[Federal Register Volume 68, Number 102 (Wednesday, May 28, 2003)]
[Rules and Regulations]
[Pages 31589-31592]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-13203]


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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: Final rules; official staff commentary.

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SUMMARY: The Board is publishing final amendments to the official staff 
commentary to Regulation C (Home Mortgage Disclosure). The amendments 
provide transition rules for applications received before January 1, 
2004, on which final action is taken on or after January 1, 2004.

DATES: The amendments are effective June 27, 2003.

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. 2801-10) 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 and purchases of home purchase loans, home improvement 
loans, and refinancings. Lenders must also report data about 
applications that did not result in originations.
    The Board's Regulation C (12 CFR part 203) implements HMDA. 
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 area, and other reports. These disclosure 
statements and reports are available to the public.

II. 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, among other things, requirements 
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 (HOEPA); 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 applications that result from a request for 
preapproval. The definition of a home improvement loan and the 
definition of a refinancing have been revised to provide more 
consistent and useful data. 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 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 HMDA/LARs, lenders must use the census tract 
numbers and corresponding geographic areas from the 2000 Census.

III. Transition Rules

    On March 7, 2003, the Board proposed for comment rules on how to 
report data for applications received before January 1, 2004, but for 
which final action is taken in 2004. The rules are set forth in a new 
comment added to section 203.4 of the Staff Commentary to Regulation C. 
The Board received approximately 40 comments on the proposed comment. 
Most industry commenters supported the proposal's flexibility in 
providing that lenders may, but need not, use revised definitions and 
identify applications relating to manufactured homes for applications 
received before January 1, 2004. Industry commenters expressed varying 
views on the conversion rules for reporting information on ethnicity, 
race, and sex, and the requirement to report the rate spread beginning 
January 1, 2004, as discussed below.

[[Page 31590]]

    Community groups generally opposed the comment, arguing that it 
would delay the effective date of the 2002 revisions. A few industry 
commenters opposed the comment on the grounds that flexibility could 
pose training problems for lenders and could impose additional 
programming costs if lenders must distinguish between applications 
received in 2003 and all other applications. Some of these commenters 
believed that the 2002 revisions should apply only to applications 
received on or after January 1, 2004.
    The Board is adopting the comment substantially as proposed. Under 
the comment, lenders (1) will not have to indicate whether a loan 
applied for in 2003 involved a request for preapproval or related to a 
manufactured home; and (2) may, at their option, apply the current 
definitions of a home improvement loan and a refinancing in reporting 
loans applied for in 2003 and acted upon in 2004. The Board believes 
that the benefit of obtaining data on these items does not warrant the 
burden associated with revising systems to begin recording the 
necessary information before January 1, 2004. A lender may, however, 
opt to begin recording the information before January 1, 2004. If it 
does, the lender must be generally consistent in its approach; for 
example, a lender that opts to apply the revised definition of a home 
improvement loan must do so for all applications received in 2003 and 
reported in 2004.
    The comment provides that lenders must follow special rules for 
reporting applicants' race and ethnicity for transitional applications, 
to take account of the changed categories. One technical clarification 
relating to the sex of a co-applicant has been made, as discussed 
below.
    The Board proposed no transition rules for reporting the type of 
purchaser, whether a loan is subject to HOEPA, the lien status of 
applications and originated loans, and the rate spread, because 
information about these items is available at the time of final action. 
The final comment provides some flexibility in the case of the rate 
spread. For the reasons discussed below, lenders will not be required 
to report the rate spread for loans in which the rate lock occurs 
before January 1, 2004.
    The affected data items are discussed below, in the order in which 
they appear on the revised HMDA/LAR.

