[Federal Register Volume 68, Number 45 (Friday, March 7, 2003)]
[Proposed Rules]
[Pages 11010-11013]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-5365]


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FEDERAL RESERVE SYSTEM

12 CFR Part 203

[Regulation C; Docket No. R-1145]


Home Mortgage Disclosure

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Proposed rule; official staff commentary.

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SUMMARY: In 2002, the Board revised Regulation C and imposed new data 
collection requirements with an effective date of January 1, 2004. This 
proposal would revise the official staff commentary to Regulation C to 
provide transition rules for applications received before January 1, 
2004, on which final action is taken on or after January 1, 2004.

DATES: Comments must be received on or before April 8, 2003.

ADDRESSES: Comments should refer to Docket No. R-1145 and should be 
mailed to Jennifer Johnson, Secretary, Board of Governors of the 
Federal Reserve System, 20th Street and Constitution Avenue, NW., 
Washington, DC 20551, or mailed electronically to 
[email protected]. Comments addressed to Ms. Johnson may 
also be delivered, between 8:45 a.m. and 5:15 p.m., to the Board's mail 
facility in the West Courtyard, located on 21st Street between 
Constitution and C Street, NW. Members of the public may inspect 
comments in Room MP-500 of the Martin Building between 9 a.m. and 5 
p.m. on weekdays pursuant to Sec.  261.12, except as provided in Sec.  
261.14, of the Board's Rules Regarding Availability of Information, 12 
CFR 261.12 and 261.14.

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

SUPPLEMENTARY INFORMATION:

I. Background

    The Home Mortgage Disclosure Act (HMDA; 12 U.S.C. 2801-2810) 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 
that did not result in originations.
    The Board's Regulation C implements HMDA. 12 CFR part 203. 
Regulation C generally requires that lenders report data about:
    [sbull] 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;
    [sbull] Each applicant or borrower, including ethnicity, race, sex, 
and income; and
    [sbull] 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) set forth in appendix A to the regulation. Each 
application must be recorded within 30 calendar days after the end of 
each calendar quarter in which final action is taken (such as 
origination or purchase of a loan, or denial or withdrawal of an 
application) on the lender's 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

[[Page 11011]]

area, and other reports. These disclosure statements and reports are 
available to the public.

II. The 2002 Revisions to Regulation C

    The Board published final revisions to Regulation C on February 15, 
2002, and June 27, 2002 (``the 2002 revisions''). 67 FR 7222; 67 FR 
43218. The 2002 revisions include a requirement that lenders report the 
difference between a loan's annual percentage rate (APR) and the yield 
on Treasury securities with comparable maturity periods, if the 
difference equals or exceeds thresholds set by the Board; whether a 
loan is subject to the Home Ownership and Equity Protection Act; the 
lien status of applications and loans; and whether an application or 
loan involves a manufactured home. Certain definitions have also been 
revised. The definition of an application has been revised to include a 
request for preapproval as defined in the regulation, for purposes of 
reporting denials of such requests and identifying loan originations 
that result from a request for preapproval. The definition of a home 
improvement loan and the definition of a refinancing have been revised. 
In addition, the 2002 revisions require lenders to request information 
on applicants' ethnicity, race, and sex in applications taken by 
telephone, and conform the collection of data on ethnicity and race to 
standards established by the Office of Management and Budget (OMB) in 
1997.
    The 2002 revisions were initially scheduled to take effect on 
January 1, 2003. In May 2002 the Board delayed the effective date, with 
two exceptions, to January 1, 2004. 67 FR 30771, May 8, 2002. The Board 
based its decision to delay the effective date on a determination that 
some HMDA reporters, especially the largest ones, would not be able to 
fully implement the revised rule by January 1, 2003, without 
jeopardizing the quality and usefulness of the data and incurring 
substantial additional implementation costs that could be avoided by a 
postponement. The two exceptions related to telephone applications and 
to census tract data: (1) For all applications taken on or after 
January 1, 2003, lenders must ask telephone applicants for information 
on the applicant's race or national origin and sex; and (2) for all 
applications and loans reported on lenders' 2003 LARs, lenders must use 
the census tract numbers and corresponding geographic areas from the 
2000 Census.

