[Federal Register Volume 67, Number 32 (Friday, February 15, 2002)]
[Rules and Regulations]
[Pages 7222-7251]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-3323]



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Part II





Federal Reserve System





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12 CFR Part 203



Home Mortgage Disclosure; Final and Proposed Rule

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

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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: Final rule; staff interpretation.

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SUMMARY: The Board is amending Regulation C (Home Mortgage Disclosure) 
and the commentary interpreting the regulation. The Board's amendments 
to Regulation C expand the coverage of nondepository lenders by adding 
a $25 million dollar volume test to the existing percentage-based 
coverage test. The amendments require lenders to report data items 
related to loan pricing; for loan originations in which the annual 
percentage rate (APR) exceeds the yield for comparable Treasury 
securities by a specified amount or threshold, the lender will report 
the spread or difference between the APR and the Treasury yield. The 
Board has tentatively set the thresholds at 3 percentage points for 
first lien loans, and 5 percentage points for second lien loans, but is 
seeking comment on these thresholds in a separate proposed rule 
published in today's Federal Register. Lenders also must report whether 
a loan is covered by the Home Ownership and Equity Protection Act 
(HOEPA). The final rule also requires lenders to report whether an 
application or loan involves a manufactured home.
    The Board is revising certain definitions in the regulation. The 
definition of an application is revised to include a request for 
preapproval as defined in the regulation, for purposes of reporting 
denials of such requests. To promote consistency in the reported data, 
the definition of a refinancing, and the definition of a home 
improvement loan are revised. In addition, the amendments conform the 
collection of data on race and ethnicity to standards established by 
the U.S. Office of Management and Budget in 1997. The Board also has 
reorganized the regulation and made other technical changes.

DATES: This rule is effective on January 1, 2003. Compliance is 
mandatory for collection of data that begins on January 1, 2003, which 
is to be submitted to supervisory agencies no later than March 1, 2004.

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 on HMDA and Regulation C

    The Home Mortgage Disclosure Act (HMDA; 12 U.S.C. 2801-10) has 
three purposes. One is to provide the public and government officials 
with data that will help show whether lenders 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 investment to 
promote private investment where it is needed. A third purpose is to 
provide data that assist in identifying possible discriminatory lending 
patterns and enforcing antidiscrimination statutes.
    HMDA accordingly requires certain depository and for-profit 
nondepository lenders to collect, report, and disclose data about 
originations, purchases, and refinancings of home purchase and home 
improvement loans. Lenders must also report data about applications 
(including certain preapproval requests) that did not result in 
originations.
    The Board's Regulation C implements HMDA. Regulation C generally 
requires that lenders report data about:
     Each application or loan, including the application date; 
the action taken and the date of that action; the loan amount; the loan 
type and purpose; and, if the loan is sold, the type of purchaser;
     Each applicant or borrower, including ethnicity, race, 
sex, and income; and
     Each property, including location and occupancy status.
    Lenders report this information to their supervisory agencies on an 
application-by-application basis using a loan application register 
format (HMDA/LAR). Lenders must make their HMDA/LARs--with certain 
fields redacted to preserve applicants' privacy--available to the 
public. The Federal Financial Institutions Examination Council (FFIEC), 
acting on behalf of the supervisory agencies, compiles the reported 
information and prepares an individual disclosure statement for each 
institution, aggregate reports for all covered lenders in each 
metropolitan area, and other reports. These disclosure statements and 
reports are available to the public.
    The Board began the current review of Regulation C in March 1998 by 
publishing an Advance Notice of Proposed Rulemaking (Advance Notice; 63 
FR 12329 (March 12, 1998)). The Advance Notice solicited comment on 
several specific issues, as well as generally on potential revisions to 
Regulation C. The specific issues related to the reporting of 
preapprovals; revising the definitions of reportable refinancings and 
home improvement loans; coverage of purchased loans, construction 
loans, and manufactured home loans; and reporting the reasons for a 
credit denial. The Board received approximately 100 comment letters. 
Most commenters addressed only the issues identified in the Advance 
Notice; others raised additional issues.
    Subsequently, the Board received further suggestions for revising 
Regulation C, many reflecting increased public and agency concern about 
predatory lending. For example, the Department of Housing and Urban 
Development and the Department of the Treasury held hearings on 
predatory lending and in June 2000 issued a report, Curbing Predatory 
Home Mortgage Lending, that included recommended changes. The Board 
received other suggestions at public hearings that the Board held on 
possible changes to the Home Ownership and Equity Protection Act 
(HOEPA) during the summer of 2000.
    In December 2000, the Board published for public comment a proposal 
to amend Regulation C. 65 FR 78656 (Dec. 15, 2000). The proposed 
amendments: (1) Extended coverage of HMDA to more nondepository 
lenders; (2) simplified the definitions of reportable refinancing and 
home improvement loans; (3) required reporting of requests for 
preapprovals as defined in the regulation; (4) required reporting of 
home-equity lines of credit; and (5) required reporting on additional 
items of data, including the annual percentage rate (APR), whether a 
loan is subject to HOEPA, and whether a loan or application involves a 
manufactured home.
    The Board received almost 300 comments. Most of the commenters--
including lenders and related trade associations, community and civil 
rights groups, and law enforcement agencies--supported expanding the 
coverage of nondepository lenders. They believed that coverage of these 
lenders would provide more complete information about the mortgage 
market and would also result in a more level playing field for 
depository lenders.
    Commenters were divided on all other aspects of the proposal. Many 
lenders and other industry commenters supported simplification of 
existing loan categories. Many of these commenters, however, did not 
want to

[[Page 7223]]

report additional loans and applications because of concerns about 
burden. Most lenders were opposed to reporting pricing and other new 
data items because of concerns about burden and about the potential 
public misinterpretation of the resulting data. Community groups, civil 
rights groups, and law enforcement agencies generally supported the 
revised definitions of reportable loans and applications and the new 
data items, to assist in enforcement of fair lending laws and to 
provide better and more consistent information about the mortgage 
market.

II. Summary of the Final Rule

    Based on the comments and its own further analysis, the Board is 
amending Regulation C as set forth below. For each of the amendments to 
the regulation, the Board weighed the potential benefit and burden that 
would result. The Board also considered each proposed change in light 
of the aggregate benefit and burden of all of the proposed changes. The 
final rule is substantially similar to the proposal, with some 
revisions to reduce burden and improve the quality of the data.
    Coverage of nondepository lenders is expanded by adding a dollar 
volume threshold of $25 million to the current loan-percentage test, to 
ensure that nondepository lenders in the business of mortgage lending 
are covered as required by the statute.
    The definitions of reportable loans have been revised to ensure 
better and more useful data. The final rule revises the definition of a 
reportable refinancing to cover transactions in which a new obligation 
satisfies and replaces an existing obligation, where both the existing 
and the new loan are secured by a lien on a dwelling. The final rule 
amends the definition of a home improvement loan to cover dwelling-
secured loans that are made in whole or in part for home improvement 
purposes. For home improvement loans not secured by a dwelling, the 
rule is unchanged: these loans are reported only if they are for home 
improvement purposes and the lender classifies them as home improvement 
loans. The current rule also remains unchanged for home-equity lines of 
credit: lenders report HELOCs at their option, and report only the 
amount of the line intended for home improvement or home purchase 
purposes.
    The final rule adopts the proposal to revise the term 
``application'' to include preapprovals in which a lender issues a 
written commitment to lend to creditworthy borrowers up to a specific 
amount and for a specific time, subject to limited conditions such as 
locating a suitable property. Lenders are required to report denials of 
preapprovals as defined in the final rule, as well as preapprovals that 
result in a loan origination (these are already reported but are not 
currently distinguished from other applications). A lender may but is 
not required to report preapproval requests that are approved but not 
accepted by the applicant.
    Additional data items are required under the final revisions to 
Regulation C to improve understanding of the mortgage market, including 
the subprime market, and assist in enforcing fair lending laws. The 
additional items are:
     For originated loans where the APR exceeds the yield on 
Treasury securities with comparable maturity periods by a specified 
amount, the rate spread or difference between the APR on the loan and 
the Treasury yield;
     Whether a loan is subject to the Home Ownership and Equity 
Protection Act; and
     Whether a loan or application involves a manufactured 
home.
    The Board is adopting the proposed changes to the rules for 
collecting and reporting information on ethnicity and race of 
applicants, to conform to guidance issued in 1997 by the Office of 
Management and Budget (``OMB''). The Board is separately soliciting 
comment on whether to revise the rule on collecting information about 
the applicant's ethnicity, race, and sex for applications taken 
entirely by telephone; under the proposal published in today's Federal 
Register, a lender would be required to ask for the monitoring 
information in telephone applications, consistent with the existing 
rule for mail and Internet applications.
    In the December 2000 proposal, the Board solicited comment on an 
alternative system for categorizing loans, under which the categories 
reported would be (1) home purchase loans (subdivided into first and 
junior liens), (2) other mortgage loans (similarly subdivided), (3) 
home-equity lines of credit, and (4) unsecured home improvement loans.
    Some commenters supported the alternative system. Many commenters, 
including financial institutions and community groups, were opposed. 
Industry commenters argued that the burden of reprogramming and 
retraining staff would be very large, and that historical trend 
analyses of HMDA data would be adversely affected because new data 
would be inconsistent with data from earlier years. Some commenters 
believed that the alternative system would reduce the utility of the 
data, since data on secured home improvement loans and refinancings 
would be indistinguishable from other loans. A number of commenters 
advocated other alternatives in which categories of loans would be 
further broken down into various subcategories.
    Based on the comments and its own analysis, the Board has decided 
not to adopt the proposed alternative system.

III. Section-by-Section Analysis of Final Rule

    The following discussion generally tracks the regulation (including 
appendices) as amended by the Board. Revisions to the staff commentary 
are addressed under the sections of the regulation that they interpret. 
Rules or interpretations that the Board has not revised are also 
discussed under the pertinent sections. Conforming and non-substantive 
changes to the regulation and commentary generally are not discussed.

Section 203.2  Definitions

2(b) Application
    Requests for preapproval. The Board proposed to cover certain 
requests for preapprovals of home purchase loans. The definition 
proposed covered those preapproval programs in which a creditor issues 
a creditworthy applicant a written commitment to extend credit that 
specifies the maximum amount of credit that it commits to extend and 
the period of time during which the commitment remains valid. The 
commitment letter may state limited conditions, such as identification 
of a property or verification of no material change in the borrower's 
creditworthiness. This definition does not cover prequalification 
programs, in which the underwriting is less rigorous and the lender 
makes no binding written commitment.
    Commenters were divided on whether lenders should be required to 
report preapproval requests. Many commenters, including community and 
civil rights groups, federal law enforcement agencies, and a few 
lenders, urged the Board to adopt the proposed rule. Collecting data on 
preapproval requests, they stated, would better reflect market activity 
in the home purchase market, consistent with HMDA's purposes. 
Preapproval data would also facilitate enforcement of 
antidiscrimination laws.
    Many other commenters, primarily financial institutions and their 
trade associations, were opposed to covering preapproval requests under 
Regulation C. These commenters generally believe

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that the burden of collecting preapproval data would outweigh the 
utility of the data. Commenters stated, for example, that the number of 
transactions reported would greatly increase, staff would have to be 
trained, and software and collection procedures would have to be 
changed. Commenters also stated that the data would not serve the 
purposes of HMDA--to provide information on whether lenders were 
meeting the housing needs of their communities--as property location 
would be available only for those preapproval requests that later 
resulted in originations.
    The statute requires lenders to report action taken on 
applications, and the Board believes that requests for preapproval as 
defined in the proposal and final rule represent credit 
applications.\1\ The final rule provides that lenders must report 
preapproval requests that are denied under defined programs, and that 
lenders may, at their option, report preapproval requests that are 
approved but not accepted by the applicant. Under the final rule, 
lenders will continue to report preapprovals that are approved and that 
result in loan originations; lenders will distinguish such loan 
originations from other loans by the use of separate codes.
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    \1\ Preapprovals and prequalifications emerged in the mortgage 
market in the early 1990s. In 1995, the Board revised the staff 
commentary to Regulation C to provide that prequalifications are not 
applications under Regulation C. 60 FR 63393 (Dec. 11, 1995). The 
Board deferred action on preapprovals, however, and instructed 
lenders not to report them under Regulation C because there was no 
common industry definition of a preapproval as distinct from a 
prequalification. The Board stated, however, that it might consider 
amending Regulation C at a later time to address whether lenders 
should report preapprovals.
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    The preapproval programs covered by the final rule involve 
decisions based on a comprehensive credit underwriting in which a 
lender collects and reviews the information it typically collects and 
reviews in making a credit decision on a traditional application. For a 
preapproval program to be covered, the lender must issue a binding 
written commitment for approved applicants or deny the request and 
issue an adverse action notice under Regulation B, based on the 
lender's review of the applicant's credit record.
    The final rule also provides that a covered preapproval may be 
subject only to a limited set of conditions. These are identification 
of a property; verification that the applicant's financial situation 
has not changed since the request was approved; and other conditions 
unrelated to creditworthiness that are typically included in 
traditional loan commitments (such as satisfactory completion of a home 
inspection or proof of a termite inspection). A staff comment provides 
guidance on these limited conditions.
    Data on denials of preapproval requests will provide more complete 
data on the availability of home financing, and will be useful in fair 
lending enforcement. As with traditional applications, these 
preapproval data will allow comparisons of minority and non-minority 
populations that will serve as useful screening devices to help 
identify underwriting processes and practices that may warrant 
scrutiny. While geographic information will not be available for 
preapprovals that do not lead to originations, the data will 
nevertheless be useful for fair lending analyses; preapproval programs 
are, by definition, not about geographic issues but about the financial 
strength and creditworthiness of the applicants.
    The final rule requires lenders to report denials of preapproval 
requests, and to designate those loan originations (which are already 
reported) that were initiated under a covered preapproval program. 
Lenders may also, however, wish to report preapproval requests that are 
approved but not accepted by the applicant, in order to put into 
context the preapproval requests that are denied. Accordingly, the 
revised rule permits, but does not require, lenders to report 
preapproval requests that fall into this category.
    Under the final rule, lenders will not report preapproval requests 
that are withdrawn or incomplete. The Board believes that the 
proportion of preapproval requests that are withdrawn or closed for 
incompleteness is likely to be relatively small; for traditional 
mortgage applications, the HMDA data show that in 2000 approximately 7 
percent were withdrawn by the applicant and 2 percent were closed by 
the institution for incompleteness. Thus, the Board believes that any 
benefit from these data does not warrant the burden of reporting the 
information.
    The Board asked for comment on the relative benefit of a code to 
identify preapprovals. Nearly all commenters, including those opposed 
to coverage of preapprovals, stated that the data on preapprovals would 
be of little use unless lenders differentiate requests for preapproval 
from other applications. Commenters believed that without a code for 
preapprovals, denial rates would be artificially inflated. Commenters 
mistakenly believed that lenders would have to report as denials all of 
the preapproval requests the lender approved that do not lead to loans 
with the lender. (Such requests would not be reported as denials under 
the final rule.) Still other commenters were concerned that without a 
separate code, double counting would occur where a lender approves a 
preapproval request and subsequently originates the loan. Based on 
comments and on further analysis, the final rule requires lenders to 
distinguish preapproval requests from other applications in their data 
reporting.
    Other matters. The definition of an application has been revised to 
refer to ``procedures used by a financial institution.'' This focuses 
the definition on what institutions actually do, rather than what their 
procedures state.
2(d) Dwelling
    The staff commentary has been revised to indicate that the term 
``dwelling'' does not apply to transitory residences such as college 
dormitories. This responds to requests that the Board clarify the 
meaning of the term ``dwelling.''
2(e) Financial Institution
    HMDA covers nondepository lenders that are ``engaged for profit in 
the business of mortgage lending.'' 12 U.S.C. 2802. Regulation C 
provides that a nondepository mortgage lender is covered if in the 
preceding year its home purchase loan originations, including 
refinancings of home purchase loans, equaled or exceeded 10 percent of 
all its loan originations (by dollar volume).\2\ Some nondepository 
lenders originate significant numbers of reportable loans, but because 
these lenders are also heavily engaged in other types of lending 
(credit card lending and other consumer lending, for instance) they are 
not currently covered by HMDA. Coverage of these lenders' mortgage 
activity could provide more complete information on the mortgage 
market.
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    \2\ In addition, a nondepository lender is exempt from 
Regulation C if its total assets, combined with those of any parent 
corporation, were $10 million or less on the preceding December 31, 
and if the institution originated fewer than 100 home purchase loans 
(again, including refinancings of home purchase loans) in the 
preceding calendar year. There is also a location test, under which 
a nondepository lender is exempt if on the preceding December 31 it 
had no office in a metropolitan area, and received applications for, 
originated, or purchased fewer than five home purchase or home 
improvement loans in a metropolitan area in the preceding calendar 
year.
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    The Board proposed to address the coverage issue by preserving the 
existing percentage-based test and adding a dollar-volume test. A 
nondepository lender would be covered by Regulation C if its prior-year 
home purchase loan originations, including

