HMDA Changes to Enhance Fair-Lending Analysis

Regulatory changes intended to improve the quality and consistency of data collected on home mortgage loans were approved in January by the Federal Reserve Board.

The amendments to Regulation C, which implements the Home Mortgage Disclosure Act (HMDA), require lenders to disclose pricing data on higher-cost loans, expand the number of non-depository institutions subject to HMDA's reporting requirements and revise certain regulatory definitions.

The amendments will take effect for data collection beginning Jan. 1, 2003.

The Board also requested public comment with respect to certain items by April 1, 2002.

Regulation C requires depository and for-profit, non-depository institutions to collect, report and disclose data about applications for, and originations and purchases of, home mortgage loans and home improvement loans. Data reported include the type, purpose, and amount of the loan; the race, ethnicity, sex and income of the loan applicant; and the location of the property.

Data collected under Regulation C help the public and regulatory agencies enforce fair-lending laws and are used to determine whether financial institutions are serving the housing needs of their communities.

The changes to Regulation C will facilitate fair-lending analysis and enhance understanding of the home mortgage market generally and the subprime market in particular. The Board took into account changes in the home mortgage market, including growth in areas such as subprime lending and loan preapproval programs. At the same time, the Board has attempted to minimize the increase in the data collection and reporting burden by limiting proposed changes to those most likely to have significant benefit.

The final rule:

• requires lenders to report the spread between the annual percentage rate (APR) and the yield on the comparable Treasury security for originated loans with APRs that exceed the yield on the security by a certain threshold. (The Board tentatively set the thresholds at three percentage points for first-lien loans and five percentage points for subordinate-lien loans and seeks comment on the appropriateness of these particular thresholds);
• requires lenders to identify loans subject to the Home Ownership and Equity Protection Act (see article on this topic in this issue);
• conforms the categories for reporting race and ethnicity to government-wide standards established by the Office of Management and Budget and, consistent with those standards, allows applicants to record more than one race;
• requires lenders to report denials of applications for credit received through certain preapproval programs and to identify originated loans initiated through preapproval programs;
• permits, but does not require, lenders to report requests for preapproval that the lender approves but that applicants do not pursue;
• expands the coverage of non-depository lenders by adding a dollar-volume threshold of $25 million to the current loan-percentage test;
• modifies the definitions of "refinancing" and "home improvement loan" to generate more consistent, accurate and useful data; and
• requires lenders to report whether the loan involves a manufactured home.

The Board also is seeking comments on requiring lenders to ask telephone applicants their race, ethnicity and sex (lenders already ask these questions in in-person, mail and Internet applications) and on requiring lenders to report lien status for applications and originated loans.