[Federal Register: May 28, 2003 (Volume 68, Number 102)]
[Rules and Regulations]
[Page 31589-31592]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr28my03-2]
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FEDERAL RESERVE SYSTEM
12 CFR Part 203
[Regulation C; Docket No. R-1145]
Home Mortgage Disclosure
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Final rules; official staff commentary.
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SUMMARY: The Board is publishing final amendments to the official staff
commentary to Regulation C (Home Mortgage Disclosure). The amendments
provide transition rules for applications received before January 1,
2004, on which final action is taken on or after January 1, 2004.
DATES: The amendments are effective June 27, 2003.
FOR FURTHER INFORMATION CONTACT: John C. Wood, Counsel, Kathleen C.
Ryan, Senior Attorney, or Dan S. Sokolov, Attorney, Division of
Consumer and Community Affairs, Board of Governors of the Federal
Reserve System, Washington, DC 20551, at (202) 452-3667 or (202) 452-
2412. For users of Telecommunications Device for the Deaf (TDD) only,
contact (202) 263-4869.
SUPPLEMENTARY INFORMATION:
I. Background
The Home Mortgage Disclosure Act (HMDA; 12 U.S.C. 2801-10) has
three purposes. One is to provide the public and government officials
with data that will help show whether lenders are serving the housing
needs of the neighborhoods and communities in which they are located. A
second purpose is to help public officials target public investment to
promote private investment where it is needed. A third purpose is to
provide data that assist in identifying possible discriminatory lending
patterns and enforcing antidiscrimination statutes.
HMDA accordingly requires certain depository and for-profit
nondepository lenders to collect, report, and disclose data about
originations and purchases of home purchase loans, home improvement
loans, and refinancings. Lenders must also report data about
applications that did not result in originations.
The Board's Regulation C (12 CFR part 203) implements HMDA.
Regulation C generally requires that lenders report data about:
[sbull] Each application or loan, including the application date;
the action taken and the date of that action; the loan amount; the loan
type and purpose; and, if the loan is sold, the type of purchaser;
[sbull] Each applicant or borrower, including ethnicity, race, sex,
and income; and
[sbull] Each property, including location and occupancy status.
Lenders report this information to their supervisory agencies on an
application-by-application basis using a loan application register
format (HMDA/LAR) set forth in appendix A to the regulation. Each
application must be recorded within 30 calendar days after the end of
each calendar quarter in which final action is taken (such as
origination or purchase of a loan, or denial or withdrawal of an
application) on the lender's HMDA/LAR. Lenders must make their HMDA/
LARs--with certain fields redacted to preserve applicants' privacy--
available to the public. The Federal Financial Institutions Examination
Council (FFIEC), acting on behalf of the supervisory agencies, compiles
the reported information and prepares an individual disclosure
statement for each institution, aggregate reports for all covered
lenders in each metropolitan area, and other reports. These disclosure
statements and reports are available to the public.
II. Revisions to Regulation C
The Board published final revisions to Regulation C on February 15,
2002, and June 27, 2002 (``the 2002 revisions''). 67 FR 7222; 67 FR
43218. The 2002 revisions include, among other things, requirements
that lenders report the difference between a loan's annual percentage
rate (APR) and the yield on Treasury securities with comparable
maturity periods, if the difference equals or exceeds thresholds set by
the Board; whether a loan is subject to the Home Ownership and Equity
Protection Act (HOEPA); the lien status of applications and loans; and
whether an application or loan involves a manufactured home. Certain
definitions have also been revised. The definition of an application
has been revised to include a request for preapproval as defined in the
regulation, for purposes of reporting denials of such requests and
identifying loan applications that result from a request for
preapproval. The definition of a home improvement loan and the
definition of a refinancing have been revised to provide more
consistent and useful data. In addition, the 2002 revisions require
lenders to request information on applicants' ethnicity, race, and sex
in applications taken by telephone, and conform the collection of data
on ethnicity and race to standards established by the Office of
Management and Budget (OMB) in 1997.
The 2002 revisions were initially scheduled to take effect on
January 1, 2003. In May 2002 the Board delayed the effective date, with
two exceptions, to January 1, 2004. 67 FR 30771, May 8, 2002. The Board
based its decision on a determination that some HMDA reporters,
especially the largest ones, would not be able to fully implement the
revised rule by January 1, 2003, without jeopardizing the quality and
usefulness of the data and incurring substantial additional
implementation costs that could be avoided by a postponement. The two
exceptions related to telephone applications and to census tract data:
(1) for all applications taken on or after January 1, 2003, lenders
must ask telephone applicants for information on the applicant's race
or national origin and sex; and (2) for all applications and loans
reported on lenders' 2003 HMDA/LARs, lenders must use the census tract
numbers and corresponding geographic areas from the 2000 Census.