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refinancings of home purchase loans, equaled or exceeded $50 million 
even if they did not equal or exceed 10 percent of total originations. 
The Board estimated that a $50 million threshold would result in 
coverage of a nondepository institution making approximately 400 to 500 
mortgage loans annually (based on a national average of $125,000 for 
home purchase loans). Comment was solicited on whether $50 million was 
an appropriate threshold.
    Commenters, including industry, community groups, and law 
enforcement agencies, supported expanding coverage of nondepository 
lenders. Many depository lenders asserted that greater coverage of 
nondepository lenders would create a more level playing field for all 
lenders. Commenters also stated that expanded coverage of 
nondepositories could provide the agencies and the public with more 
information about the subprime market.
    Different views were expressed, however, on the best approach for 
expanding coverage of nondepository lenders. Many commenters supported 
a dollar-volume threshold, but argued that the proposed $50 million 
threshold was too high. Some industry commenters suggested lowering the 
dollar-volume threshold to as low as $5 million. Other commenters urged 
the Board to drop the proposed dollar-volume threshold and to adopt 
instead a number-of-loans test to address markets where the average 
loan amount is smaller than the national average. Some commenters 
pointed out that in some regions of the country, the average home 
purchase loan amount is less than the national average of $125,000. For 
example, HMDA data and data provided by the National Association of 
Realtors indicate that the average home purchase loan amount in the 
South is approximately $93,000.
    Still other commenters, including some community groups and federal 
agencies, suggested eliminating the 10 percent test. These commenters 
asserted that a lender's impact on a local or broader home mortgage 
market is a better measure of whether the lender is in the business of 
mortgage lending than the relationship between the lender's home 
mortgage lending and its total loan originations.
    The Board is adopting a dollar-volume threshold of $25 million. 
Based on the national average home purchase loan amount, a dollar-
volume threshold of $25 million would result in coverage of a 
nondepository institution that originates approximately 200 home 
purchase loans annually. HMDA data show that, on average, a lender with 
200 loan originations per year receives approximately 400 applications 
annually. The Board believes that a lender receiving this volume of 
home purchase loan applications per year is engaged ``in the business 
of mortgage lending.''
    Other matters. As part of the reorganization of the regulation, 
coverage criteria that used to appear in section 203.3--``Exempt 
Institutions'' are consolidated under the definition of ``financial 
institution'' in section 203.2(e). Correspondingly, several comments 
have been moved from section 203.3 to section 203.2(e) of the staff 
commentary.
2(f) Home-Equity Line of Credit
    The current regulation permits, but does not require, reporting of 
home-equity lines of credit (HELOCs), as home improvement or home 
purchase loans, depending on the purpose of the credit line. If a 
lender opts to report HELOCs, it reports only the amount of the line 
intended for home improvement or home purchase purposes at the time of 
the application.
    The Board proposed to require lenders to report all HELOCs, 
regardless of the purpose of the credit line. The proposal was based on 
research showing that about 70 percent of all HELOCs are used at least 
in part for home improvement purposes. The Board proposed creating a 
separate category for HELOCs to facilitate comparisons between the 
markets for home-secured lines of credit and closed-end home 
improvement loans, which have distinct demographic characteristics. To 
simplify reporting of HELOCs, the Board proposed to require lenders to 
report the full amount of the credit line, rather than the amount 
intended to be used for home improvement (or home purchase) purposes.
    A number of commenters, including some lenders, supported the 
proposal to mandate the reporting of HELOCs as a separate loan 
category. Many others were opposed, however, contending that the change 
would result in a very large increase in the volume of loans reported 
under HMDA. In response to the proposal's request that commenters rank 
the proposed changes in order of burden and benefit, some industry 
commenters ranked reporting all HELOCs as one of the most costly and 
least beneficial changes. Many commenters also stated that most HELOCs 
are not used for home improvement, but for purposes (such as college 
tuition and debt consolidation) that are unrelated to HMDA's purposes.
    The Board has retained the current rule regarding HELOCs. Reporting 
of HELOCs remains optional. See section 203.4(c)(3). Collecting data on 
all HELOCs for home improvement and home purchase purposes would give a 
more complete picture of the home mortgage market, but it would result 
in increased burden. The Board believes that the benefit of collecting 
information on all HELOCs, when ranked with other changes presented in 
the final rule, such as the pricing information, does not support the 
increased reporting burden.
    Lenders that report HELOCs will continue to report only that part 
of the line that is intended for home purchase or home improvement 
purposes. Some commenters--including those who opposed the proposal to 
require reporting of HELOCs--supported reporting the entire amount of 
the line because it would reduce burden. Other commenters noted that 
many HELOCs are never drawn upon. The Board believes that reporting the 
entire amount of the line could overstate the amount of home 
improvement and home purchase lending.
    Other matters. The Board is adopting the proposal to clarify the 
term ``home-equity line of credit'' as an open-end credit plan secured 
by a dwelling as defined in Regulation Z (12 CFR part 226).
2(g) Home Improvement Loan
    The current rule defines a home improvement loan as a loan made in 
whole or in part for home improvement purposes, and classified by the 
lender as a home improvement loan. Thus, a lender may avoid reporting 
loans made for home improvement purposes by not classifying them as 
home improvement loans. Although the classification test for home 
improvement loans has reduced burden on the industry, the resulting 
data have been of limited usefulness. A loan is reported as a home 
improvement loan only if a lender classifies it as such. Lenders' 
classification schemes can vary greatly. The same type of loan might be 
classified as a home improvement loan by one lender but not by another.
    To address these issues, the Board proposed to change the treatment 
of home improvement loans by dropping the classification test. Under 
the proposal, any loan made in whole or in part for home improvement 
purposes would be reported as a home improvement loan, regardless of 
how the institution classified the loan.
    The Board is adopting the proposal with modifications. The final 
rule differentiates between secured and unsecured home improvement 
loans as follows: (1) The classification test is eliminated for 
dwelling-secured loans,

[[Page 7226]]

but (2) the classification test is retained for home improvement loans 
not secured by a dwelling.
    Dwelling-Secured Home Improvement Loans. Commenters expressed 
concern about the burden that would be imposed on lenders if they have 
to ascertain the purpose of every credit product they offer, including 
credit cards. The Board believes that, for dwelling-secured loans, it 
should not be unduly burdensome for lenders to ascertain the intended 
purpose of the loan proceeds because of the level of documentation and 
of interaction between lender and applicant in such loan applications.
    In determining whether loan proceeds are intended for home 
improvement purposes, lenders may rely on applicants' statements, and 
are not required to take other steps to determine loan purpose. One 
method suggested in the proposal for lenders to determine whether a 
loan is intended for home improvement purposes was a check-box on a 
loan application form. Some commenters were concerned that if 
application forms contain check-boxes with a number of choices 
including home improvement, applicants may tend to check home 
improvement even if they are not sure they will use the loan for that 
purpose. The final rule does not require a lender to use a check box; 
instead, for example, an application form might contain a blank in 
which the applicant could enter the purpose of the loan, without any 
prompting or limiting of choices.
    Non-Dwelling-Secured Home Improvement Loans. The final rule retains 
the classification test for home improvement loans not secured by a 
dwelling, so that reporting of such loans and applications will 
continue to hinge on lenders' own classification systems. Retention of 
the classification test will mitigate substantially the burden that 
commenters were concerned about. Lenders would not have to report an 
unsecured loan as a home improvement loan for HMDA purposes if the 
institution classifies it otherwise.
    Other matters. The Board believes the data on home improvement 
lending will be more useful by the reporting of lien status, as the 
revised definition of a home improvement loan turns on whether the loan 
is dwelling-secured. Thus the Board is separately seeking additional 
public comment on whether lenders should be required to report lien 
status, in a notice published in this issue of the Federal Register.
2(h) Home Purchase Loan
    The Board proposed to clarify, in an addition to the staff 
commentary, that if an institution making a first mortgage loan also 
makes a second mortgage loan that finances part or all of the 
borrower's downpayment, the institution reports each loan separately as 
a home purchase loan. A few comments were received on this issue. One 
financial trade association asserted that the two loans should be 
reported as one to reduce burden on institutions; another commenter 
supported the proposal but believed the number of home purchase loans 
would be overstated unless the Board required institutions to 
differentiate these second mortgages from others. The final rule is 
identical to the proposal. The Board believes that reporting these two 
loans separately more accurately reflects a lender's home purchase 
lending, as both loans are made for the purpose of home purchase.
2(i) Manufactured Home
    The Board is adopting the proposed definition of ``manufactured 
home.'' See the discussion under section 203.4(a)(5) regarding property 
type.
2(j) Metropolitan Area
    The Board amends the regulation, as proposed, to replace the term 
``metropolitan statistical area'' with ``metropolitan area,'' the term 
now used by the Office of Management and Budget (OMB). ``Metropolitan 
area'' will have the same meaning as ``metropolitan statistical area'' 
does currently. In December 2000, OMB adopted revised standards for 
defining metropolitan and micropolitan statistical areas; the new 
standards replace the 1990 standards for defining metropolitan areas. 
(65 FR 82228 (December 27, 2000)). OMB has stated that it plans to 
announce definitions of areas based on the new standards and Census 
2000 data in 2003.
2(k) Refinancing
    Regulation C requires a lender to report refinancings of home 
purchase and home improvement loans. A refinancing is defined as a 
transaction in which a new obligation satisfies and replaces an 
existing obligation by the same borrower. Currently, the regulation 
allows lenders to select from among four scenarios in deciding which 
refinancings to report:
    (1) The existing obligation was a home purchase or home improvement 
loan, as determined by the lender (for example, by reference to 
available documents);
    (2) The applicant states that the existing obligation was a home 
purchase or home improvement loan;
    (3) The existing obligation was secured by a lien on a dwelling; or
    (4) The new obligation will be secured by a lien on a dwelling.
    This rule was adopted to ease compliance burden by providing 
flexibility, but it generates inconsistent data among HMDA reporters to 
the extent that different lenders choose different scenarios to 
determine which refinancings to report. Consequently, it is impossible 
for the data user to know what the data represent.
    To remove this inconsistency, the Board proposed to define a 
refinancing as a transaction in which a new obligation satisfies and 
replaces an existing obligation by the same borrower, where both the 
existing and the new obligation are secured by a lien on a dwelling. 
The proposed definition would reduce the inconsistency of refinancing 
data, because all lenders would report using a single two-pronged test.
    The Board also solicited comment on an alternative definition. 
Under the alternative, a refinancing would be defined as a transaction 
in which a new obligation satisfies and replaces an existing obligation 
by the same borrower and the new obligation is secured by a lien on a 
dwelling. This definition would capture not only refinancings where the 
old obligation was dwelling-secured, but, in addition, refinancings of 
unsecured debt in which the new obligation is dwelling-secured. Under 
this formulation, for example, a lender that pays off a consumer's 
existing unsecured loan by extending a new, dwelling-secured loan to 
that consumer would report the new loan.
    Some commenters opposed any revision in the definition of 
refinancing, on the grounds that it would reduce flexibility for the 
industry. Other commenters argued that the proposed definition would 
impose burden on industry, in that a lender may not know the lien 
status of the existing obligation, particularly at the time of 
application. These commenters favored the alternative definition. More 
commenters supported the proposed definition (both the existing and new 
loan secured by a lien on a dwelling), acknowledging that the 
flexibility in the current definition results in inconsistent data.
    The Board is revising the definition of refinancing as proposed; 
under the final rule, reportable refinancings are those in which both 
the existing and the new loan are secured by a lien on a dwelling. 
(Lenders may rely on a borrower's statement about whether the loan 
being refinanced is dwelling-secured.) This definition will avoid 
covering refinancings of unsecured debt, which could result in a 
substantial increase in the volume of loans reported, and thus

[[Page 7227]]

in the reporting burden. It also will reduce the inconsistency of the 
data.
    MECAs. The Board did not propose any change regarding the status of 
modification, extension, and consolidation agreements (MECAs). MECAs 
are not reported because they do not meet the definition of a 
refinancing (satisfaction and replacement of an existing mortgage 
loan). A few commenters asserted, however, that MECAs should be 
reported because they substitute for traditional refinancings in some 
states, such as New York and Texas, to avoid mortgage recording fees 
and taxes.
    The final rule does not include MECAs as reportable under HMDA. The 
existing definition of a refinancing establishes a bright-line test for 
reportable transactions. The Board believes that MECA data may be 
useful in certain instances, but that, under the existing loan 
classification scheme, the advantages of a bright-line test for 
determining whether a transaction should be reported--especially in 
reducing compliance burden--outweigh the benefits of additional data on 
these transactions. Therefore, the Board has not revised the definition 
of refinancing to include MECAs.

Section 203.4--Compilation of Loan Data

4(a) Data Format and Itemization
    The Board had proposed to revise the introductory material in 
section 203.4(a) to refer to home-equity lines of credit as a distinct 
category. The final rule does not include this revision because, as 
discussed below, the Board did not adopt the proposal to require 
reporting of home-equity lines of credit.
4(a)(1) Application Date
    The Board is not adopting proposed comment 4(a)(1)-5, which was 
intended to clarify when an application is received. The proposed 
comment provided that the date an institution receives an application 
is the date on which the institution or its agent first takes 
possession of a completed copy of the application. Several financial 
institutions expressed concern, however, that the comment could create 
confusion. They believed that the comment suggested that ``completed 
application'' has a different meaning under Regulation C than under 
Regulation B. Commenters also opposed the reference to the creditor's 
``agent,'' noting that the law of agency varies from state to state and 
thus the data could be inconsistent.
4(a)(3) Purpose
    The Board has reorganized the loan application register to clarify 
the data categories, by separating the purpose of the loan from the 
type of property involved.
4(a)(4) Preapprovals
    The loan application register has been revised to provide for the 
reporting of certain preapproval requests. See the discussion under 
section 203.2(b) ``application.''
4(a)(5) Property Type--Manufactured Housing Status
    The Board proposed to require lenders to identify loans involving 
manufactured housing, which are underwritten differently from other 
types of housing loans and tend to have higher denial rates. Commenters 
were divided on this issue. Many commenters--including community and 
civil rights groups and the federal agencies charged with enforcing the 
fair lending laws--favored distinguishing loans and applications for 
manufactured homes from other transactions. They believed that doing so 
would improve the public's ability to understand the home mortgage 
market and would make HMDA data more useful for fair lending purposes.
    Many other commenters, including most lenders and their trade 
associations, were opposed to identifying manufactured home loans. 
These commenters said that the additional data would be of limited 
value because there have been no reports of abusive behavior in the 
manufactured home loan market. They believe that requiring lenders to 
identify manufactured home loans would not be worth the burden the 
requirement would entail.
    Some commenters stated that lenders do not always know whether an 
application is for a loan to be secured by manufactured housing. It was 
suggested that if the Board adopts the proposal, the loan application 
register must allow a reporter to indicate when it does not know 
whether the application involves a manufactured home. Commenters also 
asserted that lenders are not familiar with the proposed definition of 
manufactured housing found in HUD regulations. Some commenters believed 
that loan officers would have to review loan applications and files to 
determine if the property involved met the specifications in the HUD 
definition.
    The Board believes that identifying applications and loans 
involving manufactured housing will improve the utility of HMDA data. 
As in the proposal, the final rule provides that manufactured home 
loans will be identified using the definition that appears in the HUD 
regulation that establishes construction and safety standards for 
manufactured homes. Although some commenters suggested reproducing the 
text of the HUD definition in Regulation C, the Board has opted to 
incorporate the definition by reference, so that if HUD revises the 
text of its regulation in the future, changes to Regulation C will not 
be necessary. The HUD definition is accepted by the manufactured home 
industry and establishes a clear definition for HMDA reporters. If a 
lender does not know at the time of application--and cannot determine 
through reasonable means--whether a loan is for a manufactured home, 
the lender reports the property type as a one-to four-family dwelling.
4(a)(8) Type of Action Taken and Date
    Counteroffers. A new comment is adopted to clarify that an 
institution must report a denial on the original terms requested by the 
applicant when the institution makes a counteroffer--such as an offer 
of a different amount of credit from the amount requested--and the 
applicant does not accept the counteroffer or fails to respond. See 
comment 4(a)(8)-1.
    Underwriting conditions. The staff commentary provides that if an 
institution issues a loan approval subject to the applicant's meeting 
underwriting conditions, other than customary conditions, and the 
applicant does not meet them, the institution must report the action 
taken as a denial. The Board proposed to delete the exclusion for 
``customary conditions'' from this comment, because institutions 
expressed confusion about the scope of this term, and the Board 
believed that it was impractical to make the term precise and 
comprehensive.
    Commenters--primarily financial institutions--opposed the deletion 
of the exclusion for customary conditions. They stated that without the 
exclusion, a lender would be viewed as having denied an application 
when the loan was not originated due to circumstances outside the 
lender's control, such as title difficulties. One commenter argued that 
customary conditions could be defined as verification of employment, 
amount of compensation, appraised value, and insurability. Another 
commenter suggested that loans within the exclusion should be reported 
as approved but not accepted. Based on the comments and on its own 
analysis, the Board has retained the exclusion for

