the Department of Housing and Urban Development. The Board 
then prepares public disclosure statements for each reporting lender 
and aggregate reports covering the data for all lenders in a 
metropolitan area. The statements are sent to lenders, generally by 
July or August, and the lenders are required to make the statements 
available to the public at their home office and at certain branch 
offices.
    Although lenders must make the disclosure statements available 
within three business days, they have a thirty-day period within which 
to review the statements prepared by the Board and to report any 
discrepancies to the agencies. After necessary revisions have been 
made, the Board prepares and sends disclosure statements for all 
reporting lenders in each MSA, along with aggregate disclosure tables 
covering all such lenders, to a central data depository in each MSA. 
The central depositories are usually public libraries, regional 
planning agencies, or other public offices; the disclosures are 
generally sent to the depositories by October.

(2) Explanation of Proposed Amendments

    One of the principal reasons the Board is proposing to amend 
Regulation C is the need to make HMDA data available to the public 
earlier than has been the case in the past. Statutory amendments to 
HMDA enacted in 1992 provide that starting with the HMDA reports for 
calendar year 1994, disclosure statements for individual lenders should 
be available to the public by July 1 of the following year, and that 
aggregate tables should be available at the central depositories by 
September 1.
    To meet this timetable, it will be necessary for the agencies to 
begin processing the raw data earlier than March 1. Therefore, the 
proposed amendments include a change in the deadline for data 
submission, requiring lenders to submit their data by February 1 
instead of March 1. Some of the other proposed amendments also are 
intended, in part, to facilitate earlier availability of the data (see 
discussion concerning the proposed change to Sec. 203.5(a), below).
    Another important reason the Board is proposing amendments to 
Regulation C relates to the accuracy of the HMDA data. The accuracy of 
the HMDA reports produced under the new data collection system that was 
instituted in 1990 (following an expansion of the data collected under 
HMDA) has improved in each succeeding year, but concerns continue to 
exist about data quality. A major part of what is involved in ensuring 
data accuracy relates to matters that are in the control of reporting 
institutions; for example, lending institutions must devote adequate 
resources to the task of accurately compiling and checking data before 
reporting it. However, to the extent that any requirements of the 
regulation are unclear or complicated, consistent and accurate 
reporting is more difficult. Accordingly, some of the proposed 
amendments now being published are intended in whole or in part to make 
the reporting requirements clearer or simpler. In addition, another 
proposed amendment calls for reporting in machine-readable format; this 
change also should help improve data quality, as discussed below.
    The Board solicits comment generally on other ways in which 
Regulation C might be changed to better address problems of accuracy of 
the HMDA data. For example, would allowing or requiring all home equity 
lines to be reported--rather than only the portion of a line the 
borrower intends to use for home improvement or home purchase--simplify 
reporting and bring about greater consistency? Would the same be true 
for other categories of loans? (On a similar point, refer to the 
discussion of possible changes in the types of refinancings that should 
be reported, in section (3), ``Other Matters on Which the Board 
Solicits Comment,'' below.) Are there areas in which explanations could 
be made simpler or clearer, thereby facilitating more accurate 
reporting?
    The Board notes its intention to publish within the next several 
months a proposed staff commentary to Regulation C. The commentary will 
provide a vehicle for interpretations that would help lenders better 
understand and comply with the regulation's requirements. The 
commentary will supplement the detailed instructions provided in 
appendix A to Regulation C for completion of the HMDA-LAR and in the 
Guide to HMDA Reporting: Getting It Right, the brochure published by 
the FFIEC and distributed by the individual agencies. The Board is in 
the process of drafting the commentary, and solicits comment from 
lenders identifying specific areas that the commentary should address.
    Set forth below is a section-by-section discussion of the proposed 
amendments to the regulation.

