[Federal Register Volume 63, Number 48 (Thursday, March 12, 1998)]
[Proposed Rules]
[Pages 12329-12331]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-6326]


-----------------------------------------------------------------------

FEDERAL RESERVE SYSTEM

12 CFR Part 203

[Regulation C; Docket No. R-1001]


Home Mortgage Disclosure

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Advance notice of proposed rulemaking.

-----------------------------------------------------------------------

SUMMARY: Pursuant to its Regulatory Planning and Review Program, the 
Board is undertaking a review of Regulation C (Home Mortgage 
Disclosure). The purpose of the review is to identify ways in which the 
Board could revise Regulation C to clarify and simplify the regulatory 
language; respond to technological and other developments; reduce undue 
regulatory burden on the industry; delete obsolete provisions; and 
improve the quality and usefulness of the data. To gather information 
necessary for this review and to ensure the participation of interested 
parties, the Board is soliciting comment on several specific issues, 
while also soliciting comment generally on potential revisions to the 
regulation.

DATES: Comments must be received by May 29, 1998.

ADDRESSES: Comments should refer to Docket No. R-1001, and may be 
mailed to William W. Wiles, Secretary, Board of Governors of the 
Federal Reserve System, 20th Street and Constitution Avenue, N.W., 
Washington, D.C. 20551. Comments also may be delivered to Room B-2222 
of the Eccles Building between 8:45 a.m. and 5:15 p.m. weekdays, or to 
the guard station in the Eccles Building courtyard on 20th Street, N.W. 
(between Constitution Avenue and C Street) at any time. Comments 
received will be available for inspection in Room MP-500 of the Martin 
Building between 9:00 a.m. and 5:00 p.m. weekdays, except as provided 
in 12 CFR 261.12 of the Board's Rules Regarding Availability of 
Information.

FOR FURTHER INFORMATION CONTACT: Jane Jensen Gell or John C. Wood, 
Senior Attorneys, or Pamela Morris Blumenthal, Staff Attorney, Division 
of Consumer and Community Affairs, Board of Governors of the Federal 
Reserve System, at (202) 452-3667 or (202) 452-2412; for the hearing 
impaired only, Diane Jenkins, Telecommunications Device for the Deaf, 
at (202) 452-3544.

SUPPLEMENTARY INFORMATION:

I. Background on HMDA and Regulation C

    The Home Mortgage Disclosure Act of 1975 (HMDA) (12 U.S.C. 2801 et 
seq.) requires institutions to collect and report data about home 
purchase and home improvement loans. Institutions must report data for 
loans originated or purchased, as well as for loan applications that do 
not result in an origination. Regulation C, which carries out the act, 
requires institutions to report information about the application or 
loan: the application date, the action taken and the date of that 
action, the loan amount, and the loan type and purpose. Institutions 
must also report data about applicants or borrowers: their race, sex, 
and income. Finally, institutions must report the property location and 
occupancy status, and identify the type of purchaser for loans that 
they sell.
    Institutions report this information to their supervisory agencies 
on an application-by-application basis using a register format. 
Institutions must make this register available to the public, with 
certain fields redacted to preserve applicants' privacy. In addition, 
the Federal Financial Institutions Examination Council (FFIEC), on 
behalf of the supervisory agencies, compiles this information and 
prepares individual disclosure statements for each institution, 
aggregate reports for all covered institutions in each metropolitan 
statistical area (MSA), and other reports. Individual disclosure 
statements are available to the public from each institution, and 
disclosure statements and aggregate reports are available at central 
depositories in each MSA.
    The purpose of HMDA is threefold. One purpose is to provide the 
public and government officials with information that will help show 
whether financial institutions are serving the housing needs of the 
neighborhoods and communities in which they are located. A second 
purpose is to help public officials target public investments to 
promote private investments in neighborhoods where investment is 
needed. Finally, the collection and disclosure requirements provide 
data that assist in identifying possible discriminatory lending 
patterns and enforcing antidiscrimination statutes.
    HMDA specifies the data that institutions must collect and report. 
Because of the volume of information that must be aggregated (in 1996, 
the data reflected 14.8 million loans and applications) institutions 
must standardize the data reports and generally submit them to their 
supervisory agency in a machine-readable form. The Board has imposed 
few additional items of data collection beyond those in the statute. To 
facilitate data retrieval, each entry in the institution's HMDA loan/
application register (HMDA-LAR) must contain a unique identifier. Each 
entry must also contain the application date and the action taken date. 
Institutions must distinguish loans to purchase or improve multifamily 
dwellings from

