[Federal Register Volume 59, Number 236 (Friday, December 9, 1994)]
[Unknown Section]
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From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-30271]
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[Federal Register: December 9, 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: Final rule.
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SUMMARY: The Board is publishing a final rule to amend Regulation C
(Home Mortgage Disclosure) and to revise the instructions and reporting
forms that financial institutions must use in complying with the annual
reporting requirements. The amendments respond to the statutory
provisions regarding earlier availability of the Home Mortgage
Disclosure Act (HMDA) disclosure statements to the public; provide
clarifications requested by financial institutions that report under
HMDA; and are intended to help improve the quality of the HMDA data.
The amendments require reporting in machine-readable format; require
institutions to update their loan application registers quarterly
during the year as data are being collected; and make a number of other
changes.
DATES: Effective date: January 1, 1995.
Compliance dates: Compliance is mandatory for paragraphs III.B. and
III.C. of Appendix A to Part 203, the amendment regarding the
transmittal sheet, for the submission of calendar year 1995 data, which
is due no later than March 1, 1996. For all other amendments,
compliance is mandatory for the collection of data that begins January
1, 1996, which is to be submitted to supervisory agencies no later than
March 1, 1997. Institutions may comply with the amendments beginning
January 1, 1995.
FOR FURTHER INFORMATION CONTACT: Jane Jensen Gell, Staff Attorney, 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 or (202) 452-3667; for the hearing impaired
only, contact Dorothea Thompson, Telecommunications Device for the
Deaf, at (202) 452-3544.
SUPPLEMENTARY INFORMATION:
I. 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.
Lenders are required to report data about 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. 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. The statements are sent to lenders and the lenders are required
to make the statements available to the public at their home office and
at certain branch offices.
The Board also prepares aggregate disclosure tables covering all
lenders in each MSA, and sends them, along with the individual lenders'
disclosure statements, to a central data depository in each MSA. The
central depositories are usually public libraries, regional planning
agencies, or other public offices.
II. Summary of Amendments
In June 1994, the Board proposed amendments to Regulation C (59 FR
30310, June 13, 1994). Approximately 300 comments were received on the
proposal. While many commenters supported the proposal, a number raised
concerns about some of the specific provisions. After reviewing the
comment letters and upon further analysis the Board is adopting
amendments to Regulation C.
A principal reason for amending Regulation C is 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, the FFIEC should make every
effort to ensure that disclosure statements for individual lenders are
available to the public by July 1 of the following year, and that
aggregate tables are available at the central depositories by September
1.
Another purpose for the amendments is to improve further the
accuracy of the HMDA data. The accuracy of the HMDA reports has been
improving from year to year, but concerns continue about data quality.
Amendments that require institutions to report in machine-readable
format and to update their HMDA/LARs on a quarterly basis are intended
to help improve data quality, as well as aid in earlier data
availability.
Institutions are expected to accurately compile and check their
data before submission. Some of the amendments are intended to clarify
and simplify the reporting requirements, thus facilitating
institutions' performance of these tasks.
The Board intends to publish by year-end 1994 a proposed staff
commentary to Regulation C. The commentary will provide a vehicle for
interpretations to help lenders better understand and comply with the
regulation's requirements. The commentary will supplement the
instructions provided in Appendix A to Regulation C for completion of
the HMDA-LAR.
The Board, the Office of the Comptroller of the Currency (OCC), the
Federal Deposit Insurance Corporation (FDIC), and the Office of Thrift
Supervision (OTS) recently proposed to amend their Community
Reinvestment Act (CRA) regulations, and included a proposal that would
require some lenders to collect additional mortgage data (59 FR 51232,
October 7, 1994). Accordingly, the Board published for comment proposed
amendments to Regulation C to implement the CRA changes (59 FR 51323);
the final amendments set forth below do not include final action on
that HMDA proposal.
Institutions must comply with the new or changed requirements
beginning with the collection of data for calendar year 1996, to be
reported by March 1, 1997; institutions may choose to comply beginning
January 1, 1995. (For the amendments concerning the transmittal sheet,
compliance is mandatory beginning with the submission of the 1995 data
that are due by March 1, 1996.) In other cases, the amendments merely
clarify existing rules already in effect, with no substantive change,
and institutions must continue to comply with the existing rule. The
amendments setting forth such clarifications are those relating to: the
definition of ``financial institution'' (Sec. 203.2(e)); reporting of
gross annual income (Sec. 203.4(a)(7)); treatment of counteroffers
(Appendix A, paragraphs V.A.8.f. and V.B.2.a. and c.); and reporting of
property location (Appendix A, paragraph V.C.5.).
