CUNA Regulatory Comment Call
December 19, 2000
HMDA Revisions
(MAJOR RULE)EXECUTIVE SUMMARY
- The Federal Reserve Board (Fed) is requesting comments on proposed revisions to Regulation C, the Home Mortgage Disclosure Act (HMDA).
- 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 revisions in the proposed rule are intended to provide more information that may be used to identify predatory lending practices. These proposed revisions include:
- Expansion of coverage of nondepository lenders. Currently, such lenders are not covered unless more than ten percent of their business consists of home mortgage originations. The proposed change will cover nondepository lenders that originate at least $50 million in home mortgages annually, regardless of whether this meets the ten- percent threshold.
- Simplification of the definitions of "refinancing" and "home improvement loan," which is intended to generate more consistent and accurate data.
- Requirement that lenders report certain applications for credit received through preapproval programs.
- Requirement that lenders report the annual percentage rate of the loan, whether the loan is subject to the Home Ownership and Equity Protection Act (HOEPA), which imposes additional requirements on high-priced loans, and whether the loan involves a manufactured home.
- Requirement that lenders report home-equity lines of credit. Such reporting is now optional.
- As an alternative to the current requirements and the proposed revisions, the Fed is also offering an alternative system for categorizing loans. The alternative would require the reporting of more loans, but the burden may be limited because the categories are designed to be similar to the Call Report.
- The proposal also reorganizes the rule so that it is more user-friendly. This includes reorganizing both the rule and the official staff commentary, eliminating redundant provisions, revising the instructions so that the reporting of information is easier, and rewording certain provisions.
Comments on the proposal are due by March 9, 2001. Please submit your comments to CUNA by March 2, 2001. Please
feel free to fax your responses to CUNA at 202-371-8240; e-mail them to Associate General Counsel Mary Dunn at mdunn@cuna.com or to Assistant General Counsel Jeffrey Bloch at jbloch@cuna.com; or mail them to Mary or Jeff in c/o CUNA's Regulatory Advocacy Department, 805 15th Street, NW, Suite
300, Washington, DC 20005. If commenting directly to the Fed, you must refer to the Docket Number. That number has not
been assigned as of the date of this Regulatory Comment Call. Please call Jeff Bloch at (202) 218-7795, and he will give you
the number after it has been assigned. You may also contact us 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/2000/20001214/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. This includes data about the following:
- For each application or loan - the application date, the action taken and the date of that action, the loan amount, the loan type and purposes, and the type of purchaser if the loan is sold.
- For each applicant or borrower - the national origin or race, gender, and annual income.
- For each property - the occupancy status and location.
The revisions to Regulation C are not the result of specific legislative changes. They are based on information contained in the reports on mortgage reform and predatory lending that the Fed and other agencies recently submitted to Congress, and as a result of the predatory lending hearings that were held this past summer in four cities. These revisions are intended to give the Fed more information regarding predatory lending. For example, more data should be generated that will help determine whether HOEPA should be changed in order to include more loans.
The proposal also incorporates suggestions received in response to an Advance Notice of Proposed Rulemaking (ANPR) that was published in 1998. Click here for CUNA's comment letter in response to the ANPR.
DESCRIPTION OF THE PROPOSAL
Definitions - (These definitions describe a significant portion of the changes that are proposed.)
Application - The definition of "application" will be changed to require the reporting of requests for preapproval. The definition will only include requests for preapproval under procedures in which the financial institution issues creditworthy persons a written commitment for a home purchase loan up to a specified amount that will be valid for a designated period of time. This will apply even if the preapproval is issued subject to the identification of a suitable property or under other conditions.
This definition mirrors the one in the Regulation B proposed rule that was issued in August 1999. It is intended to cover a limited number of highly-structured preapproval programs, while excluding those informal prequalification programs in which the underwriting may by less rigorous and where the lender makes no binding, written commitment.Dwelling - The official staff commentary to Regulation C will clarify that transitory residences, such as college dormitories, are not dwellings for purposes of HMDA.
Financial Institution - HMDA covers certain nondepository lenders, and the proposed rule will change the criteria as to which of these lenders will be covered in the future. These changes will be reflected in the definition of "financial institution."
Currently, a nondepository lender is covered if home purchase loan originations in the preceding year equal or exceed ten percent of all its loan originations. The proposed rule will preserve this threshold and will also include a nondepository lender if its prior-year home purchase originations equal or exceed $50 million, regardless of whether this equals or exceeds the ten-percent threshold. (Loan originations include refinancing of home purchase loans.)
Home-equity line of credit - This definition will be clarified to include an open-end credit plan secured by a dwelling, as defined in Regulation Z, the Truth in Lending Act (TILA). This is consistent with the definition that has been informally applied by the Fed.