203.4(a)

Property Type
    Currently lenders must report in the ``loan purpose'' field whether 
an application or loan involves a one-to four-family dwelling 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 homes. The final comment provides, as 
proposed, that for applications received before January 1, 2004, and 
acted upon in 2004, lenders may, but need not, indicate whether an 
application involves a manufactured home; lenders may report the 
property type as one-to four-family.
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. A home improvement loan is defined in Sec.  203.2(f) as a loan 
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 beginning in 2004, whether or not 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 loan and the new loan are secured by a lien on a 
dwelling.
    The proposed comment provided 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. 
Based on comments received and its own analysis, the Board is adopting 
the guidance as proposed. The comment permits lenders, at their option, 
to apply the revised definitions to applications received before 
January 1, 2004.
Requests for Preapproval
    Under the 2002 revisions, beginning in 2004, lenders must identify 
whether an application for a home purchase loan is a request for 
preapproval as defined in the revised regulation. Lenders must also 
report information on requests for preapproval that are denied; lenders 
may, but are not required to, report requests for preapproval that are 
approved but not accepted by the applicant.
    The proposed comment provided that lenders may, but need not, 
report requests for preapproval received before January 1, 2004, that 
do not result in a traditional loan application. In addition, the 
proposed comment provided that lenders may, but need not, identify 
requests for preapproval as such if they were received before January 
1, 2004. The Board is adopting the comment as proposed. Thus, for 
applications received before January 1, 2004, lenders will be permitted 
to use the code for ``Not Applicable'' in the preapproval field on the 
HMDA/LAR.
Applicant Information
    Ethnicity and Race. The 2002 revisions included changes to the 
requirement to collect information about an applicant's ethnicity and 
race, and to the codes that must be used to report this information on 
the HMDA/LAR. These changes were made to conform collection of 
information under Regulation C to standards established by OMB in 1997. 
Under the proposed transition rules, lenders would report monitoring 
data collected during 2003 on the 2004 LAR in accordance with 
conversion rules set forth in proposed comment 4(a)-4(iv).
    Most commenters supported the proposed comment requiring lenders to 
convert the data on ethnicity and race to the new OMB standards. Some 
lenders suggested that the Board provide a table showing the conversion 
rules for information on ethnicity and race. Community groups, on the 
other hand, believed that the proposed comment was an unwarranted delay 
in the effective date of the 2002 revisions. In addition, a few lenders 
believed that transition rules are unnecessary, if the 2002 revisions 
are applied only to applications received on or after January 1, 2004.

[[Page 31591]]

