[Federal Register Volume 60, Number 237 (Monday, December 11, 1995)]
[Rules and Regulations]
[Pages 63393-63400]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30035]
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FEDERAL RESERVE SYSTEM
12 CFR Part 203
[Regulation C; Docket No. R-0881]
Home Mortgage Disclosure
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Final rule; staff commentary.
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SUMMARY: The Board is publishing a staff commentary that interprets the
requirements of Regulation C (Home Mortgage Disclosure). The commentary
provides guidance on issues such as the treatment under Regulation C of
prequalifications, loan applications received through a broker,
participations, refinancings, home-equity lines, and mergers. The Board
believes the commentary will help reduce burden and ease compliance by
clarifying application of the rules, providing flexibility in
compliance, and consolidating the guidance that is currently available
from a variety of sources.
DATES: Effective date. This rule is effective January 1, 1996.
Compliance date. Compliance is mandatory for collection of data
that begins January 1, 1996, which is to be submitted to supervisory
agencies no later than March 1, 1997.
FOR FURTHER INFORMATION CONTACT: Jane Jensen Gell, W. Kurt Schumacher,
or Manley Williams, Staff Attorneys, Division of Consumer and Community
Affairs, Board of Governors of the Federal Reserve System, at (202)
452-3667 or (202) 452-2412. For users of Telecommunications Device for
the Deaf (TDD), please contact Dorothea Thompson at (202) 452-3544.
SUPPLEMENTARY INFORMATION:
I. Background
The Board's Regulation C (12 CFR Part 203) implements the Home
Mortgage Disclosure Act of 1975 (HMDA) (12 U.S.C. 2801 et seq.). HMDA
requires most mortgage lenders located in metropolitan areas to collect
data about their housing-related lending activity. Lenders must file
reports annually with their federal supervisory agencies and make
disclosures available to the public. The reports and disclosures cover
loan originations, applications that do not result in originations (for
example, applications that are denied or withdrawn), and loan
purchases. Information reported includes the location of the property
to which the loan or application relates; the race or national origin,
sex, and gross annual income of the borrower or applicant; and the type
of purchaser for loans sold in the secondary market.
In June, the Board published a proposed staff commentary to
Regulation C interpreting the regulation (60 FR 30013, June 7, 1995).
The Board received approximately 130 comment letters, primarily from
financial institutions and their trade associations. The commenters
generally supported the Board's decision to develop a staff commentary
and identified a number of additional issues that would benefit from
interpretation. The commenters also made a variety of specific
suggestions on the proposal.
Based on the comments received and further analysis, the Board has
revised and reorganized many of the comments, and has made technical
and stylistic changes to clarify the interpretations. Except as
discussed below, the Board has retained the general substance of the
commentary as proposed.
The commentary compliments Appendix A (Form and Instructions for
[[Page 63394]]
Completion of HMDA Loan/Application Register) to Regulation C. Rather
than reproducing the information from Appendix A in the commentary, the
Board has incorporated that material only where necessary for clarity.
A number of commenters inquired about the status of A Guide to HMDA
Reporting--Getting It Right!--developed by member agencies of the
Federal Financial Institutions Examination Council (FFIEC) (the Office
of the Comptroller of the Currency, the Federal Deposit Insurance
Corporation, the Office of Thrift Supervision, the National Credit
Union Administration, and the Federal Reserve Board) and the Department
of Housing and Urban Development (HUD) now that the Board is publishing
a commentary to Regulation C. The Guide provides information in a more
informal manner that many commenters have found useful (for example,
its step-by-step guidance and the flow chart on coverage). In addition,
the Guide provides useful information not provided in the regulation,
such as the state and county codes for counties in Metropolitan
Statistical Areas (MSAs). Accordingly, the member agencies of the FFIEC
and HUD contemplate continuing to publish the Guide.
II. Section-by-Section Analysis
Section 203.1--Authority, Purpose, and Scope
1(c) Scope. Refinancings. Comments 1(c)-2 through -4 deal with
refinancings. Comment 1(c)-2 states that modification, extension, and
consolidation agreements (MECAs)--in which the existing obligation is
not satisfied and replaced--are not refinancings. Some commenters
suggested that the Board treat MECAs as refinancings, on the basis that
they may serve the same purpose as formal refinancings. The Board has
retained the interpretation as proposed. The Board believes that moving
from the current bright-line test for refinancings to a broader test
that would include MECAs and other types of renewals and extensions
would increase institutions' compliance burdens significantly in
determining which transactions are covered and which are not.
Comment 1(c)-3 clarifies that, for coverage purposes, an
institution may base its determination of whether a transaction is a
refinancing of a home-purchase loan on whether a first lien (as opposed
to a subordinate lien) on a dwelling is involved. For institutions that
meet the coverage test, comment 1(c)-4 makes clear that the data
collection requirement (in contrast to coverage) does not depend on
lien position.
Under both comments, an institution may always determine whether a
new transaction is a refinancing for HMDA purposes based on the actual
purpose of the existing loan. An institution also has the option to
rely on the statement of the applicant or look to the security
interest, if any.
Broker and investor institutions. The substance of proposed
comments 1(c)-5 through -10 has been adopted as proposed, although the
comments have been revised and reorganized. To address the concerns of
some commenters and to allow the consistent use of the terms ``broker''
and ``investor'' in each of the comments, comment 1(c)-5 defines a
``broker'' and ``investor'' broadly. For example, as the term is used
in the commentary a broker may or may not make the credit decision,
depending upon the circumstances. The Board has also adopted a new
comment 1(c)-9 which clarifies the reporting responsibilities of an
institution that uses an agent.
Some commenters suggested revising the proposed comments to change
the existing reporting responsibilities. Under the proposed commentary
certain brokers could show a substantial number of denials, yet have
few corresponding originations on their HMDA-LARs. This is the case
where a broker makes the decision to deny certain applications rather
than send them on to an investor for a credit decision. As a result,
the investor reports more originations and the broker more denials. A
number of commenters suggested revising this approach.
The position stated in the final commentary, like the proposal, is
consistent with Appendix A's instructions for completing the HMDA-LAR,
paragraphs IV.A.3 and IV.A.4. Prior to January 1, 1993, Regulation C
specified that the institution in whose name a loan closed reported an
origination (regardless of whether it made the credit decision), while
the institution that made the credit decision reported the denials.