Section 203.2--Definitions
Paragraph (e)--Financial Institution
The Board is amending paragraphs (e)(1) and (e)(2) to clarify that
a refinancing of a home purchase loan is itself a home purchase loan
for the purposes of this definition. This technical revision (which was
not addressed in the proposed rule) conforms the regulatory language to
existing language in the HMDA-LAR instructions (see Appendix A,
paragraphs I.B., C., and D. of this part).
Paragraph (f)--Home Improvement Loan
The existing definition of ``home improvement loan'' sets two
conditions: The stated purpose of the loan is to repair, rehabilitate,
or remodel a dwelling; and the loan is classified by the financial
institution as a home improvement loan.
The Board proposed to define a home improvement loan as a loan
``stated by the borrower (at the time of the loan application) to be
for home improvement purposes,'' to broaden the coverage to
improvements to the real property but not to the ``dwelling'' itself.
Some commenters expressed concerns that the proposed definition
would cover only loans expressly stated by the borrower to be for home
improvement purposes, noting that an applicant might not specifically
say that a loan is ``for a home improvement purpose.'' Commenters
suggested deleting the requirement that the borrower ``state'' that a
loan is for ``home improvement.''
Based on the comments received and upon further analysis, the Board
has revised the definition to provide that a home improvement loan is
one for the purpose of repairing, rehabilitating, remodeling, or
improving either a dwelling or the real property on which the dwelling
is located (even if it is not called a ``home improvement'' loan by the
borrower). For example, a loan that the borrower states is for a
driveway, detached garage, or landscaping is a home improvement loan
subject to the regulation.
The Board proposed to eliminate the second part of the definition--
that the loan be classified in the records of the financial institution
as a home improvement loan. This revision would have made the manner in
which an institution classifies a loan irrelevant for HMDA purposes.
This proposed change was intended to enable an institution to report
home improvement loans on its HMDA-LAR even if the institution did not
record them as home improvement loans for other purposes. Commenters
supporting the proposal noted that loans may be for home improvement
purposes but may not be ``classified'' in the institution's records as
home improvement loans.
Many other commenters requested that the Board not change this part
of the definition. They said that deleting the classification aspect of
the home improvement loan definition could work a hardship on
institutions that do not now classify loans in all their product lines,
and that would have to adopt procedures to identify which loans are in
fact used for home improvement purposes. The Board has retained the
current classification provision. The Board believes, however, that
institutions wishing to report loans that have a home improvement
purpose need not make major modifications to their recording procedures
to meet the definition. Classification can mean that a loan is recorded
on an institution's books or otherwise identified or coded in some
manner as a home improvement loan. For example, loans that are
marketed, ``booked,'' or classified on call reports as home improvement
loans could be considered ``classified'' as home improvement loans
under the revised definition.
Some commenters requested a change in the treatment of a multiple-
purpose loan where a portion is for home improvement. The Board has
previously interpreted the definition of home improvement loan to mean
that if more than 50 percent of the proceeds of a loan will be used for
home improvement purposes, the total loan amount may be reported as a
home improvement loan. Commenters suggested that compliance would be
made easier if the Board instead provided that regardless of the amount
of a multi-purpose loan specified for home improvement purposes,
institutions may report the loan as a home improvement loan. After
further analysis, the Board has revised the definition of a home
improvement loan to provide that if a portion of a loan is for home
improvement purposes, it may be reported as such, assuming it is
classified by the institution as a home improvement loan. The Board
believes that in most instances this revision will not result in
institutions having to report multipurpose transactions not previously
reportable, because reporting is still limited to those transactions
that are classified by an institution as home improvement loans.
Section 203.4--Compilation of Loan Data
Paragraph (a)--Data Format and Itemization
Maintenance of LARs on current basis. The regulation requires
covered institutions to report HMDA data for a given calendar year to
their supervisory agency by March 1 of the following year. The Board
proposed to require institutions to record transactions on the HMDA-LAR
within one month after final action is taken (such as origination of a
loan, or denial or withdrawal of an application). Comment was requested
on whether any burden caused by a periodic maintenance requirement
might be reduced if institutions were required to update the HMDA-LAR
on a quarterly basis.
Most commenters who addressed the issue stated that it would be
costly and burdensome to record all the HMDA-LAR information within one
month after final action. On the other hand, commenters generally
supported the Board's alternative proposal requiring institutions to
maintain the HMDA-LAR on a quarterly basis. These commenters believed
that it would be feasible to update the HMDA-LAR quarterly, noting that
the OCC requires national banks to update their HMDA-LARs within thirty
calendar days after the end of each calendar quarter (12 CFR
27.3(a)(1)(ii)). The FDIC requires institutions it supervises to enter
all required information on the HMDA-LAR within thirty calendar days of
final action (12 CFR 338.8(c)).
