Home Mortgage Disclosure (Regulation C)

Federal RegisterAug 29, 2014

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BUREAU OF CONSUMER FINANCIAL PROTECTION

12 CFR Part 1003

[Docket No. CFPB-2014-0019]

RIN 3170-AA10

Home Mortgage Disclosure (Regulation C)

AGENCY:

Bureau of Consumer Financial Protection.

ACTION:

Proposed rule with request for public comment.

SUMMARY:

The Bureau of Consumer Financial Protection (Bureau) is publishing for public comment a proposed rule amending Regulation C to implement amendments to the Home Mortgage Disclosure Act (HMDA) made by section 1094 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). Consistent with section 1094 of the Dodd-Frank Act, the Bureau proposes to add several new reporting requirements and to clarify several existing requirements. The Bureau is also proposing changes to institutional and transactional coverage under Regulation C.

DATES:

Comments must be received on or before October 29, 2014.

ADDRESSES:

You may submit comments, identified by Docket No. CFPB-2014-0019 or RIN 3170-AA10, by any of the following methods:

•

Email:

FederalRegisterComments@cfpb.gov

•

Electronic: http://www.regulations.gov

. Follow the instructions for submitting comments.

•

Mail:

Monica Jackson, Office of the Executive Secretary, Consumer Financial Protection Bureau, 1700 G Street NW., Washington, DC 20552.

•

Hand Delivery/Courier:

Monica Jackson, Office of the Executive Secretary, Consumer Financial Protection Bureau, 1275 First Street NE., Washington, DC 20002.

Instructions:

All submissions should include the agency name and docket number or Regulatory Information Number (RIN) for this rulemaking. Because paper mail in the Washington, DC area and at the Bureau is subject to delay, commenters are encouraged to submit comments electronically. In general, all comments received will be posted without change to

http://www.regulations.gov

. In addition, comments will be available for public inspection and copying at 1275 First Street NE., Washington, DC 20002, on official business days between the hours of 10 a.m. and 5 p.m. Eastern Time. You can make an appointment to inspect the documents by telephoning (202) 435-7275.

All comments, including attachments and other supporting materials, will become part of the public record and subject to public disclosure. Sensitive personal information, such as account numbers or Social Security numbers, should not be included. Comments will not be edited to remove any identifying or contact information.

FOR FURTHER INFORMATION CONTACT:

David Jacobs, Terry J. Randall, or James Wylie, Counsels; or Elena Grigera Babinecz, Joan Kayagil, Thomas J. Kearney, Amanda Quester, or Laura Stack, Senior Counsels, Office of Regulations, at (202) 435-7700.

SUPPLEMENTARY INFORMATION:

I. Summary of Proposed Rule

For almost 40 years, HMDA

has provided the public with information about how financial institutions are serving the housing needs of their communities. This information has helped to promote access to fair credit in the housing market. Section 1094 of the Dodd-Frank Act amended HMDA to improve the utility of the HMDA data and revise Federal agency rulemaking and enforcement authorities.

The Bureau views implementation of the Dodd-Frank Act changes to HMDA as an opportunity to assess other ways to improve upon the data collected, reduce unnecessary burden on financial institutions, and streamline and modernize the manner in which financial institutions collect and report HMDA data. Accordingly, the Bureau is proposing to implement the Dodd-Frank Act amendments and to make other changes in the Bureau's Regulation C,

which implements HMDA.

12 U.S.C. 2801-2810.

Dodd-Frank Act, Public Law 111-203, section 1094, 124 Stat. 1376, 2097 (2010).

12 CFR part 1003.

Specifically, the Bureau is proposing several changes to revise the tests for determining which financial institutions and housing-related credit transactions are covered under HMDA. The Bureau also is proposing to require financial institutions to report new data points identified in the Dodd-Frank Act, as well as other data points that the Bureau believes may be necessary to carry out the purposes of HMDA. Further, the Bureau is proposing to better align the requirements of Regulation C to existing industry standards where practicable. To improve the quality and timeliness of HMDA data, the Bureau is proposing to require financial institutions with large numbers of reported transactions to submit their HMDA data on a quarterly, rather than an annual, basis. To minimize costs to HMDA reporters associated with making certain data available to the public, the Bureau is proposing that reporters may direct members of the public to a publicly available Web site to obtain the data. The Bureau is also proposing several changes to clarify and provide additional guidance on existing requirements of Regulation C that financial institutions and other stakeholders have identified as confusing or unclear. The Bureau solicits public comment on all issues involved with this proposal, including each of its specific proposals to amend Regulation C.

A. Proposed Modifications to Institutional and Transactional Coverage

The Bureau is proposing modifications to institutional and transactional coverage to better achieve HMDA's purposes in light of current market conditions and to reduce unnecessary burden on financial institutions. The Bureau is proposing to adjust Regulation C's institutional coverage test to simplify the institutional coverage requirements by adopting, for all financial institutions, a uniform loan-volume threshold of 25 loans. Currently, Regulation C contains different coverage criteria for depository institutions (banks, savings associations, and credit unions) and nondepository institutions. Depository institutions that originate one first-lien home purchase loan or refinancing secured by a one-to-four family dwelling and that meet other criteria for a financial institution under Regulation C must collect and report HMDA data, while some nondepository institutions that originate as many as 99 home purchase loans, including refinancings of home purchase loans, annually do not have to collect and report HMDA data.

Under the proposal, depository and nondepository institutions that meet all other criteria for a financial institution under Regulation C would be required to report HMDA data if they originated 25 covered loans, excluding open-end lines of credit, in the previous calendar year. The Bureau believes that this proposal would improve the quality of HMDA data by increasing visibility into the practices of nondepository institutions. In addition, the Bureau is concerned that the requirement for depository institutions to report even if they originate only one mortgage loan may impose costs not justified by the benefits. The proposal would relieve depository institutions that originate a small number of mortgage loans from

the burden of reporting HMDA data without significantly impacting the data's quality for analysis at the national, community, or institutional level.

The proposed modifications to institutional coverage are discussed in more detail below in the section-by-section analysis of proposed § 1003.2(g).

The Bureau is also proposing to generally expand the types of transactions subject to Regulation C, while eliminating the requirement to report unsecured home improvement loans. Currently, Regulation C requires reporting of three types of loans: home purchase, home improvement, and refinancing. Reverse mortgages that are home purchase loans, home improvement loans, or refinancings are reported under Regulation C, but they are not separately identified and many data points do not currently account for the features of reverse mortgages. Home-equity lines of credit may be reported at financial institutions' option, but are not required to be reported. As a result, HMDA data currently contains gaps in data regarding important segments of the housing market.

Under the proposal, financial institutions generally would be required to report all closed-end loans, open-end lines of credit, and reverse mortgages secured by dwellings. Unsecured home improvement loans would no longer be reported. Thus, financial institutions would no longer be required to ascertain an applicant's intended purpose for a dwelling-secured loan to determine if the loan is required to be reported under Regulation C, though they would still itemize dwelling-secured loans by different purpose when reporting. Certain types of loans would continue to be excluded from Regulation C requirements, including loans on unimproved land and temporary financing. Reverse mortgages and open-end lines of credit would be identified as such to allow for differentiation from other loan types. Further, many of the data points would be modified to take account of the characteristics of, and to clarify reporting requirements for, different types of loans. The Bureau believes these proposals will yield more consistent and useful data and better align Regulation C with the current housing finance market.

Covered loans generally are discussed in more detail below in the section-by-section analysis of proposed § 1003.2(e). Home improvement loans are discussed in more detail below in the section-by-section analysis of proposed § 1003.2(i). Open-end lines of credit and home-equity lines of credit are discussed in more detail below in the section-by-section analyses of proposed §§ 1003.2(o), 1003.4(a)(37), 1003.4(a)(39), and 1003.4(c)(3). Reverse mortgages are discussed in more detail below in the section-by-section analyses of proposed §§ 1003.2(q) and 1003.4(a)(36).

B. Proposed Modifications to Reportable Data Requirements

The Bureau believes that it can make HMDA compliance and data submission easier for HMDA reporters by aligning, to the extent practicable, Regulation C requirements with existing industry standards for collecting and transmitting data on mortgage loans and applications. Therefore, the Bureau is proposing to align many of the HMDA data requirements with the widely-used Mortgage Industry Standards Maintenance Organization (MISMO) data standards for residential mortgages.

The Bureau believes that having consistent data standards for both industry and regulatory use promotes regulatory compliance, improves regulatory clarity, market efficiency, and data utility.

MISMO is the federally registered service mark of the Mortgage Industry Standards Maintenance Organization, a wholly-owned subsidiary of the Mortgage Bankers Association.

The use of data standards, and the MISMO data standards in particular, are discussed in more detail below in part II.B.

The Bureau is proposing to add new data points to the reporting requirements established in Regulation C, as well as to modify certain existing data points. Some of the new data points are specifically identified by the Dodd-Frank Act. Others are proposed pursuant to the Bureau's discretionary rulemaking authority to carry out the purposes of HMDA by addressing data gaps. The data points that the Bureau is proposing to add or modify can be grouped into four broad categories:

• Information about applicants, borrowers, and the underwriting process, such as age, credit score, debt-to-income ratio, reasons for denial if the application was denied, the application channel, and automated underwriting system results.

• Information about the property securing the loan, such as construction method, property value, lien priority, the number of individual dwelling units in the property, and additional information about manufactured and multifamily housing.

• Information about the features of the loan, such as additional pricing information, loan term, interest rate, introductory rate period, non-amortizing features, and the type of loan.

• Certain unique identifiers, such as a universal loan identifier, property address, loan originator identifier, and a legal entity identifier for the financial institution.

The data points the Bureau is proposing to add or modify are discussed in more detail below in the section-by-section analysis of proposed § 1003.4(a).

C. Proposed Modifications to Disclosure and Reporting Requirements

Regulation C requires financial institutions to submit their HMDA data to the appropriate Federal agency by March 1 following the calendar year for which the data are compiled. The Bureau is proposing to require financial institutions that report large volumes of HMDA data to submit their data to the appropriate agency on a quarterly, rather than an annual basis. The Bureau believes that quarterly reporting would allow regulators to use the data to effectuate the purposes of HMDA in a more timely and effective manner, would reduce reporting errors and improve the quality of HMDA data, and may facilitate the earlier release of annual HMDA data to the public.

Quarterly reporting is discussed in more detail below in the section-by-section analysis for proposed § 1003.5(a).

The Bureau also is proposing to allow HMDA reporters to make their disclosure statements available by referring members of the public that request a disclosure statement to a publicly-available Web site. Currently, a financial institution is required to make its disclosure statement available to the public in its home offices and, in addition, to either make it available in certain branch offices or to post notice of its availability and provide it in response to a written request. The Bureau believes that this proposal will facilitate public access to HMDA data while minimizing burdens to financial institutions.

The disclosure statement is discussed in more detail below in the section-by-section analysis for proposed § 1003.5(b).

D. Proposed Modifications To Clarify the Regulation

Financial institutions and other stakeholders have, over time, identified aspects of Regulation C that are unclear or confusing. The Bureau believes that the implementation of the Dodd-Frank Act amendments is an opportunity to address many of these longstanding issues through improvements to the regulatory provisions, the instructions in appendix A, and the staff commentary. Examples of these clarifications include guidance on what types of residential structures are considered dwellings; the treatment of manufactured and modular homes and multiple properties; coverage of preapproval programs and temporary financing; how to report a transaction that involved multiple financial institutions; reporting the action taken

on an application; and reporting the type of purchaser for a covered loan.

The proposed guidance is discussed throughout the section-by-section analysis.

II. Background

A. HMDA's Role in the Mortgage Market

Overview of HMDA and Regulation C

The Home Mortgage Disclosure Act (HMDA), 12 U.S.C. 2801

et seq.,

requires certain depository institutions and for-profit nondepository institutions to collect, report, and disclose data about originations and purchases of mortgage loans, as well as mortgage loan applications that do not result in originations (for example, applications that are denied or withdrawn). As originally adopted, HMDA identifies its purposes as providing the public and public officials with information to help determine whether financial institutions are serving the housing needs of the communities in which they are located, and to assist public officials in their determination of the distribution of public sector investments in a manner designed to improve the private investment environment.

Congress later expanded HMDA to, among other things, require financial institutions to report racial characteristics, gender, and income information on applicants and borrowers.

In light of these amendments, the Board of Governors of the Federal Reserve System (Board) subsequently recognized a third HMDA purpose of identifying possible discriminatory lending patterns and enforcing antidiscrimination statutes, which now appears with HMDA's other purposes in Regulation C.

HMDA section 302(b), 12 U.S.C. 2801(b);

see also

12 CFR 1003.1(b)(1)(i)-(ii).

Financial Institutions Reform, Recovery, and Enforcement Act of 1989, Public Law 101-73, section 1211 (“Fair lending oversight and enforcement” section), 103 Stat. 183, 524-26 (1989).

54 FR 51356, 51357 (Dec. 15, 1989),

codified at

12 CFR 1003.1(b)(1).

The Bureau's Regulation C, 12 CFR part 1003, implements HMDA. Regulation C currently requires depository institutions (

i.e.,

banks, savings associations, and credit unions) and for-profit nondepository mortgage lending institutions to submit and publicly disclose certain HMDA data if they meet criteria set forth in the rule. Whether a depository institution is required to report and publicly disclose data depends on its asset size, the location of its home and branch offices, the extent to which it engages in residential mortgage lending, and the extent to which the institution or its loans are federally-related. Whether a for-profit nondepository mortgage lending institution is required to report and publicly disclose data depends on its size, the location of its home and branch offices, including the extent of its business in metropolitan statistical areas (MSAs), and the extent to which it engages in residential mortgage lending.

Covered financial institutions are required to report originations and purchases of mortgage loans (home purchase and refinancing) and home improvement loans, as well as loan applications that do not result in originations. The information reported under Regulation C currently includes, among other items: application date; loan or application type, purpose, and amount; property location and type; race, ethnicity, sex, and annual income of the loan applicant; action taken on the loan application (approved, denied, withdrawn, etc.), and date of that action; whether the loan is subject to the Home Ownership and Equity Protection Act of 1994 (HOEPA); lien status (first lien, subordinate lien, or unsecured); and certain loan price information.

Financial institutions report HMDA data to their supervisory agencies on an application-by-application basis using a register format referred to as the loan application register. Institutions must make their loan application registers available to the public, with certain fields redacted to preserve applicants' and borrowers' privacy. At present, the Federal Financial Institutions Examination Council (FFIEC),

on behalf of the supervisory agencies, compiles the reported data and prepares an individual disclosure statement for each institution and aggregate reports for all covered institutions in each metropolitan area. These disclosure statements and reports are available to the public. On behalf of the agencies, the FFIEC also annually releases a loan-level dataset containing all reported HMDA data for the preceding calendar year with certain fields redacted to protect the privacy of applicants and borrowers.

The FFIEC is a formal interagency body empowered to prescribe uniform principles, standards, and report forms for the Federal examination of financial institutions by the Bureau, the Board, the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), and the Office of the Comptroller of the Currency (OCC), and to make recommendations to promote uniformity in the supervision of financial institutions. In 2006, the State Liaison Committee was added to the Council as a voting member.