Thus, a broker might report as an origination a loan that was approved
in advance by an investor. In response to public comment, and based on
its own analysis, the Board decided in 1992 that the rule for reporting
originations in brokered or correspondent situations should match the
reporting of denials--that is, the party making the credit decision
should report both originations and denials for HMDA purposes. (See the
Board's final rule revising Regulation C, at 57 FR 56963, December 2,
1992). Thus, the commentary has been adopted substantially as proposed.
Affiliate bank underwriting. In response to public comment, the
Board has added a new comment 1(c)-10 to address a pre-closing review
by an affiliate bank under 12 CFR 250.250, which interprets section 23A
of the Federal Reserve Act, Restrictions on Transactions with
Affiliates (sometimes known as a ``250.250 review''). Section 23A
limits the amount of ``covered transactions'' that a bank may engage in
with a single affiliate. As stated in 12 CFR 250.250, a bank has not
engaged in a covered transaction when it purchases a loan made by the
affiliate if the bank completes an ``independent evaluation of the
credit worthiness of the mortgagor(s)'' prior to the affiliate's
committing to make the loan and the bank promptly purchases the loan
after the loan is made. Under HMDA, when a bank conducts an
``independent credit evaluation'' of an application it must report the
action taken on the application, rather than treat the transaction as
the purchase of an originated loan.
Participations. Proposed comment 1(c)-10 would have allowed the
reporting of an institution's partial interest in a participation loan,
including interests in some consortium loans, at the institution's
option. The Board solicited comment on whether it is appropriate to
report partial interests on the HMDA-LAR in this manner. Based on the
comments and after further consideration, the Board has decided that
for the present the HMDA data should not reflect partial interests in
loans. The Board has revised the comment accordingly. Reporting partial
interests could distort the HMDA data by showing a single loan as a
number of loans (for example, if ten lenders participated in a loan
there could be as many as ten entries in HMDA-LARs). The Board may
consider amending Regulation C at a later time to allow reporting of
partial interests in loans, perhaps establishing a special code to
indicate the extent of the interest.
Assumptions. In response to public comment, the Board has adopted a
new comment 1(c)-12 dealing with assumptions. The comment adopts and
expands upon the language found in the FFIEC's
Guide to HMDA Reporting--Getting it Right!
Section 203.2--Definitions
2(b) Application. Comment 2(b)-1 has been revised to clarify that
while Board interpretations of the definition of application under
Regulation B (Equal
[[Page 63395]]
Credit Opportunity) (such as the distinction between an inquiry and an
application, and the guidance concerning application procedures) are
applicable to Regulation C, prequalification requests are not
applications for purposes of Regulation C, even though they may be
applications under Regulation B.
Comment 2(b)-2 addresses prequalification requests. Several
commenters noted that institutions sometimes process and treat
prequalification requests like other applications, to ensure that a
notice of action taken under Regulation B is sent if the request is
denied. The Board has revised comment 2(b)-2 to accommodate such
practices.
In the amendments to Regulation C issued in December 1994 (59 FR
63698, December 9, 1994), the Board deferred a final determination on
whether and how lenders ought to report requests for prequalifications
(or preapprovals). (A preapproval request is generally considered to be
a request by an applicant for a commitment from an institution to lend
a specific amount, subject to the applicant's selection of residential
property that is satisfactory to the institution. A preapproval program
may be part of or separate from the institution's mortgage loan
application program.) The Board stated that institutions need not
include data about prequalifications (or preapprovals) in their HMDA
submissions for calendar years 1994 or 1995.
Based on the comments and upon further analysis, the Board has
determined that for 1996 data collection, institutions need not report
prequalification (or preapproval) requests on the HMDA-LAR. The Board
may consider amending Regulation C at a later date to address whether
(and how) institutions should report some or all prequalification (or
preapproval) requests.
2(c) Branch office. The Board has added a new comment 2(c)-1 to
clarify that a branch office of a credit union meets the regulatory
definition even if it has not been approved as a branch by a federal or
state agency. The National Credit Union Administration, which charters
and regulates federal credit unions, does not require approval of
branch offices.
2(d) Dwelling. The Board has adopted comment 2(d)-1 substantially
as proposed. Some commenters requested guidance on whether the purchase
of a time-share is a purchase of a dwelling. Because the purchase of a
time-share is the purchase of a ``use'' interest in the property, it is
not a purchase of a dwelling for HMDA purposes. Other commenters
requested guidance on the treatment of loans on structures such as
dormitories and nursing homes. An institution need not treat these
structures as dwellings for purposes of HMDA reporting. If an
institution wishes to report the transaction it must determine that the
structure is a residential structure under state or federal law.
2(f) Home-improvement loan. The Board has deleted an example in
proposed comment 2(f)(1)-1 concerning the purchase of appliances to be
installed as fixtures. The use of the term ``fixture'' generated
numerous questions from commenters. Upon further analysis, the Board
has decided not to define the term fixture because the Board believes
the requirement that an institution classify a loan as a home-
improvement loan suffices to distinguish these loans from other home-
related consumer loans.
The Board has deleted proposed comment 2(f)(1)-2, which addressed
home-improvement loans secured by a property other than the property
being improved. Some commenters interpreted the comment to suggest that
institutions should only report secured home-improvement loans. Rather
than reiterate language from Appendix A--which instructs institutions
to report both secured and unsecured home-improvement loans--the Board
opted to delete the comment. Comment 4(a)(6)-2 addresses how to report
the property location for a home-improvement loan secured by a property
other than the property being improved.
Proposed comment 2(f)(2)-1 used the example of marketing as a means
of classifying loans. Although the comment was intended to clarify that
an institution satisfies the classification requirement if it designs
and markets a loan product as a home improvement loan product, some
commenters interpreted the comment as requiring an institution to
report all loans for which the marketing might have indicated that the
loan could be used for home-improvement. The Board has deleted the
reference because marketing practices alone will not suffice for
classifying a loan product as a home-improvement loan.
2(g) Home-purchase loan. The Board has revised the comments to
Sec. 203.2(g) in response to issues raised by commenters and to improve
clarity. For example, comments 2(g)-2 and -3 clarify that, as is the
case for home-improvement loans, an institution may use any reasonable
standard to determine a property's primary use, and may select the
standard case-by-case.
