 What’s
New
SUMMARY
The Home Mortgage Disclosure Act (HMDA),
as implemented by the Federal Reserve Board’s
Regulation C, has been revised in several areas. All
of the changes affect applications or loans where final
action is taken on or after Jan. 1, 2004. The amendments
to the regulation were made after a comprehensive review
by the Federal Reserve Board. The goals of the review
included:
- responding to technological and other changes in
the mortgage market;
- improving the quality and utility of data;
- minimizing undue lender burden; and
- clarifying and simplifying Regulation C.
A review of the regulation began in 1998 and culminated
in a final rule in 2002.
The Regulation C changes discussed in this web site
were originally set to take effect Jan. 1, 2003. However,
based on input from industry consumer groups, the date
was postponed to Jan. 1, 2004. The Federal Reserve Board
believed that some HMDA reporters, especially the larger
reporters, would not be able to fully implement the
new rules by Jan. 1, 2003, without jeopardizing the
quality and usefulness of the data and without incurring
substantial implementation costs that could be avoided
by postponement.
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Although the effective
date of the majority of the Regulation C
changes was delayed until Jan. 1, 2004,
two provisions of the amendments took effect
on Jan. 1, 2003. Effective on that date,
lenders were required to begin asking for
government monitoring (sex and race) information
on phone applications. Second, lenders were
required to use census tract numbers and
corresponding metropolitan areas from the
U.S. Census Bureau’s Census 2000. |
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Some of the changes to Regulation C have been under
consideration for several years. For example, the reporting
of requests for the preapproval of a loan had been previously
excluded from HMDA reporting because of concerns about
how to differentiate between preapprovals and prequalifications.
Those concerns have been resolved and with the increase
in preapproval programs offered by lenders, the utility
of the data outweighs the previous concerns.
The mortgage marketplace has changed significantly
since HMDA was enacted, and the marketplace continues
to evolve. One area of substantial growth has occurred
in the subprime lending market. Along with this growth,
there have been increased variations in loan pricing,
generally related to assessment of credit risk. Based
on these changes, the obtaining of loan-pricing data
has become critical to addressing fair-lending concerns
about loan pricing and to gaining a better understanding
of the mortgage market, including the subprime market.
In light of these changes, the Board believes that the
collection of loan pricing data is necessary to fulfill
the statutory requirements of HMDA and to ensure the
continued utility of the HMDA data.
To address these concerns, Regulation C is being revised
to require lenders to report loan-pricing data, specifically
rate spread information and Home Ownership Equity Protection
Act (HOEPA) status.
REGULATORY CHANGES
Based on the amendments to Regulation C, the information
required to be collected and reported in the HMDA loan/application
register (LAR) has been expanded and, therefore, the
format of the register has been revised. Here are
highlights of the more significant provisions which
impact data collection:
- A $35 million loan volume test for non depository
lenders has been added to the current loan percentage
test to ensure coverage of companies that are both
in the business of mortgage lending and non-mortgage
lending.
- As indicated above, Regulation C now requires that
lenders collect and report information on preapproval
requests, but Regulation C continues to exclude prequalification
requests.
- Manufactured
home has been added as a required reporting option
under property type.
- The classification test for reporting home improvement
loans has been eliminated for dwelling-secured loans,
and the definition of “refinancing” has
been changed.
- Applicant information has been significantly updated
to include ethnicity as a separate field, and racial
characteristics have been revised to comply with
current OMB guidance.
- As discussed in the summary above, information regarding
the pricing of loan data is now required under Regulation
C. Lenders must report the rate
spread between a loan’s APR and the yield
on Treasury securities with a comparable maturity
when the spread exceeds certain thresholds. The rate
spread is to be reported – not the APR.
- Regulation C has been amended to require lenders
to report whether a loan is covered by HOEPA,
which is implemented by Regulation Z. HOEPA transactions
involve mortgages that are deemed high-cost based
on either the APR or the fees and points charged on
the loan.
- The loan/application register has been revised
to include lien
status for applications and loan originations.
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The consequences for
noncompliance with Regulation C will remain
unchanged—resubmission of data and
the possible imposition of civil money penalties
for repeated submission of erroneous data.
However, all of the new data fields required
by the amendments are considered “key”
or “critical fields.” The regulatory
agencies have not raised the tolerance level
for errors in critical fields. Consequently,
lenders will be required to comply with
the existing standards for data accuracy,
despite the increase in the number of fields
of critical data. |
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