III. Proposed Guidance for Transition from the Current to the Revised 
Rule

    Proposed staff comment 4(a)-4 addresses the collection and 
reporting of certain data items for applications received before 
January 1, 2004, for which final action is taken on or after January 1, 
2004. Under the proposed transition rules, lenders (1) Would not have 
to indicate whether an application or loan involved a request for 
preapproval or related to a manufactured homes; and (2) could at their 
option continue to apply the current definitions of a home improvement 
loan and a refinancing. They would follow special rules for reporting 
applicants' race and ethnicity, to take account of the changed 
categories. No transition rules are provided for reporting the 
purchaser type, rate spread, whether a loan is subject to HOEPA, and 
the lien status of applications and originated loans, because 
information about these items is available at the time of final action.
    In each case, the Board weighed the burden and benefit of applying 
the effective date to applications received before January 1, 2004. The 
proposed comment seeks to preserve the integrity of the HMDA data to 
the extent possible, while minimizing lender burden. For example, the 
Board believes that the benefit of data that meet revised definitions 
is not sufficient to warrant the burden on lenders to begin applying 
the revised definitions before January 1, 2004, or to ``look back'' in 
2004 to determine if data should be reported. The proposed rule is 
discussed below in the order that the affected data items appear on the 
revised HMDA/LAR. For all other data items, the January 1, 2004, 
effective date applies, including the data items reported under ``type 
of purchaser'' and ``other data,'' as discussed in Part IV.

Property Type

    Currently lenders must report in the ``loan purpose'' field whether 
an application or loan involves a one- to four-family or a multifamily 
dwelling; and manufactured homes are reported as one- to four-family 
dwellings. The 2002 revisions add a new field for ``property type'' and 
require lenders to identify applications and loans that involve 
manufactured housing. The proposed comment provides that lenders may 
but need not indicate whether an application received before January 1, 
2004, involves manufactured housing. Lenders may report the property 
type as a one- to four-family dwelling.

Purpose of Loan--Home Improvement and Refinancing

    Regulation C requires lenders to report home improvement loans and 
refinancings. The definitions of a home improvement loan and a 
refinancing were substantially revised in the final rules adopted in 
2002. At the time an application is taken, lenders must apply these 
definitions (and the definition of a home purchase loan, which has not 
been revised) to determine whether and how the application or loan must 
be reported under HMDA.
    A home improvement loan is currently defined in Sec.  203.2(f) as a 
loan that is intended in whole or in part for home improvement and that 
the lender classifies as a home improvement loan. Under the 2002 
revisions, dwelling-secured loans for home improvement purposes must be 
reported as home improvement loans, without regard to whether the loans 
are classified as home improvement loans. Loans for home improvement 
purposes that are not dwelling-secured will continue to be reported 
only if the lender classifies the loans as 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 commentary to Sec.  203.1(c) 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.

Under the 2002 revisions, reportable refinancings are those in which 
both the existing and the new loans are secured by a lien on a 
dwelling.

    The proposed transition rule will not require lenders to ``look 
back'' in reporting home improvement loans and refinancings. The 
proposed comment provides that for applications received before January 
1, 2004, but for which final action is taken on or after January 1, 
2004, lenders may continue to apply the current definitions. For 
example, if a lender receives an application in 2003 for a loan that 
the lender does not currently classify as a home improvement loan, the 
lender need not report that application on its 2004 LAR. Similarly, if 
a lender receives an

[[Page 11012]]

application in 2003 for a home equity loan to consolidate credit card 
debt, and originates the loan in 2004, the lender may report the loan 
on its 2004 LAR as a refinancing if this is the lender's practice under 
the current rule. The proposed comment permits lenders to apply the 
revised definitions to applications received before January 1, 2004, at 
the option of the lender.