Home Improvement Loan - Currently, Regulation C defines a home improvement loan as a loan made for the purpose of improving a dwelling and that is classified as such by the lender. For reporting purposes under Regulation C, this definition will be changed to include such loans if any part of the proceeds is to be used for home improvement, regardless of how the lender classifies the loan. Here, a lender may rely on the applicant's statements.
For home-equity lines of credit, the lender currently has the option either to report the amount of the line to be used for home improvement purposes or to not report credit lines at all. The proposed rule will require the reporting of all applications for home-equity lines of credit. Also, open-end lines and closed-end loans will be reported separately, and the entire amount of the credit line for open-end lines of credit will be reported.
Home Purchase Loan- The official staff commentary will clarify that if there is a first mortgage loan and a second mortgage loan that finances any part of the downpayment, the lender must report both loans.
Manufactured Home - The proposed rule will require lenders to identify whether a loan or application involves a manufactured home. The definition of "manufactured home" refers to rules that have been issued by the Department of Housing and Urban Development. These rules generally define such a home as a transportable structure designed as a dwelling that is on a permanent chassis, with or without a permanent foundation. This structure must also meet the following size requirements:
- At least eight feet wide or at least forty feet long when the structure is in traveling mode.
- At least 320 square feet when erected on site.
Refinancing - Regulation C requires the reporting of refinancing of home purchase and home improvement loans. Refinancing is generally defined as a new loan that replaces an existing loan by the same borrower. Currently, Regulation C outlines the following four scenarios that lenders may select when determining which refinancings to report:
- The existing obligation was a home purchase or home improvement loan, as determined by the lender.
- The applicant states that the existing obligation was a home purchase or home improvement loan.
- The existing obligation was secured by a lien on a dwelling.
- The new obligation will be secured by a lien on a dwelling.
In an attempt to include more accurate and consistent data, the proposed rule will eliminate the above scenarios and define a "refinancing" using the following two-pronged test:
- The new loan satisfies and replaces an existing obligation by the same borrower.
- Both the existing obligation and the new obligation are secured by a lien on a dwelling.
Compilation of Loan Data
The Fed has authority under the HMDA statute to adopt new provisions to carry out the purposes of the Act. Under this authority, the proposed rule will require the reporting of the following additional data:
- Annual Percentage Rate (APR) - The reporting of this information is intended to help identify subprime loans with high APRs and possible fair lending issues that warrant further investigation. To minimize burden, this will apply only to loans in which the lender is required under TILA to disclose the APR to the consumer. For example, reporting the APR would not be required when the borrower withdraws the application before the APR is disclosed and would also not be required for corporate borrowers or multifamily properties.
- HOEPA Status - Lenders will be required to indicate whether a loan is covered under HOEPA, as implemented in Regulation Z. Again, this is intended to identify subprime loans that may require further investigation, and such reporting will only be required for loans that would be subject to the APR disclosure requirements under TILA.
- The Identity of Manufactured Home Loans and Applications - This is described above under the definition of "manufactured home."
The official staff commentary to Regulation C regarding compilation of loan data will be revised to clarify the following:
- The date a lender receives an application is the date on which it or its agent first takes possession of a completed copy of the application. The commentary will include an example of how this will apply when the application is taken electronically.
- A lender must report a denial on the original terms requested by the applicant when the lender makes a counteroffer and the applicant does not accept or respond to the offer.
- If the lender issues a loan approval subject to the applicant meeting underwriting conditions, the action must be reported as a denial if the conditions are not met. The current commentary contains similar language but excludes "customary conditions." This exclusion will be removed in order to minimize confusion.
HMDA currently requires lenders to report all loans that they purchase, including loans purchased in bulk. Loans acquired through a merger or acquisition are currently excluded from the HMDA reporting requirements. The proposed rule will also exclude loans purchased as part of a branch acquisition. This must entail the purchase of all the assets and liabilities of a branch of a depository institution, although it need not involve the purchase of the branch's physical facilities. Loans purchased as part of a branch asset sale, that do not include the sale of the branch's liabilities, will still need to be reported.
Disclosure and Reporting
Regulation C requires a lender to disclose the required data in a disclosure statement that is available to the public, and the rule provides that it be disclosed within a certain number of "business days," depending on the circumstances. The official staff commentary will clarify that a "business day" is any calendar day other than a Saturday, Sunday, or legal public holiday.
Appendix A - Form and Instructions for Completion of HMDA Loan/Application Register (HMDA-LAR)
Appendix A will add a code identifying home-equity lines of credit. A code will also be added for loans and applications involving manufactured homes. The code for manufactured homes must be used in addition to any other code identifying the purpose of the transaction. Lenders will also be able to report "N/A" in the property location fields for requests for preapprovals since these requests may not have this information.