    Some industry commenters supported the conversion rules, but 
requested additional guidance. For example, some lenders asked whether 
they could begin to use the revised ethnicity and race categories to 
take applications before January 1, 2004. Some of these commenters 
stated that they wanted to program their systems to collect data using 
the revised categories in October 2003, because making changes to their 
data collection and processing systems after November 1, 2003, could 
result in system disruption and difficulty in generating year-end 
reports. These lenders stated that if they were not permitted to use 
the revised categories in the fall of 2003, they would prefer to 
continue to use the current categories through February 2004, and 
convert the data using the conversion rules provided by the Board.
    Other lenders requested guidance that would allow them to report 
``NA'' for ethnicity and race on applications received during the first 
quarter of 2004 on application forms that have not been updated to 
reflect the revised rules on collecting information on ethnicity and 
race. For example, a lender might receive an application by mail in 
early 2004 that had been mailed out to an applicant in 2003 using the 
current format for reporting race or national origin. In addition, some 
lenders noted that brokers might want to use up all of their old forms 
and thus might continue to use the current format even for applications 
received in 2004. These commenters suggested that the Board allow 
lenders to convert applications taken on the current form to the 
revised rules through April 1, 2004.
    The comment is adopted as proposed. The Board believes that 
converting data collected under the current rules to the revised OMB 
standards is necessary to ensure the quality and utility of the data. 
At the request of commenters, the conversion rules are presented in 
tabular format in section V of this notice.
    The rules for converting information on race and ethnicity apply 
only to applications received in 2003. In the case of an application 
provided to an applicant in 2003 that is not returned to the lender 
until 2004, the existing commentary provides that the lender may 
consider such an application as received in 2003 if the date shown on 
the application is in 2003. See 203.4(a)-1. Thus lenders may use the 
conversion rules provided in the final comment if an application is 
provided to an applicant in 2003 and is dated in 2003, but is received 
by the lender in 2004. The conversion rules may not be used, however, 
where lenders or brokers continue to use loan application forms with 
the current race format on or after January 1, 2004. Lenders and 
brokers are responsible for ensuring that applications are taken on the 
appropriate form.
    Sex. A few commenters pointed out that under the current rules 
lenders must use code 4 (Not Applicable), where the loan is a purchased 
loan, there is no co-applicant, or the co-applicant is not a natural 
person. Under the revised rules, code 4 is reserved for applications in 
which the co-applicant is not a natural person or the information is 
not available on a purchased loan, and a new code 5 is to be used where 
there is no co-applicant. The final comment provides that for 
applications received before January 1, 2004, in which there is no co-
applicant, code 4 may be used on the 2004 HMDA/LAR for sex.
Rate Spread
    The Board did not propose transition guidance relating to the 
requirement to report the rate spread between the APR on the loan and 
the yield on Treasury securities with a comparable maturity. The Board 
did solicit comment, however, on whether there might be less burdensome 
alternatives to requiring lenders to use the rate lock date for 
applications received before and closed on or after January 1, 2004--
for example, allowing them to use the date the application was 
received, the date of consummation, or a date specified by the Board 
(such as January 1, 2004) that would not require lenders to look back 
to an earlier period to calculate the rate spread. The Board noted that 
if lenders used the date of application or consummation, lenders would 
not have to modify their systems because they already capture these 
dates for current reporting requirements.
    Some industry commenters supported requiring lenders to use the 
rate lock date to calculate the rate spread. These commenters noted 
that using the date of application or consummation could distort the 
pricing data. Other industry commenters urged the Board to allow 
lenders to use the date of application or of consummation. A few 
commenters suggested that the Board require lenders to report the rate 
spread only if the rate lock occurred on or after January 1, 2004. 
Still other industry commenters said that the Board should require rate 
spread information only if the application was received on or after 
January 1, 2004, because of difficulties in collecting the rate lock 
date and training personnel before then.
    Based on the comments and on the Board's analysis, the final 
comment provides that lenders need not report the rate spread for any 
loan in which the rate lock occurs before January 1, 2004. The Board 
recognizes that lenders may not be able to track and report rate lock 
dates accurately until the 2002 revisions take effect, in January 2004. 
Although use of the application or consummation date might reduce 
burden to some degree because lenders are currently responsible for 
collecting and reporting them, their use of these dates in the rate 
spread system nonetheless would require special programming. The 
comment provides examples to illustrate when lenders must calculate and 
report the rate spread for applications received before January 1, 
2004.

IV. Other Reporting Requirements

    The Board did not propose any transition guidance for reporting 
requirements relating to type of purchaser, HOEPA status, and lien 
status because these data items do not impose a significant burden on 
lenders to ``look back'' to applications received prior to 2004. The 
majority of comments supported the Board's view. The Board is adopting 
the comment as proposed, without any exceptions for type of purchaser, 
HOEPA status, and lien status.

V. Table of Rules for Converting Applicant Information

    The rules in the final comment for converting information on race 
and national origin collected under the current regulation to the 
revised categories for ethnicity and race under the 2002 revisions are 
provided in tabular format in response to commenters' requests.

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                                     New category--
        Current category                ethnicity                           New category--race
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Code 1--American Indian or       Code 4--Not Applicable  Code 1--American Indian or Alaska Native.
 Alaskan Native.
Code 2--Asian or Pacific         Code 4--Not Applicable  Code 2--Asian.
 Islander.
Code 3--Black..................  Code 4--Not Applicable  Code 3--Black or African American.
Code 4--Hispanic...............  Code 1--Hispanic or     Code 7--Not Applicable.
                                  Latino.
Code 5--White..................  Code 4--Not Applicable  Code 5--White.