Section 203.2--Definitions

Paragraph (f)--Home Improvement Loan
    The proposal would revise the regulation's definition of ``home 
improvement loan'' to facilitate compliance. The existing definition 
sets two conditions: first, that the loan applicant state, at the time 
of the application, that the loan is for the purpose of repairing, 
rehabilitating, or remodeling a dwelling; and second, that the loan be 
classified in the records of the financial institution as a home 
improvement loan.
    One change proposed by the Board relates to the first part of the 
definition--that the loan be for the purpose of repairing, 
rehabilitating, or remodeling a dwelling. Questions have arisen about 
situations in which a loan is made for the purpose of making 
improvements to the borrower's residential property, but not, strictly 
speaking, to the ``dwelling'' as defined under Regulation C. The 
regulation defines dwelling as a residential structure, whether or not 
attached to real property. Thus, for example, a dwelling under 
Regulation C includes a house, apartment building, or mobile home, but 
not necessarily the land upon which the house or other structure is 
located. Some institutions have asked whether a loan for building or 
repairing things such as a detached garage, a driveway, a fence, or 
landscaping should qualify as a home improvement loan for HMDA 
purposes.
    To avoid technical distinctions based on whether a loan relates to 
the structure or to the land on which it is situated, the Board 
proposes to change the home improvement loan definition to focus 
primarily on the applicant's statement of purpose for the loan. Thus, a 
loan would qualify as a home improvement loan for HMDA purposes if the 
applicant states, at the time of the loan application, that the loan is 
for ``home improvement purposes.''
    The Board also proposes to eliminate the second part of the 
definition, which would make the manner in which an institution 
classifies a loan irrelevant to its treatment for HMDA purposes. This 
part of the definition was originally intended to minimize the 
regulatory burden on financial institutions, by not requiring an 
institution to report a loan as a home improvement loan on its HMDA-LAR 
if the institution did not record the loan as a home improvement loan 
for other purposes. Many institutions now indicate that they would like 
to report loans that in fact are for home improvement purposes, but 
they find it difficult to do so because the loans may not be 
``classified'' in the institution's records as home improvement loans. 
Removing the classification test would resolve this problem. However, 
the Board solicits comment on the extent to which this proposed change 
would create significant compliance burdens for institutions that do 
not currently record such loans on the HMDA-LAR but now would be 
required to do so. Comment is also requested generally on the overall 
advantages and disadvantages of making this change.

Section 203.4--Compilation of Loan Data

Paragraph (a)--Data Format and Itemization
    Maintenance of LARs on current basis. The regulation currently 
requires covered institutions to report HMDA data for a given calendar 
year to supervisory agencies by March 1 of the following year, but does 
not specify when the data must be recorded on the HMDA-LAR. The Board 
proposes to require institutions to fully record transactions within 
one month after final action is taken (such as origination of a loan, 
or denial or withdrawal of an application). The Board believes this 
approach would help in improving the accuracy and timeliness of the 
HMDA data. Current-year registers would be available to examiners so 
that, if problems were occurring, the supervisory agency could work 
with the institution to ensure that errors were corrected well before 
the relatively brief period between the end of the year and the 
reporting deadline. Another advantage of the proposed change would be 
that examiners and the institution itself would have ready access to 
current data that could be helpful in assessing its fair lending and 
community reinvestment performance.
    The Board recognizes that some institutions may compile and geocode 
transactions (assign MSA, state, county, and census tract codes) on a 
batch basis, from time to time during the year or at year-end. The 
Board solicits comment on how burdensome institutions that currently 
follow this procedure would find it to record all the LAR information, 
including the geographic codes, on the HMDA-LAR within one month after 
final action. In addition, comment is requested on the extent to which 
any burden might be reduced if the requirement were to keep the HMDA-
LAR up to date on a quarterly basis, rather than monthly. The Federal 
Deposit Insurance Corporation imposes a thirty-day requirement on the 
HMDA-covered institutions it supervises; the Office of the Comptroller 
of the Currency proposed a similar requirement, and recently adopted a 
quarterly update requirement instead (see 59 FR 26411, May 20, 1994).
    The Board believes that a requirement to update the HMDA--LAR 
within one month after each transaction would be an important step 
toward improving the accuracy and timeliness of HMDA data reporting; if 
the compliance burden appeared to outweigh the advantages, however, the 
Board would consider alternatives such as quarterly updating.
    Reporting income. The Board proposes to revise the regulation to 
clarify how institutions report applicants' income and eliminate an 
internal inconsistency that now exists. Currently, Sec. 203.4(a)(7) of 
Regulation C provides that financial institutions shall collect data on 
``income relied upon in processing the loan application.'' The 
instructions for completing the HMDA-LAR state that if no income is 
asked for or relied on in the credit decision, the lender may enter NA 
(not applicable) in this field (appendix A, paragraph V.D.5.c.).
    The Board proposes that lenders must report all income reflected on 
the application, including income of coapplicants, whether or not the 
lender relies on a particular source of income. If the lender 
determined, in the course of verifying information, that some portion 
of the income reported by the applicant was overstated, the lender 
would enter the verified amount rather than the amount originally 
reported.
    Currently lenders need not report income for streamlined 
refinancings in which they neither ask for nor rely on income 
information. In addition, for privacy reasons, an institution need not 
record applicants' income on the HMDA-LAR for loans made to the 
institution's own employees. These rules will remain in place.