The Board believes that quarterly updating will help in improving
the accuracy and timeliness of the HMDA data without imposing an undue
compliance burden on institutions. Under the final rule, an institution
must record transactions within thirty calendar days after the end of
the calendar quarter in which final action is taken (such as
origination of a loan, or denial or withdrawal of an application). For
example, institutions must record by April 30 all transactions in which
final action is taken during the first quarter. Calendar year 1996 is
the first year during which quarterly updating will be required.
Under this final rule, current-year registers will be available to
examiners so that the supervisory agency can work with the institution
to ensure that any errors are promptly corrected. Institutions are
expected to make a good faith effort to enter all data concerning
transactions completely and accurately. If an examiner finds, on
reviewing a quarterly update, that some data are incorrect or
incomplete despite such effort, the error or omission will not
constitute a violation of Regulation C. The new requirement is intended
to facilitate early detection of errors by examiners or by the
institution itself, so that errors can be corrected before the annual
report is submitted. The Board believes that updating the HMDA-LAR
within one month after the end of each quarter is an important step
toward improving the accuracy and timeliness of HMDA reports.
Institutions should keep in mind that the new Regulation C rule is
only a minimum requirement and does not supersede stricter updating
rules that a supervisory agency may impose on institutions under its
jurisdiction (such as those that the FDIC and the OCC currently have in
place).
Reporting income. The Board proposed to revise the regulation to
clarify how institutions report applicant income. Regulation C
currently provides that financial institutions shall collect data on
the ``income relied upon in processing the loan application.'' The
instructions for completing the HMDA-LAR similarly state that an
institution must enter the ``gross annual income that your institution
relied upon in making the credit decision'' (Appendix A, paragraph
V.D.5.). If no income is ``asked for or relied on'' in the credit
decision, institutions are instructed to enter ``NA'' (not applicable)
in the income field (Appendix A, paragraph V.D.5.c.).
The Board proposed that lenders should report on their HMDA-LAR the
income reported on the application, including income of coapplicants,
whether or not the lender relied on a particular source of income to
qualify the applicant for a certain amount of credit.
Most commenters opposed the proposed change. Many said that
reporting all income stated on the application, whether or not relied
on in the credit decision, would involve significant procedural and
programming modifications. Commenters believed that expanding the
income-reporting requirement would increase their burden without a
commensurate increase in data quality and accuracy. Some commenters
also suggested that income relied upon serves as a better measure of a
lender's decision-making process.
Based on the comments received and further analysis, the Board has
retained the existing rule. As under the current regulation, the income
to be reported for HMDA purposes is the income relied on by the
creditor in making the credit decision.
Currently lenders need not report income for streamlined
refinancings or other loans in which they do not ask for, or do not
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.
Under Regulation B (12 CFR Part 202), creditors may not discount or
exclude from consideration the income of an applicant or the spouse of
an applicant because of a prohibited basis (such as race, color,
religion, national origin, sex, marital status, or age) or because the
income is derived from part-time employment or an annuity, pension, or
other retirement benefit. However, creditors may consider the amount
and probable continuance of any income in evaluating an applicant's
creditworthiness. This rule applies in reporting income under
Regulation C; if a lender determines that some portion of the income
reported by the applicant cannot be verified, is overstated, or is
unreliable, the lender need not report that income on the LAR.
In addition, a technical change has been made to Sec. 203.4(a)(7)
of Regulation C to reflect the instructions for completing the HMDA-
LAR, which specify that lenders must report the gross annual income
relied upon in making the credit decision.
Section 203.5--Disclosure and Reporting
Paragraph (a)--Reporting to Agency
Proposed change in reporting deadline. Statutory amendments
contained in the Housing and Community Development Act of 1992 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.
To facilitate earlier availability, the Board proposed to make
February 1 the deadline for HMDA-LAR submission by lenders to their
regulatory agencies, instead of March 1. Many commenters expressed
objections to this proposal and stated that a February 1 deadline would
be extremely difficult or impossible to meet. Commenters pointed out
the difficulties already present in the current March 1 deadline, given
the time required for institutions with large branch networks to
collect the data in a central location at year-end and review and
compile the data prior to submission to their regulator. Other
commenters mentioned the many other reports that are already due at the
end of January, making it difficult to meet a February 1 deadline for
HMDA.
Some commenters questioned whether an earlier deadline was
necessary to meet the agencies' earlier timetables given the other
changes that the Board was proposing to make (such as the requirements
that data be maintained on a current basis and submitted to the
agencies in an automated, edited format). Some suggested that this
proposed change could result in less accurate data because there would
be less time to audit the data and correct any errors.