Section 203.3--Exempt Institutions
3(a) Exemption based on location, asset size, or number of home-
purchase loans. Comment 3(a)-3 addresses reporting requirements for
bulk purchases where no merger or acquisition of an institution is
involved. Several commenters expressed concerns about data quality for
these purchased loans. Commenters noted that a lender may only review a
small percentage of the total loan purchase, and be unaware that
information required to be reported on the HMDA-LAR is missing for some
loans in the bulk purchase. The Board recognizes the reporting
difficulties associated with bulk purchases, but believes that HMDA
requires the reporting of these data in an accurate and complete
manner.
Section 203.4--Compilation of Loan Data
4(a) Data format and itemization. Paragraph 4(a)(1)--Application
date. The Board has revised comments 4(a)(1)-1 and -2 to clarify that
while an institution is allowed flexibility, its approach in reporting
the application date for its entire HMDA submission should be generally
consistent (such as by routinely using one approach within a particular
division of the institution or for a category of loans).
The Board has revised comment 4(a)(1)-3 to clarify that the comment
applies to all reinstated applications (not only counteroffers and
denials).
Paragraph 4(a)(2)--Type and purpose. In response to comments on
proposed comment 2(f)(1)-4, the Board has added a new comment 4(a)(2)-1
concerning loans that are for more than one covered purpose (home
purchase, home improvement, or refinancing).
Paragraph 4(a)(3)--Occupancy. Proposed comment 4(a)(3)-1 dealt with
the occupancy status for properties located outside the MSAs in which
an institution has a home or branch office, and allowed an institution
to report the actual occupancy status. The final comment makes this
rule applicable also to a multifamily property loan. Although Appendix
A is written more narrowly, the Board believes this more permissive
rule will reduce compliance burden and will not adversely affect data
quality.
Paragraph 4(a)(4)--Loan amount. In response to requests by
commenters, the Board has added a new comment 4(a)(4)-4 concerning the
loan amount to be reported in the case of an assumption of a loan.
Proposed comment 4(a)(4)-4 has been deleted, consistent with the
position taken on the nonreporting of loan
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participations. (See discussion of comment 1(c)-11, above.)
Paragraph 4(a)(5)--Type of action taken and date. Comment 4(a)(5)-1
deals with the ``action taken'' code to be used for counteroffers. A
change has been made to illustrate that counteroffers may contain other
terms different from those initially requested besides loan amount.
Counteroffers that are not accepted by the applicant are to be reported
as denials. If there are a series of offers or counteroffers, an
institution reports only the final action taken at the conclusion of
the negotiations. In addition, in some circumstances a rejected
counteroffer that is reinstated and accepted by the applicant need not
be reported as a denial. (See comment 4(a)(1)-3.)
Comment 4(a)(5)-2 deals with rescinded transactions. Some
commenters asked whether they must consistently report the action taken
in the case of a loan rescission as either ``approved but not
accepted'' or as ``loan originated.'' The Board believes that a strict
requirement is not warranted in light of the small number of loans that
are rescinded.
Comment 4(a)(5)-4 relates to conditional approvals. The proposal
stated that if an institution approves an application subject to
conditions that are not met, the action is reported as a denial. In
response to comments, the Board has revised the comment to reflect that
not all instances of failure to satisfy conditions should be classed as
denials. For example, if a loan application is approved subject to
routine conditions such as attendance at the closing or payment of
closing costs, and such conditions are not met, the action is reported
as approved but not accepted, rather than denied. However, loan
approval subject to an underwriting condition (such as a larger
downpayment or obtaining a cosigner or guarantor) is reported as a
denial if the condition is not met.
Comment 4(a)(5)-5 gives options for reporting the date of action
taken for applications approved but not accepted. In response to
comments received, the options have been expanded.
Paragraph 4(a)(6)--Property location. In response to comments and
to improve the usefulness of the HMDA data, the Board has revised
proposed comment 4(a)(6)-1 and added a new comment to indicate that for
home-improvement loans involving multiple properties, an institution
should generally report the location of the property being improved.
Paragraph 4(a)(7)--Applicant and income data. Applicant data. The
Board has revised and reordered comments 4(a)(7)-1 through -5 for
greater guidance. For example, comment 4(a)(7)-3 clarifies that a
creditor is not required to collect monitoring information if the face-
to-face meeting occurs after the application process is complete, and
comment 4(a)(7)-4 clarifies that a joint applicant may enter the
government monitoring information on behalf of an absent co-applicant.
The Board has expanded comment 4(a)(7)-5 to address the treatment of
remote electronic application processes that use text communication
(such as Internet-based services) rather than ``live'' oral and visual
communication. Such applications are treated as mail applications.
Income data. The Board has revised and reorganized the comments
concerning the reporting of income data. For example, proposed comment
4(a)(7)-5 provided that institutions must report all income used to
make the credit decision, even if the funds were not included in the
debt-to-income ratio. Proposed comment 4(a)(7)-7 provided that an
institution should not report the income of cosigners and guarantors,
even if the creditor relied on that income in making the credit
decision. Commenters believed that guarantors' and cosigners' income
should be reported if that income was in fact relied upon by the
creditor. Several commenters noted that to do otherwise is inconsistent
with the general rule that creditors report the income relied on. Some
commenters made a distinction between cosigners, who are primarily
liable on the obligation, and guarantors, who are secondarily liable.
They suggested that an institution should report the income of
cosigners but not guarantors. Based on the comments received and upon
further analysis, the Board has revised and consolidated the proposed
comments into comment 4(a)(7)-6 to clarify that institutions report the
income of applicants and cosigners (but not guarantors) to the extent
relied upon in making the credit decision.
Paragraph 4(c) Optional data. In response to comments, comment
4(c)-1 has been modified to reflect that state regulations also may
require the reporting of the reasons for denial.
Section 203.6--Enforcement
6(b) Bona fide errors. Comment 6(b)-1 states that an error is bona
fide only if the institution maintains reasonable procedures to avoid
the error. To provide an example of reasonable procedures, the proposed
comment had used the word ``audit'' in the sense of examine and check.
Because some commenters interpreted this as a requirement to conduct a
formal audit, the Board has revised the comment.