Section 203.5--Disclosure and Reporting

Paragraph (a)--Reporting to Agency
    Change in reporting deadline. Currently, institutions are required 
to file their HMDA data with supervisory agencies by March 1 following 
the year to which the data relate. The Board proposes to change the due 
date to February 1.
    Statutory amendments contained in the Housing and Community 
Development Act of 1992, 106 Stat. 3889, provide that starting with 
loan and application data for calendar year 1994, the FFIEC shall make 
``every effort'' to ensure that individual lenders' public disclosure 
statements are available at the lenders' offices before July 1 of the 
following year. Similarly, the amendments call for the FFIEC to make 
both the individual disclosures and the aggregate tables available at 
the central depositories before September 1.
    In 1993, the individual lenders' disclosure statements for 1992 
lending activity became available to the public the first week of 
August, and the disclosure statements and aggregate reports became 
available at central depositories the first week of November. This 
year, the processing schedule calls for disclosures to be available at 
institutions in July and at central depositories in October. Thus, 
progress is being made toward meeting the statutory targets for earlier 
availability of HMDA data. But given the high volume of data being 
processed, the Board believes it is necessary to move up the date for 
submitting the raw data to supervisory agencies.
    Reporting in Machine-Readable Format. In processing the HMDA data, 
the Board and the other agencies use various means to identify and 
correct data errors. For example, the data are run through computerized 
edit checks designed to detect errors and omissions in the data fields. 
Where these are found, the agencies send the reports back to the 
institution for correction.
    Lenders whose HMDA-LAR contains more than 100 line entries are 
generally expected by the agencies to submit their data in machine-
readable format, such as PC diskette or magnetic tape. The Board and 
the other agencies have encouraged lenders to submit their HMDA-LARs in 
automated form, and all but one of the agencies provide PC software 
that can be used to compile data on diskettes. This software has built-
in edit checks for accuracy and is furnished free of charge. Software 
packages that are widely available from private vendors also contain 
the computerized edits used by the Board. Nonetheless, many lending 
institutions still submit their HMDA data in paper form, and the 
agencies have found that these paper submissions tend to contain a 
substantially higher number of errors than submissions in machine-
readable form.
    The Board proposes to require that all institutions report HMDA 
data in machine-readable form and that they edit their data before 
submitting it, either using the agency-supplied HMDA software or using 
the same edits in private vendors' software.
    The proposed change would help lenders to ensure submission of 
accurate data.
    The overall accuracy of the data has improved each year since 1990, 
the first year of expanded reporting under the amendments in the 
Financial Institutions Reform, Recovery and Enforcement Act of 1989, in 
part because institutions have increasingly submitted data by diskette, 
magnetic tape, or Fedline. However, further improvements in data 
quality are needed, and the pre-edited reporting of data in machine-
readable form would help in bringing about such improvements. Machine-
readable reporting would also assist the agencies in meeting the new 
public disclosure deadlines, by reducing the time needed to enter the 
data from each reporting institution into the HMDA processing database.
    The Board recognizes that some financial institutions subject to 
HMDA might not have the computer capability to compile and report their 
data in machine-readable form. The Board solicits comment, therefore, 
on whether requiring machine-readable data submission from all 
institutions would create a hardship for some, and if so, whether 
supervisory agencies should have discretion to grant waivers from this 
requirement on a case-by-case basis. For example, a waiver might be 
granted in a case where an institution does not itself own or have 
ready access to a personal computer nor have access through a service 
provider.
Paragraph (e)--Notice of Availability
    The Board proposes to make a technical change to Sec. 203.5(e) 
concerning the notice of availability that institutions are required to 
post. Pursuant to amendments contained in the Housing and Community 
Development Act of 1992, lending institutions must now make available 
to the public not only their disclosure statements but also their loan/
application registers (after deleting certain data fields). These 
statutory amendments were incorporated into Regulation C in March 1993 
(see 58 FR 13403, March 11, 1993).
    The proposed change will revise the notice language to reflect that 
HMDA data in addition to disclosure statements are available from 
institutions.