III. Transition Rules
On March 7, 2003, the Board proposed for comment rules on how to
report data for applications received before January 1, 2004, but for
which final action is taken in 2004. The rules are set forth in a new
comment added to section 203.4 of the Staff Commentary to Regulation C.
The Board received approximately 40 comments on the proposed comment.
Most industry commenters supported the proposal's flexibility in
providing that lenders may, but need not, use revised definitions and
identify applications relating to manufactured homes for applications
received before January 1, 2004. Industry commenters expressed varying
views on the conversion rules for reporting information on ethnicity,
race, and sex, and the requirement to report the rate spread beginning
January 1, 2004, as discussed below.
[[Page 31590]]
Community groups generally opposed the comment, arguing that it
would delay the effective date of the 2002 revisions. A few industry
commenters opposed the comment on the grounds that flexibility could
pose training problems for lenders and could impose additional
programming costs if lenders must distinguish between applications
received in 2003 and all other applications. Some of these commenters
believed that the 2002 revisions should apply only to applications
received on or after January 1, 2004.
The Board is adopting the comment substantially as proposed. Under
the comment, lenders (1) will not have to indicate whether a loan
applied for in 2003 involved a request for preapproval or related to a
manufactured home; and (2) may, at their option, apply the current
definitions of a home improvement loan and a refinancing in reporting
loans applied for in 2003 and acted upon in 2004. The Board believes
that the benefit of obtaining data on these items does not warrant the
burden associated with revising systems to begin recording the
necessary information before January 1, 2004. A lender may, however,
opt to begin recording the information before January 1, 2004. If it
does, the lender must be generally consistent in its approach; for
example, a lender that opts to apply the revised definition of a home
improvement loan must do so for all applications received in 2003 and
reported in 2004.
The comment provides that lenders must follow special rules for
reporting applicants' race and ethnicity for transitional applications,
to take account of the changed categories. One technical clarification
relating to the sex of a co-applicant has been made, as discussed
below.
The Board proposed no transition rules for reporting the type of
purchaser, whether a loan is subject to HOEPA, the lien status of
applications and originated loans, and the rate spread, because
information about these items is available at the time of final action.
The final comment provides some flexibility in the case of the rate
spread. For the reasons discussed below, lenders will not be required
to report the rate spread for loans in which the rate lock occurs
before January 1, 2004.
The affected data items are discussed below, in the order in which
they appear on the revised HMDA/LAR.
203.4(a)
Property Type
Currently lenders must report in the ``loan purpose'' field whether
an application or loan involves a one-to four-family dwelling or a
multifamily dwelling, and manufactured homes are reported as one-to
four-family dwellings. The 2002 revisions add a new field for
``property type'' and require lenders to identify applications and
loans that involve manufactured homes. The final comment provides, as
proposed, that for applications received before January 1, 2004, and
acted upon in 2004, lenders may, but need not, indicate whether an
application involves a manufactured home; lenders may report the
property type as one-to four-family.
Purpose of Loan--Home Improvement and Refinancing
Regulation C requires lenders to report home improvement loans and
refinancings. The definitions of a home improvement loan and a
refinancing were substantially revised in the final rules adopted in
2002. A home improvement loan is defined in Sec. 203.2(f) as a loan
intended in whole or in part for home improvement and that the lender
classifies as a home improvement loan. Under the 2002 revisions,
dwelling-secured loans for home improvement purposes must be reported
as home improvement loans beginning in 2004, whether or not the loans
are classified as home improvement loans. Loans for home improvement
purposes that are not dwelling-secured will continue to be reported
only if the lender classifies the loans as home improvement loans.
A refinancing is defined as a transaction in which a new obligation
satisfies and replaces an existing obligation by the same borrower.
Currently, the commentary to Sec. 203.1(c) allows lenders to select
from among four scenarios in deciding which refinancings to report:
(1) The existing obligation was a home purchase or home improvement
loan, as determined by the lender (for example, by reference to
available documents);
(2) The applicant states that the existing obligation was a home
purchase or home improvement loan;
(3) The existing obligation was secured by a lien on a dwelling; or
(4) The new obligation will be secured by a lien on a dwelling.