Preapproval

    Under the 2002 revisions, lenders must identify whether an 
application for a home purchase loan is a request for a preapproval as 
defined in the revised regulation. Currently, requests for preapproval 
are reported only if the request is approved and results in a 
traditional loan application, in which case the lender reports on the 
disposition of that application. The 2002 revisions require lenders to 
report information on requests for preapproval that are denied, whether 
or not they resulted in a traditional loan application; they allow, but 
do not require, lenders to report requests for preapproval that are 
approved but not accepted by the applicant.
    Lenders have asked whether the revised rule requires them to 
collect information on requests for preapproval that are received in 
2003, on the chance that the request might receive final action in 
2004. The proposed transition rules provide that lenders may but need 
not identify requests for preapproval received in 2003 as such. For 
applications received before January 1, 2004, they may use the code for 
``not applicable'' in the preapproval field on the HMDA/LAR.

Applicant Information

    Changes were made in the 2002 revisions to the requirement to 
collect information about an applicant's ethnicity and race, and 
corresponding changes were made to the codes that must be used on the 
HMDA/LAR in 2004. These changes were made to conform collection of 
information under Regulation C to standards issued by OMB in 1997 that 
are used for the 2000 Census.
    Some racial classifications and codes remain unchanged. For 
example, the classification ``American Indian or Alaskan Native'' and 
its corresponding code have not changed; the meaning of the 
classification ``black'' has been clarified but not substantively 
changed by adding the phrase ``or African-American,'' and the 
corresponding code remains the same under the revised rule.
    However, changes to other racial classifications and codes, and the 
introduction of a separate question on Hispanic ethnicity, complicate 
the transition from the current rule to the revised rule. For example, 
under the current rule, code 2 is used for an applicant whose race is 
``Asian or Pacific Islander,'' while under the 2002 revisions, code 2 
is used for an applicant who is ``Asian,'' and code 4 is used for 
``Native Hawaiian or Other Pacific Islander.'' Moreover, while the 
current classifications for race include ``Hispanic,'' under the 2002 
revisions an applicant's race cannot be identified as ``Hispanic.'' 
Rather, the 2002 revisions require that an applicant be asked to 
identify his or her ethnicity as ``Hispanic or Latino,'' or ``not 
Hispanic or Latino.'' Thus, if a lender receives an application in 2003 
in which the applicant's race is identified as ``Hispanic,'' and the 
lender takes final action on the application in 2004, using code 4 (the 
current code for ``Hispanic'') on the 2004 LAR would result in an 
erroneous identification of the applicant's race.
    Under the transition rules, lenders would report monitoring data 
collected during 2003 on the 2004 LAR in accordance with rules set 
forth in 4(a)(iv) of the proposed comment. The Board believes lenders 
can implement the proposed conversion rules by modifying their data 
collection and reporting systems. The proposed comment states that, in 
the example offered above, (1) the lender would report the applicant's 
ethnicity as code 1 (``Hispanic or Latino'') and (2) would report the 
applicant's race as code 7 (``not applicable'').

IV. Other Revisions

    The Board has received inquiries from lenders about the 
applicability of other changes in the 2002 revisions to applications 
received before January 1, 2004, including changes made to ``type of 
purchaser'' and the addition of the data items under ``other data'' 
such as the lien status on an originated loan. These data items do not 
impose a significant burden on lenders to ``look back'' to applications 
received in 2003. Thus, the effective date of January 1, 2004, remains 
in place for these requirements, as discussed below.

Type of Purchaser

    Section 203.4(a)(8) requires lenders to report the type of entity 
that purchases a loan that the lender originates (or purchases) and 
sells within the same calendar year. In 2002 the Board revised the list 
of the types of purchasers and the applicable codes. Because the 
lender's determination as to type of purchaser is made when the loan is 
sold, there is no need for a transition rule.