Appendix A--Form and Instructions for Completion of HMDA Loan/
Application Register

II. Required Format and Reporting Procedures
    Paragraph A. The Board proposes to require that all HMDA-covered 
institutions submit data in machine-readable form, except that 
supervisory agencies may have discretion to grant relief from this 
requirement in cases of hardship. See the discussion of this proposed 
change under Sec. 203.5(a), above.
    Paragraph E. A new paragraph II. E. would be added to the HMDA-LAR 
instructions to reflect the proposed requirement that the HMDA-LAR be 
kept current within one month of final action during the year as 
transactions occur. See the discussion under Sec. 203.4(a), above.
III. Submission of HMDA-LAR and Public Release of Data
    Paragraph A. The proposal includes a change in the reporting 
deadline from March 1 to February 1; paragraph III. A. in the 
instructions would be revised accordingly. See the discussion on this 
proposed change under Sec. 203.5(a), above.
    Paragraphs B and C.-- Requirement to report total HMDA-LAR entries 
on transmittal sheet. The regulation requires that a transmittal sheet 
accompany an institution's HMDA-LAR data submission, containing general 
information such as the name, address, and identifying numbers of the 
institution. Currently, the transmittal sheet does not ask for the 
total number of transaction line entries contained in the HMDA 
submission, although the instructions encourage institutions to provide 
this record count in a cover letter.
    The Board proposes to amend Regulation C to require financial 
institutions to report on the transmittal sheet (in both the paper-copy 
and machine-readable versions) the total number of line entries 
included in the data submission. Respondents also will be asked to send 
a transmittal sheet with any subsequent submission of data, rather than 
only with the initial submission. An institution will sometimes send 
HMDA data to its supervisory agency in more than one submission when 
revisions to the initial submission are necessary, for example, or 
because transactions were found to have been inadvertently omitted. The 
count on the transmittal sheet for each submission will help the 
agencies verify the number of line entries submitted by the institution 
at that time. This change would help reduce the likelihood of any data 
being lost during the collection process.
    Paragraph G. Posters. The Board is providing suggested language for 
the notice of availability that lenders are required to post in their 
home and branch offices in metropolitan areas. The revised notice 
reflects the fact that HMDA data besides disclosure statements are now 
available from financial institutions. See the discussion of proposed 
changes to Sec. 203.5(e), above.
V. Instructions for Completion of Loan/Application Register
    A. Application or loan information. 5. Explanation of purpose 
codes. Code 2: Home improvement. The proposal includes changes in the 
definition of home improvement loans for HMDA reporting purposes. The 
HMDA-LAR instructions would be revised to reflect the proposed changes. 
See the discussion of home improvement loan issues under Sec. 203.2(f), 
above.
    8. Loan amount. f. Reporting counteroffers. The proposal clarifies 
that counteroffers are to be reported as loan denials if the applicant 
does not accept the counteroffer, not as applications withdrawn or 
approved but not accepted. This clarification conforms with the 
treatment of counteroffers in Regulation B (Equal Credit Opportunity).
    C. Property location. 5. Outside MSA. Financial institutions are 
encouraged but not required to enter geographic information for loans 
on property located outside the MSAs in which they have a home or 
branch office (or outside any MSA). The proposed rule clarifies that, 
if a lender enters data in the property location fields of the HMDA-LAR 
for these loans, the data must accurately reflect the location of the 
property in question.
    (3) Other Matters on Which the Board Solicits Comment. In addition 
to seeking comment on the proposed amendments, the Board solicits 
comment on other matters related to HMDA reporting: prequalification 
programs, refinancing transactions, and the collection of racial or 
ethnic information, as discussed below.
    Prequalification programs. Regulation C requires lenders to compile 
and report data on applications for loans as well as on loan 
originations. The Board has received questions about mortgage lenders' 
prequalification programs, asking whether and when a request for 
prequalification must be treated as a credit application for purposes 
of HMDA reporting. The answer depends on the outcome of the 
prequalification decision.
    The definition of application under HMDA is virtually identical to 