List of Subjects in 12 CFR Part 203
Banks, banking, Consumer protection, Federal Reserve System,
Mortgages, Reporting and recordkeeping requirements.
For the reasons set forth in the preamble, the Board amends 12 CFR
part 203 as set forth below:
PART 203--HOME MORTGAGE DISCLOSURE (REGULATION C)
1. The authority citation for part 203 continues to read as
follows:
Authority: 12 U.S.C. 2801-2810.
2. Part 203 is amended by adding a new Supplement I--Staff
Commentary after the Appendices to read as follows:
Supplement I to Part 203--Staff Commentary
Introduction
1. Status and citations. The commentary in this supplement is
the vehicle by which the Division of Consumer and Community Affairs
of the Federal Reserve Board issues formal staff interpretations of
Regulation C (12 CFR part 203). The parenthetical citations given
are references to Appendix A to Regulation C, Form and Instructions
for Completion of the HMDA Loan/Application Register.
Section 203.1--Authority, Purpose, and Scope
1(c) Scope.
1. General. The comments in this section address issues
affecting coverage of institutions, exemptions from coverage, and
data collection requirements. (Appendix A of this part, I., IV., and
V.)
2. Meaning of refinancing. A refinancing of a loan is the
satisfaction and replacement of an existing obligation by a new
obligation by the same borrower. The term ``refinancing'' refers to
the new obligation. If the existing obligation is not satisfied and
replaced, but is only renewed, modified, extended, or consolidated
(as in certain modification, extension, and consolidation
agreements), the transaction is not a refinancing for purposes of
HMDA. (Appendix A of this part, Paragraph V.A.5. Code 3.)
3. Refinancing--coverage. The regulation bases coverage, in
part, on whether an institution originates home purchase loans. For
determining whether an institution is subject to Regulation C or is
exempt from coverage, an origination of a home-purchase loan
includes the refinancing of a home-purchase loan. An institution may
always determine the actual purpose of the existing obligation (for
example, by reference to available documents). (Appendix A of this
part, Paragraphs I.B., I.C., and I.D.) Alternatively, an institution
may:
i. Rely on the statement of the applicant that the existing
obligation was (or was not) a home-purchase loan; or
ii. Assume that the new obligation is not a refinancing of a
home-purchase loan if
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either the existing obligation or the new obligation is not secured by
a first lien on the dwelling.
4. Refinancing--data collection. The regulation requires
collection and reporting of data on refinancings of home-purchase
and home-improvement loans. An institution may always determine the
actual purpose of the existing obligation (for example, by reference
to available documents). (Appendix A of this part, Paragraph V.A.5.
Code 3.) Alternatively, an institution may:
i. Rely on the statement of the applicant that the existing
obligation was (or was not) a home-purchase or home-improvement
loan; or
ii. Assume that the new obligation is a refinancing of a home-
purchase or home-improvement loan only if the existing obligation
was secured by a lien on a dwelling; or
iii. Assume that the new obligation is a refinancing of a home-
purchase or home-improvement loan only if the new obligation will be
secured by a lien on a dwelling.
5. The broker rule and the meaning of ``broker'' and
``investor.'' For the purposes of the guidance given in this
commentary, an institution that takes and processes a loan
application and arranges for another institution to acquire the loan
at or after closing is acting as a ``broker,'' and an institution
that acquires a loan from a broker at or after closing is acting as
an ``investor.'' (The terms used in this commentary may have
different meanings in certain parts of the mortgage lending industry
and other terms may be used in place of these terms, for example in
the Federal Housing Administration mortgage insurance programs.)
Depending on the facts, a broker may or may not make a credit
decision on an application (and thus it may or may not have
reporting responsibilities). If the broker makes a credit decision,
it reports that decision; if it does not make a credit decision, it
does not report. If an investor reviews an application and makes a
credit decision prior to closing, the investor reports that
decision. If the investor does not review the application prior to
closing, it reports only the loans that it purchases; it does not
report the loans it does not purchase. Thus, an institution that
makes a credit decision on an application prior to closing reports
that decision regardless of whose name the loan closes in. (Appendix
A of this part, Paragraphs IV.A. and V.B.)
6. Illustrations of the broker rule. Assume that, prior to
closing, four investors receive the same application from a broker;
two deny it, one approves it, and one approves it and acquires the
loan. In these circumstances, the first two report denials, the
third reports the transaction as approved but not accepted, and the
fourth reports an origination (whether the loan closes in the name
of the broker or the investor). Alternatively, assume that the
broker denies a loan before sending it to an investor; in this
situation, the broker reports a denial. (Appendix A of this part,
Paragraphs IV.A. and V.B.)
7. Broker's use of investor's underwriting criteria. If a broker
makes a credit decision based on underwriting criteria set by an
investor, but without the investor's review prior to closing, the
broker has made the credit decision. The broker reports as an
origination a loan that it approves and closes, and reports as a
denial an application that it turns down (either because the
application does not meet the investor's underwriting guidelines or
for some other reason). The investor reports as purchases only those
loans it purchases. (Appendix A of this part, Paragraphs IV.A. and
V.B.)
8. Insurance and other criteria. If an institution evaluates an
application based on the criteria or actions of a third party other
than an investor (such as a government or private insurer or
guarantor), the institution must report the action taken on the
application (loan originated, approved but not accepted, or denied,
for example). (Appendix A of this part, Paragraphs IV.A. and V.B.)
9. Credit decision of agent is decision of principal. If an
institution approves loans through the actions of an agent, the
institution must report the action taken on the application (loan
originated, approved but not accepted, or denied, for example).
State law determines whether one party is the agent of another.
(Appendix A of this part, Paragraphs IV.A. and V.B.)
10. Affiliate bank underwriting (250.250 review). If an
institution makes an independent evaluation of the creditworthiness
of an applicant (for example, as part of a pre-closing review by an
affiliate bank under 12 CFR 250.250, which interprets section 23A of
the Federal Reserve Act), the institution is making a credit
decision. If the institution then acquires the loan, it reports the
loan as an origination whether the loan closes in the name of the
institution or its affiliate. An institution that does not acquire
the loan but takes another action reports that action. (Appendix A
of this part, Paragraphs IV.A. and V.B.)
