Significant changes to Regulation C, which implements the Home
Mortgage Disclosure Act (HMDA), take effect in January 2004. These
changes, designed primarily to enhance understanding of mortgage
markets and assist in fair lending enforcement, will increase the
amount and types of public information about residential real estate
HMDA, enacted in 1975, requires certain depository institutions
and certain nondepository institutions 1/ to report
information annually about applications for and originations of
home-purchase and home-improvement loans, including the refinancings
of both types of loans. Most significantly, HMDA reporters must
provide borrower information, such as income, gender, and race or
national origin; and loan information, such as property location
and loan amount.
HMDA serves several purposes. First, it provides the public with
information on whether institutions are serving a community's housing
credit needs. Second, it helps public officials target private investments
to areas most in need. Third, it aids in the enforcement of antidiscrimination
laws and helps identify discriminatory lending patterns.
Criteria for coverage
Financial institutions meeting certain criteria are required to
report HMDA data. The most significant criterion is that the institution
must have a home or branch office in a metropolitan statistical
area (MSA). 2/ As part of the changes taking effect
in 2004, nondepository institutions will be subject to new requirements
for determining if they are covered by HMDA.
Currently, such an institution must report HMDA data if it has
an office in an MSA and its home-purchase loan originations equal
or exceed 10 percent of its dollar volume of originated loans in
the previous year. Under the 2004 changes, a mortgage-lending institution
will now also be subject to HMDA data reporting if its originated
home-purchase loans, including refinances, equaled at least $25
million in the preceding calendar year.
The Board of Governors of the Federal Reserve System (Board) implemented
this change because some nondepository institutions, despite originating
significant levels of mortgage loans, did not fall within the 10
percent HMDA coverage threshold. The Board believes that more complete
mortgage-related information will be made available by adding the
$25 million volume threshold.
New data items
Starting in 2004, HMDA reporters will need to collect additional
data items related to HMDA-reportable applications and loans. These
additional items are:
Annual percentage rate. In one of the more significant changes
to Regulation C, reporters will need to provide annual percentage
rate, or APR, information on certain originated real estate loans.
Regulation Z, which implements the Truth in Lending Act, requires
lenders to provide an APR disclosure for consumer-purpose loans,
including residential real estate loans. The APR describes the loan's
cost as an annual rate.
Under the new rules, a lender will need to report the spread between
a loan's APR and the yield on Treasury securities with a comparable
maturity if this spread equals or exceeds 3 percentage points for
first-lien loans or 5 percentage points for subordinate-lien loans.
This reporting requirement applies to home-purchase, refinance,
and dwelling-secured home-improvement loans subject to Regulation
Z. Regulation C and its appendices provide detailed guidance on
how a lender should determine and report this rate-spread information.
In making this change, the Board believed it was important to collect
some type of loan-pricing-related information through HMDA. Such
information will be valuable in evaluating fair lending concerns
related to loan pricing. The information will also enable better
analysis of mortgage markets—particularly the subprime mortgage
market, in which loan pricing practices vary significantly.
Lien status. HMDA reporters will need to identify whether
a loan is secured by a first or second lien or not secured by a
lien. Given that loan rates often vary based on lien status, the
reporting of that status should aid in the analysis of loans for
which APR information is reported.
HOEPA status. The Home Ownership Equity Protection Act (HOEPA),
adopted in 1994, covers certain high-cost mortgages whose APRs or
total costs and fees exceed certain thresholds. HOEPA requires lenders
to make disclosures that are designed to provide the borrower with
complete information on the loan's costs and terms. HOEPA also prohibits
lenders from applying certain terms to or engaging in certain practices
related to these types of loans.
The new rules require HMDA reporters to indicate whether a loan
is subject to HOEPA. This requirement will enhance regulators' understanding
of the subprime mortgage market, given that many loans subject to
HOEPA are considered subprime mortgages.
Manufactured home status. HMDA reporters will need to report
whether an application or loan involves manufactured housing, as
determined by a U.S. Department of Housing and Urban Development
regulation that establishes construction and safety standards for
The availability of manufactured housing information will improve
the value of HMDA data, given that most institutions underwrite
such loans differently from other types of housing loans. Loans
for manufactured housing also tend to have higher denial rates,
thus making the information valuable for evaluating an institution's
fair lending performance.