the definition established by the Board's Regulation B (Equal Credit 
Opportunity). Accordingly, lenders are directed to the guidance 
provided in the Official Staff Commentary to Regulation B, comments 
2(f)-1 through -4, on differentiating between applications and 
inquiries. The commentary states that if a lender--in giving 
information to a consumer--evaluates information about the consumer, 
decides to decline a credit request, and communicates this to the 
consumer, the creditor has treated that inquiry as an application for 
credit (by virtue of having made a credit decision). In the case of 
Regulation B, the creditor must then comply with the notification rules 
on adverse action.
    In regard to HMDA reporting, the same rule applies, and a lender 
that turns down a prequalification request (because of the homebuyer's 
poor credit history, for example) must report it as a loan denial on 
its HMDA-LAR.
    Prequalification requests that are approved, on the other hand, 
will be reported on the HMDA-LAR at a later stage in the process, after 
homebuyers have found the property they want to purchase and the lender 
has evaluated a formal loan application, not at the time of the 
prequalification approval. Thus, the lender will report when: (1) the 
lender originates a loan; (2) the lender has made a firm loan offer 
that the applicant does not accept; (3) the applicant expressly 
withdraws the mortgage application; (4) the lender closes the file for 
incompleteness; or (5) the lender denies the mortgage loan application.
    In some cases, lender decisions on prequalifications that are 
approved may ultimately not be reported on the HMDA-LAR; if a homebuyer 
who has been prequalified for credit does not later pursue a formal 
application for a mortgage loan, the lender has no reporting 
obligations under HMDA (and no notification requirements under 
Regulation B).
    For denials of prequalification requests that are reportable under 
HMDA, there are questions about how a lender can comply with the 
reporting requirements with regard to the loan amount, loan type, and 
property location data fields on the HMDA-LAR. Generally speaking, a 
property location will not ``exist'' at the prequalification stage if 
the prospective homebuyer does not yet have a purchase contract on, or 
has not requested financing for, a specific property. Thus, the lender 
should enter NA (not applicable) in each of the location fields in such 
instances. For loan amount, if the prospective homebuyer has not 
requested a particular amount of credit, the regulation currently does 
not provide any alternative code. The Board requests comment on whether 
a code such as NA (not applicable) will suffice, or whether a special 
code--indicating that the transaction is a prequalification--would be 
more appropriate and useful. Similar issues arise with respect to loan 
type in cases where prospective borrowers have not specified during the 
prequalification process the type of loan they are seeking.
    The Board requests comment about other compliance issues related to 
prequalifications, and contemplates that guidance regarding these 
matters will be provided in the commentary to Regulation C to be issued 
later this year.
    Reporting of refinancings. The regulation requires lenders to 
report refinancings, which are defined as loans involving the 
satisfaction of an existing obligation and its replacement by a new 
obligation undertaken by the same borrower. The Board solicits comment 
on the reporting of transactions that are not technically refinancings, 
but that serve as the functional equivalent of refinancings. In some 
regions, transactions are structured as modifications of existing 
obligations (sometimes called modification, extension, and 
consolidation agreements or ``MECAs''), rather than as replacements 
thereof, often in order to reduce borrower costs associated with a 
refinancing (for example, title insurance fees).
    Institutions have inquired whether they should report such 
transactions, which serve the same purpose as refinancings and normally 
entail the same underwriting procedures. The Board solicits comment on 
this matter. The Board also solicits comment on what types of 
modifications should not be subject to reporting (such as the simple 
modification of a loan term from 25 to 15 years), as well as the basis 
for any such distinctions. Other issues on which comment is requested 
include whether the reporting of such transactions should be limited to 
cases where a new lender is offering the modification, or should also 
be available to the original lender.
    Another matter on which the Board seeks comment concerns the 
current exclusion for certain refinancings based on the purpose of the 