History of HMDA's Role in the Mortgage Market

For nearly 40 years, HMDA has provided the public with information about mortgage lending activity within communities throughout the nation. Public officials use the information available through HMDA to develop and allocate housing and community development investments,

to respond to market failures when necessary,

and to monitor whether financial institutions may be engaging in discriminatory lending practices.

The data are used by the mortgage industry to inform business practices,

and by

local communities to ensure that lenders are serving the needs of individual neighborhoods.

To maintain the data's usefulness, HMDA and Regulation C have been updated and expanded over time in response to the changing needs of homeowners and evolution in the mortgage market. What is currently a critical source of nationwide home finance information began as a method of empowering neighborhoods by providing visibility into community mortgage lending practices.

As one example of many, in 2008 the City of Albuquerque used HMDA data to characterize neighborhoods as “stable,” “prone to gentrification,” or “prone to disinvestment” for purposes of determining the most effective use of housing grants.

See

City of Albuquerque, Five Year Consolidated Housing Plan and Workforce Housing Plan 100 (2008),

available at http://www.cabq.gov/family/documents/ConsolidatedWorkforceHousingPlan20082012final.pdf

. As another example, Antioch, California, monitors HMDA data, reviews it when selecting financial institutions for contracts and participation in local programs, and supports home purchase programs targeted to households purchasing homes in Census Tracts with low loan origination rates based on HMDA data.

See

City of Antioch, California, Fiscal Year 2012-2013 Action Plan 29 (2012),

http://www.ci.antioch.ca.us/CitySvcs/CDBGdocs/Action%20Plan%20FY12-13.pdf

. Similarly, Lawrence, Massachusetts, identified a need for homebuyer counseling and education based on HMDA data, which showed a high percentage of high-cost loans compared to surrounding communities.

See

City of Lawrence, Massachusetts, HUD Consolidated Plan 2010-2015, at 68 (2010),

http://www.cityoflawrence.com/Data/Sites/1/documents/cd/Lawrence_Consolidated_Plan_Final.pdf

For example, under section 2301 of the Housing and Economic Recovery Act of 2008, Public Law 110-289, 122 Stat. 2654 (July 30, 2008), the U.S. Department of Housing and Urban Development (HUD) created the Neighborhood Stabilization Program. Under this program, funds were provided for stabilizing communities that suffered from foreclosures and abandonment. The statute required HUD to swiftly devise a funding formula based on foreclosures, subprime loans, and loans in default or delinquency. HMDA data on loans, and particularly high-cost loans, in communities were used to develop the formula.

See

http://portal.hud.gov/hudportal/documents/huddoc?id=DOC_14172.pdf

See, e.g.,

Yana Kunichoff,

Lisa Madigan Credits Reporter with Initiating Largest Discriminatory Lending Settlements in U.S. History

(June 14, 2013),

http://www.chicagonow.com/chicago-muckrakers/2013/06/lisa-madigan-credits-reporter-with-initiating-largest-discriminatory-lending-settlements-in-u-s-history/

(“During our ongoing litigation . . . the Chicago Reporter study looking at the HMDA data for the City of Chicago came out. . . . It was such a startling statistic that I said . . . we have to investigate, we have to find out if this is true. . . . We did an analysis of that data that substantiated what the Reporter had already found. . . . [W]e ultimately resolved those two lawsuits. They are the largest fair-lending settlements in our nation's history.”); Press Release, New York State Office of the Attorney General,

Attorney General Cuomo Obtains Approximately $1 Million For Victims Of Greenpoint's Discriminatory Lending Practices

(July 16, 2008),

http://www.ag.ny.gov/press-release/attorney-general-cuomo-obtains-approximately-1-million-victims-greenpoints

(describing settlement arising from review of HMDA data).

“I have been analyzing HMDA data for 14 years and believe that HMDA is an invaluable tool to

understand how the mortgage market works in practice. Our HMDA work at [the Mortgage Bankers Association] helps our members reach new customers and develop products and underwriting tools to better serve new and established portions of the market.”

Home Mortgage Disclosure Act: Newly Collected Data and What It Means, Hearing Before the Subcomm. on Fin. Servs. and Consumer Credit of the H. Comm. on Fin. Servs.,

109th Cong. (2006) (oral testimony of Douglas G. Duncan, Senior Vice President and Chief Economist, Research and Business Development, Mortgage Bankers Ass'n),

available at http://www.gpo.gov/fdsys/pkg/CHRG-109hhrg31528/html/CHRG-109hhrg31528.htm

“In recent years . . . scores of community groups have used HMDA data to document the emergence and dramatic expansion of the subprime mortgage market and its concentration in minority communities.”

Home Mortgage Disclosure Act: Newly Collected Data and What It Means, Hearing Before the Subcomm. on Fin. Servs. and Consumer Credit of the H. Comm. on Fin. Servs.,

109th Cong. 4 (2006) (written testimony of Calvin Bradford, President, Calvin Bradford Associates, Ltd., on behalf of the Nat'l Fair Hous. Alliance),

available at http://archives.financialservices.house.gov/media/pdf/061306cb.pdf

Community Deterioration and Access to Mortgage Credit.

In the decades that followed World War II, the standard of living sharply declined in many U.S. cities as people left central cities for the suburbs. A significant cause of this decline was the gradual deterioration in the urban housing supply. Congress committed to improving the nation's housing stock in the Housing Act of 1949, which established a goal of “a decent home and suitable living environment for every American family” through development and redevelopment of communities and elimination of slums and blighted areas.

To achieve this goal, Congress envisioned a partnership between private enterprise, governments, and local public bodies.

However, during the 1950s, construction of new housing happened overwhelmingly outside the central cities.

Housing Act of 1949, Public Law 81-171, section 2, 63 Stat. 413 (1949).

Id.

The National Advisory Commission on Civil Disorders,

The Kerner Report: The 1968 Report of the National Advisory Commission on Civil Disorders

467 (Pantheon Books, 1988) [hereinafter

The Kerner Report

By the 1960s, despite improvements in the housing supply throughout the country, there were neighborhoods and areas within many cities where the housing situation continued to deteriorate.

During the 1960s, several efforts were made to improve urban housing. These efforts included the creation of the U.S. Department of Housing and Urban Development (HUD) and its elevation to cabinet-level agency status in 1965.

In addition, Congress enacted the Fair Housing Act of 1968, which prohibited discrimination in the sale, rental, or financing of housing.

However, by the 1970s it was clear that the lack of credit in urban communities was one of the major factors contributing to the decline in these communities.

Id.

HUD replaced the Housing and Home Finance Agency. Congress elevated the agency to cabinet-level status in order to more effectively coordinate affordable housing and urban renewal programs. Department of Housing and Urban Development Act, Public Law 89-174, section 3, 79 Stat. 667 (1965).

Civil Rights Act of 1968, Public Law 90-284, title VIII, 82 Stat. 73 (1968). Segregation, discrimination, and poverty had prevented minorities from moving to the suburbs and achieving the economic gains and improved housing conditions that other Americans had, and they disproportionately bore the burden of the deteriorating urban housing stock.

See The Kerner Report

at 467.

Congressional hearings revealed that many financial institutions were unwilling to provide mortgage loans for the purchase of homes in urban areas.

In many cases, potential homebuyers were told by their financial institution that financing would not be available for an existing urban home, but a mortgage loan could be provided for a new home in the suburbs.

In other cases, financial institutions were willing to provide mortgage loans for homes located in both urban and suburban areas, but the cost of credit for the urban home was significantly higher than that for the suburban home.

As a result of these practices, the supply of buyers for urban homes dwindled, weakening the urban real estate market and contributing to a decline in the value of urban homes.

“The Committee heard from neighborhood representatives, community leaders and public officials from fifteen major cities in which disinvestment in older neighborhoods is considered a serious problem.” Comm. on Banking, Hous. and Urban Affairs, report on S. 1281, Home Mortgage Disclosure Act of 1975, S. Rep. 94-187, at 279 (1975).

“Typically, a potential buyer with a good credit rating attempting to purchase a sound home in an older urban neighborhood often meets a cool reception from local lenders. . . . Conversely, the same buyer finds 90 percent-30 year mortgages plentiful in the adjoining suburbs.”

Id.

at 280.

“A [Milwaukee] resident was told by a loan officer that she could get only a 12 year mortgage because of the age of the property and its location. `Go west of 60th Street and then we can talk 20 to 25 years.' ”

Id.

at 283.

The unavailability of home improvement financing also was a significant problem. Financial institutions generally were unwilling to provide home improvement loans, which tend to be smaller and less risky than home purchase loans, in urban neighborhoods.

Some financial institutions adopted policies that prohibited financing secured by homes beyond a certain age or other proxies for year of construction.

As a result, urban residents were unable to obtain financing to maintain, repair, or remodel their homes.

As these homes fell into disrepair, appraisers under-valued them, potential buyers found them less attractive, and financial institutions viewed them as riskier, thereby contributing to a cycle of neighborhood decline.

Id.

at 280.

“[Baltimore] lending institutions adopted policies related to property that eliminated a large segment of city houses on the market, e.g. loans not available on houses over 20 years old or those which are less than 18 feet wide. By the way, almost two-thirds of [Baltimore] houses were built before 1939, and many . . . are row houses 12, 14, and 16 feet wide.”

Id.

at 285.

“Home improvement loans become difficult if not impossible to obtain, causing housing to deteriorate prematurely. Prospective home buyers are encouraged to buy their home in a new suburban development rather than in an urban neighborhood which according to the lending official is on the decline. Existing homeowners begin to panic and sell to speculators.” Comm. on Banking, Currency and Hous. Report on H.R. 10024, Depository Institutions Amendments of 1975, H. Rep. 94-561, at 117 (1975).

Id.

“Given the lack of money to make the necessary repairs, the neighborhood rapidly takes on the characteristics of a slum—severe property maintenance problems, high rate of foreclosures, housing abandonment, not to mention the attendant negative social and economic consequences for the area. Owner/occupants representing good, stable families move out; absentee landlords and speculators move in. The prophecy fulfills itself.”

Id. See generally

S. Rep. 94-187, at 307.

While these market failures were generally acknowledged and understood, Congress was unable to determine the extent and severity of the situation.

Over the course of several hearings, representatives from industry, communities, and various Federal agencies provided wide-ranging testimony as to the scope of the problem, and these witnesses generally cited a lack of reliable data as an

impediment to finding a solution.

To address the lack of reliable data, Congress enacted HMDA in 1975.

The Board implemented HMDA by promulgating Regulation C in 1976.

With respect to home improvement loans: “Despite intensive efforts to devise a way to measure rehabilitation activity, we have not been successful in developing a feasible system, primarily due to the fact that there is no known way to measure the volume or quality of private rehabilitation efforts.” H. Rep. 94-561, at 115. With respect to home purchase loans, Congress identified difficulties in analyzing claims regarding disinvestment, which it believed “illustrate[d] the need for reliable data, which can be obtained only through disclosure.” S. Rep. 94-187, at 287.

See

H. Rep. 94-561, at 116.

Public Law 94-200, sections 301-310, 89 Stat. 1124, 1125-28 (1975). HMDA was originally set to expire after four years, but was temporarily extended several times before Congress made it permanent in 1988. Public Law 100-242, section 565, 101 Stat. 1815, 1945 (1988).

41 FR 23931 (June 14, 1976). The Board also issued interpretations in 1977 to clarify two aspects of the rule. 42 FR 19123 (Apr. 12, 1977).

As originally enacted and implemented, HMDA applied to depository institutions with over $10,000,000 in assets that made federally related mortgage loans and that were located in standard metropolitan statistical areas.

HMDA required the disclosure of the number and dollar amount for both home improvement loans and residential mortgage loans, broken down into a number of categories.

Depository institutions were required to make their mortgage loan disclosure statements available to the public for copying and inspection.

41 FR 23931, 23936-38 (June 14, 1976).

Id.

Deteriorating urban housing conditions and inadequate private investment led Congress to enact other laws as well. These laws included the Housing and Community Development Act of 1974, which allocated funds to States and units of general local development to address urban conditions,

and the Community Reinvestment Act of 1977 (CRA), which was intended to ensure that depository institutions were meeting the credit needs of their communities.

In conjunction with laws such as these, HMDA was intended to promote neighborhood stability by empowering communities through information disclosure.

Public Law 93-383, section 101, 88 Stat. 633 (1974) (“The Congress finds and declares that the Nation's cities, towns, and smaller urban communities face critical social, economic and environmental problems arising in significant measure from . . . inadequate public and private investment and reinvestment in housing . . . resulting in the growth and persistence of urban slums and blight and the marked deterioration of the quality of the urban environment.”)

12 U.S.C. 2901-2908. “The [CRA] reflected the congressional judgment that many banks were neglecting important credit needs within their communities and that regulators' efforts were inadequate to deter banks from continuing to engage in these practices.” Allen Fishbein,

The Ongoing Experiment with “Regulation from Below:” Expanded Reporting Requirements for HMDA and CRA,

3 Housing Policy Debate 601, 609 (1992).

HMDA created a degree of transparency that immediately improved the public's understanding of the relationship between mortgage lending and community stability. The data enabled community groups to understand the magnitude of disinvestment within minority neighborhoods.

Studies of the HMDA data by academic researchers demonstrated the extent to which lending disparities existed between communities.

Public officials also relied on the HMDA data to study and analyze whether financial institutions were serving the credit needs of their communities.

Even with the limited amount of data HMDA provided, the data's disclosure lessened the information asymmetry between industry and the public, which improved the ability of communities to monitor industry and determine whether mortgage lenders were providing loans in a manner that facilitated stable and sustainable neighborhoods.

See

John Goering and Ron Wienk (eds),

Mortgage Lending, Racial Discrimination and Federal Policy

10 (1996).

See, e.g.,

Ira Goldstein & Dan Urevick-Ackelburg, The Reinvestment Fund,

Subprime Lending, Mortgage Foreclosures, and Race: How Far Have We Come and How Far Have We to Go?

2-3 (Ohio State Univ. Kirwan Institute for the Study of Race and Ethnicity 2008),

http://kirwaninstitute.osu.edu/docs/pdfs/goldstein_trf_paper.pdf

See, e.g.,

Glen B. Canner & Joe M. Cleaver,

The Community Reinvestment Act: A Progress Report,

Fed. Reserve Bulletin, vol. 66, no. 2, 87-96 (Feb. 1980); Robert B. Avery & Thomas M. Buynak,

Mortgage Redlining: Some New Evidence,

21 Fed. Reserve Bank of Cleveland, Economic Review 18-32 (Summer 1981).

Individual Discrimination and Market Evolution.

Although HMDA improved the public's understanding of the mortgage market, it became evident that critical data elements were missing. The HMDA data did not include information related to demand for mortgage credit or the creditworthiness of individual applicants.

This led to many cases where community groups asserted that the HMDA data evidenced community disinvestment, but lenders countered that the data were misleading because they lacked information related to creditworthiness.

Several studies conducted during the late 1970s and early 1980s used the HMDA data in conjunction with data obtained from surveys or through the examination process to analyze the relationship between community disinvestment and potential discrimination in mortgage lending.

Congress also realized that the data provided were not adequate to fulfill HMDA's statutory goals, and encouraged agency cooperation and combined implementation and enforcement of various statutes with similar goals.