Other Data

    The 2002 revisions will require lenders to collect and report new 
data items under ``other data'' on the 2004 LAR:
    [sbull] The rate spread on originated loans (excluding unsecured 
home improvement loans), where the spread (or difference) between the 
loan's APR and the yield on Treasury securities of comparable maturity 
meets or exceeds certain thresholds;
    [sbull] Whether originated loans and purchased loans are subject to 
the Home Ownership and Equity Protection Act (HOEPA); and
    [sbull] The lien status of applications and originated loans 
(whether a loan is unsecured, or secured by a first or subordinate lien 
on a dwelling).
    This information must be reported for all loans closed on or after 
January 1, 2004. No exception is needed, because information about 
these items is available at final action.
    The 2002 revisions require lenders to use the rate lock date to 
determine the yield on comparable Treasury securities; lenders must 
consult the yield on Treasury securities as of the 15th-of-the-month 
prior to the date the rate is locked or set for the final time before 
the loan is consummated. Thus, lenders may have to modify their 
procedures in 2003 to ensure that they retain the rate lock date for 
loans that may be consummated after December 31, 2003.
    Lenders may also have to look back to the Treasury yields from 2003 
for a loan consummated in 2004, if the rate was locked before January 
15, 2004. Lenders currently are required to make such comparisons to 
comply with HOEPA and Regulation Z (12 CFR part 226). Historical 
information on the appropriate Treasury yields, and a tool to assist 
lenders in calculating the spread between a loan's APR and the Treasury 
yield will be available to lenders on the Board's web site in May 2003.
    The Board does not believe that these requirements warrant an 
exception to the requirement to report the rate spread for all loans 
closed on or after January 1, 2004. The Board solicits comment, 
however, on whether there are less burdensome alternatives to requiring 
lenders to use the rate lock date for calculating the rate spread 
during the transition period. Lenders could use the date the 
application was received or the date of consummation to calculate the 
rate spread, or the Board could specify a date (such as January 1, 
2004) that would not require lenders to look back

[[Page 11013]]

to 2003 to calculate the rate spread. If lenders used the date of 
application or consummation, they would not have to modify their 
systems because they already capture these dates for current reporting 
requirements.
    The requirements to report HOEPA status and lien status do not 
require an exception to the effective date. HOEPA status is required 
only on originated and purchased loans, and is determined based on the 
difference between the APR at consummation and the yield on Treasury 
securities with comparable maturity periods; or on the total points and 
fees charged for the loan. A lender may have to research Treasury 
yields from 2003 depending on when the application was received; 
however, as with the rate spread, historical information on Treasury 
yields is readily available.
    For lien status, the 2002 revisions provide that lenders may rely 
on the best information readily available to them at the time of final 
action (in 2004). 67 FR 43218, 43227, June 27, 2002. Thus, lenders will 
not have to look back to 2003 to report lien status.

V. Form of Comment Letters

    Comment letters should refer to Docket No. R-1145 and, when 
possible, should use a standard typeface with a font size of 10 or 12; 
this will enable the Board to convert text submitted in paper form to 
machine-readable form through electronic scanning, and will facilitate 
automated retrieval of comments for review. Comments may be mailed 
electronically to [email protected]. If accompanied by 
an original document in paper form, comments may also be submitted on 
3\1/2\ inch computer diskettes in any IBM-compatible DOS- or Windows-
based format.

VI. Solicitation of Comments Regarding the Use of ``Plain Language''

    Section 722 of the Gramm-Leach-Bliley Act of 1999 requires the 
Board to use ``plain language'' in all proposed and final rules 
published after January 1, 2000. The Board invites comments on whether 
the proposed commentary is clearly stated and effectively organized, 
and how the Board might make the commentary easier to understand.