Based on the comments received and further analysis, the Board has
decided not to change the reporting deadline from the current March 1
date. With the expectation of further efficiencies in the agencies'
internal processing schedules, the Board believes that adoption of the
other amendments will assist in meeting the earlier timetables for
release of data without the proposed change in deadline.
Reporting in machine-readable format. The Board proposed to require
that all institutions report HMDA data in machine-readable form and
that they edit the data before submission, either using agency-supplied
HMDA software or using the same edits in private vendors' software. The
proposed change was intended to help lenders ensure submission of
accurate data. The Board also requested comment 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 on a case-by-case basis.
A significant proportion of lending institutions still report HMDA
data in paper form. For example, among institutions reporting to the
OCC, 24 percent report in paper form; for institutions reporting to the
FDIC, the National Credit Union Administration, and the Board, the
figures are 27 percent, 47 percent, and 20 percent, respectively. Some
commenters (especially smaller institutions with few transactions to
report) stated that it would be burdensome for them to report in
automated form. Many others indicated that they would have no
difficulty in doing so.
The Board believes that reporting in machine-readable form should
not be overly burdensome for most institutions, considering the
availability of personal-computer software at no cost from most of the
supervisory agencies and the existence of private vendors that sell
software for preparing reports or that offer report-preparation
services. The Board has therefore adopted the requirement for machine-
readable reporting, but is making the requirement applicable to
calendar year 1996 data. This delay in effective date will enable
institutions to minimize expenses by allowing them to make changes to
procedures over a reasonable period of time.
The Board recognizes that for institutions that have only a few
lines of data to report, changing over from paper to machine-readable
reporting could be expensive on a per-transaction basis. Even if the
cost of computer hardware and software and related costs, such as for
training, are modest, the costs may outweigh the benefits for a very
small amount of data. Accordingly, institutions with 25 or fewer line
entries to report will continue to be permitted to submit their data in
paper form. (For the 1995 data collection year, the existing rule
remains in place; lenders reporting more than 100 line entries are
expected to submit data in machine-readable form.)
The Board decided against the granting of waivers from the machine-
readable reporting requirement on the grounds that a waiver procedure
would likely be cumbersome for both agencies and institutions and that
institutions might not know on a timely enough basis whether they had
to report in machine-readable form.
Paragraph (e)--Notice of Availability
The Board has adopted the technical change to Sec. 203.5(e)
concerning the suggested language for the lenders' notice of
availability. As discussed in the proposal, amendments contained in the
Housing and Community Development Act of 1992 and incorporated into
Regulation C (58 FR 13403, March 11, 1993) require lending institutions
to make their loan/application registers available to the public (after
deleting certain data fields).
Appendix A--Form and Instructions for Completion of HMDA-LAR
II. Required Format and Reporting Procedures
Paragraph A
As discussed above, the revised regulation requires that HMDA-
covered institutions, except those whose HMDA-LARs contain 25 or fewer
line entries, submit data in machine-readable form effective with the
data due on March 1, 1997.
Paragraph E
A new paragraph II. E. reflects the requirement that the HMDA-LAR
be updated within 30 days after the end of the calendar quarter,
beginning in calendar year 1996. See the discussion under
Sec. 203.4(a), above.
III. Submission of HMDA-LAR and Public Release of Data
Paragraphs B and C
Requirement to Report Total HMDA-LAR Entries on Transmittal Sheet
Regulation C 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.
The Board proposed to amend the regulation to require financial
institutions to report on the transmittal sheet the total number of
line entries included in the data submission, and to send a transmittal
sheet with the initial and any subsequent submissions 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
proposed changes were intended to reduce the likelihood of any data
being lost during the collection process.
The Board has adopted the changes as proposed. The final amendment
clarifies that the number to be reported on the transmittal sheet is
the total number of line entries contained in the accompanying
submission. If the submission is not the first submission of data by an
institution, the number to be reported is the line-entry count for that
particular submission, not a cumulative number for all submissions to
date. For submissions that include line entries representing revisions
or deletions of previously submitted entries, the number to be reported
is the total of line entries in that submission (including revisions,
deletions, entries being resubmitted without change, and entries being
submitted for the first time).
Paragraph G Posters
The Board has adopted suggested language for the notice of
availability that lenders post in their home and branch offices in
metropolitan areas, to correspond to the technical change made to
Sec. 203.5(e). The final sentence has been revised to mirror more
accurately the requirements of Sec. 203.5(b) and (c), indicating that
the data need only be available in one branch office in each MSA.
The poster language is optional. Lenders may continue to use their
existing posters without violating the regulation. When they next
reprint their poster supplies, they should use language similar to that
suggested here.