See

George J. Benston, Fed. Reserve Bank of Boston,

Mortgage Redlining Research: A Review and Critical Analysis Discussion,

12 Journal of Bank Research 144 (Oct. 1979).

See

Mark S. Sniderman, Fed. Reserve Bank of Cleveland,

Economic Commentary: Issues in CRA Reform

(Mar. 1991).

See

Harold Black, Robert L. Schweitzer, & Lewis Mandell,

Discrimination in Mortgage Lending,

68 American Econ. Review 186, 189 (May 1978); Robert Schafer & Helen F. Ladd, MIT-Harvard Joint Center for Urban Studies,

Discrimination in Mortgage Lending

287-300 (1981); Thomas A. King, New York Univ.,

Discrimination in Mortgage Lending: A Study of Three Cities

50 (1981).

See

Staff of S. Comm. on Banking, Hous., & Urban Affairs, 95th Cong.,

Second Report on Enforcement of the Equal Credit Opportunity and Home Mortgage Disclosure Acts

2-3 (Comm. Print 1977) (“The committee's principal recommendation called for promulgation of regulations to establish . . . the requirement that lenders keep records indicating the race and sex of loan applications. . . . The committee called for a thorough periodic review by examiners of a lender's pattern of mortgage loans, making use of both racial and sex notations and the data provided under the Home Mortgage Disclosure Act.”). The Committee also supported development of an “objective test for discrimination that can be inferred from a comparison of the racial and economic characteristics of successful and unsuccessful loan applicants.”

Id.

at 4.

Beginning in the early 1980s, Congress made a number of significant changes to HMDA to expand the types of institutions covered, the data collected, and public access to such data. In 1980, Congress amended HMDA to require the newly established FFIEC to prepare and publish aggregate data tables for each standard MSA.

The 1980 amendments also required the Board to prescribe a standard format for HMDA disclosures, which it did in 1982.

Housing and Community Development Act of 1980, Public Law 96-399, section 340, 94 Stat. 1614, 1657-58 (1980).

47 FR 750 (Jan. 7, 1982).

While HMDA was successful in helping the public understand mortgage lending discrimination between neighborhoods, events in the late 1980s shifted public attention to discrimination between individual applicants and borrowers. Community groups had argued that individuals within a particular neighborhood were experiencing discrimination during the mortgage lending process. These groups lacked sufficient evidence to prove the extent and severity of the problem, until a series of investigative reports supported their arguments by demonstrating significant racial disparities in mortgage lending between several neighborhoods in both Atlanta and Detroit.

At the same time, a

Federal Reserve Bank of Boston study that cross-referenced HMDA data, census data, and individual deed transfer data confirmed that similar racial disparities existed in the Boston mortgage market.

These major reports and studies confirmed the arguments advanced by community groups and fair housing advocates that HMDA needed to be updated to improve the publicly available information about lending practices.

See

Bill Dedman,

The Color of Money,

Atlanta-Journal Constitution, May 1-4, 1988; David Everett et al.,

The Race for Money,

Detroit Free Press, July 24-27, 1988; Bill Dedman,

Blacks Turned Down for

Home Loans from S&Ls Twice as Often as Whites,

Atlanta Journal-Constitution, Jan. 22, 1989.

“The data show that mortgages were originated on 6.9 percent of separately owned structures and condominiums in majority white neighborhoods during an average year between 1982 and 1987. The figure drops to 3.5 percent for majority black neighborhoods and to 2.7 percent for neighborhoods with populations that were more than 80 percent black.” Katharine Bradbury et al.,

Geographic Patterns of Mortgage Lending in Boston, 1982-1987,

New Eng. Econ. Rev., Sept./Oct. 1989, at 23.

“HMDA proponents believed that this new research provided the `smoking gun' needed to make the case for further changes to HMDA and the need for enhanced emphasis on fair lending enforcement.” Ren Essene & Allen Fishbein, Harvard Univ. Joint Center for Hous. Studies,

The Home Mortgage Disclosure Act at Thirty-Five: Past History, Current Issues

17 (Aug. 2010).

These revelations coincided with the savings and loan crisis of the late 1980s, during which many depository institutions throughout the country failed.

Concerns over mortgage lending discrimination, coupled with the need to respond to the savings and loan crisis, motivated Congress to amend HMDA significantly.

In 1988, Congress amended HMDA to expand institutional coverage to include mortgage banking subsidiaries of bank holding companies and savings and loan holding companies, and savings and loan service corporations that originate or purchase mortgage loans.

As amended, HMDA applied to depository institutions, mortgage banking subsidiaries of holding companies, and savings and loan service corporations with over $10 million in assets and offices in MSAs or primary MSAs.

See

FDIC,

History of the Eighties—Lessons for the Future: Volume I: An Examination of the Banking Crises of the 1980s and Early 1990s,

at 241 (Dec. 1997),

available at www.fdic.gov/bank/historical/history/vol1.html

See

Ren Essene & Allen Fishbein, Harvard Univ. Joint Center for Hous. Studies,

The Home Mortgage Disclosure Act at Thirty-Five: Past History, Current Issues

17-18 (Aug. 2010).

Public Law 100-242, section 565, 101 Stat. 1815, 1945 (1988); 53 FR 31683 (Aug. 19, 1988) (implementing these amendments and making other revisions to Regulation C).

One year later, the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) fundamentally changed HMDA in several other ways.

FIRREA amended HMDA to cover certain mortgage lenders that are not affiliated with depository institutions or holding companies.

To provide greater transparency into the mortgage lending process, HMDA was amended to require disclosure, on a transaction-level basis, of data on applications received in general, as well as data on the race, gender, and income of individual applicants and borrowers.

These changes marked a substantial shift in the statutory approach to the public disclosure of mortgage market data.

Public Law 101-73, section 1211, 103 Stat. 183, 524-26 (1989).

Id.

The Federal Deposit Insurance Corporation Improvement Act of 1991 subsequently authorized the Board, in consultation with HUD, to develop a new exemption standard for nondepository mortgage lenders that is comparable to the exemption for depository institutions with $10 million or less in total assets. Public Law 102-242, section 224, 105 Stat. 2236, 2307 (1991). In 1992, the Board adopted a standard that expanded coverage of nondepository institutions by providing that a nondepository mortgage lender with an office in an MSA would be covered if it met either an asset-size test or a lending activity test. 57 FR 56963 (Dec. 2, 1992).

Public Law 101-73, section 1211, 103 Stat. 183, 524-26 (1989);

see

Allen J. Fishbein,

The Ongoing Experiment with “Regulation from Below:” Expanded Reporting Requirements for HMDA and CRA,

3 Housing Policy Debate 601, 615-16 (1993).

The Board implemented these changes in a final rule later that year. 54 FR 51356 (Dec. 15, 1989).

This shift from aggregate to transaction-level reporting, and from limited to more detailed loan data, substantially increased the usefulness of the HMDA data. Studies conducted using the expanded HMDA data confirmed that, in many cases, an applicant's race alone influenced whether the applicant was denied credit.

These studies led the Federal financial institution regulators to announce that the new HMDA data would be used to determine whether financial institutions were fulfilling their fair lending obligations.

While the new data strengthened fair lending oversight and enforcement, it also had a powerful effect on the relationship between communities and financial institutions. Community groups used the data to monitor lending within their communities and enter into agreements with financial institutions to ensure that the local needs were being served in a responsible manner.

By increasing the degree of transparency in the mortgage market, the FIRREA amendments to HMDA dramatically improved the public's understanding of how mortgage lending decisions affected both communities and individual applicants and borrowers.

See

Alicia H. Munnell, et al.,

Mortgage Lending in Boston: Interpreting the HMDA Data,

American Econ. Review. Fed. Reserve Bank of Boston Working Paper 92-7, at 22 (1992); James H. Carr & Isaac F. Megbolugbe,

The Federal Reserve Bank of Boston: Study on Mortgage Lending Revisited,

4 Journal of Housing Research 2, 277 (1993).

See e.g.,

Richard D. Marisco,

Shedding Some Light on Lending: The Effect of Expanded Disclosure Laws on Home Mortgage Marketing, Lending, and Discrimination in the New York Metropolitan Area,

27 Fordham Urb. L. J. 481, 506 (1999); Bd. of Governors of the Fed. Reserve Sys., Interagency Policy Statement on Fair Mortgage Lending Practices, Oct. 9, 1992,

available at

http://www.federalreserve.gov/bankinforeg/interagencystatement.htm

; Interagency Task Force on Fair Lending Policy Statement on Discrimination in Lending, 73 FR 18266 (Apr. 15, 1994).

See

Adam Rust, Fed. Reserve Bank of Boston and Fed. Reserve Bank of San Francisco,

A Principle-Based Redesign of HMDA and CRA Data in Revisiting the Community Reinvestment Act: Perspectives on the Future of the Community Reinvestment Act

179 (Feb. 2009).

Market Evolution, Subprime Lending, and Its Aftermath.

After the FIRREA amendments, three major developments prompted rapid changes in the mortgage industry. First, the deregulation of the banking industry in 1994 led to a substantial number of bank mergers and reorganizations.

Second, the expansion of the secondary market increased the availability of mortgage loans while enabling lenders to offer new types of mortgage loans to a wider range of borrowers.

Third, advances in mortgage lending technology enabled the mortgage market to move from lengthy, manual origination processes to less burdensome and more efficient, computerized processes.

These developments increased the availability of mortgage loans to all borrowers, but they also increased the sophistication of lending institutions and the complexity of the mortgage lending process.

See

Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, Public Law 103-328, 108 Stat. 2338.

See

Patricia A. McCoy & Elizabeth Renuart, Harvard Univ. Joint Center for Hous. Studies,

The Legal Infrastructure of Subprime and Nontraditional Home Mortgages

8-10 (Feb. 2008).

U.S. Fin. Crisis Inquiry Comm'n,

The Financial Crisis Inquiry Report: Final Report of the National Commission on the Causes of the Financial and Economic Crisis in the United States

72 (Official Gov't ed. 2011),

available at

http://www.gpo.gov/fdsys/pkg/GPO-FCIC/pdf/GPO-FCIC.pdf

HMDA data, coupled with amendments to the CRA, helped communities engage with financial institutions to address issues stemming from deregulation. Community groups used HMDA data to challenge proposed bank mergers, and many depository institutions developed lending programs dedicated to addressing the needs of their communities.

However, HMDA

data were not sufficient to help communities fully understand and address one major development that grew out of increased securitization and technological advances—the expansion of the subprime market. Between the mid-1990s and the mid-2000s, subprime lending dramatically increased.

While subprime lending increased access to credit to many borrowers and in many communities, studies suggested that many subprime lenders offered loans in a predatory and discriminatory manner.

Studies conducted by Federal agencies in the early 2000s concluded that there were significant concerns about discrimination in the subprime market, but that the HMDA data did not provide enough transparency to help communities and public officials understand the scope of the problem and devise effective solutions.

See

Ben Bernanke, Chairman, Fed. Reserve Bd. (Speech), “The Community Reinvestment Act: Its Evolution and New Challenges,” Mar. 30, 2007,

available at

http://www.federalreserve.gov/newsevents/speech/bernanke20070330a.htm

“From essentially zero in 1993, subprime mortgage originations grew to $625 billion by 2005, one-fifth of total mortgage originations in that year, a whopping 26 percent annual rate of increase over the whole period.” Edward M. Gramlich, Urban Institute and Fed. Reserve Bank of Kansas City,

Booms and Busts: The Case of Subprime Mortgages

107 (Aug. 31, 2007).

Allen Fishbein & Harold Bunce, HUD,

Subprime Market Growth and Predatory Lending,

Hous. Policy in the New Millennium 274-76 (2000),

http://www.huduser.org/publications/pdf/brd/13fishbein.pdf

“While HMDA data have been a crucial tool allowing policy makers, regulators and the public to understand mortgage lending patterns, additional data not now required to be reported would more completely describe mortgage markets—the subprime market, in particular. Greater transparency in this market would promote more informed policy making and regulation, and may itself help to improve practices of lenders.” HUD, U.S. Dep't of Treas., Curbing Predatory Home Mortgage Lending: A Joint Report 100 (June 2000),

http://archives.hud.gov/reports/treasrpt.pdf

The Board responded by amending Regulation C to provide greater visibility into the subprime market. The Board initiated its last comprehensive review of Regulation C through an advance notice of proposed rulemaking in 1998

and notices of proposed rulemakings in 2000

and 2002,

which culminated in final rules promulgated in 2002.

Among other things, the Board's 2002 revisions to Regulation C:

63 FR 12329 (Mar. 12, 1998).

65 FR 78656 (Dec. 15, 2000).

67 FR 7252 (Feb. 15, 2002).

67 FR 7222 (Feb. 15, 2002); 67 FR 30771 (May 8, 2002); 67 FR 43218 (June 27, 2002).

• Required financial institutions to report pricing information for higher-priced mortgage loans;

• Required financial institutions to identify loans subject to HOEPA;

• Required financial institutions to report denials of applications received through certain preapproval programs and permitted financial institutions to report requests for preapproval that were approved but not accepted;

• Expanded the coverage of nondepository financial institutions by adding a loan origination dollar-volume threshold of $25 million to the loan-percentage test;

• Required financial institutions to report whether a loan involves a manufactured home; and

• Required financial institutions to ask applicants their 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 to Regulation C focused on the data elements that are required rather than the institutions or transactions that are covered. In adopting the revisions, the Board considered changes that had occurred in the home mortgage market, including the growth of subprime lending. The revisions improved the usefulness of the HMDA data, especially with respect to fair lending concerns, but adding a limited number of loan pricing variables only modestly addressed the need for increased transparency in the subprime mortgage market.

See

Patricia A. McCoy,

The Home Mortgage Disclosure Act: A Synopsis and Recent Legislative History,

29 Journal of Real Estate Research, no. 4 at 388 (2007).

However, discrimination was only one of the problems caused by the predatory practices employed by certain subprime lenders. Evidence demonstrated that predatory subprime lending in the late 1990s resulted in high rates of delinquency and foreclosure, threatening the stability of many communities.

This threat only increased as underwriting standards deteriorated throughout the 2000s. But when communities needed more granular loan data the most, HMDA did not provide it. As a result, communities could not understand the magnitude of the risk to which they were exposed. Neither could many community groups or public officials, who could not afford to purchase the detailed loan datasets available to the financial industry.

“The growing incidence of abusive practices in a segment of the mortgage lending market has been stripping borrowers of home equity and threatening families with foreclosure, destabilizing the very communities that are beginning to enjoy the fruits of our Nation's economic success.” Allen Fishbein & Harold Bunce, HUD,

Subprime Market Growth and Predatory Lending,

Hous. Policy in the New Millennium 278 (2000),

http://www.huduser.org/publications/pdf/brd/13fishbein.pdf

. “In the three markets with data available on trends in foreclosures over time, it was found that foreclosures by subprime lenders grew sharply during the 1990s even as foreclosures by other lenders declined or grew at a much more moderate pace.” Harold L. Bunce et al., HUD,

Subprime Foreclosures: The Smoking Gun of Predatory Lending?

268 (2000).