[[Page 31592]]

 
Code 6--Other..................  Code 4--Not Applicable  Code 7--Not Applicable.
Code 7--Mail or Telephone......  Code 3--Mail,           Code 6--Mail, Internet, or Telephone.
                                  Internet, or
                                  Telephone.
Code 8--Not Applicable.........  Code 4--Not Applicable  Code 7--Not Applicable.
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List of Subjects in 12 CFR part 203

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


0
For the reasons set forth in the preamble, the Board amends 12 CFR part 
203 as follows:

PART 203--HOME MORTGAGE DISCLOSURE (REGULATION C)

0
1. The authority citation for part 203 continues to read as follows:

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


0
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.
* * * * *
    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 revisions to Regulation C that 
take effect on January 1, 2004, subject to the exceptions for 
property type, loan purpose, requests for preapproval, applicant 
information, and rate spread 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, where the new 
obligation will be, but the existing obligation was not, secured by 
a lien on a dwelling.
    iii. Requests for preapproval. For requests received before 
January 1, 2004, lenders need not report requests for preapproval 
(as that term is defined in Sec.  203.2(b)(2) of the revised 
Regulation C) that do not result in a traditional loan application. 
Lenders may, at their option, report requests for preapproval that 
are denied or that are approved but not accepted. In addition, 
lenders need not specify whether an application for a home purchase 
loan involved a request for preapproval, and should use code 3 (Not 
Applicable) in the preapproval field on the HMDA/LAR.
    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, 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 the applicant's race was identified as Hispanic (code 4) 
in 2003, use code 1 (Hispanic or Latino) for reporting ethnicity.
    (2) If the applicant's race was identified as American Indian or 
Alaskan Native, Asian or Pacific Islander, Black, White, Other, or 
Not Applicable (codes 1, 2, 3, 5, 6, or 8) in 2003, use code 4 (Not 
Applicable) for reporting ethnicity.
    (3) If the applicant did not provide information on race in a 
mail, Internet, or telephone application (code 7) in 2003, 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 in 2003, use the corresponding code 
for 2004. For example, if the applicant's race was identified as 
Black (code 3) in 2003, use code 3 (Black or African-American) for 
reporting race in 2004.
    (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 Other in 2003, use 
code 7 (Not Applicable).
    (5) If the applicant did not provide information on race in a 
mail, Internet, or telephone application (code 7) in 2003, use code 
6 (Information not provided by applicant in mail, Internet, or 
telephone application).
    (6) If the applicant's race was identified as Not Applicable 
(code 8) in 2003, use code 7 (Not Applicable).
    (C) Sex. For applications received before January 1, 2004, in 
which there is no co-applicant, the lender may use code 4 (Not 
Applicable) in the field provided for the co-applicant's sex.
    v. Rate Spread. For applications received before January 1, 
2004, in which the rate lock occurred before January 1, 2004, 
lenders may report NA (Not Applicable) for rate spread. For 
applications received before January 1, 2004, for which the rate 
lock occurred after January 1, 2004, lenders must calculate and 
report the rate spread in accordance with the rules set forth in new 
section 202.4(a)(12) (see 67 FR 7222 (Feb. 15, 2002); 67 FR 43223 
(June 27, 2002)).
    (A) Example: Assume an application is received on December 1, 
2003; the rate lock occurs on December 26, 2003, and the loan is 
originated on January 15, 2004. The lender may report NA (Not 
Applicable) for rate spread.
    (B) Example: Assume an application is received on December 15, 
2003; the rate lock occurs on January 3, 2004, and the loan is 
originated on January 15, 2004. The lender must calculate and report 
the rate spread in accordance with the rules in new section 
202.4(a)(12) (see 67 FR 7222 (Feb. 15, 2002); 67 FR 43223 (June 27, 
2002)).
* * * * *

    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, May 21, 2003.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 03-13203 Filed 5-27-03; 8:45 am]
BILLING CODE 6210-01-P