transaction. Under existing Regulation C, a refinancing is to be 
reported only if the loan being refinanced was a home purchase or home 
improvement loan, or was a refinancing of such a loan. In addition, a 
refinancing is reported only if the amount outstanding on the loan 
being refinanced, plus the amount of any new money for home purchase or 
home improvement purposes, is equal to more than 50 percent of the 
total new loan amount. For example, if a borrower refinances a home 
purchase loan only for the purpose of getting a lower interest rate on 
the outstanding balance, and therefore does not obtain any new money, 
the refinancing is reported because the amount outstanding on the 
original loan is equal to 100 percent of the new loan amount. 
Similarly, if a borrower refinances a home purchase loan and obtains 
new money to be used entirely for home improvement purposes, then again 
the refinancing is reported because here again, the amount outstanding 
plus new money for ``covered purposes'' (home improvement and home 
purchase) is equal to 100 percent of the new loan amount. At the other 
extreme, if a borrower refinances a loan with an outstanding balance of 
$20,000 and obtains $40,000 of new money to be used for starting a new 
business, the refinancing is not reported because the amount 
outstanding plus new money for ``covered purposes'' is equal to only 
one-third of the new loan amount.
    This purpose test for determining whether refinancings are to be 
reported under Regulation C has generated a substantial number of 
questions from lenders. For example, the purpose of the loan being 
refinanced may not be clear at the time the borrower applies for the 
refinancing. In some cases, a loan has been refinanced repeatedly, new 
money having been obtained each time; and the calculations necessary to 
determine whether more than 50 percent of the total new loan amount is 
for covered purposes become difficult. An alternative approach that 
would be easier to understand and apply would be to treat all 
refinancings as subject to reporting on the HMDA-LAR. Although such an 
expansion in coverage would result in the disclosed data's being less 
tied to the home purchase and home improvement categories, it is not 
clear that the resulting data would be less useful. The Board solicits 
comment on the advantages and disadvantages of these changes, both for 
reporting institutions and for users of HMDA data.
    Collection of racial or ethnic information. Regulation C provides 
that applicants for mortgage and home improvement loans be requested, 
but not required, to provide information about their race or national 
origin, gender, and income. The purpose is to gather data that may help 
regulatory agencies to gauge whether a lending institution is complying 
with the fair lending laws. If an applicant chooses not to provide the 
information on race or national origin and gender, the loan officer is 
required to enter the information on the basis of visual observation or 
surname.
    Currently, the categories in Regulation C for data collection on 
race/national origin of applicants are:
     American Indian or Alaskan Native
     Asian or Pacific Islander
     Black
     Hispanic
     White
     Other
    The categories that the Office of Management and Budget (OMB) 
issues for government statistical purposes are substantially the same, 
except that the ``other'' category is not included. OMB and others have 
indicated their belief that the presence of the ``other'' category 
undercuts the usefulness of the data, in that a data user has no way of 
knowing what the category represents.
    In adopting the monitoring provisions of Regulation C in 1989, the 
Board based the categories used on Regulation B, which has contained 
the ``other'' category since it was first adopted by the Board in 1976. 
The Board believed that the ``other'' category served a useful 
function. For example, it provides a choice to applicants who do not 
identify with any of the specifically defined categories; in 1992, the 
``other'' category was used in roughly 45,000 out of 10 million loan 
records. The Board notes also that OMB is likely in the next few years 
to propose changing the list of categories for the next decennial 
census.
    Comment is solicited on whether the Board should consider deleting 
the ``other'' category. The Board notes that if this change were made 
for Regulation C, a parallel change would be made in the monitoring 
provisions of Regulation B.
    (4) Economic Impact Statement. The Board's Division of Research and 
Statistics has prepared an economic impact analysis of the proposed 
amendments. A copy of the analysis may be obtained from Publications 
Services, Board of Governors of the Federal Reserve System, Washington, 
DC 20551, or by telephone at (202) 452-3245.