Under the 2002 revisions, reportable refinancings are those in which
both the existing loan and the new loan are secured by a lien on a
dwelling.
The proposed comment provided that for applications received before
January 1, 2004, but for which final action is taken on or after
January 1, 2004, lenders may continue to apply the current definitions.
Based on comments received and its own analysis, the Board is adopting
the guidance as proposed. The comment permits lenders, at their option,
to apply the revised definitions to applications received before
January 1, 2004.
Requests for Preapproval
Under the 2002 revisions, beginning in 2004, lenders must identify
whether an application for a home purchase loan is a request for
preapproval as defined in the revised regulation. Lenders must also
report information on requests for preapproval that are denied; lenders
may, but are not required to, report requests for preapproval that are
approved but not accepted by the applicant.
The proposed comment provided that lenders may, but need not,
report requests for preapproval received before January 1, 2004, that
do not result in a traditional loan application. In addition, the
proposed comment provided that lenders may, but need not, identify
requests for preapproval as such if they were received before January
1, 2004. The Board is adopting the comment as proposed. Thus, for
applications received before January 1, 2004, lenders will be permitted
to use the code for ``Not Applicable'' in the preapproval field on the
HMDA/LAR.
Applicant Information
Ethnicity and Race. The 2002 revisions included changes to the
requirement to collect information about an applicant's ethnicity and
race, and to the codes that must be used to report this information on
the HMDA/LAR. These changes were made to conform collection of
information under Regulation C to standards established by OMB in 1997.
Under the proposed transition rules, lenders would report monitoring
data collected during 2003 on the 2004 LAR in accordance with
conversion rules set forth in proposed comment 4(a)-4(iv).
Most commenters supported the proposed comment requiring lenders to
convert the data on ethnicity and race to the new OMB standards. Some
lenders suggested that the Board provide a table showing the conversion
rules for information on ethnicity and race. Community groups, on the
other hand, believed that the proposed comment was an unwarranted delay
in the effective date of the 2002 revisions. In addition, a few lenders
believed that transition rules are unnecessary, if the 2002 revisions
are applied only to applications received on or after January 1, 2004.
[[Page 31591]]
Some industry commenters supported the conversion rules, but
requested additional guidance. For example, some lenders asked whether
they could begin to use the revised ethnicity and race categories to
take applications before January 1, 2004. Some of these commenters
stated that they wanted to program their systems to collect data using
the revised categories in October 2003, because making changes to their
data collection and processing systems after November 1, 2003, could
result in system disruption and difficulty in generating year-end
reports. These lenders stated that if they were not permitted to use
the revised categories in the fall of 2003, they would prefer to
continue to use the current categories through February 2004, and
convert the data using the conversion rules provided by the Board.
Other lenders requested guidance that would allow them to report
``NA'' for ethnicity and race on applications received during the first
quarter of 2004 on application forms that have not been updated to
reflect the revised rules on collecting information on ethnicity and
race. For example, a lender might receive an application by mail in
early 2004 that had been mailed out to an applicant in 2003 using the
current format for reporting race or national origin. In addition, some
lenders noted that brokers might want to use up all of their old forms
and thus might continue to use the current format even for applications
received in 2004. These commenters suggested that the Board allow
lenders to convert applications taken on the current form to the
revised rules through April 1, 2004.
The comment is adopted as proposed. The Board believes that
converting data collected under the current rules to the revised OMB
standards is necessary to ensure the quality and utility of the data.
At the request of commenters, the conversion rules are presented in
tabular format in section V of this notice.
The rules for converting information on race and ethnicity apply
only to applications received in 2003. In the case of an application
provided to an applicant in 2003 that is not returned to the lender
until 2004, the existing commentary provides that the lender may
consider such an application as received in 2003 if the date shown on
the application is in 2003. See 203.4(a)-1. Thus lenders may use the
conversion rules provided in the final comment if an application is
provided to an applicant in 2003 and is dated in 2003, but is received
by the lender in 2004. The conversion rules may not be used, however,
where lenders or brokers continue to use loan application forms with
the current race format on or after January 1, 2004. Lenders and
brokers are responsible for ensuring that applications are taken on the
appropriate form.
Sex. A few commenters pointed out that under the current rules
lenders must use code 4 (Not Applicable), where the loan is a purchased
loan, there is no co-applicant, or the co-applicant is not a natural
person. Under the revised rules, code 4 is reserved for applications in
which the co-applicant is not a natural person or the information is
not available on a purchased loan, and a new code 5 is to be used where
there is no co-applicant. The final comment provides that for
applications received before January 1, 2004, in which there is no co-
applicant, code 4 may be used on the 2004 HMDA/LAR for sex.