11. Participation loan. An institution that originates a loan
and then sells partial interests to other institutions reports the
loan as an origination. An institution that acquires only a partial
interest in such a loan does not report the transaction even if it
has participated in the underwriting and origination of the loan.
(Appendix A of this part, Paragraphs I., II., IV., and V.)
12. Assumptions. An assumption occurs when an institution enters
into a written agreement accepting a new borrower as the obligor on
an existing obligation. An institution reports as a home-purchase
loan an assumption (or an application for an assumption) in the
amount of the outstanding principal. If a transaction does not
involve a written agreement between a new borrower and the
institution, it is not an assumption for HMDA purposes and is not
reported. (Appendix A of this part, Paragraphs IV.A. and V.B.)
Section 203.2--Definitions
2(b) Application.
1. Consistency with Regulation B. Board interpretations that
appear in the official staff commentary to Regulation B (Equal
Credit Opportunity, 12 CFR Part 202, Supplement I) are generally
applicable to the definition of an application under Regulation C.
However, under Regulation C the definition of an application does
not include prequalification requests. (Appendix A of this part,
Paragraph IV.A.)
2. Prequalification. A prequalification request is a request by
a prospective loan applicant for a preliminary determination on
whether the prospective applicant would likely qualify for credit
under an institution's standards, or on the amount of credit for
which the prospective applicant would likely qualify. Some
institutions evaluate prequalification requests through a procedure
that is separate from the institution's normal loan application
process; others use the same process. In either case, Regulation C
does not require an institution to report prequalification requests
on the HMDA-LAR, even though these requests may constitute
applications under Regulation B. (Appendix A of this part,
Paragraphs I. and IV.A.)
2(c) Branch office.
1. Credit union. For purposes of Regulation C, a ``branch'' of a
credit union is any office where member accounts are established or
loans are made, whether or not the office has been approved as a
branch by a federal or state agency. (See 12 U.S.C. 1752.) (Appendix
A of this part, Paragraphs I., V.A.7., and V.C.)
2. Depository institution. A branch of a depository institution
does not include a loan production office, the office of an
affiliate, or the office of a third party such as a loan broker.
(Appendix A of this part, Paragraphs I., V.A.7., and V.C.) (But see
Appendix A of this part, Paragraph V.C.7., which requires certain
depository institutions to report property location even for
properties located outside those MSAs in which the institution has a
home or branch office.)
3. Nondepository institution. A branch of a nondepository
institution does not include the office of an affiliate or other
third party such as a loan broker. (Appendix A of this part,
Paragraphs I., V.A.7., and V.C.) (But see Appendix A of this part,
Paragraph V.C.6., which requires certain nondepository institutions
to report property location even in MSAs where they do not have a
physical location.)
2(d) Dwelling.
1. Scope. The definition of ``dwelling'' is not limited to the
principal or other residence of the applicant or borrower, and thus
includes vacation or second homes and rental properties. A dwelling
also includes a mobile or manufactured home, a multifamily structure
(such as an apartment building), and a condominium or a cooperative
unit. Recreational vehicles such as boats or campers are not
dwellings for purposes of HMDA. (Appendix A of this part, Paragraphs
I.B., IV., and V.A.5.)
2(e) Financial institution.
1. Branches of foreign banks--treated as a bank. A federal
branch or a state-licensed insured branch of a foreign bank is a
``bank'' under section 3(a)(1) of the Federal Deposit Insurance Act
(12 U.S.C. 1813(a)), and is covered by HMDA if it meets the tests
for a depository institution found in Secs. 203.2(e)(1) and
203.3(a)(1) of Regulation C. (Appendix A of this part, Paragraphs
I.A. and I.B.)
2. Branches and offices of foreign banks--treated as a for-
profit mortgage lending institution. Federal agencies, state-
licensed agencies, state-licensed uninsured branches
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of foreign banks, commercial lending companies owned or controlled by
foreign banks, and entities operating under section 25 or 25(a) of
the Federal Reserve Act, 12 U.S.C. 601 and 611 (Edge Act and
Agreement corporations) are not ``banks'' under the Federal Deposit
Insurance Act. These entities are nonetheless covered by HMDA if
they meet the tests for a nondepository mortgage lending institution
found in Secs. 203.2(e)(2) and 203.3(a)(2) of Regulation C.
(Appendix A of this part, Paragraphs I.C. and I.D.)
2(f) Home-improvement loan.
1. Definition. A home-improvement loan is a loan that is made
for the purpose of home improvement and that is classified by the
institution as a home-improvement loan. (Appendix A of this part,
Paragraphs IV. and V.A.5. Code 2.)
2. Statement of the applicant. An institution may rely on the
oral or written statement of an applicant regarding the proposed use
of loan proceeds. (Appendix A of this part, Paragraphs IV. and
V.A.5. Code 2.c.)
3. Home-equity lines. An institution that has chosen to report
home-equity lines of credit reports as a home-improvement loan only
the part of a home-equity line that is intended for home
improvement. An institution that reports home-equity lines reports
the disposition of all applications, not just originations.
(Appendix A of this part, Paragraphs IV. and V.A.5. Code 2.c.)
4. Classification requirement. An institution has ``classified''
a loan as a home-improvement loan if it has entered the loan on its
books as a home-improvement loan, or has otherwise coded or
identified the loan as a home-improvement loan. For example, an
institution that has booked a loan or reported it on a ``call
report'' as a home-improvement loan has classified it as a home-
improvement loan. An institution may also classify loans as home-
improvement loans in other ways (for example, by color-coding loan
files). (Appendix A of this part, Paragraphs IV. and V.A.5. Code 2.)
5. Improvements to real property. Home improvements include
improvements both to a dwelling and to the real property on which
the dwelling is located (for example, installation of a swimming
pool, construction of a garage, or landscaping). (Appendix A of this
part, Paragraphs IV. and V.A.5. Code 2.)
6. Commercial and other loans. A loan for improvement purposes
originated outside an institution's consumer lending division (such
as a loan to improve an apartment building made through the
commercial loan department) is reported if the institution
classifies it as a home-improvement loan. (Appendix A of this part,
Paragraphs IV. and V.A.5. Code 1.)