“HMDA is a limited data set for groups without financial resources to pay for better information. A set of data providers . . . buy loan-level home mortgage data and then repackage the data for consumption by other lenders, analysts, and academics. Some nonprofit groups buy this information, but for the most part, it is too expensive for them.” Adam Rust, Fed. Reserve Bank of Boston and Fed. Reserve Bank of San Francisco,

A Principle-Based Redesign of HMDA and CRA Data

Revisiting the Community Reinvestment Act: Perspectives on the Future of the Community Reinvestment Act

181 (Feb. 2009),

http://www.frbsf.org/community-development/files/revisiting_cra.pdf

Communities throughout the nation were devastated when the housing and financial markets collapsed in 2007. The financial crisis resulted in the loss of nearly $7 trillion in household wealth, and an unprecedented number of homeowners faced foreclosure.

Federal, State, and local officials created relief programs intended to assist distressed homeowners, prevent a complete collapse of local housing markets, and to assist communities impacted by foreclosure and abandonment.

While the crisis initially affected subprime borrowers, the problems eventually extended to the entire mortgage market.

Both prime and subprime borrowers experienced high levels of delinquency and foreclosure, which destabilized communities across the country.

In the wake of the unprecedented number of foreclosures, communities were forced to grapple with numerous abandoned homes, properties stripped of fixtures, and vandalism, which contributed to the downward spiral in neighborhood property values.

Furthermore, although the crisis affected homeowners across the nation,

a disproportionate share of wealth was lost by minority and low-income households.

See The U.S. Housing Market: Current Conditions and Policy Conditions

1 (Fed. Reserve Bd. White Paper Jan. 4, 2012),

http://www.federalreserve.gov/publications/other-reports/files/housing-white-paper-20120104.pdf

For example, the U.S. Department of the Treasury's Hardest Hit Fund provides funds for homeownership stabilization programs in Alabama, Arizona, California, Florida, Georgia, Illinois, Indiana, Kentucky, Michigan, Mississippi, Nevada, New Jersey, North Carolina, Ohio, Oregon, Rhode Island, South Carolina, Tennessee, and Washington, DC.

http://www.treasury.gov/initiatives/financial-stability/TARP-Programs/housing/hhf/Pages/Program-Purpose-and-Overview.aspx

See also supra

note 17.

Id.

For example, the Atlanta Regional Commission and the Office of University-Community Partnerships at Emory University used the HMDA data and a purchased dataset to understand the full scope of the properties at risk of foreclosure in the greater Atlanta area.

See

G. Thomas Kingsley et al., Urban Institute,

Addressing the Foreclosure Crisis: Action-Oriented Research in Three Cities

17-18 (2009),

http://www.urban.org/publications/412001.html

73 FR 63329 (Oct. 24, 2008).

Id.

at 63331; 73 FR 44522 (July 30, 2008).

At the same time, Congress began preparing a legislative response to the financial crisis.

In 2010, Congress amended HMDA in the Dodd-Frank Act, which also transferred HMDA rulemaking authority and other functions from the Board to the Bureau.

Among other changes, the Dodd-Frank Act expands the scope of information relating to mortgage applications and loans that must be compiled, maintained, and reported under HMDA. New data points include the age of loan applicants and mortgagors, information relating to the points and fees payable at origination, the difference between the annual percentage rate (APR) associated with the loan and a benchmark rate or rates for all loans, the term of any prepayment penalty, the value of real property to be pledged as collateral, the term of the loan and of any introductory interest rate for the loan, the presence of contract terms allowing non-amortizing payments, the origination channel, and the credit scores of applicants and mortgagors.

The Dodd-Frank Act also authorizes the Bureau to require, “as [it] may determine to be appropriate,” a unique identifier that identifies the loan originator, a universal loan identifier, and the parcel number that corresponds to the real property pledged or proposed to be pledged as collateral for the mortgage loan.

The Dodd-Frank Act also provides the Bureau with the authority to require “such other information as the Bureau may require.”

See

Mortgage Reform and Anti-Predatory Lending Act of 2007, H.R. 3915, 110th Cong.; H.R. Rep. No. 110-441 (2007); Mortgage Reform and Anti-Predatory Lending Act, H.R. 1728, 111th Cong. (2009); H.R. Rep. No. 111-94 (2009).

Public Law 111-203, 124 Stat. 1376, 1980, 2035-38, 2097-101 (2010). In 2010, the Board also conducted public hearings on potential revisions to Regulation C, which are discussed below.

Dodd-Frank Act section 1094(3),

amending

HMDA section 304(b), 12 U.S.C. 2803(b).

Id.

While the Dodd-Frank Act added new reporting requirements that will increase the level of transparency in the mortgage market, many argue that more publicly available information is needed to help inform communities of lending practices that affect local economies and may endanger neighborhood stability.

The Board convened public hearings in 2010 to gather feedback on how to improve the HMDA data. To ensure that HMDA continues to empower communities by providing transparency into mortgage lending practices, the Bureau believes that the HMDA data must be updated to address the informational shortcomings exposed by the financial crisis, to meet the needs of homeowners, potential homeowners, and neighborhoods throughout the nation, and to reflect changes in business practices and the technological evolution of the mortgage market.

See part III.A for a discussion of several public hearings conducted by the Board in 2010, during which many participants requested that additional information be made publicly available through HMDA.

B. Mortgage Technology and Data Standards

As discussed above, Congress made major amendments to HMDA in the Dodd-Frank Act, including specifying new data points for collection and providing the Bureau with broad authority to, among other things, require the collection of other data points and change the format and submission requirements for HMDA reporting. The collection and reporting of improved loan-level mortgage data has drawn strong interest from both market participants and regulators in the wake of the financial crisis. In light of its authorities, the Bureau has investigated potential uses of and alignments with industry data standards as a means to improve the quality of HMDA data that is collected and reported, and to reduce the processing and compliance costs on financial institutions.

Federal policy strongly favors agency use of voluntary consensus standards, and reliance on appropriate existing standards would allow the Bureau to draw on the expertise and resources of other data standards developers to serve the public interest.

In particular, reliance on existing voluntary consensus standards would be consistent with the National Technology Transfer and Advancement Act of 1995

and OMB Circular A-119,

which direct Federal agencies to use such standards in lieu of government-unique standards except where inconsistent with law or otherwise impractical. The Office of Financial Research within the U.S. Department of the Treasury has stated that, for the financial services market, appropriate data standards would provide data transparency, comparability, and quality, and also promote sound risk management by the industry by reducing costs, fostering automation, facilitating the aggregation of data from disparate sources, and enabling the end-to-end tracking of a financial transaction.

As discussed further below, the Bureau believes that HMDA compliance and data submission can be made easier, and HMDA data quality improved, by aligning the requirements of Regulation C to the extent practicable

with existing industry standards for collecting and transmitting mortgage data.

See

Administrative Conference of the United States Recommendation 2011-5 (adopted December 8, 2011), at 1.

National Technology Transfer and Advancement Act, Public Law 104-113 (1996), 110 Stat. 775, 783, 15 U.S.C. 272 note.

“Federal Participation in the Development and Use of Voluntary Consensus Standards and in Conformity Assessment Activities,”

http://www.whitehouse.gov/omb/circulars_a119/

. OMB Circular A-119 defines “voluntary consensus standards” to mean standards created by organizations whose processes provide attributes of openness, balance, due process, an appeal, and decisionmaking by general agreement.

See

Dept. of Treas. Off. of Fin. Research, 2012

Annual Report to Congress,

“

Chapter 5: Promoting Data Standards,”

107,

http://www.treasury.gov/initiatives/wsr/ofr/Documents/OFR_Annual_Report_071912_Final.pdf

Currently, HMDA data are submitted in the loan application register format, consistent with the instructions in appendix A to Regulation C.

100

The data points reported on each loan application register entry are defined by Regulation C, its appendices, and commentary.

101

Financial institutions also seek further information in other materials.

102

Financial institutions submit the data in an electronic, machine-readable format that conforms to the loan application register format, except for financial institutions that report 25 or fewer entries, which may submit their loan application register entries in paper format.

103

100

12 CFR part 1003, App. A.

101

12 CFR part 1003.

102

E.g.,

FFIEC, A Guide to HMDA Reporting: Getting it Right!; FFIEC,

Home Mortgage Disclosure Act Regulatory and Interpretive FAQs

[hereinafter FFIEC FAQs],

available at

http://www.ffiec.gov/hmda/

103

Comment 5(a)-2.

Financial institutions maintain records of mortgage loan applications and originations in many forms and in many systems outside of those used for HMDA reporting. In many cases, these systems use or define data points in ways that differ from Regulation C requirements. As a result, those systems are not directly compatible with the HMDA loan application register format, so that financial institutions have to use additional software and modify data in existing systems in order to submit HMDA data in the proper format.

The Bureau believes that the burden associated with Regulation C compliance and data submission can be reduced by aligning the requirements of Regulation C to the extent practicable with existing industry standards for collecting and transmitting data on mortgage loans and applications. The Bureau believes that promoting consistent data standards for both industry and regulatory use has benefits for market efficiency, market understanding, market oversight, and improved data quality.

104

In light of these considerations, the Bureau is proposing to align the HMDA data requirements, to the extent practicable, with the widely used Mortgage Industry Standards Maintenance Organization (MISMO) standards for residential mortgages, including the Uniform Loan Delivery Dataset (ULDD) that is used in the delivery of loans to the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) (collectively, the government-sponsored entities (GSEs)).

104

The Department of Treasury's Office of Financial Research has identified the lack of consistent data standards as a key source of risk during the recent financial crisis, and has noted the benefits of consistent data standards for both industry and regulators.

Supra

note 99.

MISMO, a wholly owned non-profit subsidiary of the Mortgage Bankers Association, has developed an extensive set of data standards for electronic delivery of loan-level mortgage data.

105

MISMO's mission includes: “Fostering an open process to develop, promote, and maintain voluntary electronic commerce procedures and standards for the mortgage industry.”

106

As part of MISMO's standardization efforts, it has developed an XML architecture for mortgage data and a data dictionary to provide data point names, definitions, and enumerations.

107

The mortgage industry has been increasingly adopting the MISMO data standard since its inception and this development has spurred the interest of Federal regulators in MISMO as well.

105

MISMO is an all-volunteer non-profit organization governed by a committee elected from its more than 150 subscribers, which include mortgage bankers, lenders, servicers, vendors, service providers, and the GSEs.

See

http://www.mismo.org/AboutMISMO

106

About MISMO,

http://www.mismo.org/AboutMISMO

107

XML is an open standard developed, maintained, and updated by the World Wide Web Consortium.

See

http://www.w3.org/standards/xml/

. An enumeration is a value associated with the defined data point. An example in the current HMDA data is the enumeration for “loan originated” within the data point of “action taken.”

When the Federal Housing Finance Agency (FHFA) assumed oversight of the GSEs, it mandated that they align to the MISMO data standard. The FHFA directed the GSEs to develop a Uniform Mortgage Data Program (UMDP) to enhance the accuracy and quality of mortgage loan data delivery to each GSE.

108

A key component of the UMDP is the ULDD, which refers to MISMO to identify the data points and the data delivery format required in connection with the delivery of single-family loans to each GSE.

109

As of July 23, 2012, all loans delivered to the GSEs have been required to meet ULDD requirements. Given that a majority of mortgages originated in 2013 conformed to GSE guidelines—and that a large segment of the market sells at least some of their originated loans to the GSEs directly or indirectly—a significant portion of the market is already operating in accordance with the MISMO data standard.

110

108

Federal Housing Finance Agency, Fannie Mae and Freddie Mac Launch Joint Effort to Improve Loan and Appraisal Data Collection (May 24, 2010),

available at

http://fhfa.gov/Media/PublicAffairs/Pages/Fannie-Mae-and-Freddie-Mac-Launch-Joint-Effort-to-Improve-Loan-and-Appraisal-Data-Collection.aspx

109

See

Fannie Mae, Uniform Loan Delivery Dataset,

https://www.fanniemae.com/singlefamily/uniform-loan-delivery-dataset-uldd

; Freddie Mac, Uniform Loan Delivery Dataset,

http://www.freddiemac.com/singlefamily/sell/uniform_delivery.html

110

See

Inside Mortgage Fin.,

Mortgage Originations by Product,

Inside Mortgage Finance Newsletter, Issue 2014:04 (Jan. 31, 2014).

The Bureau recognizes that not every mortgage industry member would support alignment of the HMDA data requirements with MISMO/ULDD data standards—particularly small financial institutions that do not sell loans to the GSEs or that conduct only portfolio lending. Financial institutions that do not currently use the MISMO/ULDD data standards may have reservations about the alignment of the HMDA data requirements with such industry standards. However, the Bureau believes that the efficiencies achieved by aligning HMDA data with widely used industry data standards justify potential burdens and that the efficiencies will grow over time. Aligning with MISMO/ULDD data standards means relying on uniform data standards that are already familiar to financial institutions and data vendors. A HMDA reporter or data vendor using MISMO for business purposes would be able to use the same standard for its HMDA submission, thereby reducing the resources required to translate data into a different standard, such as the particular government standards currently used only for purposes of HMDA compliance. In addition, the Bureau believes that grounding HMDA in the common vocabulary and data standards of the industry will continue to reduce burdens should the need arise to modify Regulation C in the future. Alignment with MISMO/ULDD is also consistent with the policies discussed above that encourage use of voluntary consensus standards by Federal agencies.

C. Applicant and Borrower Privacy

As discussed above, HMDA's purposes are to provide the public and public officials with sufficient information to enable them to determine whether institutions are serving the housing needs of the communities and neighborhoods in which they are located, to assist public officials in distributing public sector investments in a manner designed to improve the private investment environment, and to assist in identifying possible discriminatory lending patterns and enforcing antidiscrimination statutes. Today, HMDA data are the preeminent data source for regulators, researchers, economists, industry, and advocates

analyzing the mortgage market both for HMDA's purposes and for general market monitoring. In implementing HMDA to effectuate its purposes, the appropriate protection of applicant and borrower privacy in light of the goals of the statute is a significant priority for the Bureau. The Bureau is mindful that privacy concerns may arise both when financial institutions compile and report data to the Bureau and other agencies and when HMDA data are disclosed to the public. The Bureau has considered both types of potential concerns in developing this proposal, and it continues to assess the implications for applicant and borrower privacy of the public disclosure of HMDA data both by financial institutions and by Federal agencies.

Compiling and Reporting of HMDA Data

Financial institutions collect various types of information from consumers in the course of processing loan applications. To promote HMDA's goals, HMDA and Regulation C require financial institutions to compile and report to the Bureau and other agencies some of this information and other information obtained or generated concerning the application or loan. As discussed above, the Dodd-Frank Act both expanded the scope of information that financial institutions must compile and report and authorized the Bureau to require financial institutions to compile and report additional data. The Bureau has considered applicant and borrower privacy in developing its proposal to implement the Dodd-Frank amendments and otherwise amend Regulation C. The Bureau's proposals are intended to ensure that data compiled and reported by financial institutions fulfill HMDA's purposes while appropriately protecting applicant and borrower privacy.

During the Small Business Review Panel process,

111

some small entity representatives expressed concerns about the privacy implications of reporting certain current and proposed HMDA data.

112

Several small entity representatives suggested that applicant and borrower age and credit score, two new data points added to HMDA by the Dodd-Frank Act, should be reported to the Bureau and other appropriate agencies in ranges, rather than exact values, to mitigate privacy concerns.