Rate Spread
The Board did not propose transition guidance relating to the
requirement to report the rate spread between the APR on the loan and
the yield on Treasury securities with a comparable maturity. The Board
did solicit comment, however, on whether there might be less burdensome
alternatives to requiring lenders to use the rate lock date for
applications received before and closed on or after January 1, 2004--
for example, allowing them to use the date the application was
received, the date of consummation, or a date specified by the Board
(such as January 1, 2004) that would not require lenders to look back
to an earlier period to calculate the rate spread. The Board noted that
if lenders used the date of application or consummation, lenders would
not have to modify their systems because they already capture these
dates for current reporting requirements.
Some industry commenters supported requiring lenders to use the
rate lock date to calculate the rate spread. These commenters noted
that using the date of application or consummation could distort the
pricing data. Other industry commenters urged the Board to allow
lenders to use the date of application or of consummation. A few
commenters suggested that the Board require lenders to report the rate
spread only if the rate lock occurred on or after January 1, 2004.
Still other industry commenters said that the Board should require rate
spread information only if the application was received on or after
January 1, 2004, because of difficulties in collecting the rate lock
date and training personnel before then.
Based on the comments and on the Board's analysis, the final
comment provides that lenders need not report the rate spread for any
loan in which the rate lock occurs before January 1, 2004. The Board
recognizes that lenders may not be able to track and report rate lock
dates accurately until the 2002 revisions take effect, in January 2004.
Although use of the application or consummation date might reduce
burden to some degree because lenders are currently responsible for
collecting and reporting them, their use of these dates in the rate
spread system nonetheless would require special programming. The
comment provides examples to illustrate when lenders must calculate and
report the rate spread for applications received before January 1,
2004.
IV. Other Reporting Requirements
The Board did not propose any transition guidance for reporting
requirements relating to type of purchaser, HOEPA status, and lien
status because these data items do not impose a significant burden on
lenders to ``look back'' to applications received prior to 2004. The
majority of comments supported the Board's view. The Board is adopting
the comment as proposed, without any exceptions for type of purchaser,
HOEPA status, and lien status.
V. Table of Rules for Converting Applicant Information
The rules in the final comment for converting information on race
and national origin collected under the current regulation to the
revised categories for ethnicity and race under the 2002 revisions are
provided in tabular format in response to commenters' requests.
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New category--
Current category ethnicity New category--race
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Code 1--American Indian or Code 4--Not Applicable Code 1--American Indian or Alaska Native.
Alaskan Native.
Code 2--Asian or Pacific Code 4--Not Applicable Code 2--Asian.
Islander.
Code 3--Black.................. Code 4--Not Applicable Code 3--Black or African American.
Code 4--Hispanic............... Code 1--Hispanic or Code 7--Not Applicable.
Latino.
Code 5--White.................. Code 4--Not Applicable Code 5--White.
[[Page 31592]]
Code 6--Other.................. Code 4--Not Applicable Code 7--Not Applicable.
Code 7--Mail or Telephone...... Code 3--Mail, Code 6--Mail, Internet, or Telephone.
Internet, or
Telephone.
Code 8--Not Applicable......... Code 4--Not Applicable Code 7--Not Applicable.
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List of Subjects in 12 CFR part 203
Banks, Banking, Federal Reserve System, Mortgages, Reporting and
Recordkeeping requirements.
0
For the reasons set forth in the preamble, the Board amends 12 CFR part
203 as follows:
PART 203--HOME MORTGAGE DISCLOSURE (REGULATION C)
0
1. The authority citation for part 203 continues to read as follows:
Authority: 12 U.S.C. 2801-2810.
0
2. In Supplement I to part 203, under Section 203.4--Compilation of
Loan Data, under 4(a) Data Format and Itemization, a new paragraph 4 is
added:
Supplement I to Part 203-Staff Commentary
* * * * *
Section 203.4--Compilation of Loan Data
4(a) Data Format and Itemization.