7. Multiple-purpose loan. A loan for home improvement and for
other purposes is treated as a home-improvement loan even if less
than 50 percent of the total loan proceeds are to be used for
improvement, provided the institution classifies the loan as a home-
improvement loan. (Appendix A of this part, Paragraphs IV. and
V.A.5. Code 2.) (But see comment (2)(f)-3 of this supplement on
home-equity lines of credit.)
8. Mixed-use property. A loan to improve property used for
residential and commercial purposes (for example, a building
containing apartment units and retail space) satisfies the purpose
requirement if the loan proceeds are primarily to improve the
residential portion of the property. If the loan proceeds are to
improve the entire property (for example, to replace the heating
system), the loan satisfies the purpose requirement if the property
itself is primarily residential. An institution may use any
reasonable standard to determine the primary use of the property,
such as by square footage or by the income generated. An institution
may select the standard to apply on a case-by-case basis. To report
the loan as a home-improvement loan, the institution must also
classify it as such. (Appendix A of this part, Paragraphs IV. and
V.A.5. Code 2.)
2(g) Home-purchase loan.
1. Multiple properties. A home-purchase loan includes a loan
secured by one dwelling and used to purchase another dwelling.
(Appendix A of this part, Paragraphs IV. and V.A.5. Code 1.)
2. Mixed-use property. A loan to purchase property used
primarily for residential purposes (for example, an apartment
building containing a convenience store) is a home-purchase loan. An
institution may use any reasonable standard to determine the primary
use of the property, such as by square footage or by the income
generated. An institution may select the standard to apply on a
case-by-case basis. (Appendix A of this part, Paragraphs IV.A.,
IV.B.1., and V.A.5. Code 1.)
3. Farm loan. A loan to purchase property used primarily for
agricultural purposes is not a home-purchase loan even if the
property includes a dwelling. An institution may use any reasonable
standard to determine the primary use of the property, such as by
reference to the exemption from Regulation X (Real Estate Settlement
Procedures, 24 CFR 3500.5(b)(1)) for a loan on property of 25 acres
or more. An institution may select the standard to apply on a case-
by-case basis. (Appendix A of this part, Paragraphs IV.B.1. and
V.A.5. Code 1.)
4. Commercial and other loans. A home-purchase loan includes a
loan originated outside an institution's residential mortgage
lending division (such as a loan for the purchase of an apartment
building made through the commercial loan department). For home-
purchase loans, there is no classification test. (Appendix A of this
part, Paragraphs IV. and V.A.5. Code 1.)
5. Construction and permanent financing. A home-purchase loan
includes both a combined construction/permanent loan and the
permanent financing that replaces a construction-only loan. It does
not include a construction-only loan, which is considered
``temporary financing'' under Regulation C and is not reported.
(Appendix A of this part, Paragraphs IV.A. and B.2, and V.A.5. Code
1.)
6. Home-equity line. An institution that has chosen to report
home-equity lines of credit reports as a home-purchase loan only the
part that is intended for home purchase. An institution may rely on
the applicant's oral or written statement about the proposed use of
the funds. An institution that reports home-equity lines reports the
disposition of all applications, not just the originations.
(Appendix A of this part, Paragraphs IV. and V.A.5. Code 1.)
Section 203.3--Exempt Institutions
3(a) Exemption based on location, asset size, or number of home-
purchase loans.
1. General. An institution that ceases to meet the tests for
HMDA coverage (such as the 10 percent test for nondepository
institutions) or becomes exempt may stop collecting HMDA data
beginning with the next calendar year. For example, a bank whose
assets drop to $10 million or less on December 31 of a given year
reports data for that full calendar year, but does not report data
for the succeeding calendar year. (Appendix A of this part,
Paragraph I.)
2. Coverage after a merger. Several scenarios of data collection
responsibilities for the calendar year of a merger are described
below. Under all the scenarios, if the merger results in a covered
institution, that institution must begin data collection January 1
of the following calendar year. (Appendix A of this part, Paragraph
I.)
i. Two institutions are exempt from Regulation C because of
asset size. The institutions merge. No data collection is required
for the year of the merger (even if the merger results in a covered
institution).
ii. A covered institution and an exempt institution merge. The
covered institution is the surviving institution. For the year of
the merger, data collection is required for the covered
institution's transactions. Data collection is optional for
transactions handled in offices of the previously exempt
institution.
iii. A covered institution and an exempt institution merge. The
exempt institution is the surviving institution, or a new
institution is formed. Data collection is required for transactions
of the covered institution that take place prior to the merger. Data
collection is optional for transactions taking place after the
merger date.
iv. Two covered institutions merge. Data collection is required
for the entire year. The surviving or resulting institution files
either a consolidated submission or separate submissions for that
year.
3. Mergers versus purchases in bulk. If a covered institution
acquires loans in bulk from another institution (for example, from
the receiver for a failed institution) but no merger or acquisition
of an institution is involved, the institution reports the loans as
purchased loans. (Appendix A of this part, Paragraph V.B.)
Section 203.4--Compilation of Loan Data
4(a) Data format and itemization.
1. Quarterly updating. An institution must make a good-faith
effort to record all data concerning covered transactions--loan
originations (including refinancings), loan purchases, and the
disposition of applications that did not result in originations--
fully and accurately within 30 days after the end of each calendar
quarter. If some data are inaccurate or incomplete despite this
good-faith effort, the error or omission is not a violation of
Regulation C provided that the institution corrects and completes
the information prior to reporting the HMDA-LAR to its regulatory
agency. (Appendix A of this part, Paragraph II.E.)
2. Updating--agency requirements. Certain state or federal
regulations, such as the
[[Page 63399]]
Federal Deposit Insurance Corporation's regulations, may require an
institution to update its data more frequently than is required
under Regulation C. (Appendix A of this part, Paragraph II.E.)
3. Form of updating. An institution may maintain the quarterly
updates of the HMDA-LAR in electronic or any other format, provided
the institution can make the information available to its regulatory
agency in a timely manner upon request. (Appendix A of this part,
Paragraph II.E.)
Paragraph 4(a)(1) Application date.
1. Application date--consistency. In reporting the date of
application, an institution reports the date the application was
received or the date shown on the application. Although an
institution need not choose the same approach for its entire HMDA
submission, it should be generally consistent (such as by routinely
using one approach within a particular division of the institution
or for a category of loans). (Appendix A of this part, Paragraph
V.A.2.)