113

The Small Business Review Panel recommended that the Bureau evaluate ways to address any privacy risks that may be created by the reporting of HMDA data to the Bureau and other agencies.

114

Consistent with this recommendation, the Bureau's consideration of applicant and borrower privacy in developing this proposal has included consideration of the format in which current and proposed HMDA data should be reported. The Bureau's proposal simultaneously seeks to address any potential privacy risks that may be created by the reporting of HMDA data to the Bureau and other agencies to ensure that the data are reported in a format that is useful in fulfilling HMDA's purposes, that avoids imposing undue burden on financial institutions or increasing the risk of errors in reporting; and that aligns to the extent practicable with existing industry standards for collecting and transmitting mortgage data. The Bureau seeks comment on alternatives to addressing any potential risks to privacy interests created by the reporting of HMDA data to the Bureau and other agencies, including the impact of such alternatives on the utility of the data, on burden to financial institutions and risks of errors in reporting, and on alignment with existing industry standards for transmitting mortgage data. As discussed below, the Bureau's assessment of any potential risks to privacy interests created by the public disclosure of HMDA data is ongoing.

111

The Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA), as amended by section 1100G(a) of the Dodd-Frank Act, requires the Bureau to convene a Small Business Review Panel before proposing a rule that may have a substantial economic impact on a significant number of small entities.

See

Public Law 104-121, tit. II, 110 Stat. 847, 857 (1996) (as amended by Public Law 110-28, section 8302 (2007)). As discussed in part III.C below, the Bureau convened a Small Business Review Panel concerning this proposal in February 2014.

112

Final Report of the Small Business Review Panel on the CFPB's Proposals Under Consideration for the Home Mortgage Disclosure Act (HMDA) Rulemaking

(Apr. 24, 2014) [hereinafter Small Business Review Panel Report],

http://files.consumerfinance.gov/f/201407_cfpb_report_hmda_sbrefa.pdf

at 24 (loans made to financial institutions' employees), 26 (loan originator identifier, parcel identifier), 27-28 (age, credit score, debt-to-income ratio), 30-31 (property value, total points and fees, interest rate), 35 (data disclosed on the modified loan application register), 41 (combined loan-to-value).

113

See

Small Business Review Panel Report at 27, 40. Small entity representatives suggested that age could be reported in ranges (

e.g.,

20-49, 50-62, and 63 and up).

Id.

at 27.

114

See

Small Business Review Panel Report at 40.

The Bureau also has received feedback from industry expressing concern about the security of the data to be reported under this proposal during its submission. As part of its efforts to improve and modernize HMDA operations, the Bureau is considering various improvements to the HMDA data submission process, including further advancing encryption if necessary to protect the security of HMDA data to be reported under this proposal.

Disclosures of HMDA Data

As discussed above, HMDA is a disclosure statute. To fulfill HMDA's purposes, the types of data a financial institution is required to compile and report under HMDA and Regulation C have been expanded since the statute's enactment in 1975, and the formats in which HMDA data have been disclosed to the public also have evolved. At present, HMDA and Regulation C require data to be made available to the public in both aggregate and loan-level formats. First, each financial institution must make its “modified” loan application register available to the public, with three fields deleted to protect applicant and borrower privacy.

115

Each financial institution must also make available a disclosure statement prepared by the FFIEC that shows the financial institution's HMDA data in aggregate form.

116

In addition, the FFIEC makes available disclosure statements for each financial institution

117

as well as aggregate reports for each MSA and metropolitan division (MD) showing lending patterns by certain property and applicant characteristics.

118

Since 1991, on behalf of the agencies receiving HMDA data, the FFIEC also has released annually a loan-level dataset containing all reported HMDA data for the preceding calendar year. To reduce the possibility that data users could identify particular applicants or borrowers in these data, the same three fields that are deleted from the modified loan application register that financial institutions make available are deleted from this release.

119

115

Section 1003.5(c); HMDA section 304(j)(2)(B). Section 1003.5(c) requires that, before making its loan application register available to the public, a financial institution must delete three fields to protect applicant and borrower privacy: Application or loan number, the date that the application was received, and the date action was taken.

116

Section 1003.5(b); HMDA section 304(k).

117

Section 1003.5(f); HMDA section 304(f).

118

Section 1003.5(f); HMDA section 310.

119

The agencies first released loan-level HMDA data in October 1991. In announcing that the loan-level data submitted to the agencies on the loan application register would be made available to the public, the FFIEC noted that “[a]n unedited form of the data would contain information that could be used to identify individual loan applicants” and that the data would be edited prior to public release to remove the application identification number, the date of application, and the date of final action. 55 FR 27886, 27888 (July 6, 1990).

The Dodd-Frank Act amendments to HMDA added new section 304(h)(1)(E), which directs the Bureau to develop regulations, in consultation with other appropriate agencies, that “modify or

require modification of itemized information, for the purpose of protecting the privacy interests of the mortgage applicants or mortgagors, that is or will be available to the public.” Section 304(h)(3)(B), also added by the Dodd-Frank Act, directs the Bureau to “prescribe standards for any modification under paragraph (1)(E) to effectuate the purposes of [HMDA], in light of the privacy interests of mortgage applicants or mortgagors. Where necessary to protect the privacy interests of mortgage applicants or mortgagors, the Bureau shall provide for the disclosure of information . . . in aggregate or other reasonably modified form, in order to effectuate the purposes of [HMDA].”

120

Section 304(h)(3)(A) provides that a modification under section 304(h)(1)(E) shall apply to information concerning “(i) credit score data . . . in a manner that is consistent with the purpose described in paragraph (1)(E); and (ii) age or any other category of data described in paragraph (5) or (6) of subsection (b), as the Bureau determines to be necessary to satisfy the purpose described in paragraph (1)(E), and in a manner consistent with that purpose.”

The Bureau interprets HMDA, as amended by these provisions, to call for the use of a balancing test to determine whether and how HMDA data should be modified prior to its public release in order to protect applicant and borrower privacy while also fulfilling the public disclosure purposes of the statute.

121

This proposed rule only addresses financial institutions' disclosures of HMDA data to the public; it does not address the FFIEC's release of HMDA data. The Bureau, in consultation with other appropriate agencies, will use the balancing test to evaluate potential privacy risks created by HMDA data made available to the public by both financial institutions and the FFIEC, including the loan-level data that the FFIEC currently makes available on behalf of the Bureau and other agencies. The Bureau intends to provide a process for the public to provide input on the application of the balancing test to the data currently made available by the FFIEC at a later date.

121

Section 1022(c)(8) of the Dodd-Frank Act provides that, “[i]n collecting information from any person, publicly releasing information held by the Bureau, or requiring covered persons to publicly report information, the Bureau shall take steps to ensure that” certain information is not “made public under this title.” The Bureau interprets “under this title” to not include data made public pursuant to HMDA and Regulation C.

Using the balancing test to evaluate particular HMDA data points, individually and in combination, and various options for providing access to HMDA data, the Bureau will balance the importance of releasing the data to accomplish HMDA's public disclosure purposes against the potential harm to an applicant or borrower's privacy interest that may result from the release of the data without modification. Modifications the Bureau may consider where warranted include various disclosure limitation techniques, such as techniques aimed at masking the precise value of data points,

122

aggregation, redaction, use restrictions, query-based systems, and a restricted access program.

123

The Bureau understands that the diverse populations of HMDA data users have different data needs, including with respect to the granularity of data, and recognizes that mitigating privacy risks in data disclosed to the public may decrease the data's utility to its users. The Bureau interprets HMDA, as amended by the Dodd-Frank Act, to require that public HMDA data be modified only when the release of the unmodified data creates risks to applicant and borrower privacy interests that are not justified by the benefits of such release to the public for the statutory purposes. The Bureau believes that privacy interests arise where the data's disclosure may both substantially facilitate the identification of an applicant or borrower

and

disclose information about the applicant or borrower that is not otherwise public and may be harmful or sensitive.

122

Examples of disclosure techniques that may mitigate privacy concerns include binning, coarsening, perturbing, and top- and bottom-coding. Data binning, for example, is a technique wherein the original data value (for example, a number reported to the agencies on the loan application register) is placed in an interval, or bin, and is then represented by the value of that bin. Binning allows data to be shown clustered into ranges rather than as precise values.

123

A restricted access program could allow access to privacy-sensitive information, otherwise unavailable to the general public, for research purposes.

The Bureau believes that its interpretation of HMDA to call for the use of the balancing test described herein best effectuates the purposes of the statute. HMDA's purposes are to provide the public and public officials with sufficient information to enable them to determine whether institutions are serving the housing needs of the communities and neighborhoods in which they are located, to assist public officials in distributing public sector investments in a manner designed to improve the private investment environment, and to assist in identifying possible discriminatory lending patterns and enforcing antidiscrimination statutes. The Bureau believes that access to loan-level HMDA data, in particular, enhances the use of HMDA data by members of the public and public officials and thus best effectuates HMDA's purposes.

124

At the same time, the Dodd-Frank Act amendments and the Bureau's proposals would require that financial institutions report on the loan application register submitted to the Bureau and other agencies additional data points that may raise potential privacy concerns if made available to the public.

125

The Bureau believes that the balancing test described above provides for the appropriate protection of applicant and borrower privacy in light of the public disclosure goals of the statute.

124

The Bureau agrees with the 1990 findings of the FFIEC agencies that “the release of the raw [loan-level] data is consistent with the congressional intent to maximize the utilization of” the HMDA data. 55 FR 27886, 27888 (July 6, 1990). The importance of loan-level data to HMDA's purposes is also reflected in Congress's use of the term “loan application register information” in HMDA section 304(j) to describe the data financial institutions must make available to the public upon request. At the time HMDA was amended to add section 304(j), the term “loan/application register” was used in Regulation C to describe the loan-by-loan, register format for reporting HMDA data to the agencies. Section 304(j)(2)(A), as originally adopted, provided that, subject to deletions to protect privacy, “the loan application register information described in paragraph (1) may be disclosed by a depository institution without editing or compilation and in the format in which such information is maintained by the institution.” Housing and Community Development Act of 1992, Public Law 102-550, section 932(a), 106 Stat. 3672, 3889 (1992).

125

Congress specifically identified credit score and age as new data points that may raise privacy concerns.

See

HMDA section 304(h)(3)(A).

During the Small Business Review Panel process, some small entity representatives expressed concerns about the privacy implications of certain current and proposed HMDA data.

126

The Small Business Review Panel recommended that the Bureau evaluate ways to address any privacy risks that may be created by the disclosure of HMDA data.

127

The Bureau's analysis under the balancing test concerning whether and how HMDA data should be modified prior to public release is ongoing. The Bureau also continues to investigate available strategies and techniques to protect applicant and borrower privacy, where warranted, while preserving the data's utility for HMDA's purposes. The Bureau solicits feedback on the balancing test described herein, including whether other interpretations of HMDA section 304(h)(1)(E) and (h)(3) would better effectuate HMDA's purposes. As discussed below in the section-by-section analysis of proposed § 1003.5(c), in order to avoid creating new privacy risks and imposing burdens on financial institutions, the Bureau is proposing

that financial institutions release on the modified loan application register only those data fields that are currently released, and is seeking comment on any privacy risks created by and disclosure benefits of those data fields. As noted above, the Bureau intends to provide a process for the public to provide input on the application of the balancing test for purposes of the data made available to the public by the FFIEC, including the loan-level data it currently makes available on behalf of the Bureau and other agencies, and on any proposed modifications to such data, at a later date.

126

See supra

note 112.

127

See

Small Business Review Panel Report at 40.

III. Outreach

In 2010, when the Board had rulemaking authority over HMDA, the Board conducted a series of public hearings that elicited feedback on improvements to Regulation C. After the rulemaking authority for HMDA was transferred to the Bureau, the Bureau conducted outreach on implementing the Dodd-Frank Act amendments to HMDA and other potential changes to Regulation C by soliciting comments in

Federal Register

notices and by meeting with a variety of stakeholders, including trade associations, financial institutions, community groups, and other Federal agencies. The Bureau also convened a Small Business Review Panel to obtain feedback from small financial institutions as well as the general public. To prepare this proposal, the Bureau considered both the comments presented to the Board during its public hearings and feedback provided to the Bureau during its outreach.

A. The Board's 2010 Public Hearings

In 2010, the Board convened public hearings on potential revisions to Regulation C (the Board's 2010 Hearings).

128

The Board began the reassessment of HMDA in the aftermath of the financial crisis, as Congress was considering the legislation that later became the Dodd-Frank Act. The Board stated that there were three purposes of the hearings: (1) To provide information that would assist the Board in its review of Regulation C, (2) to help assess the need for additional data, and (3) to identify emerging issues in the mortgage market that could warrant additional research.

129

Representatives from community organizations, consumer advocates, industry, academia, State and Federal agencies, and others participated in the hearings. The Board did not commence a rulemaking to consider any of the feedback provided during the hearings before HMDA rulemaking authority was transferred to the Bureau.

128

See

75 FR 35030 (June 21, 2010).

129

Id.

Institutional Coverage

The Board identified institutional coverage as one of the topics for discussion at the hearings. Participants addressed whether the Board should require reporting from additional types of institutions, whether certain types of institutions should be exempt from reporting, and whether any other changes should be made to the rules for determining which types of institutions must report data. For example, representatives from Federal agencies, lenders, and consumer advocates urged the Board to adopt a consistent minimum loan threshold across all types of institutions, including banks, savings associations, credit unions, and nondepository institutions.

130

In particular, industry representatives noted the limited value derived from data reported by lower-volume depository institutions.

131

Industry and community advocate representatives also asserted that loan volume, rather than asset size, should trigger reporting, particularly for nondepository lenders because they tend to have a different capital structure than banks, savings associations, and credit unions.

132

Participants also urged the Board to expand coverage of nondepository institutions.

133

In addition, participants commented that the coverage scheme for nondepository institutions was too complex and should be simplified.

134

130

Transcript, Fed. Reserve Board Public Hearing on Potential Revisions to the Home Mortgage Disclosure Act, Washington DC, Sept. 24, 2010 [hereinafter Washington Hearing], (remarks of Faith Schwartz, Senior Advisory, HOPE Now Alliance at Washington, DC hearing) (“I think everyone should have the burden of reporting that has any meaningful originations out there . . . .”),

http://www.federalreserve.gov/communitydev/files/full_transcript_board_20100924.pdf

; id.

(remarks of Josh Silver, Vice President of Research and Policy, National Community Reinvestment Coalition) (“[I]n terms of your threshold, it is very confusing because you have depository institutions that have different thresholds and nondepository institutions . . . I suggested just make it the same for everybody. If you make more than [50 reportable loans under HMDA], you disclose. . . . So that's a threshold I would propose across the board for nondepository institutions and depository institutions.”).

131

See, e.g.,

Transcript, Fed. Reserve Board Public Hearing on Potential Revisions to the Home Mortgage Disclosure Act, Atlanta, Georgia, July 15, 2010 [hereinafter Atlanta Hearing],

http://www.federalreserve.gov/communitydev/files/full_transcript_atlanta_20100715.pdf

132

See, e.g., id.

