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Pricing Data

Currently, HMDA reporters are not required to report information on loan pricing. The original proposal to amend Regulation C would have required lenders to report the annual percentage rate (APR) on home purchase and home improvement loans that are covered by the Truth in Lending Act and its implementing Regulation Z. Based on the comments received, the Board adopted a rate spread approach, which represents a modified approach regarding the rate disclosure and coverage.

Lenders will now be required to report the spread between the APR on a loan at consummation and the yield on Treasury securities of comparable maturity (the “rate spread”) for loan originations in which the rate spread meets or exceeds certain thresholds specified by the Federal Reserve Board in Regulation C.

This approach was adopted because it will adjust pricing data based on changes in market conditions over time and will focus on higher cost loans. It will also limit reporting burden because fewer loans will be subject to the reporting requirements.

The following chart depicts when the rate spread must be reported:

REASON FOR CHANGE

Obtaining loan pricing data will help regulatory agencies better understand the mortgage market. Pricing information may also help identify practices that raise potential fair-lending concerns that warrant further investigation. The Board particularly believes this information will help identify subprime loans, which have different characteristics than conventional loans. Since the mid-1990s, the subprime mortgage market has grown substantially, providing credit access to borrowers with flawed credit histories and to other borrowers who are not served by prime lenders. Along with the growth in the subprime market, there have come increased variations in loan pricing and increased reports of “predatory lending,” which covers a variety of lending practices. Although there is no generally accepted definition of predatory lending practices, the term is used to refer to abusive lending practices involving fraud, deception or unfairness.

The Board also amended Regulation C to require that the Home Ownership and Equity Protection Act (HOEPA) status of a loan to be reported and disclosed. While HOEPA status can be obtained through bank examinations, nondepository lenders are not subject to regular examinations, although they made a substantial percent of the dollar volume of loan originations reported under HMDA for the year 2000. In addition, even for depository lenders, the Board believes collecting HOEPA status on the HMDA-LAR is a more efficient way to obtain the data.

HOEPA, as implemented by Regulation Z, includes both an annual percentage rate trigger and a points and fees trigger. The fees trigger may cause a loan to fall under HOEPA even if the loan’s rate spread would not be reportable. If the loan exceeds either the APR or points and fees triggers, its HOEPA status must be reported on the HMDA-LAR.

Another difference in the HOEPA test and the rate spread test is the source of information used to determine the Treasury yields used in both HOEPA and rate spread calculations. As currently required by Regulation Z, HOEPA will continue to require lenders to use the H.15 statistical release table as the source of Treasury yields, while the rate spread approach uses a new table developed by the Board titled “Treasury Securities of Comparable Maturity Under Regulation C.”

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