[[Page 12330]]

other home purchase or home improvement loans.

II. Review of Regulation C

    Pursuant to the Board's Regulatory Planning and Review Program, the 
Board has undertaken a review of Regulation C to determine whether 
revisions might be made to improve the regulation. The regulation was 
last reviewed in 1988, when the Board made organizational and technical 
changes to reduce burden. As discussed below, the Board has identified 
several possible areas for revision. The Board invites comments on 
these and any other issues that might warrant review. After evaluating 
the comments, the Board will publish a proposed rule for public 
comment.
    Concurrently, the Board is also undertaking a review of Regulation 
B (Equal Credit Opportunity); an advance notice of proposed rulemaking 
is published elsewhere in today's Federal Register.
    Comment is specifically solicited on the following issues:

1. Reporting Preapprovals

    HMDA and Regulation C require lenders to report data regarding 
applications for mortgage loans that do not result in originations. 
Under Regulation C, an application is defined as an oral or written 
request for a home purchase or home improvement loan that is made 
according to the procedures established by the lender for the type of 
credit requested. Currently, a creditor that makes a preliminary 
decision about a potential applicant's creditworthiness before 
receiving a formal application does not report the decision--whether 
the decision involves a ``prequalification'' following a cursory review 
or involves comprehensive underwriting that could result in an approval 
subject to the applicant's finding an acceptable property (a 
``preapproval''). Following a preapproval, home buyers identify the 
property they wish to purchase and lenders evaluate information 
relating to the property offered as security for the loan. Preapprovals 
that lead to an origination are reported on the HMDA-LAR. Currently, 
requests for preapprovals that result in denials are not reported.
    To the extent that reliance on preapprovals becomes standard 
industry practice, the application data could become less useful for 
the intended purpose of providing a basis for comparison regarding a 
creditor's lending decisions. If potential borrowers are denied at the 
preapproval stage and preapproval decisions are not reported, the 
reported denials may not be fully representative of a lender's credit 
decisions. The Board has been asked to consider requiring creditors to 
collect and report preapprovals, using a special code to distinguish 
them from formal applications. Comment is requested on all aspects of 
the issue including the following:
    (1) Has the practice of preapprovals become common enough to 
suggest the need for coverage under Regulation C?
    (2) In preapproval transactions, the creditor may lack some of the 
data called for by the HMDA-LAR. For example, the loan amount may be 
preliminary and the consumer often has not identified a property 
address. What level of information would make the reporting of data on 
preapprovals useful? More generally, at what stage in the loan 
application process would data regarding these decisions better reflect 
the pattern of a creditor's lending practices?
    (3) Does reporting preapproval requests represent a potentially 
greater burden than reporting other transactions? Are there reporting 
distinctions, in either the level of information or the type of 
preapprovals, that would minimize the burden?
    (4) Home-ownership counseling programs sometimes share similarities 
with preapproval programs. Some home-ownership counseling programs may 
target low- and moderate-income consumers; others are available to any 
first-time home buyer and have elements of both counseling and credit 
evaluation. The more formal the process of providing information and 
assistance becomes--for example, by verifying credit information--the 
more the counseling process resembles a preapproval. The Board believes 
it is important to ensure that creditors are not discouraged from 
providing assistance to consumers seeking credit information through 
counseling programs. Consequently, the Board solicits comment on ways 
to distinguish counseling programs from preapproval programs so as not 
to discourage creditors from providing information, assistance, and 
counseling to consumers shopping for credit.
    (5) One approach for reporting preapproval decisions would be to 
track the requirements of Regulation B (Equal Credit Opportunity) and 
require reporting of all requests that require an adverse action notice 
under Regulation B. If a creditor evaluates information about a 
consumer, decides to decline the request, and communicates the decision 
to the consumer, Regulation B requires the creditor to treat the 
request as an application and send a notice of adverse action. 
Currently under Regulation C, creditors are instructed not to report 
preapproval decisions, even if under Regulation B they are required to 
give adverse action notices on preapproval requests that are denied. 
One disadvantage to this approach is that only denials would be 
reported.
    (6) Would tracking the requirements of Regulation B work better if 
that regulation were revised along with Regulation C to establish a 
``bright-line'' test that distinguished between an inquiry and an 
application? Suppose that, under both regulations, an inquiry (or 
request for a preapproval) would be treated as an application only if a 
creditor evaluated or verified credit information through third party 
information (such as by obtaining a credit report or credit score).

