[Federal Register Volume 67, Number 32 (Friday, February 15, 2002)]
[Proposed Rules]
[Pages 7252-7254]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-3322]



  Federal Register / Vol. 67, No. 32 / Friday, February 15, 2002 / 
Proposed Rules  

[[Page 7252]]


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FEDERAL RESERVE SYSTEM

12 CFR Part 203

[Regulation C; Docket No. R-1120]


Home Mortgage Disclosure

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Proposed rule.

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SUMMARY: The Board is proposing amendments to Regulation C (Home 
Mortgage Disclosure). This proposal relates to a final rule amending 
the regulation, published elsewhere in today's Federal Register. The 
issues on which the Board seeks public comment are: the appropriate 
price thresholds for determining the loans for which financial 
institutions must report loan pricing data (the spread between the 
annual percentage rate on a loan and the yield on comparable Treasury 
securities); whether the lien status of a loan should be reported; and 
whether lenders should be required to ask telephone applicants their 
ethnicity, race, and sex.

DATES: Comments must be received by April 12, 2002.

ADDRESSES: Comments should refer to Docket No. R-1120 and be mailed to 
Ms. Jennifer J. Johnson, Secretary, Board of Governors of the Federal 
Reserve System, 20th Street and Constitution Avenue, NW., Washington, 
DC 20551. However, because paper mail in the Washington area and at the 
Board of Governors is subject to delay, please consider submitting your 
comments by e-mail to [email protected], or faxing them 
to the Office of the Secretary at 202-452-3819 or 202-452-3102. 
Comments addressed to Ms. Johnson may also be delivered to the Board's 
mail facility in the West Courtyard between 8:45 a.m. and 5:15 p.m., 
located on 21st Street between Constitution Avenue and C Street, NW. 
Members of the public may inspect comments in Room MP-500 between 9 
a.m. and 5 p.m. on weekdays pursuant to Sec. 261.12, except as provided 
in Sec. 261.14, of the Board's Rules Regarding Availability of 
Information, 12 CFR 261.12 and 261.14.

FOR FURTHER INFORMATION CONTACT: John C. Wood, Counsel, Kathleen C. 
Ryan, Senior Attorney, or Dan S. Sokolov, Attorney, Division of 
Consumer and Community Affairs, Board of Governors of the Federal 
Reserve System, Washington, DC 20551, at (202) 452-3667 or (202) 452-
2412. For users of Telecommunications Device for the Deaf (TDD) only, 
contact (202) 263-4869.

SUPPLEMENTARY INFORMATION:   

I. Background

    The Home Mortgage Disclosure Act (HMDA) requires certain depository 
and for-profit nondepository institutions to collect, report, and 
publicly disclose data about originations and purchases of home 
mortgage and home improvement loans. Institutions must also report data 
about applications that do not result in originations. The Board's 
Regulation C implements HMDA.
    The Board began a review of Regulation C in March 1998 by 
publishing an Advance Notice of Proposed Rulemaking (63 FR 12329, March 
12, 1998). In December 2000, the Board published for public comment a 
proposed rule to amend Regulation C (65 FR 78656, December 15, 2000). 
After analyzing the comments on the proposal, the Board has adopted a 
final rule amending the regulation, published elsewhere in today's 
Federal Register. The Board is soliciting additional public comment on 
certain matters.