2. Application date--application forwarded by a broker. For an
application forwarded by a broker, an institution reports the date
the application was received by the broker, the date the application
was received by the institution, or the date shown on the
application. Although an institution need not choose the same
approach for its entire HMDA submission, it should be generally
consistent (such as by routinely using one approach within a
particular division of the institution or for a category of loans).
(Appendix A of this part, Paragraph V.A.2.)
3. Application date--reinstated application. If, within the same
calendar year, an applicant asks an institution to reinstate a
counteroffer that the applicant previously did not accept (or asks
the institution to reconsider an application that was denied,
withdrawn, or closed for incompleteness), the institution may treat
that request as the continuation of the earlier transaction or as a
new transaction. If the institution treats the request for
reinstatement or reconsideration as a new transaction, it report the
date of the request as the application date. (Appendix A of this
part, Paragraph V.A.2.)
Paragraph 4(a)(2) Type and purpose.
1. Purpose--multiple-purpose loan. If a loan is for home
improvement and another covered purpose, an institution reports the
loan as a home-improvement loan if the institution classifies it as
a home-improvement loan. Otherwise the institution reports the loan
as a home-purchase loan or a refinancing, as appropriate. An
institution may determine how to report such loans on a case-by-case
basis. (Appendix A of this part, Paragraphs V.A.4. and 5.)
Paragraph 4(a)(3) Occupancy.
1. Occupancy--actual occupancy status. If a loan relates to
multifamily property, property located outside an MSA, or property
in an MSA where the institution has no home or branch office, the
institution may either report the actual occupancy status or report
using the code for ``not applicable.'' (A nondepository institution
may be deemed to have a home or branch office in an MSA under
Sec. 203.2(c)(2) of Regulation C.) (Appendix A of this part,
Paragraph V.A.7.)
2. Occupancy--multiple properties. If a loan relates to multiple
properties, the institution reports the owner-occupancy status of
the property for which property location is being reported. (See the
comments to paragraphs 4(a)(6) Property location.) (Appendix A of
this part, Paragraphs V.A.6. and 7.)
Paragraph 4(a)(4) Loan amount.
1. Loan amount--counteroffer. If an applicant accepts a
counteroffer for an amount different from the amount initially
requested, the institution reports the loan amount granted. If an
applicant does not accept a counteroffer or fails to respond, the
institution reports the loan amount initially requested. (Appendix A
of this part, Paragraph V.A.8.f.)
2. Loan amount--multiple-purpose loan. Except in the case of a
home-equity line of credit, an institution reports the entire amount
of the loan, even if only a part of the proceeds is intended for
home purchase or home improvement. (Appendix A of this part,
Paragraph V.A.8.)
3. Loan amount--home-equity line. An institution that reports
home-equity lines of credit reports only the part that is intended
for home-improvement or home-purchase purposes. An institution may
rely on the applicant's oral or written statement about the proposed
use of the loan proceeds. (Appendix A of this part, Paragraph
V.A.8.c.)
4. Loan amount--assumption. An institution that enters into a
written agreement accepting a new party as the obligor on a loan
reports the amount of the outstanding principal on the assumption as
the loan amount. (Appendix A of this part, Paragraphs V.A.8.)
Paragraph 4(a)(5) Type of action taken and date.
1. Action taken--counteroffers. If an institution makes a
counteroffer to lend on terms different from the applicant's initial
request (for example, for a shorter loan maturity) and the applicant
does not accept the counteroffer or fails to respond, the
institution reports the action taken as a denial. (Appendix A of
this part, Paragraph V.B.)
2. Action taken--rescinded transactions. If a borrower rescinds
a transaction after closing, the institution, on a case-by-case
basis, may report the transaction either as an origination or as an
application that was approved but not accepted. (Appendix A of this
part, Paragraph V.B.)
3. Action taken--purchased loans. An institution reports the
loans that it purchased during the calendar year, and does not
report the loans that it declined to purchase. (Appendix A of this
part, Paragraph V.B.)
4. Action taken--conditional approvals. If an institution issues
a loan approval subject to the applicant's meeting underwriting
conditions (other than customary loan commitment or loan closing
conditions, such as a ``clear title'' requirement or an acceptable
property survey) and the applicant does not meet them, the
institution reports the action taken as a denial. (Appendix A of
this part, Paragraph V.B.)
5. Action taken date--approved but not accepted. For a loan
approved by an institution but not accepted by the applicant, the
institution reports using any reasonable date, such as the approval
date, the deadline for accepting the offer, or the date the file was
closed. Although an institution need not choose the same approach
for its entire HMDA submission, it should be generally consistent
(such as by routinely using one approach within a particular
division of the institution or for a category of loans). (Appendix A
of this part, Paragraph V.B.3.b.)
6. Action taken date--originations. For loan originations, an
institution generally reports the settlement or closing date. For
loan originations that an institution acquires through a broker, the
institution reports either the settlement or closing date, or the
date the institution acquired the loan from the broker. If the
disbursement of funds takes place on a date later than the
settlement or closing date, the institution may use the date of
disbursement. For a construction/permanent loan, the institution
reports either the settlement or closing date, or the date the loan
converts to the permanent financing. Although an institution need
not choose the same approach for its entire HMDA submission, it
should be generally consistent (such as by routinely using one
approach within a particular division of the institution or for a
category of loans). (Appendix A of this part, Paragraph V.B.3.)
Paragraph 4(a)(6) Property location.
1. Property location--multiple properties (home improvement/
refinance of home improvement). For a home-improvement loan, an
institution reports the property being improved. If more than one
property is being improved, the institution reports the location of
one of the properties or reports the loan using multiple entries on
its HMDA-LAR (with unique identifiers) and allocating the loan
amount among the properties. (Appendix A of this part, Paragraph
V.C.)
2. Property location--multiple properties (home purchase/
refinance of home purchase). For a home-purchase loan, an
institution reports the property taken as security. If an
institution takes more than one property as security, the
institution reports the location of the property being purchased if
there is just one. If the loan is to purchase multiple properties
and is secured by multiple properties, the institution reports the
location of one of the properties or reports the loan using multiple
entries on its HMDA-LAR (with unique identifiers) and allocating the
loan amount among the properties. (Appendix A of this part,
Paragraph V.C.)