V. Instructions for Completion of Loan/Application Register
A. Application or Loan Information
5. Explanation of Purpose Codes
Code 2: Home improvement. The HMDA-LAR instructions have been
revised to reflect the Board's amendments to the definition of home
improvement loans in Sec. 203.2(f), as discussed above. Paragraphs a.
and c. under Code 2 have been revised for consistency with this change
to the regulation.
Code 3: Refinancings. The regulation requires lenders to report
refinancings, which are defined as loans that satisfy an existing
obligation and replace it with a new obligation undertaken by the same
borrower. The Board sought comment on the exclusion of certain
refinancings based on the ``predominant purpose'' test. Under this
test, 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, equals more than 50 percent of
the total new loan amount. Many commenters suggested that this 50
percent test could be abolished without making the data collected any
less useful and that this would greatly ease compliance, thereby
promoting greater accuracy in reporting. The Board agrees, and has
revised paragraph c. under Code 3; refinancings may be reported
regardless of the purpose of, or the amount outstanding on, the
original loan and regardless of the amount of new money (if any) that
is for home purchase or home improvement purposes. However, if an
institution knows that the purpose of the original loan was not home
purchase or home improvement, the refinancing need not be reported.
Many commenters noted that to ensure that the collection of data
under HMDA is related to the housing credit needs of communities (as
specified in the act), reportable refinancings should be limited to
those secured by a dwelling. In keeping with the revisions to paragraph
c. under Code 3, the Board has revised paragraph a. under Code 3 to
state that only refinancings of loans secured by a lien on residential
dwellings are to be reported. Therefore, refinancings of unsecured home
improvement loans will no longer be reported under HMDA.
While these changes in the reporting of refinancings may result in
some net increase in the number of refinancings reported, the Board
believes that the greater ease in determining whether a given
transaction is to be reported outweighs any additional reporting
burden.
In its proposed rule the Board sought comment on whether to require
the reporting of certain types of loan modifications (sometimes called
modification, extension, and consolidation agreements or ``MECAs''),
which are technically not ``refinancings'' but which can be their
functional equivalent. Some commenters suggested that lenders ought to
be allowed to report modifications that are truly the functional
equivalent of refinancings. The Board believes, however, that the
advantages of a bright-line test for determining whether a transaction
is to be reported outweigh the benefits of the additional data on
modifications. Accordingly, the final rule limits reporting of
refinancings to those that result in the satisfaction of an existing
obligation and its replacement by a new obligation undertaken by the
same borrower.
The Board has made a technical change to the language in paragraph
a. Previously, paragraph a. stated that refinancings would not be
reported if, under the loan agreement, a lender was ``unconditionally
obligated to renew or refinance the obligation,'' or was ``obligated to
renew or refinance the obligation subject to conditions within the
borrower's control.'' As the renewal of an existing obligation does not
involve the satisfaction of that obligation, the Board has deleted this
language to avoid confusion.
8. Loan Amount
Paragraphs b, c, and d. Paragraphs b., c., and d. have been revised
for consistency with the changes, discussed above, regarding home
improvement loans and refinancings.
Paragraph f. Paragraph f. has been revised to make clear that a
counteroffer not accepted by the applicant is to be reported as a
denial, consistent with new paragraphs B.2.a. and c., discussed below.
B. Action Taken
2. Explanation of Codes
As was proposed, the final rule clarifies in new paragraphs a. and
c. (existing paragraphs a. and c. have been redesignated) 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. Commenters generally supported the Board's
interpretation. Some commenters stated that this clarification was
necessary to conform the treatment of counteroffers in Regulation C
with the treatment of counteroffers in Regulation B (12 CFR Part 202,
Equal Credit Opportunity).
Other commenters were concerned that classifying unaccepted
counteroffers as denials would not reflect an institution's offer of
credit, although in a different amount or on different terms from those
applied for. Some suggested that unaccepted counteroffers should be
reported as applications approved but not accepted or as withdrawn.
However, under Regulation C an application that is approved but not
accepted is one that the lender has approved in the amount and on the
terms applied for, not in a different amount or on different terms as
in the case of a counteroffer. A withdrawn application is one that the
applicant has withdrawn unilaterally and before the lender has
communicated its decision to the applicant. The Board believes that
neither of these categories is appropriate for reporting an unaccepted
counteroffer for HMDA purposes.
C. Property Location
5. Outside-MSA
Under Regulation C, for loans on property located outside the
metropolitan areas in which an institution has a home or branch office
(or outside any MSA), the institution has the option to enter on the
HMDA-LAR information on the location of the property to which the loan
relates, or to enter ``NA.'' The Board proposed to revise this
paragraph to clarify that, if a lender chooses to enter 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. The Board
has adopted the proposal in final form, with additional clarification
on how the location data are to be entered.