II. Solicitation of Comment and Proposed Amendments

Thresholds for Reporting Loan Pricing Data

    In the final rule amending Regulation C published elsewhere in 
today's Federal Register, the Board adopted a requirement that 
institutions report the spread between the annual percentage rate (APR) 
of a loan and the yield on Treasury securities of comparable maturity, 
for loan originations in which the spread exceeds a specified 
threshold.
    In the final rule, the Board tentatively set a reporting threshold 
of 3 percentage points above the yield on comparable Treasury 
securities for first lien loans and 5 percentage points for subordinate 
lien loans (which generally have a higher APR). The thresholds are 
intended to ensure, to the extent possible, that pricing data for 
higher cost loans are collected and disclosed. The Board is soliciting 
comment on the appropriate thresholds before it finalizes them. 
Information on the following specific issues and questions would be 
particularly useful to the Board.
    The APR spread is determined by the difference between the APR on 
the loan as of the origination date and the yield on the Treasury note 
of comparable maturity as of the 15th day of the month preceding the 
month in which the application for the loan was received. See 12 CFR 
203.4(a)(12). This is the rule used for determining HOEPA coverage. Are 
there more appropriate dates for determining the APR spread?
    Comments are requested on the proportion of loan originations (by 
number of loans) reported under HMDA that would fall above and below 
various thresholds, segregated by risk class (for example, A, A-minus, 
and B) and lien status. Commenters also are asked to identify 
circumstances or special credit products that might be particularly 
subject to misclassification, as loans associated with a higher credit 
risk than prime loans, should the proposed thresholds be implemented. 
For example, are there product lines in which loans with very little 
credit risk nonetheless have high APRs? Alternatively, are there 
product lines in which loans with relatively high credit risk 
nonetheless have low APRs?
    There is a 2 percentage point difference between the proposed 
thresholds for first and junior lien loans. The Board seeks comment on 
the appropriate difference.
    The Board intends to finalize the thresholds for reporting loan 
pricing information by mid-year 2002.

Lien Status

    The Board solicited comment in its December 2000 proposal on all 
aspects of the proposed changes and on any other issues that might 
warrant further review. A number of commenters recommended that the 
Board require lenders to report the lien status and type of interest 
rate on a loan, along with other items of data. Other commenters, 
including a federal agency, said that information on lien status would 
be useful in interpreting other loan information such as the APR.
    The Board proposes to require lenders to report lien status for all 
originated loans and applications, but not for purchased loans. 
Interest rates, and therefore APRs, vary according to lien status; 
rates on first lien loans are generally lower than rates on subordinate 
lien or unsecured loans. The Board believes lien status would be useful 
in interpreting the loan pricing data that will be required under the 
final rule amending Regulation C, as discussed above and in the Board's 
final rule. In addition, the reporting of lien status would make the 
data on home improvement lending more useful, as it would distinguish 
dwelling-secured from non-dwelling-secured home improvement loans 
(which are treated differently for HMDA reporting).
    The proposal would require institutions to report whether a loan is 
or would be (1) secured by a first lien on a dwelling, (2) secured by a 
subordinate lien on a dwelling, or (3) not secured by a lien on a 
dwelling. The Board solicits comment on these

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reporting categories. To limit reporting burden, the Board is not 
proposing to require lien status to be reported for purchased loans. 
The Board also solicits comment, however, on whether reporting of lien 
status should be required for purchased loans.
    The proposed amendments to Appendix A set forth below do not 
contain a proposed revision of the HMDA/LAR form or the accompanying 
Code Sheet. If the Board adopts the proposal, a section will be added 
to the Code Sheet, showing the same codes for lien status as set forth 
below in proposed Appendix A, paragraph I.H.; and a column will be 
added to the HMDA/LAR form for entering the code for lien status.

Requesting Applicant Information in Telephone Applications

    In the December 2000 proposal, the Board proposed to revise 
Appendix B to Regulation C to codify a longstanding interpretation. 
Under that interpretation, if an application is made entirely by 
telephone, the reporting institution is permitted, but not required, to 
request data on race, ethnicity, and sex. Many commenters expressed 
concern that this interpretation may have contributed to declining 
overall response rates to these questions. From 1993 to 2000, the 
proportion of home loan applications of all types with missing race or 
ethnicity data increased from about 8 percent to about 28 percent. 
Missing data about the applicant's sex have increased at about the same 
rate. It is not clear what proportion of this missing information is 
attributable to telephone applications. Applicants by mail and internet 
may have declined to provide the information, even though asked, as 
required, by the lender. At least part of the substantial decline in 
response rates regarding race and ethnicity, however, may be explained 
by the apparent increase in lenders' use of the telephone to take 
applications.
    The Board proposes, therefore, to conform the telephone application 
rule to the rule applicable to mail and internet applications. Under 
the proposed rule, lenders would be required to request this 
information from telephone applicants. If an applicant chose not to 
provide the information, then the lender would enter the existing code 
indicating that the application was taken by telephone, mail, or 
internet. Under the prescribed formulation given in Appendix B, loan 
applicants must be advised that the collection of information about 
race, ethnicity, and sex is mandated by the federal government to 
assist in the enforcement of fair lending laws. In addition, applicants 
must be advised that the lenders are prohibited from discriminating on 
the basis of the information provided, or on the basis of the 
applicant's choosing to provide or not provide the information. The 
Board solicits comment on the benefits and burdens of this proposal.

III. Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3506; 5 CFR 1320 Appendix A.1), the Board has reviewed the proposed 
revisions under the authority delegated to the Board by the Office of 
Management and Budget (OMB). The Federal Reserve may not conduct or 
sponsor, and an organization is not required to respond to, this 
information collection unless it displays a currently valid OMB control 
number. The OMB control number is 7100-0247 for the Federal Reserve's 
information collection under Regulation C.
    The mandatory collection of information that would be revised by 
this rulemaking is found in 12 CFR part 203, which implements 12 U.S.C. 
2801-2810. Public officials use this information to determine whether 
financial institutions are serving the housing needs of their 
communities; to help target public investment to promote private 
investment where it is needed; and to identify possible discriminatory 
lending patterns for enforcement of anti-discrimination statutes.
    The respondents are all types of financial institutions that meet 
the tests for coverage under the regulation. Depository institutions 
with offices in metropolitan areas whose assets are below an asset size 
threshold that adjusts yearly (currently $32 million) are not required 
to comply. Under the Paperwork Reduction Act the Federal Reserve 
accounts for the burden of the paperwork associated with the regulation 
only for state member banks, their subsidiaries, subsidiaries of bank 
holding companies, U.S. branches and agencies of foreign banks (other 
than federal branches, federal agencies, and insured state branches of 
foreign banks), commercial lending companies owned or controlled by 
foreign banks, and organizations operating under section 25 or 25A of 
the Federal Reserve Act (12 U.S.C. 601-604a; 611-631). Other federal 
agencies account for the paperwork burden for the institutions they 
supervise. Respondents must maintain their HMDA-LARs and modified HMDA-
LARs for three years and their disclosure statements for five years.
    For a discussion of the current estimated annual burden for this 
information collection, refer to the Paperwork Reduction Act statement 
contained in the notice of the final amendments to Regulation C set 
forth elsewhere in today's Federal Register. That statement also 
contains estimates of the increases in cost burdens attributable to the 
Federal Reserve's amendments to Regulation C, including both the final 
amendments and these proposed amendments. The cost burdens attributable 
to the proposed amendments are likely small relative to the total 
increase in burden for all of the amendments. The Federal Reserve 
solicits comment, however, on the incremental burden associated with 
(1) various thresholds for determining the loans for which institutions 
must report loan pricing data; (2) collecting and reporting information 
on lien status; and (3) requesting ethnicity, race, and sex in 
telephone applications.
    The Board's Legal Division has determined that HMDA data collection 
and reporting are required by law; completion of the loan/application 
register, submission to the Federal Reserve, and disclosure to the 
public upon request are mandatory. After the data are redacted as 
required by the statute and regulation, they are made publicly 
available and are not considered confidential. Data that the regulation 
requires be redacted (loan number, date application received, and date 
action taken) are given confidential treatment under exemption 6 of the 
Freedom of Information Act (5 U.S.C. 552(b)(6)).
    The Paperwork Reduction Act requires that the Board solicit comment 
on: (a) Whether the proposed revised collection of information is 
necessary for the proper performance of the Federal Reserve's 
functions, including whether the information has practical utility; (b) 
the accuracy of the Federal Reserve's estimate of the burden of the 
proposed revised information collection, including the cost of 
compliance; (c) ways to enhance the quality, utility, and clarity of 
the information to be collected; and (d) ways to minimize the burden of 
information collection on respondents, including through the use of 
automated collection techniques or other forms of information 
technology. Comments on the collection of information should be sent 
to: Secretary, Board of Governors of the Federal Reserve System, 20th 
and C Streets, NW., Washington, DC 20551; and the Office of Management 
and Budget, Paperwork Reduction Project (7100-0247), Washington, DC 
20530.