(remarks of Faith Anderson, Vice President and General Counsel, American Airlines Federal Credit Union) (“[A]n exemption from HMDA reporting should be based on the volume of mortgage loans that are given. Exemptions should not be based on the asset size of a financial institution.”).

133

See, e.g.,

Transcript Fed. Reserve Board Public Hearing on Potential Revisions to the Home Mortgage Disclosure Act, San Francisco, California, Aug. 5, 2010 [hereinafter San Francisco Hearing],

http://www.federalreserve.gov/communitydev/files/full_transcript_sf_20100805.pdf

; Washington Hearing,

supra

note 130; Atlanta Hearing,

supra

note 131.

134

See, e.g.,

Washington Hearing,

supra

note 130.

Data Elements

The Board solicited feedback on ways to improve the quality and usefulness of HMDA data, including whether any data elements should be added, modified, or deleted. Participants provided suggestions about ways to improve the utility of HMDA data. Participants discussed modifications to the data fields currently collected in Regulation C that may clarify reporting requirements and improve the usefulness of HMDA data. For example, participants urged the Board to augment the information collected concerning multifamily properties

135

and manufactured housing

136

and to expand the reporting of rate spread to all originations.

137

Participants also urged the Board to clarify specific reporting requirements, such as how to report modular homes

138

and conditional approvals.

139

Participants discussed the reluctance of applicants to provide demographic information, such as race and ethnicity, and the challenges financial institutions face in collecting the information.

140

135

See, e.g.,

San Francisco Hearing,

supra

note 133; Washington Hearing,

supra

note 130.

136

See, e.g., id.

137

See, e.g.,

Atlanta Hearing,

supra

note 131; Transcript, Fed. Reserve Board Public Hearing on Potential Revisions to the Home Mortgage Disclosure Act, Chicago, Illinois, Sept. 16, 2010 [hereinafter Chicago Hearing],

http://www.federalreserve.gov/communitydev/files/full_transcript_chicago_20100916.pdf

;

id.

(remarks of Professor Jim Campen, University of Massachusetts).

138

See, e.g.,

Atlanta Hearing,

supra

note 131.

139

See, e.g.,

Washington Hearing,

supra

note 130.

140

See, e.g.,

Atlanta Hearing,

supra

note 131; San Francisco Hearing,

supra

note 133; Chicago Hearing,

supra

note 137.

In addition, participants commented on data fields that could be added to the data collected under HMDA to improve its utility. For example, participants suggested collecting information regarding points and fees, including prepayment penalties,

141

information concerning the relationship of the loan amount to the value of the property securing the loan,

142

and information concerning whether an application was submitted through a mortgage broker.

143

141

See, e.g.,

San Francisco Hearing,

supra

note 133; Chicago Hearing,

supra

note 137.

142

See, .e.g.,

Atlanta Hearing,

supra

note 131; San Francisco Hearing,

supra

note 133; Chicago Hearing,

supra

note 137; Washington Hearing,

supra

note 130.

143

See, e.g.,

Chicago Hearing,

supra

note 137.

B. Early Stakeholder Outreach

Title X of the Dodd-Frank Act established the Bureau and, on July 21, 2011, transferred rulemaking authority under HMDA from the Board to the Bureau. As discussed below, the Dodd-Frank Act also amended HMDA to add additional data points and make other statutory changes. However, pursuant to section 1094(3)(F) of the Dodd-Frank Act, financial institutions are not required to report new data under paragraphs (5) or (6) of HMDA subsection (b) until after the Bureau publishes final regulations with respect to such disclosures.

On May 31, 2011, the Bureau published a notice for public comment providing a preliminary list of rules that would be enforced by the Bureau upon the designated transfer date.

144

The list included Regulation C and invited public comment on the list. On July 21, 2011, the Bureau published the final list of rules, which included Regulation C.

145

The Bureau received general comments requesting the Bureau not to impose duplicative regulatory burdens, that it take into account differences between regulated entities in rulemaking, and that it involve stakeholders in the Bureau's rulemaking process.

144

76 FR 31222 (May 31, 2011).

145

76 FR 43570 (Jul. 21, 2011).

Since the Bureau's inception and its assumption of authority over Federal consumer financial laws, it has tried to be responsive to those early comments regarding regulatory burden, differences in regulated entities, and outreach to stakeholders in its rulemaking process. Building on the feedback received during the Board's 2010 Hearings, the Bureau has conducted outreach and obtained significant feedback on the Dodd-Frank amendments and other potential changes to Regulation C through

Federal Register

notices and meetings with stakeholders. The Bureau met with various stakeholders during the proposal development process through in-person meetings and conference calls, and solicited feedback through correspondence.

On December 5, 2011, the Bureau published a request for information in the

Federal Register

seeking feedback on regulations that it had inherited from other agencies (the Bureau's 2011 Streamlining Proposal).

146

In the Bureau's 2011 Streamlining Proposal, the Bureau stated that it believed there may be opportunities to streamline inherited regulations by updating, modifying, or eliminating outdated, unduly burdensome, or unnecessary provisions.

147

The Bureau solicited general feedback on such opportunities. The Bureau noted that, under current Regulation C, a depository institution that did not ordinarily originate home purchase loans, but that occasionally refinanced a home purchase loan to accommodate a customer, would be required to report under Regulation C. The Bureau solicited feedback on whether small numbers of refinancings should not trigger Regulation C coverage.

148

The Bureau's 2011 Streamlining Proposal provided for an initial comment period and a reply period to allow commenters to respond to each other's comments.

149

The initial comment period closed March 5, 2012 and the reply period closed June 4, 2012.

150

146

76 FR 75825 (Dec. 5, 2011).

147

Id.

148

76 FR 75825, 75828.

149

76 FR 75825.

150

The reply period was initially scheduled to close on April 3, 2012, but was later extended to June 4, 2012 in response to a request from industry trade associations and consumer advocates. 77 FR 14700 (Mar. 13, 2012).

The Bureau received comments regarding its specific solicitation for feedback, as well as general suggestions for streamlining Regulation C. Comments were received from consumer advocates, fair housing advocates, financial institutions, State bank supervisory organizations, State industry trade associations, and national industry trade associations. Comments from consumer and fair housing advocates generally focused on adding additional data and types of covered loans, and generally opposed any exemptions or reporting thresholds for Regulation C on the basis that the data are critical for fair lending enforcement and determining if community housing needs are being met. Other comments focused on various potential streamlining changes to Regulation C including establishing loan-volume or asset reporting thresholds, exempting some types of loans from coverage or adding others, making definitions consistent with other regulations, tiered reporting requirements, consolidating guidance sources, and clarifying certain definitions and reporting issues.

On December 19, 2011 the Bureau published an interim final rule establishing Regulation C in 12 CFR part 1003, implementing the assumption of HMDA authority from the Board (the Bureau's 2011 Regulation C Restatement).

151

The Bureau's 2011 Regulation C Restatement substantially duplicated the Board's Regulation C and made only non-substantive, technical, formatting, and stylistic changes. The Bureau also solicited comment through that notice on any technical issues and any provisions that are outdated, unduly burdensome, or unnecessary. The Bureau received a few comments from financial institutions, State industry trade associations, and national industry trade associations. The comments focused on aligning Regulation C definitions with other regulations, providing a tolerance for enforcement actions based on low error rates in reported data, and establishing a loan-volume threshold.

151

76 FR 78465 (Dec. 19, 2011).

In an effort to better understand existing and emerging industry data standards and whether Regulation C could be aligned with them, the Bureau met with staff from MISMO regarding the MISMO residential reference model dataset and staff from the GSEs regarding ULDD. In an effort to better understand financial institutions' internal HMDA compliance processes and compliance costs, the Bureau, through arrangements with a national industry trade association, met with community banks to obtain feedback. The Bureau also met with consumer and fair housing advocates and industry trade associations to understand their concerns with current HMDA data, current Regulation C, and possible changes to Regulation C.

C. Small Business Review Panel

In February 2014, the Bureau convened a Small Business Review Panel (Panel) with the Chief Counsel for Advocacy of the Small Business Administration (SBA) and the Administrator of the Office of Information and Regulatory Affairs with the Office of Management and Budget (OMB).

152

As part of this process, the Bureau prepared an outline of proposals under consideration and the alternatives considered (Small Business Review Panel Outline), which the Bureau posted on its Web site for review by the small financial institutions participating in the panel process, as well as the general public.

153

152

Supra

note 111.

153

Press Release, CFPB Takes Steps to Improve Information About Access to Credit in the Mortgage Market (Feb. 7, 2014)

http://www.consumerfinance.gov/newsroom/cfpb-takes-steps-to-improve-information-about-access-to-credit-in-the-mortgage-market/

. The Bureau also gathered feedback on the Small Business Review Panel Outline from other stakeholders and members of the public, and from the Bureau's Consumer Advisory Board and Community Bank Advisory Council.

Prior to formally convening, the Panel participated in teleconferences with small groups of the small entity representatives to introduce to the materials and to obtain feedback. The

Panel conducted a full-day outreach meeting with the small entity representatives in March 2014 in Washington, DC. The Panel gathered information from the small entity representatives and made findings and recommendations regarding the potential compliance costs and other impacts of the proposed rule on those entities. Those findings and recommendations are set forth in the Small Business Review Panel Report, which will be made part of the administrative record in this rulemaking.

154

The Bureau has carefully considered these findings and recommendations in preparing this proposal and addresses certain specific examples below.

154

Supra

note 111.

IV. Legal Authority

The Bureau is issuing this proposed rule pursuant to its authority under the Dodd-Frank Act and HMDA. Section 1061 of the Dodd-Frank Act transferred to the Bureau the “consumer financial protection functions” previously vested in certain other Federal agencies, including the Board.

155

The term “consumer financial protection function” is defined to include “all authority to prescribe rules or issue orders or guidelines pursuant to any Federal consumer financial law, including performing appropriate functions to promulgate and review such rules, orders, and guidelines.”

156

Section 1022(b)(1) of the Dodd-Frank Act authorizes the Bureau's Director to prescribe rules “as may be necessary or appropriate to enable the Bureau to administer and carry out the purposes and objectives of the Federal consumer financial laws, and to prevent evasions thereof.”

157

Both HMDA and title X of the Dodd-Frank Act are Federal consumer financial laws.

158

155

12 U.S.C. 5581. Section 1094 of the Dodd-Frank Act also replaced the term “Board” with “Bureau” in most places in HMDA. 12 U.S.C. 2803

et seq.

156

12 U.S.C. 5581(a)(1)(A).

157

12 U.S.C. 5512(b)(1).

158

Dodd-Frank Act section 1002(14), 12 U.S.C. 5481(14) (defining “Federal consumer financial law” to include the “enumerated consumer laws” and the provisions of title X of the Dodd-Frank Act); Dodd-Frank Act section 1002(12), 12 U.S.C. 5481(12) (defining “enumerated consumer laws” to include HMDA).

HMDA section 305(a) broadly authorizes the Bureau to prescribe such regulations as may be necessary to carry out HMDA's purposes.

159

These regulations can include “classifications, differentiations, or other provisions, and may provide for such adjustments and exceptions for any class of transactions, as in the judgment of the Bureau are necessary and proper to effectuate the purposes of [HMDA], and prevent circumvention or evasion thereof, or to facilitate compliance therewith.”

160

159

12 U.S.C. 2804(a).

160

Id.

A number of HMDA provisions specify that covered institutions must compile and make their HMDA data publicly available “in accordance with regulations of the Bureau” and “in such formats as the Bureau may require.”

161

HMDA section 304(j)(1) authorizes the Bureau to issue regulations to define the loan application register information that HMDA reporters must make available to the public upon request and to specify the form required for such disclosures.

162

HMDA section 304(j)(2)(B) provides that “[t]he Bureau shall require, by regulation, such deletions as the Bureau may determine to be appropriate to protect—(i) any privacy interest of any applicant . . . ; and (ii) a depository institution from liability under any Federal or State privacy law.”

163

HMDA section 304(j)(7) also directs the Bureau to make every effort in prescribing regulations under the subsection to minimize the costs incurred by a depository institution in complying with the subsection and regulations.

164

161

See, e.g.,

HMDA section 304(a)(1), (j)(2)(A), (j)(3), (m)(2), 12 U.S.C. 2803(a)(1), (j)(2)(A), (j)(3), (m)(2);

see also

HMDA section 304(n), 12 U.S.C. 2803(n) (discussing submission to the Bureau or the appropriate agency “in accordance with regulations prescribed by the Bureau”). For purposes of HMDA section 304(h), HMDA section 304(h)(2) defines the appropriate agencies for different categories of financial institutions. The agencies are the Federal banking agencies, the FDIC, the NCUA, and the Secretary of HUD. 12 U.S.C. 2803(h)(2).

(A) prescribe the format for such disclosures, the method for submission of the data to the appropriate agency, and the procedures for disclosing the information to the public;

(B) require the collection of data required to be disclosed under [HMDA section 304(b)] with respect to loans sold by each institution reporting under this title;

(D) permit any reporting institution to submit in writing to the Bureau or to the appropriate agency such additional data or explanations as it deems relevant to the decision to originate or purchase mortgage loans; and

(E) modify or require modification of itemized information, for the purpose of protecting the privacy interests of the mortgage applicants or mortgagors, that is or will be available to the public.

167

HMDA also authorizes the Bureau to issue regulations relating to the timing of HMDA disclosures.

168

167

12 U.S.C. 2803(h)(1). The Dodd-Frank Act also added new HMDA section 304(h)(3), which directs the Bureau to prescribe standards for any modification pursuant to HMDA section 304(h)(1)(E), to effectuate HMDA's purposes, in light of the privacy interests of mortgage applicants or mortgagors. 12 U.S.C. 2803(h)(1)(E), 2803(h)(3).

168

HMDA section 304(

)(2)(A), 12 U.S.C. 2803(

)(2)(A) (setting maximum disclosure periods except as provided under other HMDA subsections and regulations prescribed by the Bureau); HMDA section 304(n), 12 U.S.C. 2803(n).

As amended by the Dodd-Frank Act, HMDA section 304 requires itemization of specified categories of information and “such other information as the Bureau may require.”

169

Specifically, HMDA section 304(b)(5)(D) requires reporting of “such other information as the Bureau may require” for mortgage loans, and section 304(b)(6)(J) requires reporting of “such other information as the Bureau may require” for mortgage loans and applications. HMDA section 304 also identifies certain data points that are to be included in the itemization “as the Bureau may determine to be appropriate.”

170

It provides that age and other categories of data shall be modified prior to release “as the Bureau determines to be necessary” to satisfy the statutory purpose of protecting the privacy interests of the mortgage applicants or mortgagors.

171

169

HMDA section 304(b)(5)(D), (b)(6)(J), 12 U.S.C. 2803(b)(5)(D), (b)(6)(J).

170

HMDA section 304(b)(6)(F), (G), (H), 12 U.S.C. 2803(b)(6)(F), (G), (H).

171

HMDA section 304(h)(3)(A)(ii), 12 U.S.C. 2803(h)(3)(A)(ii).

The Dodd-Frank Act amendments to HMDA also authorize the Bureau's

Director to develop or assist in the improvement of methods of matching addresses and census tracts to facilitate HMDA compliance by depository institutions in as economical a manner as possible.