[[Page 7228]]

customary conditions. The Board continues to believe, however, that 
defining customary conditions is not practicable, given the wide 
variety of practices among lenders. Thus the comment continues to 
provide illustrative examples of customary conditions. See comment 
4(a)(8)-4.
    Other matters. As part of the reorganization of the regulation, the 
Board has moved some material regarding the date action is taken from 
Appendix A to the staff commentary. See comment 4(a)(8)-7.
4(a)(10) Ethnicity, Race, Sex and Income
    See Appendix A, paragraph I.D.3. and 4, and Appendix B, below, 
regarding changes to the appendices to conform collection of ethnicity 
and race data under Regulation C to OMB guidance. For ethnicity, the 
standards provide for data on whether individuals are Hispanic or 
Latino, or do not fall within this category. The revised standards 
prescribe five racial designations: American Indian or Alaska Native; 
Asian; Black or African American; Native Hawaiian or Other Pacific 
Islander; and White. The standards eliminate the option of designating 
``Other.'' The standards also require that respondents be offered the 
option of selecting one or more designations. 62 FR 58782, 58786 
(October 30, 1997).
    To achieve complete conformity with these guidelines, the Board is 
modifying the appendices. As proposed, the appendices combined the 
questions of race and Hispanic or Latino ethnicity. OMB recommends that 
the question of Hispanic ethnicity be posed separately from the 
question of race in all cases of self-identification. Therefore, 
Appendices A and B as adopted separate the questions of ethnicity and 
race and, as OMB recommends, pose the ethnicity question first.
    Many industry commenters objected to the proposal. Some cited the 
cost of converting their data collection systems. The Board believes, 
however, the compliance burden is outweighed by the importance of 
uniform adoption of the standards throughout the federal government. 
The Board also notes that these objections were considered by the OMB 
before it promulgated the new standards. See 62 FR at 58784 
(summarizing comments opposing multiple-race reporting on grounds of 
increased costs).
    Some commenters were concerned that the new system would confuse 
applicants as well as employees of lenders who have to designate the 
race and ethnicity of applicants by visual observation. The Board 
believes that any confusion among lenders' employees can be mitigated 
by appropriate and timely training. Although some industry commenters 
requested guidance on designating race under a regime that permits 
multiple designations, the Board is not revising existing guidance, 
which provides that designations be made to the extent possible.
    Some commenters contended that data collected under the revised 
standards would not enable proper fair lending assessments. For 
instance, some commenters expressed concern that permitting multiple 
designations of race would make it difficult to interpret the data for 
fair lending purposes. OMB has published guidance on how to aggregate 
and allocate multiple-race responses. See OMB Bulletin No. 00-02, 
Guidance on Aggregation and Allocation of Data on Race for Use in Civil 
Rights Monitoring and Enforcement (March 9, 2000) at http://www.whitehouse.gov/omb/bulletinsib00-02.html). Some commenters also 
expressed concern that data collected under the new standards would not 
be comparable to data collected under the old standards. OMB has 
addressed this issue as well. See Provisional Guidance on the 
Implementation of the 1997 Standards for Federal Data on Race and 
Ethnicity (December 15, 2000), Appendix C, The Bridge Report: 
Tabulation Options for Trend Analysis (available at 
http:www.whitehouse.gov/omb/inforeg/r&e_app-c&tables.pdf).
    Applications Taken by Telephone. The Board proposed to revise 
Appendix B to codify a longstanding interpretation that, if an 
application is made entirely by telephone, the reporting institution is 
permitted, but not required, to request data on race or ethnicity and 
sex. Many commenters expressed concern that this interpretation may 
have contributed to declining response rates to these questions. HMDA 
data show that 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 has 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. The Board believes, however, that at least 
part of the substantial decline in response rates regarding race and 
ethnicity may be explained by the apparent increase in lenders' use of 
the telephone to take applications. Thus the Board has published a 
separate notice in today's Federal Register, proposing to conform the 
current rule for telephone applications to the rule applicable to mail 
and Internet applications. For a discussion of the issue and 
information about how to submit comments, please refer to the Board's 
notice published elsewhere in today's Federal Register.
4(a)(12) and (13) Additional Data Items Related to Loan Pricing
    The statutory findings and purposes section of the Home Mortgage 
Disclosure Act refers to lenders' responsibilities ``to provide 
adequate home financing to qualified applicants on reasonable terms and 
conditions,'' and to the goal of providing the enforcement agencies and 
the public ``with sufficient information to enable them to determine 
whether [lenders] are filling their obligations to serve the housing 
needs of the communities and neighborhoods in which they are located * 
* *.'' \3\ In addition, the 1989 amendments to the act, requiring 
reporting of racial characteristics, sex, and income, made clear that 
another goal of the statute is strengthening enforcement of fair 
lending laws.\4\ The Congress provided that the Board ``shall prescribe 
such regulations as may be necessary'' to carry out these purposes.\5\
---------------------------------------------------------------------------

    \3\ HMDA Sec. 302(a) and (b), 12 U.S.C. 2801(a) and (b).
    \4\ ``A primary purpose of such reporting [under HMDA] is to 
assist regulatory agencies in identifying possible discriminatory 
lending patterns that warrant closer scrutiny.'' H. Conf. Rep. 101-
222, p. 459 (Aug. 4, 1989) (report accompanying legislation adding 
racial characteristics, sex, and income). ``The conferees placed 
highest priority on the collection of analytically useful data by 
means of which to identify and eliminate discriminatory lending 
practices.'' Id.
    \5\ HMDA Sec. 305(a), 12 U.S.C. 2804(a).
---------------------------------------------------------------------------

    Obtaining loan pricing data is critical to address fair lending 
concerns related to loan pricing and to better understand the mortgage 
market, including the subprime market. The mortgage marketplace has 
changed significantly since HMDA was enacted and continues to evolve. 
Along with a substantial growth in the subprime market has come 
increased variation in loan pricing, generally related to an assessment 
of credit risk. In light of these changes, the Board believes that the 
collection of loan pricing information is necessary to fulfill the 
statutory purposes of HMDA and to ensure the continued utility of the 
HMDA data. The Board is revising the regulation to require lenders to 
report data regarding loan pricing (the rate spread and HOEPA status, 
as described below). The Board also believes information on lien status 
would make pricing data more useful, and is separately seeking comment 
in today's

[[Page 7229]]

Federal Register on whether it should amend Regulation C to require 
lenders to indicate lien status for applications and loans.
    Annual Percentage Rate. HMDA data currently include no information 
on loan pricing. The Board proposed to require that lenders report the 
annual percentage rate (APR) charged on a loan. This information would 
facilitate identification of subprime loans, which have different 
characteristics, such as higher denial rates, from other mortgage 
loans. Pricing information could also help identify practices that 
raise potential fair lending concerns warranting further investigation.
    The Board proposed to require reporting of the APR only for home 
purchase and home improvement loans that are covered by the Truth in 
Lending Act (TILA) for which the lender is required to disclose the APR 
to the consumer. Thus, APR reporting would not be required, for 
example, on an application withdrawn before the lender is required to 
disclose the APR, or on a loan made to a corporate borrower and 
therefore not covered by TILA, which applies only to credit extended 
for consumer purposes.
    Lenders and their trade associations generally opposed the 
collection of the APR based on a belief that the data obtained would 
not be useful enough to justify the burden imposed in gathering it. 
They argued that APR data, viewed in isolation from other terms and 
conditions of the loan and from underwriting information, have little 
value and are subject to misinterpretation by the public. Lenders 
appeared concerned about unfounded allegations of unlawful credit 
discrimination should the data reveal disparities among different 
classes of borrowers, even though the disparities may be based on 
legitimate risk-based pricing and creditworthiness standards. Lenders 
also argued that there is no need to require that the APR be reported 
under HMDA because examiners already have access to APR data in 
depository lenders' files.
    The Board proposed to mitigate burden by requiring reporting of 
APRs only for HMDA loans subject to TILA, for which the APR is already 
computed by the lender. Some lenders contended, however, that reporting 
under HMDA would still impose a substantial cost burden, because their 
systems for TILA disclosure and HMDA reporting are separate and do not 
necessarily interface readily. About half of the comments from lenders 
and their trade associations stated that reporting of pricing data in 
particular would be burdensome, although only about half of these 
offered specific reasons for their claim of burden. Perhaps the most 
common sources of burden cited were the initial costs of reprogramming 
software, changing procedures, and training employees, as well as the 
ongoing costs of data entry and monitoring.
    Some commenters suggested that if the Board decided to require 
reporting of the APR, the requirement should be limited to originated 
loans, to reduce the burden imposed. For example, they believed that 
denied or withdrawn loan applications and purchased loans should not be 
subject to the requirement.
    Other commenters, including community groups and law enforcement 
and regulatory agencies, supported collection of the APR. They believe 
that APR data would be useful as an initial screen in fair lending 
analysis. They noted that the burden would involve primarily a one-time 
expense to reprogram systems and the ongoing costs to input data, which 
would be mitigated by the fact that lenders already calculate and 
disclose the APR under TILA. Many commenters who supported reporting 
the APR advocated collecting other data about loan terms and 
underwriting information such as interest rate, fees, subprime status, 
lien status, whether the loan is fixed-rate or variable-rate, the term 
of the loan, loan-to-value ratio, credit score, and debt-to-income 
ratio.
    Alternative Pricing Disclosure. The proposal would have required 
lenders to report and disclose the APR for all loan applications and 
originations. The Board has instead adopted a modified approach 
regarding the rate disclosure and coverage of the rule. Under the final 
rule, lenders will report the rate spread between the APR on a loan and 
the yield on Treasury securities with comparable maturity periods, for 
loan originations in which the APR exceeds the applicable Treasury 
yield by a percentage or threshold specified by the Board. The staff 
commentary clarifies how a lender determines which Treasury security 
has a maturity period that is comparable to a particular loan. See 
comment 4(a)(12)-1.
    The Board is adopting this approach to loan pricing information 
because it will adjust pricing data for changes in market conditions 
over time, focus on higher cost loans, and limit reporting burden 
because fewer loans would be subject to the reporting requirement. The 
Board has limited the reporting requirement to originations of home 
purchase loans, secured home improvement loans, and refinancings, to 
minimize burden. The final rule excludes from the reporting 
requirement: (1) Applications that are incomplete, withdrawn, denied, 
or approved but not accepted; (2) purchased loans; and (3) unsecured 
home improvement loans.
    The Board believes that lenders should report the spread for loans 
that equal or exceed a threshold of 3 percentage points for first lien 
loans, and 5 percentage points for subordinate lien loans (which 
generally have a higher APR). These thresholds are tentative--in the 
text of the final regulation, brackets have been inserted around the 
thresholds--because selecting the appropriate thresholds for price 
disclosure is not straightforward. The thresholds are intended to 
ensure, to the extent possible, that pricing data for higher cost loans 
are collected and disclosed, and at the same time to exclude prime 
loans from the requirement. There is limited public information on the 
range of prices (particularly APRs) of closed loans in the mortgage 
market, and there is no absolute demarcation between subprime and prime 
mortgage markets. Therefore, the Board is seeking public comment on 
whether the tentative thresholds are appropriate in a separate notice 
in this issue of the Federal Register. The Board will finalize the 
thresholds for reporting pricing information by mid-year 2002. For a 
discussion of the issue and information about how to submit comments, 
please refer to the Board's notice published elsewhere in this Federal 
Register.
    HOEPA Status. The Board proposed to require that in addition to the 
APR on a loan, lenders report whether the loan is covered by the 
provisions of the Home Ownership and Equity Protection Act (HOEPA) as 
implemented in Regulation Z. Obtaining information on the volume and 
pattern of lending covered under HOEPA would be useful for better 
understanding the mortgage market, particularly the subprime market.
    Lenders and their trade associations generally opposed the 
proposal. They contended that HOEPA loans carry reputational risk, and 
that the requirement to disclose HOEPA status would therefore act as a 
disincentive to lenders to make such loans. As with APR reporting, 
commenters suggested that there was no need to require HOEPA status 
reporting under HMDA, because the same information could be obtained by 
the banking agencies through the examination process.
    Community groups and regulatory and enforcement agencies supported 
the proposal. They asserted that data on the HOEPA status of loans is 
critical to the

[[Page 7230]]

Board's separate rulemaking under HOEPA; that HOEPA status could be 
considered a proxy for subprime status, and would allow regulators to 
focus fair lending examinations on that part of the market; and that 
any burden associated with collecting HOEPA status would be primarily 
the one-time cost of reprogramming software.
    The Board is amending Regulation C, as proposed, to require that 
the HOEPA status of a loan be reported and disclosed. While HOEPA 
status can be obtained through bank examinations, nondepository lenders 
are not subject to regular examinations. Nondepository lenders made 
about 57 percent of the dollar volume of loan originations reported 
under HMDA for the year 2000. Moreover, although depository lenders are 
examined on a regular basis, collecting HOEPA status on the HMDA/LAR is 
a more efficient way to obtain the data.
    Some commenters believed that, if the APR data were to be 
collected, requiring the reporting of HOEPA status would be 
duplicative. But a loan's HOEPA status cannot be determined from the 
loan's APR alone. HOEPA coverage is based not only on the APR, but also 
on points and fees; some loans are covered because of the fees charged. 
Information from industry that was submitted to the Board during the 
HOEPA rulemaking suggests that roughly 30 percent of the first-lien 
loans and 23 percent of the subordinate-lien loans that will be covered 
by HOEPA (as revised in December 2001) will be covered only because of 
the points and fees on the loans.
    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. Some 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 believes that lien status would be useful in interpreting 
information on loan pricing. Interest rates, and therefore APRs, vary 
according to lien status; rates on first-lien loans are generally lower 
than rates on junior-lien or unsecured loans. Information on lien 
status would also be useful in interpreting home improvement loan data, 
as the revised definition of a home improvement loan turns on whether 
the loan is dwelling-secured. In view of the fact that the Board is 
soliciting comment in a separate notice on the appropriate thresholds 
for collecting rate spread information, the Board believes it is 
appropriate to provide the public with an additional opportunity to 
comment on the collection of lien status information. For a discussion 
of these issues and information about how to submit comments, please 
refer to the Board's notice published separately in this issue of the 
Federal Register.
    Other matters. The Board requested comment on whether the loan-to-
value ratio (LTV), or the appraised value of the property that secures 
a loan should be reported, based on concerns that appraisals may be 
used to discriminate against certain home mortgage applicants.
    Several commenters supported a requirement to report LTV or 
appraised value. Some believed that these data would be very useful in 
rooting out predatory lending, particularly in combination with the APR 
and points and fees on a loan. The majority of commenters who addressed 
the issue--including almost all the financial institutions--opposed a 
requirement to report either appraised value or LTV ratio. Some argued 
that appraisals are too subjective to generate useful data. Others 
pointed out that complete data could not be gathered, because 
appraisals are not required for all properties. Similarly, commenters 
pointed out that these data may be available only for loans originated, 
because an application may be denied or withdrawn before an appraisal 
is ordered or an LTV is calculated. Based on the comments and its own 
analysis, the Board is not revising the regulation to require lenders 
to report LTV or appraised value.
4(b) Collection of Data on Ethnicity, Race, Sex, and Income 4(b)(2) 
Optional Collection
    The Board has deleted the provision that depository institutions 
with assets on the preceding year-end of $30 million or less may, but 
need not, collect the data on applicants' race, ethnicity, sex, and 
income. This exemption has become superfluous. Regulation C entirely 
exempts from coverage a depository institution with total assets on the 
preceding year-end at or below the threshold set annually by the Board 
based on changes in the Consumer Price Index for Urban Wage Earners and 
Clerical Workers. In 2001, the Board set this threshold at $32 million 
for data collection in 2002.
4(c) Optional Data
4(c)(1) Reasons for Denial
    The statute permits, but does not require, a financial institution 
to report the reasons why a loan application was denied. Regulation C 
similarly gives institutions the option to report this information. The 
Board solicited comment on whether the regulation should be revised to 
require lenders to report reasons for denial. Based on the comments and 
its own analysis, the Board has retained the current rule on reporting 
of denial reasons.
    Most commenters who addressed this issue--including several 
financial institutions, one banking trade association, regulatory 
agencies, and civil rights and community groups--supported requiring 
all institutions covered by HMDA to report reasons for denial. They 
contended that reporting denial reasons would not be burdensome, 
because lenders currently must provide the reasons to applicants under 
the Equal Credit Opportunity Act and Regulation B (or at least inform 
them of their right to know the reasons). These commenters argued that 
requiring such reporting would facilitate the identification of 
potential discrimination, and that all lending institutions should be 
subject to the same rules. They pointed out that reporting denial 
reasons in all cases would allow better comparison of data from 
different lenders.
    Some commenters--primarily financial institutions--opposed 
mandatory reporting. These commenters maintained that denial reasons 
are not a reliable fair lending indicator because they may oversimplify 
the reasons for a credit decision.
    Some commenters also opposed mandatory reporting on the basis of 
cost and burden. The Board believes that although information on denial 
reasons could be useful, the burden such a requirement would impose on 
lenders is not justified.
4(c)(2) Preapproval Requests
    The regulation has been revised to require lenders to report 
preapproval requests that are denied and to identify preapproval 
requests that result in a loan origination. See discussion under 
203.2(b) ``Application.'' The Board has also revised the regulation to 
permit, but not require, lenders to report preapproval requests that 
are approved by the institution but not accepted by the borrower, using 
the code provided. See Appendix A., Paragraphs I.A.8. and I.B.1.

[[Page 7231]]

4(d) Excluded Data
4(d)(3) Temporary Financing
    Regulation C generally does not permit lenders to report temporary 
financing. The Board has not amended these rules. The Board believes 
that, although in some cases the data would not be duplicative--such as 
where a lender originates construction loans but does not offer 
permanent financing--these instances appear to be relatively few.
    Time Period. The Board requested comment on whether the regulation 
should define ``temporary loans'' in terms of a time period. A few 
financial institutions requested a definition that includes a specific 
time period. Upon further analysis, however, the Board believes that in 
the absence of any generally accepted time frame for ``temporary 
financing,'' it is impracticable to provide a ``bright-line'' test. 
Instead, the regulation will continue to offer examples, such as 
construction financing.
4(d)(6) Purchased Loans
    Branch Acquisition. The Board proposed to exclude from HMDA 
reporting loans that are purchased as part of a branch acquisition. 
Limited comment was received. A community group asserted that data on 
all purchased loans are needed to discourage institutions from 
purchasing predatory loans. Industry commenters, on the other hand, 
supported the proposal. They believe that the decision to acquire a 
branch is an investment decision rather than a credit decision.
    Based on the comments and on its own analysis, the Board is 
adopting the proposal. A ``branch acquisition'' entails the purchase of 
all the assets and liabilities of a branch of a depository institution; 
it need not involve the purchase of the branch's physical facilities. 
Loans purchased as part of a branch asset sale (not including sale of 
the branch's liabilities) would continue to be reported.

