CBA Publications >> CBA Regulatory Compliance Bulletin >> Vol 2002 No.9 June 25, 2002

Vol 2002 No. 9 June 25, 2002

Federal Reserve Issues Final HMDA Rules

The Federal Reserve has issued its final amendments to Regulation C (Home Mortgage Disclosure Act), which are intended to collect additional data associated with high cost mortgages. While the banking industry strongly opposed most of the changes, including enhanced reporting of loan pricing data, lien status, and collection of monitoring information on telephone applications, the Federal Reserve adopted the key changes as proposed with the support of a phalanx of community groups, researchers, and state, local and tribal officials.

Rate spread data. For purchase loans, refinancings, and secured home improvement loans, the originator is required report the spread between the loan APR and the Treasury yield to the extent the difference is at least 3 percent for first-lien loans or 5 percent for subordinate-lien loans. The APR (as determined when the final interest rate is set for the final time before closing) must be compared against a Treasury security of a comparable period of maturity as of the most recent (previous) 15th day of a given month, that is, the 15th day of a given month for any loan on which the interest rate was set on or after that 15th day through the 14th day of the next month.

The Federal Reserve believes these thresholds would exclude the vast majority of prime loans. To ease the burden of researching the securities, the Federal Financial Institution Examination Council (FFIEC) will publish the Treasury yield rates for common maturity periods on its website (www.ffiec.gov/hmda).

For purposes of comparing Treasury yields, lenders must refer to the date on which the loan's interest rate was set for the final time before closing. If an interest rate is set pursuant to a "lock in" agreement between the lender and the borrower, then the date on which the agreement fixes the interest rate is the date the rate was set. Note that this date is different from the procedure used for reporting Home Ownership Equity Protection Act (HOEPA or Section 32) loans, which refers to the application date.

Lien status. Lenders must report lien status on applications (regardless of whether the loan is originated) and on originations, but not on purchased loans. Such data is intended to allow the Federal Reserve and other data users to examine pricing and racial disparities according to lien status. Lien status is to be determined according to the best information readily available to the lender at the time final action is taken on an application. However, a comment has been added to the staff commentary clarifying that a lender is not required to conduct title searches solely for HMDA reporting purposes. Lenders may rely on other information they reasonably believe to be accurate, such as credit reports and applicants' statements on the application.

LAR instructions. The instructions for completing the HMDA/LAR provide three codes for indicating whether a loan or application relates to a preapproval request. Codes 1 and 2 indicate whether a preapproval for a home purchase loan was requested. Because only preapprovals for home purchase loans are covered under the final rule, lenders use code 3, "not applicable," for refinancings and home improvement loans and applications and for purchased loans of any type. §203.2(b). Code 3 should be used for home purchase loans and applications if the lender does not offer covered preapprovals. Changes arising from the yield spread reporting requirement and other conforming changes are made to the instructions.

Telephone applications. Beginning with applications taken on January 1, 2003, the rules governing the reporting of monitoring information applicable to mail and internet applications will apply to telephone applications. The Federal Reserve believes this change is necessary to stem the increasing rate of missing data resulting from the use of the telephone to receive applications, compared with those taken by mail.

Loan applicants must be advised that requesting information about ethnicity, race, and sex is mandated by the federal government to assist in the enforcement of fair lending laws, and that lenders are prohibited from discriminating on the basis of the information provided, or on the basis of the applicant's choosing to provide or not provide the information.

For applications taken beginning January 1, 2003, lenders are required to ask telephone applicants for monitoring information using the national origin or race categories in the current Appendices A and B. For applications taken on or after January 1, 2004, lenders are required to ask for monitoring information using the ethnicity and race categories in revised Appendices A and B.

Guidance on manufactured homes. The definition of manufactured homes in 12 CFR §203.2 refers to the HUD building code for factory-built housing, which generally refers to housing that is ready for occupancy upon leaving the factory and being transported to a building site. Comment 203.2(i)-1 clarifies that modular homes that meet all of the HUD code standards are included in the definition. Panelized and pre-cut homes generally do not meet the HUD code because they require a significant amount of construction on site before they are ready for occupancy.

The amendments are effective January 1, 2004, except that as noted, collection of monitoring information on telephone applications is effective for applications received as of January 1, 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, D.C. 20551, at (202)452-3667 or (202)452-2412. For users of Telecommunications Device for the Deaf (TDD) only, contact (202)263-4869.