Under the CRA proposal recently issued for comment (59 FR 51323,
October 7, 1994), certain depository institutions would have to report
property location for all their HMDA loan transactions, whether or not
the property to which the loan relates is located in an MSA in which
the institution has a home or branch office. Final action is still
pending on that proposal; the public comment period closed on November
21.
D. Applicant Information--Race or National Origin, Sex, and Income
5. Income
The Board is making a technical change in paragraph c., which
states that if income is not asked for or relied on in a credit
decision, the creditor should enter ``NA'' for income on the HMDA-LAR.
The Board has deleted the parenthetical reference to ``no income
verification'' loans as possibly inaccurate; the Board intends to
provide guidance on types of loans that would qualify under this
paragraph in the staff commentary to Regulation C.
III. Other Matters
In addition to seeking comment on the proposed amendments, the
Board solicited comment on other matters related to HMDA reporting:
home equity lines, prequalification programs, and the collection of
racial or ethnic information. These are discussed below.
Home Equity Lines
The Board solicited comment on ways in which Regulation C might be
changed to better address problems of accuracy of the HMDA data.
Specifically, the Board asked whether allowing or requiring all home-
equity credit lines to be reported--rather than only the portion of a
line the borrower intended to use for home improvement or home
purchase--would simplify reporting and therefore bring about greater
consistency.
A number of commenters suggested that the Board should allow the
entire amount of the home-equity credit line to be reported under HMDA,
regardless of the amount earmarked for home improvement or home
purchase purposes. They believed that such a change would simplify the
reporting process. However, other commenters questioned whether
allowing the entire credit line to be reported is consistent with the
stated purpose of the act--to determine whether financial institutions
are meeting their obligations to serve the housing needs of their
communities. Based on the comments and further analysis, the Board is
leaving unchanged the reporting rules for home-equity credit lines.
Prequalification Programs
The Board requested comment on the treatment of prequalifications
under HMDA. In particular, for denials of prequalification requests
that are covered by HMDA, questions have been raised about the
reporting of the loan amount, loan type, and property location data
fields on the HMDA-LAR. Although ``NA'' is an acceptable entry for
property location (for example, if the prospective homebuyer has not
requested financing for a specific property), for loan amount the
regulation currently does not provide any acceptable code if the
prospective homebuyer has not requested a particular amount of credit.
Based on the comments and upon further analysis, the Board has
determined that for 1994 and 1995 data collection, institutions need
not report prequalification requests on the HMDA-LAR. The Board expects
to address issues related to prequalification requests in the staff
commentaries for Regulations B and C.
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. If
this information is not provided when the application is taken in
person, the loan officer is required to enter the information on the
basis of visual observation or surname. The purpose is to gather data
that may help supervisory agencies determine whether a lending
institution is complying with the fair lending laws.
The categories in Regulation C for data collection on race/national
origin of applicants include the category of ``other.'' The categories
used by the Office of Management and Budget (OMB) for government
statistical purposes do not provide that option. Comment was solicited
on whether the Board should consider deleting the ``other'' category.
Commenters generally believed that the ``other'' category serves a
useful purpose. Several commenters expressed the view that providing
this option helps ensure the integrity of the existing categories.
These commenters stated that the HMDA data are more useful and accurate
when persons who believe they do not fit into a specific category are
not forced into one. Commenters also noted that use of this category
should not affect HMDA data analysis significantly, because only 45,000
applicants out of 10 million records (less than half of one percent)
utilized this option in 1992. The Board has retained the ``other''
category for the present. OMB is currently exploring changes that may
be adopted for use in the decennial census for the year 2000, and is
expected to announce changes in categories in the next several years.
The Board will reexamine this matter at that time.
IV. Regulatory Flexibility Analysis
The proposed amendments to Regulation C that the Board published
for comment in June 1994 were intended to improve the quality of HMDA
data and make the data available to the public earlier. Many commenters
supported the objectives of the proposal but thought that some of the
proposed changes were unnecessarily burdensome. In many cases,
commenters suggested alternatives that they believed would help achieve
the objectives of the proposed amendments at a lower cost. The revised
amendments have been responsive to the advice in the public comments.
The revised amendments should disrupt current practices much less and
therefore have lower compliance costs than the changes originally
proposed. At the same time, the revised amendments would achieve the
original objective of more accurate and timely HMDA data.
V. Paperwork Reduction Act
In accordance with section 3507 of the Paperwork Reduction Act of
1980 (44 U.S.C. 35; 5 CFR 1320.13) these revisions have been reviewed
under the authority delegated to the Federal Reserve Board by the
Office of Management and Budget, after consideration of the comments
received during the comment period. Where appropriate, steps were taken
to minimize any increase in burden.