List of Subjects in 12 CFR Part 203

    Banks, banking, Consumer protection, Federal Reserve System, Home 
mortgage disclosure, Mortgages, Reporting and recordkeeping 
requirements.

    For the reasons set forth in the preamble, the Board proposes to 
amend 12 CFR part 203 as follows:
    (Certain conventions have been used to highlight the proposed 
changes to the regulation and the instructions. New language is shown 
inside bold-faced arrows, while language that would be removed is set 
off with brackets.)

PART 203--HOME MORTGAGE DISCLOSURE (REGULATION C)

    1. The authority citation for part 203 continues to read as 
follows:

    Authority: 12 U.S.C. 2801-2810.

    2. Section 203.2 would be amended by revising paragraph (f) as 
follows:


Sec. 203.2  Definitions.

* * * * *
    (f) Home improvement loan means any loan that [-- (1)] is stated by 
the borrower (at the time of the loan application) to be for 
home improvement purposes. [the purpose of 
repairing, rehabilitating, or remodeling a dwelling; and (2) is 
classified by the financial institution as a home improvement loan.]
* * * * *
    3. Section 203.4 would be amended by revising the second sentence 
of paragraph (a) introductory text and paragraph (a)(7) as follows:


Sec. 203.4  Compilation of loan data.

    (a) Data format and itemization. * * * These [data shall be 
presented] transactions shall be recorded, within one month 
of taking final action, on a register in the format 
prescribed in appendix A of this part and shall 
include the following items:
* * * * *
    (7) The race or national origin and sex of the applicant or 
borrower, and the income asked for or relied upon 
in processing the application.
* * * * *
    4. Section 203.5 would be amended by revising paragraphs (a) and 
(e) as follows:


Sec. 203.5  Disclosure and reporting.

    (a) Reporting to agency. By February 1 [March 
1] following the calendar year for which the loan data are compiled, a 
financial institution shall send [two copies of] its complete loan 
application register [(if submitted in paper form)] to the agency 
office specified in appendix A of this [regulation] 
part, and shall retain a copy for its records for 
a period of not less than three years. [A financial institution need 
only submit one copy when the submission is on computer tape or 
diskette.]
* * * * *
    (e) Notice of availability. A financial institution shall post a 
general notice about the availability of its HMDA 
data [disclosure statement] in the lobbies of its home 
office and any physical branch offices located in an MSA. Upon request, 
it shall promptly provide the location of the institution's offices 
where the statement is available. At its option, an institution may 
include the location in its notice.
    5. Item II. of appendix A to Part 203 would be amended by revising 
the first sentence of paragraph A., by removing the last 3 sentences of 
paragraph A., and by adding a new paragraph E., as follows:

Appendix A to Part 203--Form and Instructions for Completion of HMDA 
Loan/Application Register