Section 203.5--Disclosure and Reporting

5(b) Public Disclosure of Statement
    The regulation requires that a financial institution make its 
disclosure statement available to the public, under certain 
circumstances, within a specified number of ``business days.'' The 
Board has revised the staff commentary to clarify that for this purpose 
a ``business day'' is any calendar day other than a Saturday, Sunday, 
or legal public holiday. (See comment 5(b)-1.)
5(f) Loan Aggregation and Central Depositories
    As part of the reorganization of the regulation, material on loan 
aggregation and central depositories that now appears in section 
203.1''Authority, purpose, and scope'' has been moved to section 203.5, 
as paragraph (f).

Section 203.6--Enforcement

    As part of the reorganization of the regulation, some material from 
the staff commentary (see comments 4(a)-1 and 6(b)-1) has been moved to 
this section of the regulation. The material clarifies that certain 
actions do not violate the act or regulation.

IV. Appendix A

    The Board's reorganization of the regulation entails non-
substantive revisions of Appendix A, such as redesignating several 
provisions. The Board also makes certain substantive changes that 
conform Appendix A to revisions discussed above.

I. Instructions for Completion of Loan/Application Register

A. Application or Loan Information
4. Property Type
    A new field is added to identify the type of property to which the 
application or loan relates (one-to four-family dwelling, manufactured 
housing, or multifamily dwelling). See the discussion of ``Manufactured 
housing status'' under section 4(a)(5), above.
5. Purpose
    This field, which used to combine loan purpose and property type, 
is revised to include only the purpose of the application or loan 
(i.e., home purchase, home improvement). Information on property type 
is moved to its own field, as discussed in paragraph 4 above.
B. Action Taken
    New codes are added for action taken on preapproval requests. An 
institution is required to report preapproval requests that are denied, 
using the action code provided. An institution may report, at its 
option, preapproval requests that are approved but not accepted by the 
applicant, using the code provided.
C. Property Location
    Coordination with the CRA. Appendix A provides guidance to lenders 
that report data under the CRA regarding the reporting of property-
location information for loans located outside the metropolitan areas 
where those lenders have offices. In response to inquiries from 
lenders, the Board is clarifying this guidance, without changing it 
substantively.
    Lenders that report data under the CRA must report the metropolitan 
area, state, and county where the property is located. In general, they 
must also report the census tract. However, if the property is located 
in a county with a population of 30,000 or less, a lender may report 
either ``NA'' or the census tract number.
    Block Numbering Areas. Under the current rule, lenders may report 
the Block Numbering Area (BNA) for untracted areas. The Census Bureau 
has assigned census tract numbers to all areas. Accordingly, the Board 
has revised Appendix A to reflect this change.
    Requests for Preapproval. The final rule requires institutions to 
identify requests for preapproval that result in loan originations and 
to report denials of preapproval requests. See discussion under section 
2(b), above. Because preapproval requests denied will not include data 
on property location, the Board is clarifying that lenders should 
report ``NA'' in the property location fields associated with requests 
for preapproval that are denied. Lenders that opt to report 
preapprovals falling in the category of ``approved but not accepted'' 
also should report ``NA'' in the property location fields.
D. Applicant Information--Ethnicity, Race, Sex, and Income
3. and 4. Ethnicity and Race of Borrower or Applicant
    The Board has conformed the racial classifications to the standards 
set by OMB. See the discussion under section 203.4(a)(10) ``collection 
of ethnicity, race, sex, and income of applicants.'' Consistent with 
OMB's guidelines, an applicant is allowed to designate all racial 
groups that are applicable, and information regarding Hispanic or 
Latino ethnicity is collected separately from information on race. As 
noted previously, the Board is separately requesting comment on a 
proposal to make mandatory the collection of monitoring information in 
applications taken by telephone.
    Minor revisions have been made to the codes to provide more 
clarity. A code 5 for ethnicity and a code 8 for race have been added 
for cases in which there is no co-applicant or co-borrower. In 
addition, the instructions make clear that the code ``not applicable'' 
is to be used only in loans involving a corporate borrower or a 
partnership, or for loans purchased by the institution.

[[Page 7232]]

E. Type of Purchaser
    The final rule includes changes to the codes for identifying the 
type of purchaser of an originated loan. The Board believes these 
changes will increase the utility of the information about the 
secondary market available to users of HMDA data. Under the current 
codes, the categories of ``life insurance company,'' ``commercial 
bank,'' and ``savings bank or association,'' account for a very small 
portion of loans sold. About one-third of home loans sold are 
attributed to the code 9, ``other type of purchaser.'' The final rule 
addresses these matters by expanding certain existing categories, 
combining others, and adding a new category for private securitization.
G. Other Data
    The Board is adding fields for the price of the loan (rate spread) 
and HOEPA status. See the discussion under section 4(a)(12) and (13) 
``additional items related to loan pricing.''

II. Federal Supervisory Agencies

    The Board has removed the list of types of lenders and their 
supervisory agencies from the Appendix. This information is provided in 
section 305(b) of the act (12 U.S.C. 2804(b)).
Form of Transmittal Sheet
    Based on the comments and its own analysis, the Board is revising 
the HMDA/LAR transmittal sheet to require reporting of the identity of 
a parent company, if any. The requirement was eliminated a few years 
ago to reduce burden, because parent information is generally available 
through the National Information Center (``NIC'') database. 63 FR 52140 
(September 30, 1998). Data users have asserted, however, that it is 
important to have the information in the HMDA data rather than in a 
separate database such as NIC. Moreover, the NIC database does not 
include parent company information for all HMDA reporters. Generally, 
commenters supported requiring institutions to report parent company 
information. Some commenters, including financial institutions, noted 
that such a requirement would impose minimal burden on lenders.
    The transmittal sheet also has been revised to call for the 
institution's e-mail address, if any exists, in addition to the 
existing requirements for the telephone and facsimile numbers of the 
reporting institution's contact person.

V. Appendix B

    Appendix B is revised to reflect the revised OMB guidance discussed 
under section 203.4(a)(10).

VI. Reorganization of the Regulation

    The Board proposed to reorganize Regulation C to make it easier to 
use and to make reporting less burdensome for institutions. In the 
past, formal guidance for compliance with HMDA was contained in 
Regulation C, in the instructions for completing the loan/application 
register (Appendix A to the regulation), in the instructions for the 
collection of certain applicant data (Appendix B), and in the staff 
commentary. Informal guidance was provided in the FFIEC's ``A Guide to 
HMDA Reporting: Getting It Right!'' Compliance officers and other 
commenters expressed concern about having to consult several sources to 
locate a requirement or interpretation dealing with a particular issue.
    The Board solicited comment on the benefits of incorporating all of 
the interpretive materials into the commentary, reducing the 
instructions in Appendix A to code descriptions, and reorganizing the 
material within the regulation. These changes were supported by most of 
the commenters that addressed them--including both data reporters and 
data users. They believed that a reorganization would make the 
regulation easier to understand and decrease possible 
misinterpretations by reporters and others. For these commenters, the 
benefits of simplification outweighed the burden of learning a new 
system of organization. Based on the comments and its own analysis, the 
Board has reorganized the regulation and commentary, eliminated 
redundant provisions, revised the instructions to facilitate reporting, 
and made other changes--such as rewording some provisions--so that the 
regulation is easier to use.
    The cross-references to Appendix A in the staff commentary are 
deleted; they are unnecessary in view of the simplification and 
reorganization of Appendix A. ``A Guide to HMDA Reporting: Getting It 
Right!'' will continue to be published, in a format reflecting the 
reorganized regulation.
    Provisions of the regulation, appendices, and commentary are 
redesignated as indicated in the tables below. The first six tables 
identify redesignated provisions in the first five sections of the 
regulation and in the corresponding paragraphs of the staff commentary; 
the seventh and eighth tables identify redesignated provisions in 
Appendices A and B. While the tables present a substantially complete 
summary of the reorganization, they should not be used as a substitute 
for a detailed comparison of the revised regulation with the old 
regulation.

                             Table 1.--Section 203.1--Authority, Purpose, and Scope
----------------------------------------------------------------------------------------------------------------
               Current                                                    New
----------------------------------------------------------------------------------------------------------------
Commentary 203.1(c)-2, 3, 4.........  Regulation 203.2(k)
Commentary 203.1(c)-5...............  Commentary 203.1(c)-2
Commentary 203.1(c)-6...............  Commentary 203.1(c)-3
Commentary 203.1(c)-7...............  Commentary 203.1(c)-4
Commentary 203.1(c)-8...............  Commentary 203.1(c)-5
Commentary 203.1(c)-9...............  Commentary 203.1(c)-6
Commentary 203.1(c)-10..............  Commentary 203.1(c)-7
Commentary 203.1(c)-11..............  Commentary 203.1(c)-8
Commentary 203.1(c)-12..............  Commentary 203.1(c)-9
Regulation 203.1(d).................  Regulation 203.5(f)
----------------------------------------------------------------------------------------------------------------


                                      Table 2.--Section 203.2--Definitions
----------------------------------------------------------------------------------------------------------------
               Current                                                    New
----------------------------------------------------------------------------------------------------------------
Regulation 203.2(f).................  Regulation 203.2(g)
Regulation 203.2(g).................  Regulation 203.2(h)
Regulation 203.2(h).................  Regulation 203.2(i)

[[Page 7233]]

 
Commentary 203.2(e)-1...............  Commentary 203.2(e)-5
Commentary 203.2(e)-2...............  Commentary 203.2(e)-6
Commentary 203.2(f)-1...............  Deleted
Commentary 203.2(f)-2...............  Commentary 203-41(a)(3)-1
Commentary 203.2(f)-3...............  Commentary 203.4(a)(7)-3
Commentary 203.2(f)-4...............  Commentary 203.2(g)-1
Commentary 203.2(f)-5...............  Commentary 203.2(g)-2
Commentary 203.2(f)-6...............  Commentary 203.2(g)-3
Commentary 203.2(f)-7...............  Commentary 203.2(g)-5
Commentary 203.2(f)-8...............  Commentary 203.2(g)-4
Commentary 203.2(g)-6...............  Commentary 203.2(g)-8
----------------------------------------------------------------------------------------------------------------


                                  Table 3.--Section 203.3--Exempt Institutions
----------------------------------------------------------------------------------------------------------------
               Current                                                    New
----------------------------------------------------------------------------------------------------------------
Regulation 203.3(a)(1)..............  Regulation 203.2(e)(1)
Regulation 203.3(a)(2)..............  Regulation 203.2(e)(2)
Regulation 203.3(b).................  Regulation 203.3(a)
Regulation 203.3(c)(1)..............  Commentary 203.2(e)-1
Regulation 203.3(c)(2)..............  Regulation 203.3(b)
Commentary 203.3(a)-l...............  Commentary 203.2(e)-1
Commentary 203.3(a)-2...............  Commentary 203.2(e)-3
Commentary 203.3(a)-3...............  Commentary 203.4(d)-1
----------------------------------------------------------------------------------------------------------------


                                Table 4.--Section 203.4--Compilation of Loan Data
----------------------------------------------------------------------------------------------------------------
               Current                                                    New
----------------------------------------------------------------------------------------------------------------
Commentary 203.4(a)-1...............  Regulation 203.6(b)(3)
Commentary 203.4(a)(2)-1............  Commentary 4(a)(3)-2, 2(g)-6, 2(h)-7
Commentary 203.4(a)(3)-1............  Deleted
Commentary 203.4(a)(3)-2............  Commentary 203.4(a)(6)-1
Commentary 203.4(a)(4)-3............  Commentary 203.4(a)(7)-3 & 203.4(a)(3)-1
Commentary 203.4(a)(4)-4............  Commentary 203.4(a)(7)-3
Commentary 203.4(a)(5)..............  Commentary 203.4(a)(8)
Commentary 203.4(a)(6)-1 through -4.  Commentary 203.4(a)(9)
Commentary 203.4(a)(6)-5............  Deleted
Commentary 203.4(a)(7)..............  Commentary 203.4(a)(10)
Commentary 203.4(a)(8)..............  Commentary 203.4(a)(11)
Commentary 203.4(c)-1...............  Deleted
Commentary 203.4(d)-1...............  Regulation 203.4(d)(4)
----------------------------------------------------------------------------------------------------------------


                                Table 5.--Section 203.5--Disclosure and Reporting
----------------------------------------------------------------------------------------------------------------
               Current                                                    New
----------------------------------------------------------------------------------------------------------------
Regulation 203.5(a).................  Regulation 203.5(a)(1)
Regulation 203.5(b)(1)..............  Regulation 203.5(b)(2)
Regulation 203.5(b)(2)..............  Regulation 203.5(b)(3)
Commentary 203.5(a)-1...............  Commentary 203.5(a)-5
Commentary 203.5(a)-2...............  Commentary 203.5(a)-6
----------------------------------------------------------------------------------------------------------------


                                      Table 6.--Section 203.6--Enforcement
----------------------------------------------------------------------------------------------------------------
               Current                                                    New
----------------------------------------------------------------------------------------------------------------
Commentary 203.6(b)-1...............  Commentary 203.6(b)-1 & Regulation 203.6(b)(2)
----------------------------------------------------------------------------------------------------------------


                                              Table 7.--Appendix A
----------------------------------------------------------------------------------------------------------------
               Current                                                    New
----------------------------------------------------------------------------------------------------------------
I.A.................................  Regulation 203.2(e)(1)
I.B.................................  Regulation 203.2(e)(1)
I.C.................................  Regulation 203.2(e)(2)
I.D.................................  Deleted

[[Page 7234]]

 
I.E.................................  Regulation 203.5(a)(2)
I.F.................................  Regulation 203.3(a)(3)
II.A................................  Commentary 203.5(a)-1 and -2
II.B................................  Commentary 203.5(a)-3
II.C................................  Commentary 203.5(a)-4
II.D................................  Commentary 203.5(a)-4
II.E................................  Deleted
III.A...............................  Regulation 203.5(a)(1)
III.B...............................  Commentary 203.5(a)-6 & 4(a)-1(vi)
III.C...............................  Commentary 203.5(a)-8 & 4(a)-1(vii)
III.D.1.............................  Regulation 203.5(b)(1) and (2), Commentary 203.5(b)-1
III.D.2.............................  Commentary 203.5(b)-2
III.E.1.............................  Regulation 203.5(c)
III.E.2.............................  Commentary 203.5(c)-1
III.E.3.............................  Regulation 203.5(c)
III.F.1.............................  Commentary 203.5(e)-1
III.F.2.............................  Commentary 203.5(e)-2
IV.A.1..............................  Commentary 203.4(a)-1(I)
IV.A.2..............................  Commentary 203.4(a)-1(ii)
IV.A.3..............................  Commentary 203.4(a)-1(iii)
IV.A.4..............................  Commentary 203.4(a)-1(iv)
IV.A.5..............................  Commentary 203.4(a)-1(v)
IV.B................................  Deleted
V.A.1...............................  Commentary 203.4(a)(1)-4 & App. A.I.A.1.
V.A.2...............................  App. A.I.A.2.
V.A.3...............................  App. A.I.A.3.
V.A.4...............................  App. A.I.A.4 & 5
V.A.5...............................  App. A.I.A.4 & 5
V.A.6...............................  App. A.I.A.6
V.A.7...............................  App. A.I.A.6
V.A.8...............................  App. A.I.A.7.
V.B.1...............................  App. A.I.B.1.
V.B.2...............................  App. A.I.B.1.
V.B.3...............................  App. A.I.B.2
V.C.................................  App. A.I.C. & Commentary 203.4(a)(9)-2
V.C.1...............................  App. A.I.C.1
V.C.2...............................  App. A.I.C.2
V.C.3...............................  App. A.I.C.3
V.C.4...............................  App. A.I.C.4
V.C.5...............................  App. A.I.C.5
V.C.6...............................  Deleted
V.C.7...............................  App. A.I.C.6
V.D.................................  App. A.I.D.
V.D.1...............................  App. A.I.D.1
V.D.2...............................  App. A.I.D.2; App.B.II.A.
V.D.3...............................  App. A.I.D.3 & 4
V.D.4...............................  App. A.I.D.5.
V.D.5...............................  App. A.I.D.6
V.E.................................  App. A.I.E. & Commentary 203.4(a)(11)-2
V.F.................................  App. A.I.F
VI..................................  App. A.II.
----------------------------------------------------------------------------------------------------------------


                                              Table 8.--Appendix B
----------------------------------------------------------------------------------------------------------------
               Current                                                    New
----------------------------------------------------------------------------------------------------------------
B.I.A...............................  I.
B.I.B.1.............................  II.A.
I.B.2...............................  II.D.
I.B.3...............................  II.B.
I.B.4...............................  II.E.
I.B.5...............................  Deleted
----------------------------------------------------------------------------------------------------------------

VII. 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 reviewed the final rule under 
the authority delegated to the Board by the Office of Management and 
Budget. 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

[[Page 7235]]

control number is 7100-0247 for the Federal Reserve's information 
collection under Regulation C.
    The mandatory collection of information that is 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.
    The final rule amends Regulation C to improve the quality, 
consistency, and utility of data reported under HMDA. The revisions 
expand coverage of nondepository lenders, revise definitions of covered 
loans and applications, and require reporting of additional items of 
information.
    In conjunction with its proposal, the Federal Reserve sought 
comment on the burden estimates for the proposed changes. The Board 
received nearly 300 public comment letters, most of which addressed the 
issue of respondents' burden. These comments were addressed at length 
earlier in this notice. In general, industry commenters expressed 
concern that the proposed changes, taken as a whole, would impose 
significant burdens. The Federal Reserve has revised certain aspects of 
the proposal to address some of the burden concerns. Those revisions 
are discussed earlier in this notice.
    The estimated annual burden for this information collection varies 
from 12 to 12,000 hours, depending on individual circumstances, with 
estimated averages of 242 hours for state member banks and 192 hours 
for mortgage banking subsidiaries and other respondents. To most 
accurately estimate the annual burden for this information collection 
the staff used the number of Federal Reserve supervised respondents 
that were required to report CY 2000 data in March 2001. The Federal 
Reserve estimates the annual burden to be roughly 146,000 hours, a 20 
percent increase from the last estimate of the annual burden under the 
current regulation.
    Respondents also face a one-time cost burden to reprogram systems 
to add codes for new data items, update systems with the new 
definitions for current data items, and create an interface between 
current HMDA and Truth in Lending systems to enable reporting of 
pricing data. Institutions that use vendor-provided software systems 
(the bulk of reporting institutions) will face costs averaging around 
$2,000 to $5,000. Institutions that purchase and adapt off-the-shelf 
applications will face costs averaging between $20,000 and $50,000. 
Institutions that use mainframe systems and employ systems programmers 
(the largest institutions) will face costs averaging between $120,000 
and $270,000. Using the maximum cost for each of the three ranges to 
calculate a weighted average, the Federal Reserve estimates that the 
average covered financial institution will incur a one-time cost of 
approximately $17,400.
    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) is given confidential treatment under exemption 6 of the 
Freedom of Information Act (5 U.S.C. 552(b)(6)).
    The Board has a continuing interest in the public's opinion of the 
Federal Reserve's collection of information. At any time, comments 
regarding the burden estimate or any other aspect of this collection of 
information, including suggestions for reducing the burden, may be sent 
to: Secretary, Board of Governors of the Federal Reserve System, 20th 
and C Streets, NW., Washington, DC 20551; and to the Office of 
Management and Budget, Paperwork Reduction Project (7100-0247), 
Washington, DC 20503.