2. Reporting Refinancings and Home Improvement Loans

    Regulation C provides considerable flexibility in the reporting of 
refinancing transactions in order to minimize compliance burden. A 
creditor, at its option, may report a refinancing transaction under one 
of several tests: if the existing obligation was a reportable 
transaction under Regulation C; if the existing obligation was secured 
by a lien on a dwelling; or if the new transaction will be secured by a 
lien on a dwelling. This approach, adopted in 1995, is intended to 
facilitate compliance by allowing lenders to report all dwelling-
secured refinances.
    Some reporting institutions as well as users of the HMDA data 
believe this rule makes the resulting data difficult to analyze and of 
limited value. They note that the data merge refinancings to reduce the 
borrower's interest rate on a home mortgage with newly home-secured 
loans used by the borrower to consolidate and replace previously 
unsecured consumer loans such as credit card debt.
    The Home Mortgage Disclosure Act requires the reporting of 
information about mortgage loans in part to determine whether lenders 
are meeting the housing needs of their communities. The act defines a 
``mortgage loan'' as (1) a loan secured by residential real property or 
(2) a home improvement loan. Regulation C implements the act by 
establishing a ``purpose test'' and requiring lenders to report loans 
for the purpose of home purchase or home improvement, and the 
refinancings of those loans. By expanding the definition of 
``refinancing,'' the Board broadened that category to include--at the 
institution's option--all dwelling-secured loans, regardless of the 
purpose of the original loan. The Board solicits

[[Page 12331]]

comment on whether the reporting categories should be further modified. 
Comment is requested on all aspects of the issue including the 
following:
    (1) Would a change in the reporting categories improve the 
usefulness of the data?
    (2) Would a change in the reporting categories make compliance 
easier and reduce burden?
    (3) Would the cost of a change in the reporting categories outweigh 
any possible benefits?

3. Purchased Loans

    Under HMDA and Regulation C, institutions must report all loans 
that they purchase, even those purchased in bulk or in the context of 
the purchase of a branch. In some circumstances, this requirement may 
impose a burden. For example, some institutions believe that obtaining 
the correct geographic reporting data is more costly if the loans were 
originated many years ago and the entity that originated and sold the 
loans was not a HMDA reporter.
    The staff commentary to Regulation C provides that a HMDA reporter 
need not report loans acquired through a merger. The Board has received 
requests to extend this merger exception to loans acquired through the 
acquisition of a branch. The Board has also received requests to 
exclude ``seasoned'' purchased loans, or those that were not purchased 
at or shortly after the origination of the loan. Comment is requested 
on all aspects of the issue including the following:
    (1) How useful is public disclosure of data on loans purchased as 
part of a branch acquisition? To what extent, if any, is it more 
burdensome to report loans purchased as part of a branch acquisition 
than other purchased loans? If the Board were to exclude loans 
purchased as part of a branch acquisition, should the exclusion be 
limited to a purchase involving ``bricks and mortar?'' What if an 
institution purchased the assets of a branch but not the liabilities?
    (2) Is there some other way to modify the purchased loan category 
that would improve the data quality and reduce burden?