3. Property location--loans purchased from another institution.
The requirement to report the property location by census tract in
an MSA where the institution has a home or branch office applies not
only to loan applications and originations but also to loans
purchased from another institution. This includes loans purchased
from an institution that did not have a home or branch office in
that MSA and did not collect the property location information.
(Appendix A of this part, Paragraph V.C.)
4. Property location--mobile or manufactured home. If
information about the potential site of a mobile or manufactured
home is not available, an institution reports using the code for
``not applicable.'' (Appendix A of this part, Paragraph V.C.)
[[Page 63400]]
5. Property location--use of BNA. At its option, an institution
may report property location by using a block numbering area (BNA).
The U.S. Census Bureau, in conjunction with state agencies, has
established BNAs as statistical subdivisions of counties in which
census tracts have not been established. BNAs are generally
identified in census data by numbers in the range 9501 to 9999.99.
(Appendix A of this part, Paragraph V.C.4.)
Paragraph 4(a)(7) Applicant and income data.
1. Applicant data--completion by applicant. An institution
reports the monitoring information as provided by the applicant. For
example, if an applicant checks the ``other'' box the institution
reports using the ``other'' code. (Appendix A of this part,
Paragraph V.D.)
2. Applicant data--completion by lender. If an applicant fails
to provide the requested information for an application taken in
person, the institution reports the data on the basis of visual
observation or surname. As stated in paragraph I.B.5 to Appendix B
of this part, the institution does not use the ``other'' code, but
selects from the categories listed on the form. (Appendix A of this
part, Paragraph V.D.)
3. Applicant data--application completed in person. When an
applicant meets in person with a lender to complete an application
that was begun by mail or telephone, the institution must request
the monitoring information. If the meeting occurs after the
application process is complete, for example, at closing, the
institution is not required to obtain monitoring information.
(Appendix A of this part, Paragraph V.D.)
4. Applicant data--joint applicant. A joint applicant may enter
the government monitoring information on behalf of an absent joint
applicant. If the information is not provided, the institution
reports using the code for ``information not provided by applicant
in mail or telephone application.'' (Appendix A of this part,
Paragraph V.D.)
5. Applicant data--video and other electronic application
processes. An institution that accepts applications through
electronic media with a video component treats the applications as
taken in person and collects the information about the race or
national origin and sex of applicants. An institution that accepts
applications through electronic media without a video component (for
example, the Internet or facsimile) treats the applications as
accepted by mail. (Appendix A of this part, Paragraph V.D.) (See
Appendix B of this part for procedures to be used for data
collection.)
6. Income data--income relied upon. An institution reports the
gross annual income relied on in evaluating the creditworthiness of
applicants. For example, if an institution relies on an applicant's
salary to compute a debt-to-income ratio, but also relies on the
applicant's annual bonus to evaluate creditworthiness, the
institution reports the salary and the bonus to the extent relied
upon. Similarly, if an institution relies on the income of a
cosigner to evaluate creditworthiness, the institution includes this
income to the extent relied upon. But an institution does not
include the income of a guarantor who is only secondarily liable.
(Appendix A of this part, Paragraph V.D.5.)
7. Income data--co-applicant. If two persons jointly apply for a
loan and both list income on the application, but the institution
relies only on the income of one applicant in computing ratios and
in evaluating creditworthiness, the institution reports only the
income relied on. (Appendix A of this part, Paragraph V.D.5.)
8. Income data--loan to employee. An institution may report
``NA'' in the income field for loans to employees to protect their
privacy, even though the institution relied on their income in
making its credit decisions. (Appendix A of this part, Paragraph
V.D.5.)
Paragraph 4(a)(8) Purchaser.
1. Type of purchaser--loan participation interests sold to more
than one entity. An institution that originates a loan, and then
sells it to more than one entity, reports the ``type of purchaser''
based on the entity purchasing the greatest interest, if any. If an
institution retains a majority interest it does not report the sale.
(Appendix A of this part, Paragraph V.E.)
4(c) Optional data.
1. Agency requirements. Certain state or federal entities, such
as the Office of Thrift Supervision, require institutions to report
the reasons for denial even though this is optional reporting under
HMDA and Regulation C. (Appendix A of this part, Paragraph V.F.)
4(d) Excluded data.
1. Loan pool. The purchase of an interest in a loan pool (such
as a mortgage-participation certificate, a mortgage-backed security,
or a real estate mortgage investment conduit or ``REMIC'') is a
purchase of an interest in a security under HMDA and is not reported
on the HMDA-LAR. (Appendix A of this part, Paragraph IV.B.5.)
Section 203.5--Disclosure and Reporting
5(a) Reporting to agency.
1. Change in supervisory agency. If the supervisory agency for a
covered institution changes (as a consequence of a merger or a
change in the institution's charter, for example), the institution
reports data to its new supervisory agency for the year of the
change and subsequent years. (Appendix A of this part, Paragraphs
I., III. and VI.)
2. Subsidiaries. An institution is a subsidiary of a bank or
savings association (for purposes of reporting HMDA data to the
parent's supervisory agency) if the bank or savings association
holds or controls an ownership interest that is greater than 50
percent of the institution. (Appendix A of this part, Paragraph I.E.
and VI.)
5(e) Notice of availability.
1. Poster--suggested text. The suggested wording of the poster
text provided in Appendix A of this part is optional. An institution
may use other text that meets the requirements of the regulation.
(Appendix A of this part, Paragraph III.G.)
Section 203.6--Enforcement
6(b) Bona fide errors.
1. Bona fide error--information from third parties. An
institution that obtains the property location information for
applications and loans from third parties (such as appraisers or
vendors of ``geocoding'' services) is responsible for ensuring that
the information reported on its HMDA-LAR is correct. An incorrect
entry for a census tract number is a bona fide error, and is not a
violation of the act or regulation, provided that the institution
maintains reasonable procedures to avoid such errors (for example,
by conducting periodic checks of the information obtained from these
third parties). (Appendix A of this part, Paragraph V.C.)
By order of the Secretary of the Board, acting pursuant to
delegated authority for the Board of Governors of the Federal
Reserve System, December 4, 1995.
William W. Wiles,
Secretary of the Board.
[FR Doc. 95-30035 Filed 12-8-95; 8:45 am]
BILLING CODE 6210-01-P