For the reporting of race and national origin, the Fed will adopt the revised standards that have been issued by the Office of Management and Budget (OMB). These standards provide five racial designations: American Indian or Alaska Native, Asian, Black or African American, Native Hawaiian or Other Pacific Islander, and White. For national origin or ethnicity, the categories are Hispanic, Latino, or those that are not within either category. Respondents must be allowed to select one or more categories or designations.
The transmittal sheet that accompanies the HMDA-LAR requires the telephone number and facsimile number of the reporting institution. This will be revised to also require the e-mail address, if one exists.
Appendix A will also include new fields regarding the loan APR and the HOEPA status.
Appendix B - Form and Instructions for Data Collection on Race or National Origin and Sex
Appendix B will be revised to clarify that if an application is made entirely by telephone, the lender is permitted, but not required, to request data on race, national origin, and sex. This data must be requested when applications are accepted over the Internet. The other changes reflect the guidance from OMB, as discussed above in the description of the changes to Appendix A.
REQUEST FOR COMMENT ON ALTERNATIVE SYSTEM OF CATEGORIZING LOANS
Currently, the categories of loans that are reported are: 1) home purchase loans; 2) home improvement loans; and 3) refinancings. The Fed is considering an alternative approach to the current requirements and the proposed revisions. This alternative would eliminate refinancings and home improvement loans as distinct categories, except for unsecured home improvement loans.
Under this alternative approach the categories would be: 1) home purchase loans (subdivided into first and junior liens); 2) other mortgage loans (also subdivided into first and junior liens; 3) home-equity lines of credit; and 4) unsecured home improvement loans. These new categories are designed to cover the home lending market more fully, as compared to the current Regulation C or the proposed revisions. For example, this alternative would include closed-end home-equity loans that are not made for home improvement purposes.
Although the reporting of more categories would impose additional burden, the Fed believes that this burden would be mitigated because these are designed to be similar to the categories in the Call Report and, therefore, already familiar to lenders. The Fed is requesting comment on this alternative approach and whether the benefit outweighs the burden.
QUESTIONS TO CONSIDER REGARDING THE FED's
REGULATION C PROPOSAL
- The proposed rule will require the collection of additional data, such as requests for preapproval, home-equity lines of
credit, the loan APR and whether it is subject to HOEPA, and whether the loan or application involves a manufactured home.
Do these additional data collections improve HMDA data sufficiently to justify the additional burden of collecting the
information?
- The proposed rule will cover nondepository lenders that originate home purchase loans in the amount of at least $50
million, regardless of whether this equals or exceeds ten percent of total originations. Is this an adequate threshold?
Should it be lower to cover more nondepository lenders?
- As mentioned above, the proposal will include collecting information on "requests for preapproval." This will use the
same definition as used in the Regulation B proposed rule that was issued in August 1999, which will only cover a limited
number of highly-structured preapproval programs. Does this narrow scope strike the right balance between benefit and the
additional burden? Should separate codes be used to identify the requests for preapproval and the actions taken on them?
- The proposed rule will require the reporting of home improvement loans if any part of the proceeds is to be used for home
improvement. This differs from the current requirement that only requires reporting if the loan is classified as a home
improvement loan. This change will require lenders to report a larger number of loans. The Fed believes this will result
in more consistent and useful information. Do you believe this benefit outweighs the additional burden?
- For home equity lines, the proposed rule will require lenders to report the full amount of the credit line, rather than
the amount the borrower intends to use for home improvement. Will this simplify the approach with regard to the reporting
of these loans and does this potential benefit outweigh the additional burden that such reporting may involve?
- For reporting purposes, a refinancing would be defined as a new obligation satisfying and replacing an existing
obligation by the same borrower, in which both the existing obligation and the new obligation are secured by a lien on a
dwelling. This will differ from the current definition that allows lenders to choose among four scenarios for purposes of
reporting such loans? Will this change generate more consistent information to the extent that it outweighs the burden of
changing the method of the reporting of such loans? Should the proposed definition also include the refinancing of
unsecured debt where the new loan is secured by a dwelling?
- Are there ways to implement any of the changes in the proposed rule that would further mitigate the additional burden?
Are there other issues not addressed by the proposed rule that need further review?
- As described in the Regulatory Comment Call under the heading "Request for Comment on Alternative System of Categorizing
Loans," the Fed has proposed another approach for categorizing loans. The Fed believes that this approach would require the
reporting of more loans, but the burden should be mitigated because this reporting is similar to the categories in the Call
Report. Do you agree with this conclusion and would the burden of this approach outweigh any benefit?
- Other comments?
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Eric Richard • General Counsel • (202) 508-6742 • erichard@cuna.com Mary Mitchell Dunn • SVP & Associate General Counsel • (202) 508-6736 • mdunn@cuna.com Jeffrey Bloch • Assistant General Counsel • (202) 508-6732 • jbloch@cuna.com Catherine Orr • Senior Regulatory Counsel • (202) 508-6743 • corr@cuna.com |