4. Temporary Financing

    Regulation C excludes certain data from HMDA reporting, including 
temporary financing such as construction or bridge loans. Some 
institutions that make a considerable number of construction loans 
would like to include them with their HMDA data. More generally, a 
number of HMDA reporters have requested that the Board define 
``temporary financing.'' Comment is requested on all aspects of the 
issue including the following:
    (1) How useful would it be for creditors to disclose data on 
construction lending? Would these data be more burdensome to collect 
and report than data on permanent financing? If the Board permitted 
lenders to report construction loans, should such loans be reported 
with home purchase loans or with a separate code?
    (2) Regarding temporary financing generally, should the Board 
define home purchase loans with a term of less than a specified time as 
temporary? If so, should the threshold be one year? Two years?

5. Mobile Home Transactions

    Currently, purchases or refinancings of mobile homes are reported 
together with purchases or refinancings of traditional homes. However, 
underwriting standards for transactions involving mobile homes may 
differ significantly from transactions involving traditional homes. 
Some HMDA reporters and users of the HMDA data have suggested that the 
data would be more useful and easier to analyze if transactions 
involving mobile homes were reported using a separate code. Comment is 
requested on all aspects of the issue, including whether it would 
reduce burden and improve the usefulness of the HMDA data to identify 
transactions involving mobile homes using a special code.

6. Additional Reporting

    Some users believe that the HMDA data would be more useful if 
certain additional pieces of information were collected. For example, 
requiring institutions to report the reasons for denial could 
facilitate fair lending reviews. Currently, only those institutions 
supervised by the Office of the Comptroller of the Currency and the 
Office of Thrift Supervision are required to report denial reasons 
(which is voluntary under the statute). The data reported voluntarily 
show that the level of reporting varies by supervisory agency. For 
example, for data collected in 1996, 84 percent of the denied loans 
reported to the Federal Deposit Insurance Corporation and 64 percent of 
the denied loans reported to the Federal Reserve included denial 
reasons. In contrast, only 27 percent of the denied loans reported to 
the Department of Housing and Urban Development contained denial 
reasons.
    Other HMDA users suggest that the regulation should require 
institutions to report the appraised value of the property purchased. 
This reporting would allow users of the data to calculate a loan-to-
value ratio. Comment is requested on all aspects of these issues 
including the following:
    (1) Would the public disclosure of data concerning denial reasons 
or property value further the purposes of HMDA, and in what way?
    (2) Are there practical difficulties in obtaining and reporting 
these data?
    (3) What costs would be involved in reporting denial reasons or 
property value?

7. Reorganization of the Regulation and Appendices

    Currently, institutions have a variety of sources to assist them 
with HMDA compliance. Appendix A to Regulation C provides instructions 
for completing the loan/application register, and Appendix B provides 
instructions for completing the data collection form. In addition, the 
Board issued a staff commentary (as Supplement I to the regulation), 
and the FFIEC publishes the Guide to HMDA Reporting: Getting it Right! 
The Board will consider reorganizing the regulation, appendices, and 
supplement to clarify and simplify the presentation of the material, 
and thereby reduce burden. Comment is requested on all aspects of the 
issue including the following:
    (1) Would it lessen burden if the interpretive material from the 
instructions were incorporated into the commentary and the instructions 
were converted into simple code descriptions?
    (2) Could the regulation be organized to present information more 
clearly (for example, by consolidating the coverage requirements 
currently found in both the definitional section and the exemptions 
sections in a single ``coverage'' section)? Would the burden of 
learning a reorganized regulation outweigh the benefits of 
simplification and clarification?

8. Other Issues

    The Board solicits comments on any other broad policy issues that 
should be addressed in the regulation.

    By order of the Board of Governors of the Federal Reserve 
System, March 6, 1998.
William W. Wiles,
Secretary of the Board.
[FR Doc. 98-6326 Filed 3-11-98; 8:45 am]
BILLING CODE 6210-01-P