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IV. Regulatory Flexibility Analysis

    In accordance with section 3(a) of the Regulatory Flexibility Act 
(5 U.S.C. 604(a)), the Board has prepared a regulatory analysis of the 
amendments to Regulation C, including the final amendments set forth 
elsewhere in today's Federal Register and these proposed amendments. A 
copy of the analysis may be obtained from Publications Services, Board 
of Governors of the Federal Reserve System, Washington, DC 20551, at 
(202) 452-3245. A summary of the analysis follows.
    The proposal is a consequence of Board policy to review its 
regulations periodically and a desire to update the regulation to 
reflect mortgage markets more clearly, enhance consumer protection, and 
comply with new guidance from the Office of Management and Budget 
concerning collection of data on ethnicity and race by federal 
agencies.
    The changes in the proposal would require more data on certain 
covered transactions. Some of the changes would affect all institutions 
currently within the scope of the regulation, including covered small 
institutions; others would affect only certain institutions, depending 
upon the interest rates and fees they charge and whether they accept 
applications by telephone.
    It is difficult to quantify the benefits and costs associated with 
the proposed rule. The new information will provide data to help 
identify possible discriminatory lending patterns and assist regulators 
in conducting examinations under the Community Reinvestment Act and 
other laws. Additional data on covered transactions would allow for 
more precise differentiation among loan products and reduce the 
potential bias that results when dissimilar loan products are jointly 
classified. The data would also help inform the public about 
developments in the mortgage market by revealing pricing information on 
higher-cost home loans. More complete data about applicant 
characteristics in telephone applications would improve fair lending 
analysis.
    Although the proposed rule will offer a number of benefits, it also 
will require covered lenders, including small institutions, to change 
their current procedures and systems for collecting and reporting 
required data.

List of Subjects in 12 CFR Part 203

    Banks, Banking, Federal Reserve System, Mortgages, Reporting and 
recordkeeping requirements.

Text of Proposed Revisions

    Certain conventions have been used to highlight the proposed 
revisions. New language is shown inside arrows, while language that 
would be deleted is set off in brackets.

    For the reasons set forth in the preamble, the Board proposes to 
amend 12 CFR part 203 as follows:

PART 203--HOME MORTGAGE DISCLOSURE (REGULATION C)

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

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

    2. Section 203.4 would be amended by adding a new paragraph 
(a)(14), to read as follows:


Sec. 203.4  Compilation of loan data.

    (a) Data format and itemization. * * *
    (14) The lien status of the loan (first lien, subordinate 
lien, or not secured by a lien on a dwelling).
* * * * *
    3. Appendix A would be amended by revising paragraph I.D.2. and 
adding a new paragraph I.H., to read as follows:

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

* * * * *

I. Instructions For Completion of Loan/Application Register

* * * * *
    D. Applicant Information--Ethnicity, Race, Sex, and Income.
* * * * *
    2. Mail, Internet, or Telephone Applications. [Any loan 
applications mailed to applicants or made available to applicants 
via the internet must contain a collection form similar to that 
shown in Appendix B regarding ethnicity, race, and sex. For 
applications taken entirely by telephone, you may, but are not 
required to, request the data on ethnicity, race, and sex.] 
All loan applications, including applications taken by 
telephone, mail, and internet, must use a collection form similar to 
that shown in Appendix B regarding ethnicity, race, and sex. For 
applications taken by telephone, the information in the collection 
form must be stated orally by the lender, as applicable. If 
the applicant does not provide these data in an application taken by 
mail or telephone or on the internet, enter the code for 
``information not provided by applicant in mail, internet, or 
telephone application'' specified in paragraphs I.D.3., 4., and 5. 
(See Appendix B for complete information on the collection of these 
data in mail, internet, or telephone applications.)
* * * * *
    H. Lien Status. Use the following codes for 
applications and loans that you originate:

Code 1--Secured by a first lien on a dwelling.
Code 2--Secured by a subordinate lien on a dwelling.
Code 3--Not secured by a lien on a dwelling.
Code 4--Not applicable (purchased loan).
* * * * *
    4. Appendix B would be amended by revising paragraph II.A., to read 
as follows:

Appendix B to Part 203--Form and Instructions for Data Collection 
on Ethnicity, Race, and Sex

* * * * *

II. Procedures

    A. You must ask the applicant for this information (but you 
cannot require the applicant to provide it) whether the application 
is taken in person, by mail or telephone, or on 
the internet. [When an application is taken entirely by telephone, 
you may, but are not required to, ask for this information.]
* * * * *

    By order of the Board of Governors of the Federal Reserve 
System, February 6, 2002.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 02-3322 Filed 2-14-02; 8:45 am]
BILLING CODE 6210-01-P