VIII. Regulatory Flexibility Analysis

    In accordance with section 3(a) of the Regulatory Flexibility Act 
(5 USC 604(a)), the Board has prepared a final regulatory flexibility 
analysis of these revisions. 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 final rule 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 
conform its regulation with new guidance from the Office of Management 
and Budget concerning collection of data on ethnicity and race by 
federal agencies.
    The Board received no comments specifically responding to the 
initial regulatory flexibility analysis published in conjunction with 
the proposed rule. As discussed in the Supplementary Information, 
however, many comments the Board received discussed the burdens arising 
from particular proposals. Such comments are summarized throughout the 
Supplementary Information, as are the Board's responses. The 
Supplementary Information also contains discussions of alternative 
measures the Board considered adopting, and in some cases adopted, to 
reduce burden.
    The major changes in the final rule bring more institutions and 
transactions under requirements for data collection and reporting and 
requiring more data on each covered transaction. Among the proposed 
revisions, those increasing the transactions covered and the data that 
are required to be reported for each transaction are the most 
significant in terms of potential benefits and in increasing regulatory 
burden. The final rule would affect all institutions currently within 
the scope of the regulation, including covered small institutions.
    The number of institutions that would be brought under the 
regulation for the first time is likely quite limited. No newly covered 
institution would be a small mortgage lender. The new criterion for 
coverage'which is added to the existing criteria--is that institutions 
must have originated at least $25 million home purchase loans 
(including

[[Page 7236]]

refinancings of such loans) in the prior calendar year. Board staff 
projects that any newly covered institutions would be more active in 
the mortgage business than most of the institutions currently required 
to report.
    It is difficult to quantify the benefits and costs associated with 
the final 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 will allow for more 
precise differentiation among loan products and reduce the potential 
bias that results when dissimilar loan products are jointly classified. 
The data will also help inform the public about developments in the 
mortgage market by revealing pricing information on higher-cost home 
loans and by ensuring that more complete and consistent information is 
available about mortgage refinancings and home improvement lending.
    Although the final 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, and potentially to report new transactions. The 
regulatory agencies will take steps to mitigate these costs, but for at 
least some covered lenders they are likely to be significant.

List of Subjects in 12 CFR Part 203

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


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

PART 203--HOME MORTGAGE DISCLOSURE (REGULATION C)

Sec.
203.1   Authority, purpose, and scope.
203.2   Definitions.
203.3   Exempt institutions.
203.4   Compilation of loan data.
203.5   Disclosure and reporting.
203.6   Enforcement.
Appendix A To Part 203--Form And Instructions for Completion of HMDA 
Loan/Application Register
Appendix B To Part 203--Form And Instructions for Data Collection on 
Ethnicity, Race, And Sex
Supplement I To Part 203--Staff Commentary

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


Sec. 203.1  Authority, purpose, and scope.

    (a) Authority. This regulation is issued by the Board of Governors 
of the Federal Reserve System (``Board'') pursuant to the Home Mortgage 
Disclosure Act (``HMDA'') (12 U.S.C. 2801 et seq.), as amended. The 
information-collection requirements have been approved by the U.S. 
Office of Management and Budget (``OMB'') under 44 U.S.C. 3501 et seq. 
and have been assigned OMB numbers for institutions reporting data to 
the Office of the Comptroller of the Currency (1557-0159), the Federal 
Deposit Insurance Corporation (3064-0046), the Office of Thrift 
Supervision (1550-0021), the Federal Reserve System (7100-0247), and 
the Department of Housing and Urban Development (``HUD'') (2502-0529). 
A number for the National Credit Union Administration is pending.
    (b) Purpose. (1) This regulation implements the Home Mortgage 
Disclosure Act, which is intended to provide the public with loan data 
that can be used:
    (i) To help determine whether financial institutions are serving 
the housing needs of their communities;
    (ii) To assist public officials in distributing public-sector 
investment so as to attract private investment to areas where it is 
needed; and
    (iii) To assist in identifying possible discriminatory lending 
patterns and enforcing antidiscrimination statutes.
    (2) Neither the act nor this regulation is intended to encourage 
unsound lending practices or the allocation of credit.
    (c) Scope. This regulation applies to certain financial 
institutions, including banks, savings associations, credit unions, and 
other mortgage lending institutions, as defined in Sec. 203.2(e). The 
regulation requires an institution to report data to its supervisory 
agency about home purchase loans, home improvement loans, and 
refinancings that it originates or purchases, or for which it receives 
applications; and to disclose certain data to the public.


Sec. 203.2  Definitions.

    In this regulation:
    (a) Act means the Home Mortgage Disclosure Act (``HMDA'') (12 
U.S.C. 2801 et seq.), as amended.
    (b) Application. (1) In general. Application means an oral or 
written request for a home purchase loan, a home improvement loan, or a 
refinancing that is made in accordance with procedures used by a 
financial institution for the type of credit requested.
    (2) Preapproval programs. A request for preapproval for a home 
purchase loan is an application under paragraph (b)(1) of this section 
if the request is reviewed under a program in which the financial 
institution, after a comprehensive analysis of the creditworthiness of 
the applicant, issues a written commitment to the applicant valid for a 
designated period of time to extend a home purchase loan up to a 
specified amount. The written commitment may not be subject to 
conditions other than:
    (i) Conditions that require the identification of a suitable 
property;
    (ii) Conditions that require that no material change has occurred 
in the applicant's financial condition or creditworthiness prior to 
closing; and
    (iii) Limited conditions that are not related to the financial 
condition or creditworthiness of the applicant that the lender 
ordinarily attaches to a traditional home mortgage application (such as 
certification of a clear termite inspection).
    (c) Branch office means:
    (1) Any office of a bank, savings association, or credit union that 
is approved as a branch by a federal or state supervisory agency, but 
excludes free-standing electronic terminals such as automated teller 
machines; and
    (2) Any office of a for-profit mortgage-lending institution (other 
than a bank, savings association, or credit union) that takes 
applications from the public for home purchase loans, home improvement 
loans, or refinancings. A for-profit mortgage-lending institution is 
also deemed to have a branch office in a metropolitan area if, in the 
preceding calendar year, it received applications for, originated, or 
purchased five or more home purchase loans, home improvement loans, or 
refinancings related to property located in that metropolitan area.
    (d) Dwelling means a residential structure (whether or not attached 
to real property) located in a state of the United States of America, 
the District of Columbia, or the Commonwealth of Puerto Rico. The term 
includes an individual condominium unit, cooperative unit, or mobile or 
manufactured home.
    (e) Financial institution means:
    (1) A bank, savings association, or credit union that:
    (i) On the preceding December 31 had assets in excess of the asset 
threshold established and published annually by the Board for coverage 
by the act, based on the year-to-year change in the average of the 
Consumer Price Index for Urban Wage Earners and Clerical Workers, not 
seasonally adjusted, for each twelve month period ending in November, 
with rounding to the nearest million;

[[Page 7237]]

    (ii) On the preceding December 31, had a home or branch office in a 
metropolitan area;
    (iii) In the preceding calendar year, originated at least one home 
purchase loan (excluding temporary financing such as a construction 
loan) or refinancing of a home purchase loan, secured by a first lien 
on a one-to four-family dwelling; and
    (iv) Meets one or more of the following three criteria:
    (A) The institution is federally insured or regulated;
    (B) The mortgage loan referred to in paragraph (e)(1)(iii) of this 
section was insured, guaranteed, or supplemented by a federal agency; 
or
    (C) The mortgage loan referred to in paragraph (e)(1)(iii) of this 
section was intended by the institution for sale to Fannie Mae or 
Freddie Mac; and
    (2) A for-profit mortgage-lending institution (other than a bank, 
savings association, or credit union) that:
    (i) In the preceding calendar year, either:
    (A) Originated home purchase loans, including refinancings of home 
purchase loans, that equaled at least 10 percent of its loan-
origination volume, measured in dollars; or
    (B) Originated home purchase loans, including refinancings of home 
purchase loans, that equaled at least $25 million; and
    (ii) On the preceding December 31, had a home or branch office in a 
metropolitan area; and
    (iii) Either:
    (A) On the preceding December 31, had total assets of more than $10 
million, counting the assets of any parent corporation; or
    (B) In the preceding calendar year, originated at least 100 home 
purchase loans, including refinancings of home purchase loans.
    (f) Home-equity line of credit means an open-end credit plan 
secured by a dwelling as defined in Regulation Z (Truth in Lending), 12 
CFR part 226.
    (g) Home improvement loan means:
    (1) A loan secured by a lien on a dwelling that 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) A non-dwelling secured loan that 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 that is 
classified by the financial institution as a home improvement loan.
    (h) Home purchase loan means a loan secured by and made for the 
purpose of purchasing a dwelling.
    (i) Manufactured home means any residential structure as defined 
under regulations of the Department of Housing and Urban Development 
establishing manufactured home construction and safety standards (24 
CFR 3280.2).
    (j) Metropolitan area means a metropolitan area as defined by the 
U.S. Office of Management and Budget.
    (k) Refinancing means a new obligation that satisfies and replaces 
an existing obligation by the same borrower, in which:
    (1) For coverage purposes, the existing obligation is a home 
purchase loan (as determined by the lender, for example, by reference 
to available documents; or as stated by the applicant), and both the 
existing obligation and the new obligation are secured by first liens 
on dwellings; and
    (2) For reporting purposes, both the existing obligation and the 
new obligation are secured by liens on dwellings.


Sec. 203.3  Exempt institutions.

    (a) Exemption based on state law. (1) A state-chartered or state-
licensed financial institution is exempt from the requirements of this 
regulation if the Board determines that the institution is subject to a 
state disclosure law that contains requirements substantially similar 
to those imposed by this regulation and that contains adequate 
provisions for enforcement.
    (2) Any state, state-chartered or state-licensed financial 
institution, or association of such institutions, may apply to the 
Board for an exemption under paragraph (a) of this section.
    (3) An institution that is exempt under paragraph (a) of this 
section shall use the disclosure form required by its state law and 
shall submit the data required by that law to its state supervisory 
agency for purposes of aggregation.
    (b) Loss of exemption. An institution losing a state-law exemption 
under paragraph (a) of this section shall comply with this regulation 
beginning with the calendar year following the year for which it last 
reported loan data under the state disclosure law.


Sec. 203.4  Compilation of loan data.

    (a) Data format and itemization. A financial institution shall 
collect data regarding applications for, and originations and purchases 
of, home purchase loans, home improvement loans, and refinancings for 
each calendar year. An institution is required to collect data 
regarding requests under a preapproval program (as defined in 
Sec. 203.2(b)) only if the preapproval request is denied or results in 
the origination of a home purchase loan. All reportable transactions 
shall be recorded, within thirty calendar days after the end of the 
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. The data 
recorded shall include the following items:
    (1) An identifying number for the loan or loan application, and the 
date the application was received.
    (2) The type of loan or application.
    (3) The purpose of the loan or application.
    (4) Whether the application is a request for preapproval and 
whether it resulted in a denial or in an origination.
    (5) The property type to which the loan or application relates.
    (6) The owner-occupancy status of the property to which the loan or 
application relates.
    (7) The amount of the loan or the amount applied for.
    (8) The type of action taken, and the date.
    (9) The location of the property to which the loan or application 
relates, by metropolitan area, state, county, and census tract, if the 
institution has a home or branch office in that metropolitan area.
    (10) The ethnicity, race, and sex of the applicant or borrower, and 
the gross annual income relied on in processing the application.
    (11) The type of entity purchasing a loan that the institution 
originates or purchases and then sells within the same calendar year 
(this information need not be included in quarterly updates).
    (12) For originated loans subject to Regulation Z, 12 CFR part 226, 
in which the loan's annual percentage rate (APR) exceeds the yield on a 
Treasury security with a comparable period of maturity (as of the 15th 
day of the month immediately preceding the month in which the 
application for the loan was received by the financial institution) by 
3 percentage points for a loan secured by a first lien and by 5 
percentage points for a loan secured by a junior lien, the difference 
between the APR and the yield on the comparable Treasury security.
    (13) Whether the loan is subject to the Home Ownership and Equity 
Protection Act of 1994.
    (b) Collection of data on ethnicity, race, sex, and income. (1) A 
financial institution shall collect data about the ethnicity, race, and 
sex of the applicant

[[Page 7238]]

or borrower as prescribed in Appendix B of this part.
    (2) Ethnicity, race, sex, and income data may but need not be 
collected for loans purchased by the financial institution.
    (c) Optional data. A financial institution may report:
    (1) The reasons it denied a loan application;
    (2) Requests for preapproval that are approved by the institution 
but not accepted by the applicant; and
    (3) Home-equity lines of credit made in whole or in part for the 
purpose of home improvement or home purchase.
    (d) Excluded data. A financial institution shall not report:
    (1) Loans originated or purchased by the financial institution 
acting in a fiduciary capacity (such as trustee);
    (2) Loans on unimproved land;
    (3) Temporary financing (such as bridge or construction loans);
    (4) The purchase of an interest in a pool of loans (such as 
mortgage-participation certificates, mortgage-backed securities, or 
real estate mortgage investment conduits);
    (5) The purchase solely of the right to service loans; or
    (6) Loans acquired as part of a merger or acquisition, or as part 
of the acquisition of all of the assets and liabilities of a branch 
office as defined in Sec. 203.2(c)(1).
    (e) Data reporting for banks and savings associations that are 
required to report data on small business, small farm, and community 
development lending under CRA. Banks and savings associations that are 
required to report data on small business, small farm, and community 
development lending under regulations that implement the Community 
Reinvestment Act of 1977 (12 U.S.C. 2901 et seq.) shall also collect 
the location of property located outside metropolitan areas in which 
the institution has a home or branch office, or outside any 
metropolitan areas.


Sec. 203.5  Disclosure and reporting.