The amended regulation revises the transmittal sheet for the HMDA-
LAR by requiring a record count to be included; the Board believes that
the paperwork expansion associated with this requirement is de minimis.
The amended regulation requires lenders to file submission in machine-
readable format, with an exception for institutions whose reports
contain 25 or fewer line entries. The burden associated with machine-
readable reporting is likely to be minimal, particularly given the
lead-time provided for mandatory compliance. The one-time costs for
machine-readable reporting will be offset by savings in the ongoing
costs of reporting.
The amended regulation requires quarterly updating of the HMDA-LAR.
Many institutions already maintain their data on an ongoing basis,
rather than entering all data at year-end. Overall, this change does
not represent an increase in paperwork burden.
The amended requirements for reporting refinancings and home
improvement loans will likely mean that a higher volume of transactions
will be reported. Lenders will find compliance easier, however, as they
will have less difficulty in determining whether particular
refinancings or home improvement loans are covered by HMDA, offsetting
any marginal increase in the cost of reporting additional transactions.
Thus, no increased burden should result. The remaining amendments
clarify existing rules, make minor technical changes, or make changes
that are optional for institutions, and do not represent an increase in
paperwork burden.
Based on its analysis of the impact of the amended regulation, the
Board believes that there is no net change in the Board's current
estimate of paperwork burden associated with Regulation C. The public
reporting burden for collection of the HMDA data is estimated to vary
from 10 to 10,000 hours per response, with an average of 200 hours per
response. This includes the time to gather and maintain the data needed
and to review instructions and complete the information collection.
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 amends 12 CFR
Part 203 as set forth below:
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 is amended by republishing paragraph (e)
introductory text, and by revising paragraph (e)(1) introductory text,
and paragraphs (e)(2) and (f) to read as follows:
Sec. 203.2 Definitions.
* * * * *
(e) Financial institution means:
(1) A bank, savings association, or credit union that originated in
the preceding calendar year a home purchase loan (other than temporary
financing such as a construction loan), including a refinancing of a
home purchase loan, secured by a first lien on a one- to four-family
dwelling if:
* * * * *
(2) A for-profit mortgage lending institution (other than a bank,
savings association, or credit union) whose home purchase loan
originations (including refinancings of home purchase loans) equaled or
exceeded ten percent of its loan origination volume, measured in
dollars, in the preceding calendar year.
(f) Home improvement loan means any loan that:
(1) Is for the purpose, in whole or in part, of repairing,
rehabilitating, remodeling, or improving a dwelling or the real
property on which it is located; and
(2) Is classified by the financial institution as a home
improvement loan.
* * * * *
3. Section 203.4 is amended by revising the second sentence of the
introductory text in paragraph (a), and paragraph (a)(7), to read as
follows:
Sec. 203.4 Compilation of loan data.
(a) Data format and itemization. * * * These transactions shall be
recorded, within thirty calendar days after the end of each calendar
quarter in which final action is taken (such as origination or purchase
of a loan, or denial or withdrawal of an application), 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 gross annual income relied upon in processing the
application.
* * * * *
4. Section 203.5 is amended by revising paragraph (a), and by
revising paragraph (e), to read as follows:
Sec. 203.5 Disclosure and reporting.
(a) Reporting to agency. By March 1 following the calendar year for
which the loan data are compiled, a financial institution shall send
its complete loan application register to the agency office specified
in Appendix A of this part, and shall retain a copy for its records for
a period of not less than three years.
* * * * *
(e) Notice of availability. A financial institution shall post a
general notice about the availability of its HMDA data 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 is amended by revising
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 must submit data to their supervisory agencies
in an automated, machine-readable form. The format must conform
exactly to that of form FR HMDA-LAR, including the order of columns,
column headings, etc. Contact your federal supervisory agency for
information regarding procedures and technical specifications for
automated data submission; in some cases, agencies also make
software for automated data submission available to institutions.
The data must be edited before submission, using the edits included
in the agency-supplied software or equivalent edits in software
available from vendors or developed in-house. (Institutions that
report 25 or fewer entries on their HMDA-LAR may collect and report
the data in paper form. An institution that submits its register in
nonautomated form must send two copies that are typed or computer
printed, and must use the format of form FR HMDA-LAR (but need not
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 recorded on your register
within thirty calendar days after the end of the calendar quarter in
which final action (such as origination or purchase of a loan, or
denial or withdrawal of an application) is taken. The type of
purchaser for loans sold need not be included in these quarterly
updates.