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 proposes to 
amend 12 CFR part 203 as follows:

PART 203--HOME MORTGAGE DISCLOSURE (REGULATION C)

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

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

    2. In Supplement I to part 203, under Section 203.4--Compilation of 
Loan Data, under 4(a) Data Format and Itemization, a new paragraph 4 is 
added:

SUPPLEMENT I to PART 203--STAFF COMMENTARY

* * * * *

Section 203.4--Compilation of Loan Data

    4(a) Data Format and Itemization.
* * * * *
    [rtrif] 4. Transition rules for applications received before 
January 1, 2004, when final action is taken on or after January 1, 
2004. For applications received before January 1, 2004, on which final 
action is taken on or after January 1, 2004, data must be collected and 
reported on the HMDA LAR under the revised Regulation C that takes 
effect on January 1, 2004, subject to the exceptions for property type, 
loan purpose, requests for preapproval, and applicant information set 
forth in this comment.
    i. Property type. Lenders need not determine whether an application 
received before January 1, 2004 involves a manufactured home, and may 
report the property type as 1- to 4-family.
    ii. Loan purpose. For applications received before January 1, 2004, 
lenders may use the definitions of a home improvement loan and a 
refinancing that were in effect in 2003. For example, a lender need not 
report data on an application received before January 1, 2004, for a 
dwelling-secured loan made for the purpose of home improvement, if the 
lender did not classify the loan as a home improvement loan. Similarly, 
a lender may report data on an application for a refinancing received 
in 2003 whether or not the existing obligation was secured by a lien on 
a dwelling.
    iii. Requests for preapproval. Lenders need not report requests for 
preapproval (as that term is defined in Sec.  203.2(b)(2) of the 
revised Regulation C) received before January 1, 2004, that do not 
result in a loan application. Lenders need not specify whether an 
application for a home purchase loan application involved a request for 
preapproval, and should use code 3 (not applicable) in the preapproval 
field on the LAR. Lenders may at their option, report requests for 
preapproval that are denied or that are approved but not accepted.
    iv. Applicant information. For applications received before January 
1, 2004, lenders must collect data on race or national origin using the 
categories in effect in 2003, and must convert the data to the codes in 
effect in 2004 for reporting purposes, using the following conversion 
guide:
    (A) Ethnicity. The revised Regulation C requires lenders to request 
an applicant's ethnicity first (Hispanic or Latino, Not Hispanic or 
Latino), and then to request the applicant's race. The HMDA/LAR has 
been revised accordingly, so that ethnicity and race are distinct 
fields.
    (1) If code 4 (Hispanic) was entered for race under the 2003 codes, 
use code 1 (Hispanic or Latino) for reporting ethnicity.
    (2) If code 1, 2, 3, 5, 6, or 8 was entered for race under the 2003 
codes, use code 4 (not applicable) for reporting ethnicity.
    (3) If code 7 (information not provided by applicant in mail or 
telephone application) was entered for race under the 2003 codes, use 
code 3 (information not provided by applicant in mail, Internet, or 
telephone application) for reporting ethnicity.
    B. Race.
    (1) If the applicant's race was identified as American Indian or 
Alaskan Native, Black, or White under the 2003 codes, use the 
corresponding code for 2004. For example, if code 3 (Black) was entered 
for race in 2003, use code 3 (Black or African-American).
    (2) If the applicant's race was identified as Asian or Pacific 
Islander in 2003, use code 2 (Asian).
    (3) If the applicant's race was identified as Hispanic in 2003, use 
code 7 (not applicable).
    (4) If the applicant's race was identified as code 6 (Other) in 
2003, use code 7 (not applicable).
    (5) If the applicant's race was identified as code 7 (Information 
not provided by applicant in mail or telephone application) in 2003, 
use code 6 (Information not provided by applicant in mail, Internet, or 
telephone application).
    (6) If code 8 (Not applicable) was used in 2003, use code 7 (Not 
applicable). [ltrif]
* * * * *

    By order of the Board of Governors of the Federal Reserve 
System, acting through the Director of the Division of Consumer and 
Community Affairs under delegated authority, March 3, 2003.
Robert deV. Frierson,
Deputy Secretary of the Board.
[FR Doc. 03-5365 Filed 3-6-03; 8:45 am]
BILLING CODE 6210-01-P