172

The Bureau, in consultation with the Secretary of HUD, may also exempt for-profit mortgage-lending institutions that are comparable within their respective industries to a bank, savings association, or credit union that has total assets of $10,000,000 or less.

173

172

HMDA section 307(a), 12 U.S.C. 2806(a) (authorizing the Bureau's Director to utilize, contract with, act through, or compensate any person or agency to carry out this subsection).

173

HMDA section 309(a), 12 U.S.C. 2808(a).

In preparing this notice of proposed rulemaking, the Bureau has considered the proposed changes below in light of its legal authority under HMDA and the Dodd-Frank Act. The Bureau has determined that each of the changes proposed below is consistent with the purposes of HMDA and is authorized by one or more of the sources of statutory authority identified in this part.

V. Section-by-Section Analysis

Section 1003.1 Authority, Purpose, and Scope

1(c) Scope

As discussed further in the section-by-section analysis of proposed § 1003.2(d), 2(g), and 2(o) the Bureau proposes substantive modifications to Regulation C's transactional and institutional coverage. The Bureau proposes technical changes to § 1003.1(c) to conform to those substantive changes.

Institutional Coverage

As discussed in detail below in the section-by-section analysis of proposed § 1003.2(g), the Bureau proposes to adjust Regulation C's institutional coverage to adopt a uniform loan volume threshold of 25 covered loans, excluding open-end lines of credit, applicable to all financial institutions (25-loan volume test). Under the proposal, depository and nondepository institutions that meet all of the other applicable criteria for a “financial institution” would be required to report HMDA data if they originated at least 25 covered loans, excluding open-end lines of credit, in the previous calendar year. The Bureau believes that this proposal would improve the quality of HMDA data by increasing visibility into the practices of nondepository institutions. In addition, the proposal would appropriately relieve institutions that originate a small number of mortgage loans from the burden of reporting HMDA data without impacting the quality of HMDA data. Furthermore, the proposed 25-loan volume test would simplify the reporting regime by providing a consistent loan volume benchmark across all financial institutions.

Transactional Coverage

As discussed below, the Bureau is proposing to expand the types of transactions for which covered financial institutions must report data under Regulation C by including all mortgage loans, reverse mortgages, and lines of credit secured by a dwelling within the transactional scope of the regulation. Regulation C currently determines transactional coverage according to the purpose of the loan; if a covered financial institution receives an application or originates or purchases a loan that is, among other things, for the purchase of a home, home improvement, or refinancing, the financial institution must collect and report data on the application or loan. As discussed below in the section-by-section analysis to § 1003.2(d), the Bureau is proposing to expand transactional coverage to include all mortgage loans secured by a dwelling, regardless of the purpose of the loan. This proposed modification includes several types of transactions that are not currently covered by Regulation C, including home-equity loans and commercial loans that are secured by a dwelling but do not satisfy the current purpose-based transactional coverage test. In addition, as discussed below in the section-by-section analysis to § 1003.2(o), the Bureau is proposing to expand transactional coverage to include all dwelling-secured lines of credit, regardless of the purpose of the line of credit. This proposed modification includes all home-equity lines of credit, which are currently reported at the option of a financial institution if the purpose-based test is satisfied, as well as commercial lines of credit secured by a dwelling. Finally, as discussed below in the section-by-section analysis to § 1003.2(q), the Bureau is proposing to expand transactional coverage to include all reverse mortgages secured by a dwelling, regardless of the purpose of the reverse mortgage. This proposed modification includes all reverse mortgages, many of which do not satisfy the current purpose-based transactional coverage test, and therefore are not currently reported under Regulation C. The Bureau believes that these modifications would simplify the regulation, improve the quality and usefulness of the HMDA data, and align with current business practices, among other things. See the section-by-section analysis to these sections below for a detailed discussion of these proposed modifications.

In addition, to reduce burden created by redundancy in Regulation C, the Bureau proposes a modest reorganization of Regulation C. For the reasons discussed in the section-by-section analysis below, the Bureau proposes to move and consolidate comments 1(c)-2 through 1(c)-9.

Section 1003.2 Definitions

Section 1003.2 of Regulation C sets forth definitions that are used in the regulation. As discussed below, the Bureau proposes substantive changes to several of these current definitions. In addition to these proposed substantive changes, the Bureau proposes technical revisions to § 1003.2 to enumerate the terms defined therein. The Bureau believes that these proposed technical revisions will facilitate compliance with Regulation C by making defined terms easier to locate and cross-reference in the regulation and its commentary and appendices. The Bureau includes in this proposal enumerations only for those definitions that it proposes to add or revise. The Bureau intends to provide enumerations for all definitions in § 1003.2, including the defined terms not addressed in this proposal, when the Bureau finalizes this proposal.

2(b) Application

2(b)(1) In General

Section 303(4) of HMDA defines a completed application as an application in which the creditor has received the information that is regularly obtained in evaluating applications for the amount and type of credit requested. Regulation C defines an application as an oral or written request for a home purchase loan, a home improvement loan, or a refinancing that is made in accordance with procedures used by a financial institution for the type of credit requested.

As discussed in the section-by-section analysis of proposed § 1003.2(e) the Bureau is proposing to require financial institutions to report activity only for dwelling-secured loans, regardless of whether the loans are for home purchase, home improvement, or refinancing. The Bureau is proposing to make technical corrections and minor wording changes to conform the definition of application to the proposed changes in transactional coverage.

The Bureau is not proposing other changes to the definition of application at this time. When the Bureau's 2011

Regulation C Restatement was published, industry trade associations asked the Bureau to align key definitions among various regulations, including the definition of application. The commenters noted the difference between the definition of application in Regulation C and Regulation X, for example. The Bureau responded to similar comments in the Bureau's 2013 TILA-RESPA Final Rule.

174

During the Small Business Review Panel process, small entity representatives also suggested that the Regulation C definition of application be aligned with the definition used in the Bureau's 2013 TILA-RESPA Final Rule.

175

As discussed in the Bureau's 2013 TILA-RESPA Final Rule, the definition in that rule serves a different purpose from the definition in Regulation C, and the Bureau did not expand that definition to regulations that implement ECOA, FCRA, and HMDA.

176

Consistent with the Bureau's determination in the TILA-RESPA rulemaking, the Bureau is not proposing to align the Regulation C definition with the definition adopted in the Bureau's 2013 TILA-RESPA Final Rule. While the Bureau is not proposing to make any changes to the Regulation C definition for alignment purposes at this time, the Bureau will continue to consider the comments received on this topic as it evaluates further follow up to the Bureau's 2011 Streamlining Notice and other comments received. The proposal revises comments Application-1 and Application-2 to make technical and minor wording changes.

174

78 FR 79730, 79767 (Dec. 31, 2013).

175

See

Small Business Review Panel Report at 87, 95.

176

78 FR 79767 (Dec. 31, 2013).

2(b)(2) Preapproval Programs

Regulation C incorporates certain requests under preapproval programs into the definition of application under § 1003.2. Requests for preapprovals may provide more complete data on the availability of home financing and be useful as a fair lending screening device.

177

Such programs are only covered if they involve a comprehensive analysis of the creditworthiness of the applicant and include a written commitment for up to a specific amount, subject only to certain limited conditions.

178

Institutions must report requests reviewed under covered preapproval programs that were denied or that resulted in originations (with a specific enumeration that preapproval was requested). Institutions may, at their option, report covered preapprovals that were approved but not accepted. The FFIEC has published some additional guidance on preapprovals in the form of frequently asked questions (FFIEC FAQs).

179

177

67 FR 7222, 7224 (Feb. 15, 2002).

178

Section 1003.2 (definition of preapproval programs).

179

FFIEC FAQs.

The Bureau is proposing to make minor wording changes to the definition of a preapproval program under § 1003.2(b)(2) and technical and clarifying changes to comment Application-3. The Bureau is proposing to delete language in the definition related to a certification of a clear termite inspection because it duplicates language in the commentary. The proposal adds language adapted from the FFIEC FAQs to the comment Application-3. This language specifies that a program that meets the definition in § 1003.2(b)(2) is a preapproval program for purposes of Regulation C regardless of its name, and that a program described as a “preapproval program” that does not meet the definition in § 1003.2(b)(2) is not a preapproval program for purposes of Regulation C. The language also specifies that an institution need not treat

ad hoc

requests for preapprovals as part of a preapproval program for purposes of Regulation C, but also notes that institutions should be generally consistent in procedures for considering such requests.

During the Small Business Review Panel process, small entity representatives expressed concern about reporting preapprovals and determining whether certain requests are reportable as preapprovals. The Small Business Review Panel recommended that the Bureau specifically solicit public comment on whether clarification on the coverage of preapprovals is needed and, if so, how the coverage of preapprovals should be determined in light of HMDA's purposes.

180

When the Bureau's 2011 Regulation C Restatement was published, some commenters requested additional guidance on preapproval programs and others requested that the Bureau eliminate the requirement to report activity under covered preapproval programs. The Bureau believes that preapproval data are valuable for HMDA's fair lending purpose, as it permits visibility into how applicants are treated in an early stage of the lending process. The Bureau is not proposing to eliminate reporting of covered preapproval programs, and, as discussed below in the section-by-section analysis of proposed § 1003.4(c)(2), is proposing to require reporting of preapproval requests that are approved by a financial institution but not accepted by an applicant. However, the Bureau notes that, as discussed above, the proposal does incorporate additional guidance into comment Application-3 regarding preapproval programs. Consistent with the recommendation of the Small Business Review Panel, the Bureau solicits feedback on whether additional clarification on the coverage of preapprovals is needed and, if so, how the coverage of preapprovals should be determined in light of HMDA's purposes.

180

Small Business Review Panel Report at 38.

2(c) Branch Office

Section 1003.2 currently provides a definition of branch office, which includes separate definitions for branches of (1) banks, savings associations, and credit unions and (2) for-profit mortgage-lending institutions (other than banks, savings associations, and credit unions). The Bureau proposes technical and nonsubstantive modifications to the definition of branch office and to comments Branch Office-2 and -3, renumbered as comments 2(c)-2 and -3, respectively, to clarify the definition and to conform to technical changes that the Bureau is proposing throughout Regulation C. The Bureau solicits feedback on whether the proposed modifications are appropriate generally.

2(d) Closed-End Mortgage Loan

HMDA section 303(2) defines a “mortgage loan” as a loan which is secured by residential real property or a home improvement loan. The Board interpreted HMDA section 303(2) to refer to three types of loans: Home purchase loans, home improvement loans, and refinancings. As a result, Regulation C currently does not apply to mortgage loans that do not fall under one of these definitions, such as a loan secured by a dwelling that is used for business expenses, but is not considered a refinancing under § 1003.2. For the reasons discussed below, the Bureau is proposing a new definition for “closed-end mortgage loans,” which would include all dwelling-secured loans that are not currently covered by Regulation C, regardless of the purpose of the loan.

In the original implementation of Regulation C, the Board's proposed scope included all loans secured by real property.

181

However, the Board subsequently decided to adopt a narrower scope based on the purpose of the loan.

182

At that time, the Board reasoned that focusing on the purpose of the loan would provide more useful

data.

183

While this approach was successful for some time, the Bureau believes that it now may be appropriate to include all dwelling-secured loans. Research indicates that closed-end home-equity lending was a significant factor in the financial crisis.

184

In the years leading up to the crisis, closed-end home-equity loans were often provided to non-prime borrowers, many of whom defaulted after the crisis began.

185

Thus, data on these closed-end mortgage loans may have helped the public better understand the risks posed to local housing markets. Furthermore, distressed homeowners with closed-end subordinate-lien mortgage loans encountered several challenges when seeking assistance from public and private mortgage relief programs.

186

Data on these loans may have helped public officials improve the effectiveness of these relief programs.

181

See

41 FR 13619, 13620 (Mar. 31, 1976).

182

See

41 FR 23931, 23932 (June 14, 1976).

183

“There was general agreement among depository institutions and consumer and public interest groups that inclusion of mortgage loans unrelated to housing needs would distort the data from the standpoint of the purposes of the Act . . . . The Board believes that repeated references to in the legislative history of the Act to `homeownership and home repair' support a narrower definition of mortgage loan than was proposed.”

Id.

184

“A significant part of the default crisis is driven by existing homeowners borrowing heavily against the rising value of their house.” Atif Mian & Amir Sufi,

House Prices, Home Equity-Based Borrowing, and the U.S. Household Leverage Crisis,

101 a.m. Econ. Rev. 2132, p. 2154 (Aug. 2011).

185

“The largest share of [closed-end second-lien] mortgages went to borrowers with relatively low quality non-prime mortgages. The large growth of [closed-end second-lien] mortgages in 2006 to 2007 primarily went to borrowers with non-prime first liens that would eventually default at very high rates.” Donghoon Lee, et al.,

A New Look at Second Liens,

Fed. Reserve Bank of New York Staff Report No. 569, at 11 (Aug. 2012).

186

See

Vicki Been, et al., Furman Center for Real Estate & Urban Policy,

Essay: Sticky Seconds—The Problems Second Liens Pose to the Resolution of Distressed Mortgages,

13-18 (Aug. 2012).

For these reasons, the Bureau believes that including dwelling-secured loans that are not currently covered by Regulation C may provide valuable information to the public and to public officials. Accordingly, the Bureau is proposing § 1003.2(d), which defines a “closed-end mortgage loan” as a debt obligation secured by a lien on a dwelling that is not an open-end line of credit under § 1003.2(o), a reverse mortgage under § 1003.2(q), or excluded from coverage pursuant to § 1003.3(c). The Bureau solicits feedback regarding whether this proposed modification is appropriate. The Bureau also seeks additional information to ensure that this modification would provide useful data to the public. Specifically, the Bureau solicits feedback regarding whether this proposed modification would be as valuable to the public as the Bureau's preliminary analysis suggests, whether there would be unique costs or burdens associated with this proposed modification, and whether there are additional considerations that should be included in the Bureau's analysis. Furthermore, the Bureau is not proposing commentary to proposed § 1003.2(d) because the Bureau believes that this proposed definition is straightforward and clear. However, the Bureau solicits feedback regarding whether commentary is needed to clarify the definition or to facilitate compliance.

During the Small Business Review Panel process, several small entity representatives expressed concerns about requiring reporting of dwelling-secured commercial credit.

187

Some small entity representatives expressed concern about the potential compliance challenges associated with applying several of the HMDA requirements to commercial loans.

188

The Small Business Review Panel recommended that the Bureau solicit public comment on whether any types of dwelling-secured loans should be excluded from Regulation C's data collection and reporting requirements and, if so, which types of loans should be excluded.

189

The Small Business Review Panel also encouraged the Bureau to consider and seek public comment on how categories of loans that would be affected by the proposal might be related to a financial institution's Community Reinvestment Act reporting obligations.

