CBA Publications >> CBA Regulatory Compliance Bulletin >> Vol 2003 No.06
May 29, 2003

Vol 2003 No. 06 May 29, 2003

Federal Reserve Issues HMDA Transition Rules

The Federal Reserve has issued transition rules in the form of amendments to the official staff commentary to Regulation C (Home Mortgage Disclosure) applicable to mortgage loan applications received before January 1, 2004, where final action is taken on or after January 1, 2004.

Background. The Federal Reserve had earlier issued revisions to Regulation C in February and June of 2002.  The more significant revisions include:

• a requirement to report the difference between the loan APR and the yield on comparable Treasury securities

• a requirement to report whether a loan is subject to the Home Ownership and Equity Protection Act (HOEPA)

• a requirement to report the loan’s lien status

• a requirement to report whether a manufactured home is involved

• inclusion of a request for preapproval in the definition of application

• revision of the definitions of home improvement loan and refinancing

• requesting monitoring data on remote applications

• conforming monitoring data to OMB standards.

These revisions were initially scheduled to take effect on January 1, 2003, but the Federal Reserve delayed the effective date of most of the changes until January 1, 2004.  The two exceptions are that, with respect to applications taken as of January 1, 2003, lenders must request monitoring data from telephone applicants, and use census tract numbers and corresponding geographic areas from the 2000 Census for all applications and loans reported on 2003 HMDA Loan Application Registers (LARs).

Transition rules.  A new comment is added to clarify the treatment of mortgage loan applications received in 2003 but where final action is taken in 2004.  Except as indicated above, lenders are not required to comply with the new rules until 2004 (that is, applications received in 2004).  But if a lender elects to comply early, it must do so for all applications. 

Preapproval requests, etc.  As to applications received in 2003, lenders are not required to indicate whether a loan involves a request for preapproval that does not result in a traditional loan application.  Use the code for “Not Applicable” in the preapproval field on the HMDA/LAR.  A lender may, but is not required to, report a request for preapproval that is denied or that is approved but not accepted.

Lenders are not required to indicate whether a pre-2004 application involves a manufactured home (report as one- to four- family).  Also, lenders may apply the current definition of home improvement loan and refinancing.  Thus, a pre-2004 application may be reported as a home improvement loan only if it is intended for home improvement and the lender classifies it as such.  (Under the revised rule, a dwelling-secured loan for home improvement purposes must be reported as a home improvement loan regardless of the lender’s classification).  As of January 1, 2004, loans for home improvement purposes that are not secured by a dwelling will continue to be reported only if the lender classifies them as home improvement loans.

For applications received in 2003 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.  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. 

Monitoring data.  For applications received in 2003 and completed in 2004, lenders must collect monitoring data using the categories in effect in 2003, and convert the data to the codes in effect in 2004.  See the conversion guide reproduced at the end of this bulletin.  If an application is provided to an applicant in 2003, is dated in 2003, but is not returned to the lender until 2004, the lender may treat the application as received in 2003.  Because the conversion rules may not be applied with respect to applications dated and received in or after 2004, lenders and brokers are responsible for ensuring that applications are taken on the appropriate form.

Rate spread.  Lenders are not required to report the rate spread for any loan in which the rate lock occurs in 2003 (report NA).  If the application is received in 2003 and the rate is locked in 2004, the new rules apply.

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.

The information contained in this CBA Regulatory Compliance Bulletin is not intended to constitute, and should not be received as, legal advice.  Please consult with your counsel for more detailed information applicable to your institution.