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Pricing Data

Lenders are required to report the spread between the Annual Percentage Rate (APR) and the Average Prime Offer Rate for mortgage loans of a comparable type (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.

In 2004, the Board amended Regulation C to require that "High Cost Loans" under the Home Ownership and Equity Protection Act (HOEPA) be reported and disclosed on the HMDA LAR. Although a new test for "Higher-Priced Loans" was added to HOEPA as a result of the 2008 changes to Regulation Z, lenders will still establish HOEPA status using an annual percentage rate and points and fees trigger tests.

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 using code 1.

The difference in the HOEPA test and the rate spread test is the source of information used to determine HOEPA status 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 new tables developed by the Board titled “Average Prime Offer Rate-Fixed" and "Average Prime Offer Rate-Adjustable..”

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.

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