    (a) Reporting to agency. (1) 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. The institution shall retain a 
copy for its records for at least three years.
    (2) A subsidiary of a bank or savings association shall complete a 
separate loan/application register. The subsidiary shall submit the 
register, directly or through its parent, to the agency that supervises 
its parent.
    (b) Public disclosure of statement. (1) The Federal Financial 
Institutions Examination Council (``FFIEC'') will prepare a disclosure 
statement from the data each financial institution submits.
    (2) An institution shall make its disclosure statement (prepared by 
the FFIEC) available to the public at its home office no later than 
three business days after receiving it from the FFIEC.
    (3) In addition, an institution shall either:
    (i) Make its disclosure statement available to the public, within 
ten business days of receiving it, in at least one branch office in 
each other metropolitan area where the institution has offices (the 
disclosure statement need only contain data relating to the 
metropolitan area where the branch is located); or
    (ii) Post the address for sending written requests in the lobby of 
each branch office in other metropolitan areas where the institution 
has offices; and mail or deliver a copy of the disclosure statement 
within fifteen calendar days of receiving a written request (the 
disclosure statement need only contain data relating to the 
metropolitan area for which the request is made). Including the address 
in the general notice required under paragraph (e) of this section 
satisfies this requirement.
    (c) Public disclosure of modified loan/application register. A 
financial institution shall make its loan/application register 
available to the public after removing the following information 
regarding each entry: the application or loan number, the date that the 
application was received, and the date action was taken. An institution 
shall make its modified register available following the calendar year 
for which the data are compiled, by March 31 for a request received on 
or before March 1, and within thirty calendar days for a request 
received after March 1. The modified register need only contain data 
relating to the metropolitan area for which the request is made.
    (d) Availability of data. A financial institution shall make its 
modified register available to the public for a period of three years 
and its disclosure statement available for a period of five years. An 
institution shall make the data available for inspection and copying 
during the hours the office is normally open to the public for 
business. It may impose a reasonable fee for any cost incurred in 
providing or reproducing the data.
    (e) Notice of availability. A financial institution shall post a 
general notice about the availability of its HMDA data in the lobby of 
its home office and of each branch office located in a metropolitan 
area. An institution shall provide promptly upon request the location 
of the institution's offices where the statement is available for 
inspection and copying, or it may include the location in the lobby 
notice.
    (f) Loan aggregation and central data depositories. Using the loan 
data submitted by financial institutions, the FFIEC will produce 
reports for individual institutions and reports of aggregate data for 
each metropolitan area, showing lending patterns by property location, 
age of housing stock, and income level, sex, ethnicity, and race. These 
reports will be available to the public at central data depositories 
located in each metropolitan area. A listing of central data 
depositories can be obtained from the Federal Financial Institutions 
Examination Council, Washington, D.C. 20006.


Sec. 203.6  Enforcement.

    (a) Administrative enforcement. A violation of the Act or this 
regulation is subject to administrative sanctions as provided in 
section 305 of the Act, including the imposition of civil money 
penalties, where applicable. Compliance is enforced by the agencies 
listed in section 305(b) of the Act (12 U.S.C. 2804(b).
    (b) Bona fide errors. (1) An error in compiling or recording loan 
data is not a violation of the act or this regulation if the error was 
unintentional and occurred despite the maintenance of procedures 
reasonably adapted to avoid such errors.
    (2) An incorrect entry for a census tract number is deemed a bona 
fide error, and is not a violation of the act or this regulation, 
provided that the institution maintains procedures reasonably adapted 
to avoid such errors.
    (3) If an institution makes a good-faith effort to record all data 
concerning covered transactions fully and accurately within thirty 
calendar days after the end of each calendar quarter, and some data are 
nevertheless inaccurate or incomplete, the error or omission is not a 
violation of the act or this regulation provided that the institution 
corrects or completes the information prior to submitting the loan/
application register to its regulatory agency.

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

Paperwork Reduction Act Notice

    This report is required by law (12 U.S.C. 2801-2810 and 12 CFR 
203). An agency may not conduct or sponsor, and an organization is 
not required to respond to, a collection of information unless it 
displays a valid Office of Management and Budget (OMB) Control

[[Page 7239]]

Number. See 12 CFR 203.1(a) for the valid OMB Control Numbers, 
applicable to this information collection. Send comments regarding 
this burden estimate or any other aspect of this collection of 
information, including suggestions for reducing the burden, to the 
respective agencies and to OMB, Office of Information and Regulatory 
Affairs, Paperwork Reduction Project, Washington, DC 20503. Be sure 
to reference the applicable agency and the OMB Control Number, as 
found in 12 CFR 203.1(a), when submitting comments to OMB.

I. Instructions for Completion of Loan/Application Regsiter

A. Application or Loan Information

1. Application or Loan Number

    a. Enter an identifying loan number that can be used later to 
retrieve the loan or application file. It can be any number of your 
institution's choosing (not exceeding 25 characters). You may use 
letters, numerals, or a combination of both.

2. Date Application Received

    a. Enter the date the loan application was received by your 
institution by month, day, and year. If your institution normally 
records the date shown on the application form you may use that date 
instead. Enter ``NA'' for loans purchased by your institution. For 
paper submissions only, use numerals in the form MM/DD/CCYY (for 
example, 01/15/2003). For submissions in electronic form, the proper 
format is CCYYMMDD.

3. Type of Loan or Application

    Indicate the type of loan or application by entering the 
applicable code from the following:

Code 1--Conventional (any loan other than FHA, VA, FSA, or RHS 
loans)
Code 2--FHA-insured (Federal Housing Administration)
Code 3--VA-guaranteed (Veterans Administration)
Code 4--FSA/RHS-guaranteed (Farm Service Agency or Rural Housing 
Service)

4. Property Type

    Indicate the property type by entering the applicable code from 
the following:

Code 1--One-to four-family dwelling (other than manufactured 
housing)
Code 2--Manufactured housing
Code 3--Multifamily dwelling

    a. Use Code 1, not Code 3, for loans on individual condominium 
or cooperative units.
    b. If you cannot determine (despite reasonable efforts to find 
out) whether the loan or application relates to a manufactured home, 
use Code 1.

5. Purpose of Loan or Application

    Indicate the purpose of the loan or application by entering the 
applicable code from the following:

Code 1--Home purchase
Code 2--Home improvement
Code 3--Refinancing

    a. Do not report a refinancing if, under the loan agreement, you 
were unconditionally obligated to refinance the obligation, or you 
were obligated to refinance the obligation subject to conditions 
within the borrower's control.

6. Owner Occupancy

    Indicate whether the property to which the loan or loan 
application relates is to be owner-occupied as a principal residence 
by entering the applicable code from the following:

Code 1--Owner-occupied as a principal dwelling
Code 2--Not owner-occupied as a principal dwelling
Code 3--Not applicable

    a. For purchased loans, use Code 1 unless the loan documents or 
application indicate that the property will not be owner-occupied as 
a principal residence.
    b. Use Code 2 for second homes or vacation homes, as well as for 
rental properties.
    c. Use Code 3 if the property to which the loan relates is a 
multifamily dwelling; is not located in a metropolitan area; or is 
located in a metropolitan area in which your institution has neither 
a home nor a branch office. Alternatively, at your institution's 
option, you may report the actual occupancy status, using Code 1 or 
2 as applicable.

7. Loan Amount

    Enter the amount of the loan or application. Do not report loans 
below $500. Show the amount in thousands, rounding to the nearest 
thousand (round $500 up to the next $1,000). For example, a loan for 
$167,300 should be entered as 167 and one for $15,500 as 16.
    a. For a home purchase loan that you originated, enter the 
principal amount of the loan.
    b. For a home purchase loan that you purchased, enter the unpaid 
principal balance of the loan at the time of purchase.
    c. For a home improvement loan, enter the entire amount of the 
loan--including unpaid finance charges if that is how such loans are 
recorded on your books--even if only a part of the proceeds is 
intended for home improvement.
    d. If you opt to report home-equity lines of credit, report only 
the portion of the line intended for home improvement or home 
purchase.
    e. For refinancings, indicate the total amount of the 
refinancing, including both the amount outstanding on the original 
loan and any amount of ``new money.''
    f. For a loan application that was denied or withdrawn, enter 
the amount applied for.

8. Request for Preapproval

    Indicate whether the application is a request for a preapproval 
by entering the applicable code from the following:

Code 1--Preapproval requested
Code 2--Preapproval not requested
Code 3--Not applicable

    a. Enter code 3 for applications or loans for home improvement 
or refinancing, and for purchased loans.

B. Action Taken

1. Type of Action

    Indicate the type of action taken on the application or loan by 
using one of the following codes.

Code 1--Loan originated
Code 2--Application approved but not accepted
Code 3--Application denied
Code 4--Application withdrawn
Code 5--File closed for incompleteness
Code 6--Loan purchased by your institution
Code 7--Preapproval request denied
Code 8--Preapproval request approved but not accepted (optional 
reporting)

    a. Use Code 1 for a loan that is originated, including one 
resulting from a request for preapproval.
    b. For a counteroffer (your offer to the applicant to make the 
loan on different terms or in a different amount from the terms or 
amount applied for), use Code 1 if the applicant accepts. Use Code 3 
if the applicant turns down the counteroffer or does not respond.
    c. Use Code 2 when the application is approved but the applicant 
(or the loan broker or correspondent) fails to respond to your 
notification of approval or your commitment letter within the 
specified time. Do not use this code for a preapproval request.
    d. Use Code 4 only when the application is expressly withdrawn 
by the applicant before a credit decision is made. Do not use code 4 
if a request for preapproval is withdrawn; preapproval requests that 
are withdrawn are not reported under HMDA.
    e. Use Code 5 if you sent a written notice of incompleteness 
under Sec. 202.9(c)(2) of Regulation B (Equal Credit Opportunity) 
and the applicant did not respond to your request for additional 
information within the period of time specified in your notice. Do 
not use this code for requests for preapproval that are incomplete; 
these preapproval requests are not reported under HMDA.

2. Date of Action

    For paper submissions only, enter the date by month, day, and 
year, using numerals in the form MM/DD/CCYY (for example, 02/22/
2003). For submissions in electronic form, the proper format is 
CCYYMMDD.
    a. For loans originated, enter the settlement or closing date.
    b. For loans purchased, enter the date of purchase by your 
institution.
    c. For applications and preapprovals denied, applications and 
preapprovals approved but not accepted by the applicant, and files 
closed for incompleteness, enter the date that the action was taken 
by your institution or the date the notice was sent to the 
applicant.
    d. For applications withdrawn, enter the date you received the 
applicant's express withdrawal, or enter the date shown on the 
notification from the applicant, in the case of a written 
withdrawal.
    e. For preapprovals that lead to a loan origination, enter the 
date of the origination.

C. Property Location

    Except as otherwise provided, enter in these columns the 
applicable codes for the metropolitan area, state, county, and 
census tract to indicate the location of the property to which a 
loan relates.
    1. Metropolitan area. For each loan or loan application, enter 
the metropolitan area

[[Page 7240]]

number. Metropolitan area boundaries are defined by OMB; use the 
boundaries that were in effect on January 1 of the calendar year for 
which you are reporting. A listing of metropolitan areas is 
available from your supervisory agency or the FFIEC.

2. State and County

    Use the Federal Information Processing Standard (FIPS) two-digit 
numerical code for the state and the three-digit numerical code for 
the county. These codes are available from your supervisory agency 
or the FFIEC.

3. Census Tract

    Indicate the census tract where the property is located. 
Notwithstanding paragraph 6, if the property is located in a county 
with a population of 30,000 or less in the 2000 census (as 
determined by the Census Bureau's 2000 CPH-2 population series), 
enter ``NA'' (even if the population has increased above 30,000 
since 2000), or enter the census tract number.

4. Census Tract Number

    For the census tract number, consult the U.S. Census Bureau's 
Census Tract/Street Index for 2000; for addresses not listed in the 
index, consult the Census Bureau's census tract outline maps. Use 
the maps from the Census Bureau's 2000 CPH-3 series, or equivalent 
2000 census data from the Census Bureau (such as the Census TIGER/
Line file) or from a private publisher.

5. Property Located Outside Metropolitan Area

    For loans on property located outside the metropolitan areas in 
which an institution has a home or branch office, or for property 
located outside of any metropolitan area, the institution may choose 
one of the following two options. Under option one, the institution 
may enter the metropolitan area, state and county codes and the 
census tract number; and if the property is not located in any 
metropolitan area, it may enter ``NA'' in the metropolitan area 
column. (Codes exist for all states and counties and numbers exist 
for all census tracts.) Under this first option, the codes and 
census tract number must accurately identify the property location. 
Under the second option, which is not available if paragraph 6 
applies, an institution may enter ``NA'' in all four columns, 
whether or not the codes or numbers exist for the property location.

6. Data Reporting for Banks and Savings Associations Required To Report 
Data on Small Business, Small Farm, and Community Development Lending 
Under the CRA Regulations

    If your institution is a bank or savings association that is 
required to report data under the regulations that implement the 
CRA, you must enter the property location on your HMDA/LAR even if 
the property is outside metropolitan areas in which you have a home 
or branch office, or is not located in any metropolitan area.

7. Requests for Preapproval

    Notwithstanding paragraphs 1 through 6, if the application is a 
request for preapproval that is denied or that is approved but not 
accepted by the applicant, you may enter ``NA'' in all four columns.

D. Applicant Information--Ethnicity, Race, Sex, and Income

    Appendix B contains instructions for the collection of data on 
ethnicity, race, and sex, and also contains a sample form for data 
collection.

1. Applicability

    Report this information for loans that you originate as well as 
for applications that do not result in an origination.
    a. You need not collect or report this information for loans 
purchased. If you choose not to, use the Codes for ``not 
applicable.''
    b. If the borrower or applicant is not a natural person (a 
corporation or partnership, for example), use the Codes for ``not 
applicable.''

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. If the 
applicant does not provide these data in an application taken by 
mail, Internet, or telephone, 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.)

3. Ethnicity of Borrower or Applicant

    Use the following codes to indicate the ethnicity of the 
applicant or borrower under column ``A'' and of any co-applicant or 
co-borrower under column ``CA.''

Code 1--Hispanic or Latino
Code 2--Not Hispanic or Latino
Code 3--Information not provided by applicant in mail, Internet, or 
telephone application
Code 4--Not applicable
Code 5--No co-applicant

4. Race of Borrower or Applicant

    Use the following Codes to indicate the race of the applicant or 
borrower under column ``A'' and of any co-applicant or co-borrower 
under column ``CA.''

Code 1--American Indian or Alaska Native
Code 2--Asian
Code 3--Black or African American
Code 4--Native Hawaiian or Other Pacific Islander
Code 5--White
Code 6--Information not provided by applicant in mail, Internet, or 
telephone application
Code 7--Not applicable
Code 8--No co-applicant

    a. If an applicant select more than one racial designation, 
enter all Codes corresponding to the applicant's selections.
    b. Use code 4 (for ethnicity) and code 7 (for race) for ``not 
applicable'' only when the applicant or co-applicant is not a 
natural person or when applicant or co-applicant information is 
unavailable because the loan has been purchased by your institution.
    c. If there is more than one co-applicant, provide the required 
information only for the first co-applicant listed on the 
application form. If there are no co-applicants or co-borrowers, use 
Code 5 (for ethnicity) and Code 8 (for race) for ``no co-applicant'' 
in the co-applicant column.

5. Sex of Borrower or Applicant

    Use the following Codes to indicate the sex of the applicant or 
borrower under column ``A'' and of any co-applicant or co-borrower 
under column ``CA.''
Code 1--Male
Code 2--Female
Code 3--Information not provided by applicant in mail, Internet, or 
telephone application
Code 4--Not applicable
Code 5--No co-applicant or co-borrower

    a. Use code 4 for ``not applicable'' only when the applicant or 
co-applicant is not a natural person or when applicant or co-
applicant information is unavailable because the loan has been 
purchased by your institution.
    b. If there is more than one co-applicant, provide the required 
information only for the first co-applicant listed on the 
application form. If there are no co-applicants or co-borrowers, use 
Code 5 for ``no co-applicant'' in the co-applicant column.

6. Income

    Enter the gross annual income that your institution relied on in 
making the credit decision.
    a. Round all dollar amounts to the nearest thousand (round $500 
up to the next $1,000), and show in thousands. For example, report 
$35,500 as 36.
    b. For loans on multifamily dwellings, enter ``NA.''
    c. If no income information is asked for or relied on in the 
credit decision, enter ``NA.''
    d. If the applicant or co-applicant is not a natural person or 
the applicant or co-applicant information is unavailable because the 
loan has been purchased by your institution, enter ``NA.''

E. Type of Purchaser

    Enter the applicable code to indicate whether a loan that your 
institution originated or purchased was then sold to a secondary 
market entity within the same calendar year:

Code 0--Loan was not originated or was not sold in calendar year 
covered by register
Code 1--Fannie Mae
Code 2--Ginnie Mae
Code 3--Freddie Mac
Code 4--Farmer Mac
Code 5--Private securitization
Code 6--Commercial bank, savings bank or savings association
Code 7--Life insurance company, credit union, mortgage bank, or 
finance company
Code 8--Affiliate institution
Code 9--Other type of purchaser

    a. Use Code 0 for applications that were denied, withdrawn, or 
approved but not accepted by the applicant; and for files closed for 
incompleteness.
    b. Use Code 0 if you originated or purchased a loan and did not 
sell it during

[[Page 7241]]

that same calendar year. If you sell the loan in a succeeding year, 
you need not report the sale.
    c. Use Code 2 if you conditionally assign a loan to Ginnie Mae 
in connection with a mortgage-backed security transaction.
    d. Use Code 8 for loans sold to an institution affiliated with 
you, such as your subsidiary or a subsidiary of your parent 
corporation.

F. Reasons for Denial

    1. You may report the reason for denial, and you may indicate up 
to three reasons, using the following codes. Leave this column blank 
if the ``action taken'' on the application is not a denial. For 
example, do not complete this column if the application was 
withdrawn or the file was closed for incompleteness.

Code 1--Debt-to-income ratio
Code 2--Employment history
Code 3--Credit history
Code 4--Collateral
Code 5--Insufficient cash (downpayment, closing costs)
Code 6--Unverifiable information
Code 7--Credit application incomplete
Code 8--Mortgage insurance denied
Code 9--Other

    2. If your institution uses the model form for adverse action 
contained in the Appendix to Regulation B (Form C-1 in Appendix C, 
Sample Notification Form), use the foregoing codes as follows:
    a. Code 1 for: Income insufficient for amount of credit 
requested, and Excessive obligations in relation to income.
    b. Code 2 for: Temporary or irregular employment, and Length of 
employment.
    c. Code 3 for: Insufficient number of credit references 
provided; Unacceptable type of credit references provided; No credit 
file; Limited credit experience; Poor credit performance with us; 
Delinquent past or present credit obligations with others; 
Garnishment, attachment, foreclosure, repossession, collection 
action, or judgment; and Bankruptcy.
    d. Code 4 for: Value or type of collateral not sufficient.
    e. Code 6 for: Unable to verify credit references; Unable to 
verify employment; Unable to verify income; and Unable to verify 
residence.
    f. Code 7 for: Credit application incomplete.
    g. Code 9 for: Length of residence; Temporary residence; and 
Other reasons specified on notice.