Preapproval request information.In some real estate loan
transactions, a lender may preapprove or commit to making a mortgage
loan to a customer once the customer identifies an acceptable property.
Under current HMDA rules, if a preapproval request results in an
origination, the origination—not the preapproval—is reported under
Under the new rules, lenders will need to report denied preapproval
requests if the preapproval is reviewed under a program meeting
certain criteria. Lenders will also need to identify whether a loan
or application involved a preapproval request for a home-purchase
loan. In order for a request to be considered a preapproval under
HMDA, the lender must complete the following steps:
- conduct a comprehensive analysis of the applicant's creditworthiness;
- issue a written commitment for a home-purchase loan;
- make the commitment valid for a designated period of time; and
- agree to make a home-purchase loan under the commitment, up
to a specified amount.
To be considered a preapproval, the written commitment may include
limited conditions discussed in the regulation. The lender has the
option of reporting preapproval requests that are approved but not
accepted by the applicant.
The Board's changes to the reporting of preapproval requests stem
from its belief that requests reviewed under a highly structured
program—such as the one described above—would be considered applications
under Regulation C and, thus, should be reported.
Finally, the categories under which HMDA reporters collect information
on borrowers will change in 2004. Currently, Regulation C requires
that lenders collect and report information on an applicant's race
or national origin. Such information aids regulators and others
in helping to identify lending practices that might be discriminatory.
The changes taking effect in 2004 will add a new category for ethnicity;
race will become a separate category. Designations for "Hispanic
or Latino" and "Not Hispanic or Latino" will appear
under the ethnicity category. The race category will contain five
designations: American Indian or Alaska Native; Asian; Black or
African American; Native Hawaiian or Other Pacific Islander; and
White. "Other" will no longer be an option under the race
category. The changes will make the collection of ethnicity and
race information consistent with Office of Management and Budget
guidelines titled "Standards for Maintaining, Collecting, and
Presenting Federal Data on Race and Ethnicity."
The two final rules that implement these amendments are posted
on the Board's Web site at www.federalreserve.gov/boarddocs/press/bcreg/2002/20020621/
default.htm and www.federalreserve.gov/boarddocs/press/
Two terms are redefined
The definitions of two important terms will change when the
Regulation C amendments take effect in 2004.
Refinancing. Under Regulation C, refinancings of home-purchase
and home-improvement loans must be reported. The regulation
defines a refinancing as a loan that satisfies and replaces
an existing obligation by the same borrower.
Currently, HMDA reporters may choose among four scenarios
in determining which refinances to report. In order to make
the data more consistent, the Board amended this definition.
In 2004, a refinancing will be defined as a transaction in
which a new obligation satisfies and replaces an existing
obligation with the same borrower, where both the existing
and the new loans are secured by a dwelling.
Home-improvement loan. Currently, a "home-improvement
loan" under Regulation C is a loan that:
- is for the purpose, in whole or in part, of repairing,
rehabilitating, remodeling or improving a dwelling or the
real property on which it is located; and
- is classified by the financial institution as a home-improvement
Under the new rules, the definition of home-improvement loan
will differ depending on whether or not the loan is secured
by a dwelling. For those loans not secured by a dwelling,
the definition above will still apply. As such, the bank will
be required to report only those nondwelling-secured home-improvement
loans that it chooses to classify as home-improvement loans
in its loan system or elsewhere.
For dwelling-secured home-improvement loans, the bank will
need to report any such loans made for the purpose of repairing,
rehabilitating, remodeling or improving a dwelling or the
real property on which it is located. Regulation C will require
the reporting of all such loans, even if the institution does
not classify the loan as a home-improvement loan in its loan
system or elsewhere. This change should help ensure more consistent
reporting of home-improvement data and aid the evaluation
of such information.
Karin Modjeski Bearss is a senior examiner in the Consumer Affairs
section of the Banking Supervision Department at the Federal Reserve
Bank of Minneapolis.