* * * * *

II. Required Format and Reporting Procedures

    A. Institutions [are expected to] shall 
submit data to their supervisory agencies in an automated, machine-
readable form [unless 100 or fewer application and loan entries are 
reported]. * * * [An institution that submits its register in 
nonautomated form must send two copies that are typed or computer 
printed. You must use the format of the loan/application register 
but are not required to use the form itself. Each page must be 
numbered, and the total number of pages must be given (for example, 
``Page 1 of 3'').]
* * * * *
    E. Applications and loans must be fully recorded on 
your register, including geographic information, within one month of 
final action (such as the origination, denial or withdrawal of an 
application, or the purchase of a loan).

    6. Item III. of appendix A to Part 203 would be amended by revising 
paragraphs A., B., C., and G., as follows:
* * * * *

III. Submission of HMDA-LAR and Public Release of Data

    A. You must submit the data for your institution to the office 
specified by your supervisory agency no later than 
February 1 [March 1] following the calendar 
year for which the data are compiled. A list of the agencies appears 
at the end of these instructions.
    B. You must submit all required data to your supervisory agency 
in one complete package, with the prescribed transmittal sheet. An 
officer of your institution must certify to the accuracy of the 
data. Any additional data submissions that become 
necessary (for example, because you discover that data were omitted 
from the initial submission, or because revisions are called for) 
also must be accompanied by a transmittal sheet.
    C. The transmittal sheet must state the total number 
of HMDA-LAR line entries included in the accompanying data 
submission. [You are encouraged to provide in a cover 
letter an approximate count of the total number of line entries 
contained in your data submission.] If you are a depository 
institution, you also are asked to provide 
[include] a list of the MSAs where you have a home or branch office.
* * * * *
    G. Posters. Your agency [can] may provide 
[you with] HMDA posters that you can use to inform the public of the 
availability of your disclosure statement, or you may print your own 
posters. If you print your own, the following language is 
suggested:

Home Mortgage Disclosure Act Notice

    The HMDA data about our residential mortgage lending are 
available for review. The data show geographic distribution of loans 
and applications; race, gender, and income of applicants and 
borrowers; and information about loan approvals and denials. To 
inspect our HMDA data, inquire at this office.
    7. Item V. of Appendix A to Part 203 would be amended by 
revising paragraphs A.5.code 2, A.8.f., and C.5., as follows:
* * * * *

V. Instructions for Completion of Loan/Application Register

    A. Application or loan information
* * * * *
    5. Explanation of purpose codes
* * * * *

Code 2: Home Improvement

    a. Code 2 applies to loans and applications for loans that [(1)] 
the borrowers have said will be used for home improvement 
purposes for [repairing, rehabilitating, or remodeling] 
one- to four-family residential dwellings[, and (2) are recorded on 
your books as home improvement loans].
* * * * *
    8. Loan amount.
* * * * *
    f. Reporting counteroffers. [If you 
offered to lend less than the applicant applied for, enter the 
amount of the loan if the offer was accepted by the applicant. If 
the offer was not accepted, enter the amount that the applicant 
applied for.] If you make a counteroffer for an amount 
different from the amount initially applied for, and the 
counteroffer is accepted by the applicant, report it as an 
origination for the amount of the loan actually granted. If the 
applicant turns down the counteroffer or fails to respond, report it 
as a denial for the amount initially requested. Do not report it as 
a withdrawn application or as an application that was approved but 
not accepted.
* * * * *
    C. Property location.
* * * * *
    5. Outside-MSA. For loans on property located outside the MSAs 
in which you have a home or branch office (or outside any MSA), you 
may enter the MSA, state, county, and census tract numbers or you 
may enter the code ``NA'' in each of these columns. If 
you choose to enter the numbers, they must be correct for the 
property in question.
* * * * *
    By order of the Board of Governors of the Federal Reserve 
System, June 7, 1994.
William W. Wiles,
Secretary of the Board.
[FR Doc. 94-14262 Filed 6-10-94; 8:45 am]
BILLING CODE 6210-01-P