G. Pricing-Related Data

1. Rate Spread

    a. For a home purchase loan, a refinancing, or a dwelling-
secured home improvement loan that you originated, report the rate 
spread if the difference between the APR and the applicable Treasury 
yield is equal to or greater than 3 percentage points for first-lien 
loans or 5 percentage points for subordinate-lien loans. To 
determine whether the rate spread meets this threshold, use the 
Treasury yield for a comparable period of maturity as of the 15th 
day of the month preceding the month in which the application for 
the loan was received by the financial institution, and the annual 
percentage rate (APR) for the loan, as calculated and disclosed 
under Sec. 226.6 or 226.18 of Regulation Z (12 CFR part 226).
    b. If the loan is not subject to Regulation Z, or involves a 
home improvement loan that is not dwelling-secured, or involves a 
loan that you purchased, enter ``NA.''
    c. Enter ``NA'' in the case of an application that does not 
result in a loan origination.
    d. If the difference between the APR and the Treasury yield is 
less than 3 percentage points for first-lien loans and 5 percentage 
points for subordinate-lien loans, enter ``NA.''
    e. Enter the rate spread to two decimal places, and use a 
leading zero. For example, enter 03.29. If the difference between 
the APR and the Treasury yield is a figure with more than two 
decimal places, round the figure or truncate the digits beyond two 
decimal places.

2. HOEPA Status

    a. For a loan that you originated or purchased that is subject 
to the Home Ownership and Equity Protection Act of 1994 (HOEPA), as 
implemented in Regulation Z (12 CFR 226.32), because the APR or the 
points and fees on the loan exceed the HOEPA triggers, enter Code 1.
    b. Enter code 2 in all other cases. For example, enter code 2 
for a loan that you originated or purchased that is not subject to 
the requirements of HOEPA for any reason; also enter code 2 in the 
case of an application that does not result in a loan origination.

II. Federal Supervisory Agencies

    A. You are strongly encouraged to submit your loan/application 
register via Internet e-mail. If you elect to use this method of 
transmission and your institution is regulated by the Office of the 
Comptroller of the Currency, the Federal Deposit Insurance 
Corporation, the National Credit Union Administration, or the Office 
of Thrift Supervision, then you should submit your institution's 
files to the Internet e-mail address dedicated to that purpose by 
the Federal Reserve Board, which can be found on the Web site of the 
FFIEC. If your institution is regulated by one of the foregoing 
agencies and you elect to submit your data by regular mail, then use 
the following address: HMDA, Federal Reserve Board, Attention: HMDA 
Processing,(insert name of your institution's regulatory agency), 
20th & Constitution Ave, NW., MS N502, Washington, DC 20551-0001.
    B. If your institution is regulated by the Federal Reserve 
System, you should use the Internet e-mail or regular mail address 
of your district bank indicated on the Web site of the FFIEC. If 
your institution is regulated by the Department of Housing and Urban 
Development, then you should use the Internet e-mail or regular mail 
address indicated on the Web site of the FFIEC.
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Appendix B to Part 203--Form and Instructions for Data Collection on 
Ethnicity, Race, and Sex

I. Instructions on Collection of Data on Ethnicity, Race, and Sex

    You may list questions regarding the ethnicity, race, and sex of 
the applicant on your loan application form, or on a separate form 
that refers to the application. (See the sample form below for model 
language.)

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 on the Internet. When an application 
is taken entirely by telephone, you may, but are not required to, 
ask for this information.
    B. Inform the applicant that the federal government requests 
this information in order to monitor compliance with federal 
statutes that prohibit lenders from discriminating against 
applicants on these bases. Inform the applicant that if the 
information is not provided where the application is taken in 
person, you are required to note the data on the basis of visual 
observation or surname.
    C. You must offer the applicant the option of selecting one or 
more racial designations.
    D. If the applicant chooses not to provide the information for 
an application taken in person, note this fact on the form and then 
note the applicant's ethnicity, race, and sex on the basis of visual 
observation and surname, to the extent possible.
    E. If the applicant declines to answer these questions or fails 
to provide the information on an application taken by mail or 
telephone or on the Internet, the data need not be provided. In such 
a case, indicate that the application was received by mail, 
telephone, or Internet, if it is not otherwise evident on the face 
of the application.
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Supplement I to Part 203--Staff Commentary

Introduction

    1. Status. The commentary in this supplement is the vehicle by 
which the Division of Consumer and Community Affairs of the Federal 
Reserve Board issues formal staff interpretations of Regulation C 
(12 CFR part 203).

Section 203.1--Authority, Purpose, and Scope

    1(c) Scope. 1. General. The comments in this section address 
issues affecting coverage of institutions and exemptions from 
coverage.
    2. The broker rule and the meaning of ``broker'' and 
``investor.'' For the purposes of the guidance given in this 
commentary, an institution that takes and processes a loan 
application and arranges for another institution to acquire the loan 
at or after closing is acting as a ``broker,'' and an institution 
that acquires a loan from a broker at or after closing is acting as 
an ``investor.'' (The terms used in this commentary may have 
different meanings in certain parts of the mortgage lending 
industry, and other terms may be used in place of these terms, for 
example in the Federal Housing Administration mortgage insurance 
programs.) Depending on the facts, a broker may or may not make a 
credit decision on an application (and thus it may or may not have 
reporting responsibilities). If the broker makes a credit decision, 
it reports that decision; if it does not make a credit decision, it 
does not report. If an investor reviews an application and makes a 
credit decision prior to closing, the investor reports that 
decision. If the investor does not review the application prior to 
closing, it reports only the loans that it purchases; it does not 
report the loans it does not purchase. An institution that makes a 
credit decision on an application prior to closing reports that 
decision regardless of whose name the loan closes in.
    3. Illustrations of the broker rule. Assume that, prior to 
closing, four investors receive the same application from a broker; 
two deny it, one approves it, and one approves it and acquires the 
loan. In these circumstances, the first two report denials, the 
third reports the transaction as approved but not accepted, and the 
fourth reports an origination (whether the loan closes in the name 
of the broker or the investor). Alternatively, assume that the 
broker denies a loan before sending it to an investor; in this 
situation, the broker reports a denial.
    4. Broker's use of investor's underwriting criteria. If a broker 
makes a credit decision based on underwriting criteria set by an 
investor, but without the investor's review prior to closing, the 
broker has made the credit decision. The broker reports as an 
origination a loan that it approves and closes, and reports as a 
denial an application that it turns down (either because the 
application does not meet the investor's underwriting guidelines or 
for some other reason). The investor reports as purchases only those 
loans it purchases.
    5. Insurance and other criteria. If an institution evaluates an 
application based on the criteria or actions of a third party other 
than an investor (such as a government or private insurer or 
guarantor), the institution must report the action taken on the 
application (loan originated, approved but not accepted, or denied, 
for example).
    6. Credit decision of agent is decision of principal. If an 
institution approves loans through the actions of an agent, the 
institution must report the action taken on the application (loan 
originated, approved but not accepted, or denied, for example). 
State law determines whether one party is the agent of another.
    7. Affiliate bank underwriting (250.250 review). If an 
institution makes an independent evaluation of the creditworthiness 
of an applicant (for example, as part of a preclosing review by an 
affiliate bank under 12 CFR 250.250, which interprets section 23A of 
the Federal Reserve Act), the institution is making a credit 
decision. If the institution then acquires the loan, it reports the 
loan as an origination whether the loan closes in the name of the 
institution or its affiliate. An institution that does not acquire 
the loan but takes some other action reports that action.
    8. Participation loan. An institution that originates a loan and 
then sells partial interests to other institutions reports the loan 
as an origination. An institution that acquires only a partial 
interest in such a loan does not report the transaction even if it 
has participated in the underwriting and origination of the loan.
    9. Assumptions. An assumption occurs when an institution enters 
into a written agreement accepting a new borrower as the obligor on 
an existing obligation. An institution reports as a home purchase 
loan an assumption (or an application for an assumption) in the 
amount of the outstanding principal. If a transaction does not 
involve a written agreement between a new borrower and the 
institution, it is not an assumption for HMDA purposes and is not 
reported.

Section 203.2--Definitions

    2(b) Application. 1. Consistency with Regulation B. Board 
interpretations that appear in the official staff commentary to 
Regulation B (Equal Credit Opportunity, 12 CFR part 202, Supplement 
1) are generally applicable to the definition of an application 
under Regulation C. However, under Regulation C the definition of an 
application does not include prequalification requests.
    2. Prequalification. A prequalification request is a request by 
a prospective loan applicant (other than a request for preapproval) 
for a preliminary determination on whether the prospective applicant 
would likely qualify for credit under an institution's standards, or 
for a determination on the amount of credit for which the 
prospective applicant would likely qualify. Some institutions 
evaluate prequalification requests through a procedure that is 
separate from the institution's normal loan application process; 
others use the same process. In either case, Regulation C does not 
require an institution to report prequalification requests on the 
HMDA/LAR, even though these requests may constitute applications 
under Regulation B for purposes of adverse action notices.
    3. Requests for preapproval. To be a covered preapproval 
program, the written commitment issued under the program must result 
from a full review of the creditworthiness of the applicant, 
including such verification of income, resources and other matters 
as is typically done by the institution as part of its normal credit 
evaluation program. In addition to conditions involving the 
identification of a suitable property and verification that no 
material change has occurred in the applicant's financial condition 
or creditworthiness, the written commitment may be subject only to 
other conditions (unrelated to the financial condition or 
creditworthiness of the applicant) that the lender ordinarily 
attaches to a traditional home mortgage application approval. These 
conditions are limited to conditions such as requiring an acceptable 
title insurance binder or a certificate indicating clear termite 
inspection, and, in the case where the applicant plans to use the 
proceeds from the sale of the applicant's present home to purchase a 
new home, a settlement statement showing adequate proceeds from the 
sale of the present home.
    2(c) Branch office. 1. Credit union. For purposes of Regulation 
C, a ``branch'' of a credit union is any office where member 
accounts are established or loans are made, whether or not the 
office has been approved as a branch by a federal or state agency. 
(See 12 U.S.C. 1752.)
    2. Depository institution. A branch of a depository institution 
does not include a loan production office, the office of an 
affiliate, or the office of a third party such as a loan broker. 
(But see Appendix A, Paragraph I.C.6, which requires certain 
depository institutions to report property location even for 
properties located outside those metropolitan areas in which the 
institution has a home or branch office.)
    3. Nondepository institution. For a nondepository institution, 
``branch office'' does not include the office of an affiliate or 
other third party such as a loan broker. (But note that certain 
nondepository institutions must report property location even in 
metropolitan areas where they do not have a physical location.)
    2(d) Dwelling. 1. Coverage. The definition of ``dwelling'' is 
not limited to the principal or other residence of the applicant or 
borrower, and thus includes vacation or second homes and rental 
properties. A dwelling also includes a multifamily structure such as 
an apartment building.
    2. Exclusions. Recreational vehicles such as boats or campers 
are not dwellings for purposes of HMDA. Also excluded are transitory 
residences such as hotels, hospitals, and college dormitories--whose 
occupants have principal residences elsewhere.
    2(e) Financial institution. 1. General. An institution that met 
the test for coverage under HMDA in year 1, and then ceases to meet 
the test (for example, because its assets fall below the threshold 
on December 31 of year 2) stops collecting HMDA data beginning with 
year 3. Similarly, an institution that did not meet the coverage 
test for a given year, and then meets the test in the succeeding 
year, begins collecting HMDA

[[Page 7248]]

data in the calendar year following the year in which it meets the 
test for coverage. For example, a for-profit mortgage lending 
institution (other than a bank, savings association, or credit 
union) that, in year 1, falls below the thresholds specified in 
Sec. 203.2(e)(2)(ii)(A) and (B), but meets one of them in year 2, 
need not collect data in year 2, but begins collecting data in year 
3.
    2. Adjustment of exemption threshold for depository 
institutions. Depository institutions with assets at or below $32 
million are exempt from collecting data for 2002.
    3. Coverage after a merger. Several scenarios of data-collection 
responsibilities for the calendar year of a merger are described 
below. Under all the scenarios, if the merger results in a covered 
institution, that institution must begin data collection January I 
of the following calendar year.
    i. Two institutions are not covered by Regulation C because of 
asset size. The institutions merge. No data collection is required 
for the year of the merger (even if the merger results in a covered 
institution).
    ii. A covered institution and an exempt institution merge. The 
covered institution is the surviving institution. For the year of 
the merger, data collection is required for the covered 
institution's transactions. Data collection is optional for 
transactions handled in offices of the previously exempt 
institution.
    iii. A covered institution and an exempt institution merge. The 
exempt institution is the surviving institution, or a new 
institution is formed. Data collection is required for transactions 
of the covered institution that take place prior to the merger. Data 
collection is optional for transactions taking place after the 
merger date.
    iv. Two covered institutions merge. Data collection is required 
for the entire year. The surviving or resulting institution files 
either a consolidated submission or separate submissions for that 
year.
    4. Originations. HMDA coverage depends in part on whether an 
institution has originated home purchase loans. To determine whether 
activities with respect to a particular loan constitute an 
origination, institutions should consult, among other parts of the 
staff commentary, the discussion of the broker rule under 
Secs. 203.1(c) and 203.4(a).
    5. Branches of foreign banks--treated as banks. A federal branch 
or a state-licensed insured branch of a foreign bank is a ``bank'' 
under section 3(a)(1) of the Federal Deposit Insurance Act (12 
U.S.C. 1813(a)), and is covered by HMDA if it meets the tests for a 
depository institution found in Sec. 203.2(e)(1) of Regulation C.
    6. Branches and offices of foreign banks--treated as for-profit 
mortgage lending institutions. Federal agencies, state-licensed 
agencies, state-licensed uninsured branches of foreign banks, 
commercial lending companies owned or controlled by foreign banks, 
and entities operating under section 25 or 25A of the Federal 
Reserve Act, 12 U.S.C. 601 and 611 (Edge Act and agreement 
corporations) are not ``banks'' under the Federal Deposit Insurance 
Act. These entities are nonetheless covered by HMDA if they meet the 
tests for a for-profit nondepository mortgage lending institution 
found in Sec. 203.2(e)(2) of Regulation C.
    2(g) Home improvement loan. 1. Classification requirement for 
loans not secured by a lien on a dwelling. An institution has 
``classified'' a loan that is not secured by a lien on a dwelling as 
a home improvement loan if it has entered the loan on its books as a 
home improvement loan, or has otherwise coded or identified the loan 
as a home improvement loan. For example, an institution that has 
booked a loan or reported it on a ``call report'' as a home 
improvement loan has classified it as a home improvement loan. An 
institution may also classify loans as home improvement loans in 
other ways (for example, by color-coding loan files).
    2. Improvements to real property. Home improvements include 
improvements both to a dwelling and to the real property on which 
the dwelling is located (for example, installation of a swimming 
pool, construction of a garage, or landscaping).
    3. Commercial and other loans. A home improvement loan may 
include a loan originated outside an institution's residential 
mortgage lending division (such as a loan to improve an apartment 
building made through the commercial loan department).
    4. Mixed-use property. A loan to improve property used for 
residential and commercial purposes (for example, a building 
containing apartment units and retail space) is a home improvement 
loan if the loan proceeds are used primarily to improve the 
residential portion of the property. If the loan proceeds are used 
to improve the entire property (for example, to replace the heating 
system), the loan is a home improvement loan if the property itself 
is primarily residential. An institution may use any reasonable 
standard to determine the primary use of the property, such as by 
square footage or by the income generated. An institution may select 
the standard to apply on a case-by-case basis. If the loan is 
unsecured, to report the loan as a home improvement loan the 
institution must also have classified it as such.
    5. Multiple-category loans. If a loan is a home improvement loan 
as well as a refinancing, an institution reports the loan as a home 
improvement loan.
    2(h) Home purchase loan. 1. Multiple properties. A home purchase 
loan includes a loan secured by one dwelling and used to purchase 
another dwelling.
    2. Mixed-use property. A dwelling-secured loan to purchase 
property used primarily for residential purposes (for example, an 
apartment building containing a convenience store) is a home 
purchase loan. An institution may use any reasonable standard to 
determine the primary use of the property, such as by square footage 
or by the income generated. An institution may select the standard 
to apply on a case-by-case basis.
    3. Farm loan. A loan to purchase property used primarily for 
agricultural purposes is not a home purchase loan even if the 
property includes a dwelling. An institution may use any reasonable 
standard to determine the primary use of the property, such as by 
reference to the exemption from Regulation X (Real Estate Settlement 
Procedures, 24 CFR 3500.5(b)(1)) for a loan on property of 25 acres 
or more. An institution may select the standard to apply on a case-
by-case basis.
    4. Commercial and other loans. A home purchase loan may include 
a loan originated outside an institution's residential mortgage 
lending division (such as a loan for the purchase of an apartment 
building made through the commercial loan department).
    5. Construction and permanent financing. A home purchase loan 
includes both a combined construction/permanent loan and the 
permanent financing that replaces a construction-only loan. It does 
not include a construction-only loan, which is considered 
``temporary financing'' under Regulation C and is not reported.
    6. Second mortgages that finance the downpayments on first 
mortgages. If an institution making a first mortgage loan to a home 
purchaser also makes a second mortgage loan to the same purchaser to 
finance part or all the home purchaser's downpayment, the 
institution reports each loan separately as a home purchase loan.
    7. Multiple-category loans. If a loan is a home purchase loan as 
well as a home improvement loan, or a refinancing, an institution 
reports the loan as a home purchase loan.