* * * * *
6. Item III. of Appendix A to Part 203 is amended by revising
paragraphs B., C., and G., as follows:
* * * * *
III. Submission of HMDA-LAR and Public Release of Data
* * * * *
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 line
entries contained in the accompanying data submission. If the data
submission involves revisions or deletions of previously submitted
data, state the total of all line entries contained in that
submission, including both those representing revisions or deletions
of previously submitted entries, and those that are being
resubmitted unchanged or are being submitted for the first time. If
you are a depository institution, you also are asked to provide a
list of the MSAs where you have a home or branch office.
* * * * *
G. Posters. Some of the agencies provide HMDA posters that you
can use to inform the public of the availability of your HMDA data,
or you may create your own posters. If you print your own, the
following language is suggested but is not required:
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. Inquire
at this office regarding the locations where HMDA data may be
inspected.
* * * * *
7. Item V. of Appendix A to Part 203 is amended as follows:
a. Paragraphs A.5.Code 2 a. and c., A.5. Code 3 a. and c., and A.8.
b., c., d., and f. are revised;
b. Paragraphs B.2.a., B.2.b., and B.2.c. are redesignated as
paragraphs B.2.b., B.2.d., and B.2.e., respectively;
c. New paragraphs B.2.a. and B.2.c. are added;
d. Paragraph C.5. is revised; and
e. Paragraph D.5.c. is revised.
The revisions and additions read 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 if (i) a
portion of the proceeds is to be used for repairing, rehabilitating,
remodeling, or improving a one- to four-family residential dwelling,
or the real property upon which it is located, and (ii) the loan is
classified as a home improvement loan.
* * * * *
c. At your option, you may report data about home-equity lines
of credit--even if the credit line is not classified as a home
improvement loan. If you choose to do so, you may report a home-
equity line of credit as a home improvement loan if some portion of
the proceeds will be used for home improvement. (See Paragraph 8.
``Loan amount.'') If you report originations of home-equity lines of
credit, you must also report applications for such loans that did
not result in originations.
Code 3: Refinancings.
a. Use this code for refinancings (and applications for
refinancings) of loans secured by one- to four-family residential
dwellings. A refinancing involves the satisfaction of an existing
obligation that is replaced by a new obligation undertaken by the
same borrower. But do not report a refinancing if, under the loan
agreement, you are unconditionally obligated to refinance the
obligation, or you are obligated to refinance the obligation subject
to conditions within the borrower's control.
* * * * *
c. You may report all refinancings of loans secured by one- to
four-family residential dwellings, regardless of the purpose of or
amount outstanding on the original loan, and regardless of the
amount of new money (if any) that is for home purchase or home
improvement purposes.
* * * * *
8. Loan Amount
* * * * *
b. For home improvement loans (both originations and purchases),
you may include unpaid finance charges in the loan amount if that is
how you record such loans on your books. For a multiple purpose loan
classified by you as a home improvement loan because it involves a
home improvement purpose, enter the full amount of the loan, not
just the amount specified for home improvement.
c. For home-equity lines of credit (if you have chosen to report
them), enter as the loan amount only that portion of the line that
is for home improvement purposes. Report the loan amount for
applications that did not result in originations in the same manner.
Report only in the year the line is established.
d. For refinancings of dwelling-secured loans, indicate the
total amount of the refinancing, including the amount outstanding on
the original loan and the amount of new money (if any).
* * * * *
f. 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.
B. Action Taken
* * * * *
2. Explanation of Codes
a. Use code 1 for a loan that is originated, including one
resulting from a counteroffer (your offer to the applicant to make
the loan on different terms or in a different amount than initially
applied for) that the applicant accepts.
* * * * *
c. Use code 3 when an application is denied. This includes the
situation when an applicant turns down or fails to respond to your
counteroffer. Do not report 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 have two options.
Under option 1, you may enter the MSA, state, and county codes and
the census tract number. You may enter ``NA'' in the MSA or census
tract column if no code or number exists for the property. (Codes
exist for all states and counties.) If you choose option 1, the
codes and tract number must accurately identify the location for the
property in question. Under option 2, you may enter ``NA'' in all
four columns, whether or not the codes or number exist for the
property.
* * * * *
D. Applicant Information--Race or National Origin, Sex, and Income
* * * * *
5. Income
* * * * *
c. If no income information is asked for or relied on in the
credit decision, enter ``NA.''
* * * * *
8. A Loan/Application Register Transmittal Sheet is added to
Appendix A to Part 203 immediately following paragraph VI.G., to read
as follows:
* * * * *
BILLING CODE 6210-01-P
TR09DE94.000
BILLING CODE 6210-01-C
* * * * *
By order of the Board of Governors of the Federal Reserve
System, December 5, 1994.
William W. Wiles,
Secretary of the Board.
[FR Doc. 94-30271 Filed 12-8-94; 8:45 am]
BILLING CODE 6210-01-P