* * * * *
4. Transition rules for applications received before January 1,
2004, when final action is taken on or after January 1, 2004. For
applications received before January 1, 2004, on which final action
is taken on or after January 1, 2004, data must be collected and
reported on the HMDA/LAR under the revisions to Regulation C that
take effect on January 1, 2004, subject to the exceptions for
property type, loan purpose, requests for preapproval, applicant
information, and rate spread set forth in this comment.
i. Property type. Lenders need not determine whether an
application received before January 1, 2004, involves a manufactured
home, and may report the property type as 1-to 4-family.
ii. Loan purpose. For applications received before January 1,
2004, lenders may use the definitions of a home improvement loan and
a refinancing that were in effect in 2003. For example, a lender
need not report data on an application received before January 1,
2004, for a dwelling-secured loan made for the purpose of home
improvement, if the lender did not classify the loan as a home
improvement loan. Similarly, a lender may report data on an
application for a refinancing received in 2003, where the new
obligation will be, but the existing obligation was not, secured by
a lien on a dwelling.
iii. Requests for preapproval. For requests received before
January 1, 2004, lenders need not report requests for preapproval
(as that term is defined in Sec. 203.2(b)(2) of the revised
Regulation C) that do not result in a traditional loan application.
Lenders may, at their option, report requests for preapproval that
are denied or that are approved but not accepted. In addition,
lenders need not specify whether an application for a home purchase
loan involved a request for preapproval, and should use code 3 (Not
Applicable) in the preapproval field on the HMDA/LAR.
iv. Applicant information. For applications received before
January 1, 2004, lenders must collect data on race or national
origin using the categories in effect in 2003, and must convert the
data to the codes in effect in 2004 for reporting, using the
following conversion guide:
(A) Ethnicity. The revised Regulation C requires lenders to
request an applicant's ethnicity first (Hispanic or Latino, Not
Hispanic or Latino), and then to request the applicant's race. The
HMDA/LAR has been revised accordingly, so that ethnicity and race
are distinct fields.
(1) If the applicant's race was identified as Hispanic (code 4)
in 2003, use code 1 (Hispanic or Latino) for reporting ethnicity.
(2) If the applicant's race was identified as American Indian or
Alaskan Native, Asian or Pacific Islander, Black, White, Other, or
Not Applicable (codes 1, 2, 3, 5, 6, or 8) in 2003, use code 4 (Not
Applicable) for reporting ethnicity.
(3) If the applicant did not provide information on race in a
mail, Internet, or telephone application (code 7) in 2003, use code
3 (information not provided by applicant in mail, Internet, or
telephone application) for reporting ethnicity.
(B) Race.
(1) If the applicant's race was identified as American Indian or
Alaskan Native, Black, or White in 2003, use the corresponding code
for 2004. For example, if the applicant's race was identified as
Black (code 3) in 2003, use code 3 (Black or African-American) for
reporting race in 2004.
(2) If the applicant's race was identified as Asian or Pacific
Islander in 2003, use code 2 (Asian).
(3) If the applicant's race was identified as Hispanic in 2003,
use code 7 (Not Applicable).
(4) If the applicant's race was identified as Other in 2003, use
code 7 (Not Applicable).
(5) If the applicant did not provide information on race in a
mail, Internet, or telephone application (code 7) in 2003, use code
6 (Information not provided by applicant in mail, Internet, or
telephone application).
(6) If the applicant's race was identified as Not Applicable
(code 8) in 2003, use code 7 (Not Applicable).
(C) Sex. For applications received before January 1, 2004, in
which there is no co-applicant, the lender may use code 4 (Not
Applicable) in the field provided for the co-applicant's sex.
v. Rate Spread. For applications received before January 1,
2004, in which the rate lock occurred before January 1, 2004,
lenders may report NA (Not Applicable) for rate spread. For
applications received before January 1, 2004, for which the rate
lock occurred after January 1, 2004, lenders must calculate and
report the rate spread in accordance with the rules set forth in new
section 202.4(a)(12) (see 67 FR 7222 (Feb. 15, 2002); 67 FR 43223
(June 27, 2002)).
(A) Example: Assume an application is received on December 1,
2003; the rate lock occurs on December 26, 2003, and the loan is
originated on January 15, 2004. The lender may report NA (Not
Applicable) for rate spread.
(B) Example: Assume an application is received on December 15,
2003; the rate lock occurs on January 3, 2004, and the loan is
originated on January 15, 2004. The lender must calculate and report
the rate spread in accordance with the rules in new section
202.4(a)(12) (see 67 FR 7222 (Feb. 15, 2002); 67 FR 43223 (June 27,
2002)).
* * * * *
By order of the Board of Governors of the Federal Reserve
System, acting through the Director of the Division of Consumer and
Community Affairs under delegated authority, May 21, 2003.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 03-13203 Filed 5-27-03; 8:45 am]
BILLING CODE 6210-01-P