Section 203.4--Compilation of Loan Data

    4(a) Data Format and Itemization. 1. Reporting requirements.
    i. An institution reports data on loans that it originated and 
loans that it purchased during the calendar year described in the 
report. An institution reports these data even if the loans were 
subsequently sold by the institution.
    ii. An institution reports the data for loan applications that 
did not result in originations--for example, applications that the 
institution denied or that the applicant withdrew during the 
calendar year covered by the report.
    iii. In the case of brokered loan applications or applications 
forwarded through a correspondent, the institution reports as 
originations the loans that it approved and subsequently acquired 
per a pre-closing arrangement (whether or not they closed in the 
institution's name). Additionally, the institution reports the data 
for all applications that did not result in originations--for 
example, applications that the institution denied or that the 
applicant withdrew during the calendar year covered by the report 
(whether or not they would have closed in the institution's name). 
For all of these loans and applications, the institution reports the 
required data regarding the borrower's or applicant's ethnicity, 
race, sex, and income.
    iv. Loan originations are to be reported only once. If the 
institution is the loan broker or correspondent, it does not report 
as originations the loans that it forwarded to another lender for 
approval prior to closing, and that were approved and subsequently 
acquired by that lender (whether or not they closed in the 
institution's name).
    v. An institution reports applications that were received in the 
previous calendar year but were acted upon during the calendar year 
covered by the current register.

[[Page 7249]]

    vi. A financial institution submits all required data to its 
supervisory agency in one package, with the prescribed transmittal 
sheet. An officer of the institution certifies to the accuracy of 
the data.
    vii. The transmittal sheet states the total number of line 
entries contained in the accompanying data transmission.
    2. Updating--agency requirements. Certain state or federal 
regulations, such as the Federal Deposit Insurance Corporation's 
regulations, may require an institution to update its data more 
frequently than is required under Regulation C.
    3. Form of quarterly updating. An institution may maintain the 
quarterly updates of the HMDA/LAR in electronic or any other format, 
provided the institution can make the information available to its 
regulatory agency in a timely manner upon request.
    4(a)(1) Application number and application date. 1. Application 
date--consistency. In reporting the date of application, an 
institution reports the date the application was received or the 
date shown on the application. Although an institution need not 
choose the same approach for its entire HMDA submission, it should 
be generally consistent (such as by routinely using one approach 
within a particular division of the institution or for a category of 
loans).
    2. Application date--application forwarded by a broker. For an 
application forwarded by a broker, an institution reports the date 
the application was received by the broker, the date the application 
was received by the institution, or the date shown on the 
application. Although an institution need not choose the same 
approach for its entire HMDA submission, it should be generally 
consistent (such as by routinely using one approach within a 
particular division of the institution or for a category of loans).
    3. Application date--reinstated application. If, within the same 
calendar year, an applicant asks an institution to reinstate a 
counteroffer that the applicant previously did not accept (or asks 
the institution to reconsider an application that was denied, 
withdrawn, or closed for incompleteness), the institution may treat 
that request as the continuation of the earlier transaction or as a 
new transaction. If the institution treats the request for 
reinstatement or reconsideration as a new transaction, it reports 
the date of the request as the application date.
    4. Application or loan number. An institution must ensure that 
each identifying number is unique within the institution. If an 
institution's register contains data for branch offices, for 
example, the institution could use a letter or a numerical code to 
identify the loans or applications of different branches, or could 
assign a certain series of numbers to particular branches to avoid 
duplicate numbers. Institutions are strongly encouraged not to use 
the applicant's or borrower's name or social security number, for 
privacy reasons.
    5. Application--year action taken. An institution must report an 
application in the calendar year in which the institution takes 
final action on the application.
    Paragraph 4(a)(3) Purpose.
    1. Purpose--statement of applicant. An institution may rely on 
the oral or written statement of an applicant regarding the proposed 
use of loan proceeds. For example, a lender could use a check-box, 
or a purpose line, on a loan application to determine whether or not 
the applicant intends to use loan proceeds for home improvement 
purposes.
    2. Purpose--multiple-purpose loan. If a loan is a home purchase 
loan as well as a home improvement loan, or a refinancing, an 
institution reports the loan as a home purchase loan. If a loan is a 
home improvement loan as well as a refinancing, an institution 
reports the loan as a home improvement loan.
    Paragraph 4(a)(6) Occupancy.
    1. Occupancy--multiple properties. If a loan relates to multiple 
properties, the institution reports the owner occupancy status of 
the property for which property location is being reported. (See the 
comments to paragraph 4(a)(9), Property location.)
    Paragraph 4(a)(7) Loan amount.
    1. Loan amount--counteroffer. If an applicant accepts a 
counteroffer for an amount different from the amount initially 
requested, the institution reports the loan amount granted. If an 
applicant does not accept a counteroffer or fails to respond, the 
institution reports the loan amount initially requested.
    2. Loan amount--multiple-purpose loan. Except in the case of a 
home-equity line of credit, an institution reports the entire amount 
of the loan, even if only a part of the proceeds is intended for 
home purchase or home improvement.
    3. Loan amount--home-equity line. An institution that has chosen 
to report home-equity lines of credit reports only the part that is 
intended for home-improvement or home-purchase purposes.
    4. Loan amount--assumption. An institution that enters into a 
written agreement accepting a new party as the obligor on a loan 
reports the amount of the outstanding principal on the assumption as 
the loan amount.
    Paragraph 4(a)(8) Type of action taken and date.
    1. Action taken--counteroffers. If an institution makes a 
counteroffer to lend on terms different from the applicant's initial 
request (for example, for a shorter loan maturity or in a different 
amount) and the applicant does not accept the counteroffer or fails 
to respond, the institution reports the action taken as a denial on 
the original terms requested by the applicant.
    2. Action taken--rescinded transactions. If a borrower rescinds 
a transaction after closing, the institution may report the 
transaction either as an origination or as an application that was 
approved but not accepted.
    3. Action taken--purchased loans. An institution reports the 
loans that it purchased during the calendar year, and does not 
report the loans that it declined to purchase.
    4. Action taken--conditional approvals. If an institution issues 
a loan approval subject to the applicant's meeting underwriting 
conditions (other than customary loan commitment or loan-closing 
conditions, such as a clear-title requirement or an acceptable 
property survey) and the applicant does not meet them, the 
institution reports the action taken as a denial.
    5. Action taken date--approved but not accepted. For a loan 
approved by an institution but not accepted by the applicant, the 
institution reports any reasonable date, such as the approval date, 
the deadline for accepting the offer, or the date the file was 
closed. Although an institution need not choose the same approach 
for its entire HMDA submission, it should be generally consistent 
(such as by routinely using one approach within a particular 
division of the institution or for a category of loans).
    6. Action taken date--originations. For loan originations, an 
institution generally reports the settlement or closing date. For 
loan originations that an institution acquires through a broker, the 
institution reports either the settlement or closing date, or the 
date the institution acquired the loan from the broker. If the 
disbursement of funds takes place on a date later than the 
settlement or closing date, the institution may use the date of 
disbursement. For a construction/permanent loan, the institution 
reports either the settlement or closing date, or the date the loan 
converts to the permanent financing. Although an institution need 
not choose the same approach for its entire HMDA submission, it 
should be generally consistent (such as by routinely using one 
approach within a particular division of the institution or for a 
category of loans). Notwithstanding this flexibility regarding the 
use of the closing date in connection with reporting the date action 
was taken, the year in which an origination goes to closing is the 
year in which the institution must report the origination.
    7. Action taken--pending applications. An institution does not 
report any loan application still pending at the end of the calendar 
year; it reports that application on its register for the year in 
which final action is taken.
    Paragraph 4(a)(9) Property location.
    1. Property location--multiple properties (home improvement/
refinance of home improvement). For a home improvement loan, an 
institution reports the property being improved. If more than one 
property is being improved, the institution reports the location of 
one of the properties or reports the loan using multiple entries on 
its HMDA/LAR (with unique identifiers) and allocating the loan 
amount among the properties.
    2. Property location--multiple properties (home purchase/
refinance of home purchase). For a home purchase loan, an 
institution reports the property taken as security. If an 
institution takes more than one property as security, the 
institution reports the location of the property being purchased if 
there is just one. If the loan is to purchase multiple properties 
and is secured by multiple properties, the institution reports the 
location of one of the properties or reports the loan using multiple 
entries on its HMDA/LAR (with unique identifiers) and allocating the 
loan amount among the properties.
    3. Property location--loans purchased from another institution. 
The requirement to

[[Page 7250]]

report the property location by census tract in a metropolitan area 
where the institution has a home or branch office applies not only 
to loan applications and originations but also to loans purchased 
from another institution. This includes loans purchased from an 
institution that did not have a home or branch office in that 
metropolitan area and did not collect the property-location 
information.
    4. Property location--mobile or manufactured home. If 
information about the potential site of a mobile or manufactured 
home is not available, an institution reports using the code for 
``not applicable.''
    Paragraph 4(a)(10) Applicant and income data.
    1. Applicant data--completion by applicant. An institution 
reports the monitoring information as provided by the applicant. For 
example, if an applicant checks the ``Asian'' box the institution 
reports using the ``Asian'' code.
    2. Applicant data--completion by lender. If an applicant fails 
to provide the requested information for an application taken in 
person, the institution reports the data on the basis of visual 
observation or surname.
    3. Applicant data--application completed in person. When an 
applicant meets in person with a lender to complete an application 
that was begun by mail, Internet, or telephone, the institution must 
request the monitoring information. If the meeting occurs after the 
application process is complete, for example, at closing, the 
institution is not required to obtain monitoring information.
    4. Applicant data--joint applicant. A joint applicant may enter 
the government monitoring information on behalf of an absent joint 
applicant. If the information is not provided, the institution 
reports using the code for ``information not provided by applicant 
in mail, Internet, or telephone application.''
    5. Applicant data--video and other electronic-application 
processes. An institution that accepts applications through 
electronic media with a video component treats the applications as 
taken in person and collects the information about the ethnicity, 
race, and sex of applicants. An institution that accepts 
applications through electronic media without a video component (for 
example, the Internet or facsimile) treats the applications as 
accepted by mail.
    6. Income data--income relied on. An institution reports the 
gross annual income relied on in evaluating the creditworthiness of 
applicants. For example, if an institution relies on an applicant's 
salary to compute a debt-to-income ratio but also relies on the 
applicant's annual bonus to evaluate creditworthiness, the 
institution reports the salary and the bonus to the extent relied 
upon. Similarly, if an institution relies on the income of a 
cosigner to evaluate creditworthiness, the institution includes this 
income to the extent relied upon. But an institution does not 
include the income of a guarantor who is only secondarily liable.
    7. Income data--co-applicant. If two persons jointly apply for a 
loan and both list income on the application, but the institution 
relies only on the income of one applicant in computing ratios and 
in evaluating creditworthiness, the institution reports only the 
income relied on.
    8. Income data--loan to employee. An institution may report 
``NA'' in the income field for loans to its employees to protect 
their privacy, even though the institution relied on their income in 
making its credit decisions.
    Paragraph 4(a)(11) Purchaser.
    1. Type of purchaser--loan-participation interests sold to more 
than one entity. An institution that originates a loan, and then 
sells it to more than one entity, reports the ``type of purchaser'' 
based on the entity purchasing the greatest interest, if any. If an 
institution retains a majority interest, it does not report the 
sale.
    2. Type of purchaser--swapped loans. Loans ``swapped'' for 
mortgage-backed securities are to be treated as sales; the purchaser 
is the type of entity receiving the loans that are swapped.
    Paragraph 4(a)(12) Rate spread information.
    1. Treasury securities. To determine the yield on a Treasury 
security for the pricing information, lenders may use the Board's 
``Selected Interest Rates'' (statistical release H-15) or the actual 
auction results. Treasury auctions are held at different intervals 
for the different types of securities. These figures are published 
by major financial and metropolitan newspapers and are also 
available from Federal Reserve Banks. Lenders must use the yield on 
the security that has the nearest maturity at issuance to the loan's 
maturity. For example, if a lender must compare the annual 
percentage rate to Treasury securities with either 7-year or 10-year 
maturities, the annual percentage rate for a 9-year loan is compared 
with securities that have a 10-year maturity. If the loan maturity 
is exactly halfway between, the annual percentage rate is compared 
with the Treasury security that has the lower yield. For example, if 
the loan has a maturity of 20 years and comparable securities have 
maturities of 10 years with a yield of 6.501 percent and 30 years 
with a yield of 6.906 percent, the annual percentage rate is 
compared with the yield of 6.501 percent, the lower of the two 
yields.
    Paragraph 4(c)(3) Optional data--home-equity lines of credit.
    1. An institution that opts to report home-equity lines reports 
the disposition of all applications, not just originations.
    Paragraph 4(d) Excluded data.
    1. Mergers, purchases in bulk, and branch acquisitions. If a 
covered institution acquires loans in bulk from another institution 
(for example, from the receiver for a failed institution) but no 
merger or acquisition of the institution, or acquisition of a 
branch, is involved, the institution reports the loans as purchased 
loans.

Section 203.5(a)--Disclosure and Reporting

    Paragraph 5(a) Reporting to agency.
    1. Submission of data. Institutions submit data to their 
supervisory agencies in an automated, machine-readable form. The 
format must conform to that of the HMDA/LAR. An institution should 
contact its federal supervisory agency for information regarding 
procedures and technical specifications for automated data 
submission; in some cases, agencies also make software available for 
automated data submission. The data are edited before submission, 
using the edits included in the agency-supplied software or 
equivalent edits in software available from vendors or developed in-
house.
    2. Submission in paper form. Institutions that report twenty-
five 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 sends two copies that are typed or computer 
printed and must use the format of the HMDA/LAR (but need not use 
the form itself). Each page must be numbered along with the total 
number of pages (for example, ``Page 1 of 3'').
    3. Procedures for entering data. The required data are entered 
in the register for each loan origination, each application acted 
on, and each loan purchased during the calendar year. The 
institution should decide on the procedure it wants to follow--for 
example, whether to begin entering the required data, when an 
application is received, or to wait until final action is taken 
(such as when a loan goes to closing or an application is denied).
    4. Options for collection. An institution may collect data on 
separate registers at different branches, or on separate registers 
for different loan types (such as for home purchase or home 
improvement loans, or for loans on multifamily dwellings). Entries 
need not be grouped on the register by metropolitan area, or 
chronologically, or by census tract numbers, or in any other 
particular order.
    5. Change in supervisory agency. If the supervisory agency for a 
covered institution changes (as a consequence of a merger or a 
change in the institution's charter, for example), the institution 
must report data to its new supervisory agency beginning with the 
year of the change.
    6. Subsidiaries. An institution is a subsidiary of a bank or 
savings association (for purposes of reporting HMDA data to the 
parent's supervisory agency) if the bank or savings association 
holds or controls an ownership interest that is greater than 50 
percent of the institution.
    7. Transmittal sheet--additional data submissions. If an 
additional data submission becomes necessary (for example, because 
the institution discovers that data were omitted from the initial 
submission, or because revisions are called for, that submission 
must be accompanied by a transmittal sheet.
    8. Transmittal sheet--revisions or deletions. If a data 
submission involves revisions or deletions of previously submitted 
data, it must 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. 
Depository institutions must provide a list of the metropolitan 
areas in which they have home or branch offices.
    Paragraph 5(b) Public disclosure of statement.
    1. Business day. For purposes of Sec. 203.5, a business day is 
any calendar day other than a Saturday, Sunday, or legal public 
holiday.

[[Page 7251]]

    2. Format. An institution may make the disclosure statement 
available in paper form or, if the person requesting the data 
agrees, in automated form (such as by PC diskette or CD Rom).
    Paragraph 5(c) Public disclosure of modified loan/application 
register.
    1. Format. An institution may make the modified register 
available in paper or automated form (such as by PC diskette or 
computer tape). Although institutions are not required to make the 
modified register available in census tract order, they are strongly 
encouraged to do so in order to enhance its utility to users.
    Paragraph 5(e) Notice of availability.
    1. Poster--suggested text. An institution may use any text that 
meets the requirements of the regulation. Some of the federal 
financial regulatory agencies and HUD provide HMDA posters that an 
institution can use to inform the public of the availability of its 
HMDA data, or the institution may create its own posters. If an 
institution prints its 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; ethnicity, race, sex, 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.
    2. Additional language for institutions making the disclosure 
statement available on request. An institution that posts a notice 
informing the public of the address to which a request should be 
sent could include the following sentence, for example, in its 
general notice: ``To receive a copy of these data send a written 
request to [address].''

Section 203.6--Enforcement

    Paragraph 6(b) Bona fide errors.
    1. Bona fide error--information from third parties. An 
institution that obtains the property-location information for 
applications and loans from third parties (such as appraisers or 
vendors of ``geocoding'' services) is responsible for ensuring that 
the information reported on its HMDA/LAR is correct.

    By order of the Board of Governors of the Federal Reserve 
System, February 5, 2002.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 02-3323 Filed 2-14-02; 8:45 am]
BILLING CODE 6210-01-P