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CUNA Regulatory Comment Call

February 19, 2002

EXECUTIVE SUMMARY

• The Federal Reserve Board (Fed) is requesting comments on proposed revisions to Regulation C, the Home Mortgage Disclosure Act (HMDA). At the same time, the Fed has also issued a final rule that substantially revises these HMDA reporting requirements. Please see CUNA’s Final Rule Analysis for more information about the final rule.
• HMDA requires financial institutions and certain nondepository institutions to collect, report, and disclose data regarding home mortgage and home improvement loans. Data that must be reported include the type, purpose, and amount of the loan; the race or national origin, gender, and income of the loan applicant; and the location of the property. The purpose of HMDA is to help the regulators determine whether financial institutions are serving the housing needs of their communities and to assist in fair lending enforcement.
• The Fed is now requesting comments on the following issues:
• Under the final rule that has recently been issued, lenders must report the spread between the annual percentage rate (APR) of the loan and the rate on comparable Treasury securities if the APR exceeds the Treasury rate by a specific percentage. The Fed is proposing a three-percent spread for first lien mortgages and a five-percent spread for subordinate lien loans.)
• Whether lenders should be required to report the lien status for applications and originated loans.
• Whether lenders should be required to ask telephone loan applicants for information on their race, ethnicity, and gender.
• Comments on these proposed revisions are due by April 12, 2002. Please submit your comments to CUNA by April 8, 2002.

Please feel free to fax your responses to CUNA at 202-638-7052; e-mail them to Associate General Counsel Mary Dunn at mdunn@cuna.com and to Assistant General Counsel Jeffrey Bloch at jbloch@cuna.com; or mail them to Mary and Jeff in c/o CUNA’s Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, South Building, Suite 600, Washington, DC 20004-2601. If commenting directly to the Fed, you must refer to Docket No. R-1120. Due to current mail disruption at the Federal Reserve Board, it would be best if you would e-mail those comments to regs.comments@federalreserve.gov. You may also contact us at 800-356-9655, ext. 6032, if you would like a copy of the proposed rule, or you may access it on the Internet at the following address:
http://www.federalreserve.gov/boarddocs/press/boardacts/2002/20020207/attachment.pdf

BACKGROUND

HMDA requires financial institutions and certain other nondepository institutions to collect, report, and disclose data about originations and purchases of home mortgage and home improvement loans. Data about applications that do not result in originations must also be reported. The Fed’s Regulation C implements HMDA.

DESCRIPTION OF THE PROPOSAL

Thresholds for reporting loan pricing information

In the final rule that was recently issued, the Fed adopted a requirement that lenders report the spread between the APR of a loan and the yield on comparable U.S. Treasury securities if this spread exceeds a certain threshold. The Fed has proposed that the threshold be three percent for first lien loans and five percent for subordinate lien loans. These proposed thresholds are intended to ensure the reporting of pricing information for high-priced loans, while excluding prime loans from these reporting requirements.

To calculate these spreads, lenders must use the Treasury rates in effect as of the 15th day of the month proceeding the month in which the loan application was received. For “comparable Treasury securities,” lenders must use the Treasury security with the maturity date that is closest to the maturity date of the loan offered by the lender. If the date of such a loan is halfway between the maturity dates of two Treasury securities, the security with the lowest yield must be used.

Lien status

The Fed proposes to require lenders to report the lien status for all originated loans and applications, but not for purchased loans. The proposal would require lenders to report whether the loan is: 1) secured by a first lien on a dwelling; 2) secured by a subordinate lien on a dwelling; or 3) not secured by a lien on a dwelling.

Requesting applicant information in telephone applications

For an application made by telephone, the Fed proposes to require lenders to request information about the race, ethnicity, and gender of the applicant. This would be similar to the requirement when applications are completed by mail or by the Internet. The applicant must be advised that the collection of this information by the lender is required by the federal government to assist in the enforcement of fair lending laws. Applicants must also be advised that the lender is prohibited from discriminating on the basis of the information provided or because the applicant declined to provide this information.

• As described above, the Fed has adopted a requirement that lenders report the spread between the APR of a loan and the yield on comparable U.S. Treasury securities if this spread exceeds a certain threshold. The Fed has proposed that the threshold be three percent for first lien loans and five percent for subordinate lien loans. What percentage of your loan originations, by number of loans, would fall above and below these thresholds, as segregated by risk class (such as A, A minus, and B) and lien status? Do you offer loans with very little risk that may have high APRs or loans with relatively high risk with low APRs, which may result in loans being mischaracterized with regard to risk as compared to prime loans?
  
  

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• There is a two-percentage point difference between the proposed thresholds for first and subordinate lien loans. Is this difference appropriate? If not, what should be the difference?
  
  

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• The proposal would require lenders to report whether the loan is: 1) secured by a first lien on a dwelling; 2) secured by a subordinate lien on a dwelling; or 3) not secured by a lien on a dwelling. Are these appropriate categories? Should purchased loans also be covered under this reporting requirement?
  
  

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• For an application made by telephone, the Fed proposes to require lenders to request information about the race, ethnicity, and gender of the applicant. Does the burden of this requirement outweigh the benefit of having this information? Would a significant number of applicants object when asked for this information?
  
  

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• Other comments?
  
  

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