190

Based on this feedback and consistent with the Small Business Review Panel's recommendation, the Bureau solicits feedback regarding whether any types of dwelling-secured loans should be excluded from the requirements of the regulation, which types of loans should be excluded, and how this proposed modification might affect a financial institution's Community Reinvestment Act reporting requirements. In addition, to address the concerns raised about commercial credit, the Bureau solicits feedback regarding the extent to which members of the public would use data related to business-purpose loans to determine whether financial institutions are fulfilling their obligations to serve community housing needs, whether dwelling-secured loans used for business purposes should be excluded from the scope of the regulation, and information related to the potential compliance costs associated with business-purpose loans. Finally, with respect to the concerns raised by small financial institutions about applying the reporting requirements to loans for business purposes, the Bureau solicits feedback regarding whether any modifications to or exclusions from the requirements of proposed § 1003.4(a) would be appropriate if the Bureau decides against excluding business-purpose loans from the reporting requirements.

187

See

Small Business Review Panel Report at 24, 37, 59, 78, and 85.

188

See id.

at 24, 27, 30, 33, 38, 39, 40. 42, 52, 62, 75, 81, 94, 95, 101, 126, and 129.

189

See id.

at 38.

190

Id.

2(e) Covered Loan

While HMDA section 303(2) defines a “mortgage loan” as a loan which is secured by residential real property or a home improvement loan, Regulation C does not currently contain a defined term that includes all mortgage loans within the scope of the regulation. The Bureau has received feedback indicating that many members of industry find the regulation confusing and experience compliance challenges when determining whether and how to report the data. The Bureau believes that some of this confusion results from the current structure of the regulation, which links certain requirements to loan types, such as home-equity lines of credit, and other requirements to loan purposes, such as refinancings. Establishing clearly delineated boundaries between loan types and loan purposes will help clarify the regulation, and a new defined term that includes all types of loans subject to Regulation C should make subsequent references in the regulation easier to understand.

Accordingly, the Bureau is proposing § 1003.2(e), which defines a “covered loan” as a transaction that is, as applicable, a closed-end mortgage loan under § 1003.2(d), an open-end line of credit under § 1003.2(o), or a reverse mortgage under § 1003.2(q). The Bureau solicits feedback regarding whether this new proposed definition is appropriate. The Bureau is not proposing commentary to proposed § 1003.2(e) because the Bureau believes that this proposed definition is straightforward and clear. However, the Bureau solicits feedback regarding whether commentary is needed to clarify this proposed definition or to facilitate compliance.

2(f) Dwelling

Although HMDA does not use or define the term “dwelling,” the term has been included in some form in Regulation C since 1976

191

and is

important to scope, reporting, and coverage under Regulation C. Regulation C defines a dwelling as a residential structure (whether or not attached to real property) located within a U.S. State, the District of Columbia, or Puerto Rico. Regulation C provides that the definition of a dwelling includes, but is not limited to, condominium units, cooperative units, and mobile or manufactured homes.

192

Regulation C commentary interprets the term dwelling to include vacation and second homes, rental properties and multifamily structures.

193

Recreational vehicles such as boats or campers, and transitory residences such as hotels, hospitals, and dormitories are not included in the definition.

194

191

41 FR 23932 (June 14, 1976).

192

12 CFR 1003.2 (definition of dwelling).

193

12 CFR 1003.2, comment Dwelling-1.

194

12 CFR 1003.2, comment Dwelling-2.

Financial institutions have reported that they experience compliance burden in determining whether certain properties are dwellings under Regulation C, and whether the loan or application associated with such properties should be reported on the loan application register. Financial institutions report difficulty in determining coverage for loans secured by homes that are converted to commercial purposes, such as homes converted to daycare centers or professional offices; recreational vehicles that are used as residences; park model recreational vehicles; houseboats and floating homes; and certain mobile homes that do not meet the definition of a manufactured home.

195

Specifically, financial institutions report difficulty in determining coverage for mobile homes built prior to June 15, 1976, which are not covered by the HUD standards for manufactured homes.

The Bureau is proposing to revise the definition of dwelling in § 1003.2 to provide additional clarity. Specifically, the Bureau proposes to move the geographic location requirement currently in the definition of dwelling to § 1003.1(c) and to add examples of dwellings to the commentary. The proposed examples have long been understood to be dwellings under Regulation C, and the revision is intended solely for clarity and illustration. The proposal revises comment Dwelling-1 to refer to investment properties rather than rental properties for consistency with terms used in the proposal regarding reporting of owner-occupancy status under § 1003.4(a)(6). The proposal also revises comment Dwelling-1 to list condominium and cooperative buildings as additional examples of multifamily residential structures, and to provide that both multifamily complexes and individual buildings are covered. The Bureau solicits feedback on whether additional guidance is necessary to distinguish when multiple multifamily buildings should be considered part of the same complex and multifamily dwelling or when they should be considered separate properties and how to distinguish these scenarios.

The proposed definition in § 1003.2 would no longer refer to mobile homes, to reduce any confusion with the current definition of manufactured home. The HUD standards for manufactured homes do not cover mobile homes constructed before June 15, 1976, and these would not be covered by the proposed definitions of manufactured home or dwelling for purposes of Regulation C.

196

Comment Dwelling-1 would be revised accordingly. The Bureau believes that reported information about covered loans and applications secured by pre-1976 mobile homes may not be useful given the limited volume of such loans and the difference in pricing and terms when compared to covered loans related to manufactured homes. Additionally, the Bureau believes that even if these dwellings were identified separately from manufactured homes, financial institutions would experience compliance burden in determining whether the homes are manufactured homes or pre-1976 mobile homes. However, the Bureau solicits feedback on whether this exclusion is appropriate or whether such homes should be included in the definition of dwelling under Regulation C and, if so, whether an additional enumeration should be added to the construction method reporting requirement under proposed § 1003.4(a)(5) for such loans.

196

24 CFR 3282.8(a).

The proposal clarifies that recreational vehicles are not considered dwellings under Regulation C even if they are used as residences. The current commentary provides that recreational vehicles such as campers and boats are not dwellings for purposes of Regulation C. However, financial institutions have reported confusion with the comment where the recreational vehicle is used as a residence. For example, in some cases borrowers use campers or boats that were not designed as permanent dwellings as residences. Financial institutions have also reported confusion about park model recreational vehicles, which are recreational vehicles which share some characteristics of manufactured homes but are excluded from the HUD standards for manufactured housing as recreational vehicles.

197

Proposed comment 2(f)-2 provides that recreational vehicles, including boats, campers, travel trailers, and park model recreational vehicles, are not considered dwellings for purposes of § 1003.2(f), regardless of whether they are used as residences.

197

24 CFR 3282.8(g).

Regarding houseboats and floating homes that may be used as residences, certain financial institutions in areas where houseboats and floating homes are more common report loans related to floating homes and houseboats on their loan application registers. These institutions may receive consideration under the CRA for financing houseboats or floating homes. The Bureau recognizes that while these loans may provide housing for certain communities, the Bureau believes that financing of such loans is different from other home loans and the incidence of such housing is highly localized. Unlike manufactured housing, discussed below, usage and financing of houseboats and floating homes is not as prevalent, and the small number of houseboats used as residences suggests that loans secured by such properties should not be included in HMDA data.

198

Therefore, the Bureau believes that excluding houseboats and floating homes will facilitate compliance with HMDA. However, the Bureau solicits feedback on whether these exclusions are appropriate.

198

The Bureau understands that relatively few houseboats and recreational vehicles are used as residential dwellings. Based on 2008-2012 American Community Survey estimates, 108,654 of the total 131,642,457 total housing units in the United States (0.1 percent) were vans, recreational vehicles, or boats.

The proposal would differ from Regulation Z's definition of dwelling, which treats recreational vehicles used as residences as dwellings. 12 CFR part 1026, comment 2(a)(19)-2. When the Bureau's 2011 Regulation C Restatement was published, industry trade associations asked the Bureau to align key definitions among various regulations, including the definition of dwelling. As discussed above, the proposal does not align the Regulation C definition with Regulation Z. Instead, it would exclude certain structures which may be covered by Regulation Z and provide more clarity on certain structures. The Bureau believes that additional guidance in this area and an exclusion for certain structures will reduce burden for financial institutions. However, the Bureau solicits feedback on whether financial institutions would prefer to report loans and applications for these types of structures that may be

considered dwellings under Regulation Z rather than having them excluded from the Regulation C reporting requirements as proposed.

The proposal revises the sentence in the comment Dwelling-2 regarding transitory residences to delete the reference to principal residences elsewhere because the explanation is inconsistent with the standard articulated in the commentary regarding non-principal residences such as second homes. The Bureau believes that this exclusion is better explained by the transitory nature of such structures. The proposal provides that structures designed for residential purposes but used exclusively for commercial purposes would not be dwellings under Regulation C and provides examples of daycare facilities and professional offices. The Bureau solicits feedback regarding whether the proposed revisions provide institutions with sufficient clarity to identify transactions that must be reported and whether any additional exclusions or examples would be appropriate.

During the Small Business Review Panel process, one small entity representative requested guidance on how to account for mixed-used buildings.

199

Commentary under the definitions of home improvement loan and home purchase loan provides guidance on whether loans secured by mixed-use property are reportable by allowing institutions to use any reasonable standard to determine the primary use of the property. The Bureau is proposing to add new comment 2(f)-3 regarding mixed-use property, which is adapted from the comments currently provided. The Bureau believes that the issues associated with identifying mixed-use property are common to all types of dwelling-secured loans and it may facilitate compliance to include the discussion of the issue under the definition of dwelling. The comment also provides that if a property contains five or more individual dwelling units, a financial institution should consider it to have a primary residential use. The Bureau believes that even if such properties also contain commercial space, five individual dwelling units is sufficient residential use to require coverage. This would be consistent with the proposal's new definition of a multifamily dwelling, discussed below in the section-by-section analysis of proposed § 1003.2(n). The Bureau solicits feedback on whether it would be preferable to establish a bright-line rule for mixed-use property. Specifically, the Bureau solicits feedback on whether a mixed-use property should be reported if it includes any individual dwelling units, or whether a clear standard can be provided for mixed-used property with a

de minimis

residential component to be excluded.

199

See

Small Business Review Panel Report at 80.

Proposed section§ 1003.2(f) is proposed to implement, in part, the definition of “mortgage loan” in HMDA section 303(2). That term would be implemented through other terms in Regulation C as well, including the proposed definitions of “closed-end mortgage loan” and “covered loan.” In combination with other relevant provisions in Regulation C, the Bureau believes that the proposed definition of “dwelling” is a reasonable interpretation of the definition in that provision. Section 1003.2(f) is also proposed pursuant to the Bureau's authority under section 305(a) of HMDA. Pursuant to section 305(a) of HMDA, the Bureau believes that this proposed definition is necessary and proper to effectuate the purposes of HMDA. The proposed definition will serve HMDA's purpose of providing information to help determine whether financial institutions are serving the housing needs of their communities by providing information about various types of housing that are financed by financial institutions. The definition will facilitate compliance with HMDA requirements by providing clarity regarding what transactions must be reported for purposes of Regulation C.

2(g) Financial Institution

Regulation C requires institutions that meet the definition of financial institution to collect and report HMDA data. HMDA and Regulation C establish different coverage criteria for depository institutions (banks, savings associations, and credit unions) than for nondepository institutions (for profit-mortgage-lending institutions).

200

Depository institutions that originate one first-lien home purchase loan or refinancing secured by a one-to-four unit dwelling and that meet other criteria for “financial institution” must collect and report HMDA data, while certain nondepository institutions that originate many more mortgage loans annually do not have to collect and report HMDA data. The Bureau believes that this approach may exclude important data about nondepository institutions' practices and may inappropriately burden depository institutions that originate a small number of mortgage loans.

200

See

Section 1003.2 (definition of financial institution); HMDA sections 303(3), 309(a).

The Bureau proposes to adjust Regulation C's institutional coverage to adopt a uniform loan volume threshold of 25 loans applicable to all financial institutions (25-loan volume test). Under the proposal, depository and nondepository institutions that meet all of the other criteria for a “financial institution” would be required to report HMDA data if they originated at least 25 covered loans, excluding open-end lines of credit, in the preceding calendar year.

The proposed loan volume test would improve the availability of data concerning the practices of nondepository institutions, where information is needed. The Bureau estimates that the proposed coverage criteria may increase the number of nondepository institutions covered by HMDA by as much as 40 percent and the number of reported originations and applications by nondepository institutions by as much as 6 percent. As discussed below, this information is important because Congress and other stakeholders have raised concerns about the practices of, and loan products offered by, nondepository institutions generally and their role in the broader financial crisis. With data from additional nondepository institutions, the public and public officials would be better able to evaluate whether those institutions are serving the housing needs of their communities and whether those institutions' practices pose possible fair lending risks. In addition, the data would allow the public and public officials to identify emerging products and practices in the nondepository mortgage market that may pose risks to consumers.

Furthermore, the Bureau believes that the proposed 25-loan volume test may appropriately reduce the burdens on depository institutions that make very few loans while maintaining coverage of a relevant, diverse set of reporting institutions and reported transactions. The Bureau believes that eliminating reporting by lower-volume depository institutions may be a way to reduce burden without impacting the quality of HMDA data. As discussed below, the Bureau believes that the loss of data from depository institutions that originate fewer than 25 loans in a calendar year would not significantly impact the utility of HMDA data for analyzing mortgage lending at the national, local, and institutional levels.

In addition, the proposed 25-loan volume test may simplify the reporting regime by providing a consistent loan volume benchmark across all financial institutions. Institutions that originate 25 loans likely face similar burdens associated with HMDA reporting,

regardless of whether the institution is a depository or nondepository institution. Thus, setting a consistent loan volume threshold across all financial institutions may spread the burden of reporting more evenly among lower-volume institutions. The specific proposed changes to the definition of financial institution applicable to nondepository and depository institutions are discussed below separately.

Coverage of Nondepository Financial Institutions

HMDA extends reporting responsibilities to certain nondepository institutions, defined as any person engaged for profit in the business of mortgage lending other than a bank, savings association, or credit union.

201

HMDA section 309(a) also authorizes the Bureau to adopt an exemption for covered nondepository institutions that are comparable within their respective industries to banks, savings associations, and credit unions with $10 million or less in assets in the previous fiscal year.

202

201

See generally

HMDA sections 303(5) (defining other lending institutions), 303(3)(B) (including other lending institutions in the definition of depository institution), and 304(a) (requiring depository institutions to collect, report, and disclose certain data if the institution has a home or branch office located in an MSA), 12 U.S.C. 2802(5), 2802(3), 2803(a).

202

See

HMDA section 309(a), 12 U.S.C. 2808(a).

Under the current definition of financial institution in § 1003.2, a nondepository institution is a financial institution if it meets three criteria. First, the institution satisfies the following loan volume or amount test: In the preceding calendar year, the institution originated home purchase loans, including refinancings of home purchase loans, that equaled either at least 10 percent of its loan-origination volume, measured in dollars, or at least $25 million.

203

Second, on the preceding December 31, the institution had a home or branch office in an MSA.

204

Third, the institution meets one of the following two criteria: (a) On the preceding December 31, the institution had total assets of more than $10 million, counting the assets of any parent corporation; or (b) in the preceding calendar year, the institution originated at least 100 home purchase loans, including refinancings of home purchase loans.

205

203

The Board adopted the 10 percent loan volume test in 1989 to implement the 1989 FIRREA amendments, which extended HMDA's reporting requirements to institution's “engaged for profit in the business of mortgage lending.”

See

54 FR 51356, 51358-59 (Dec. 15, 1989). In 2002, the Board modified the test and added the $25 million loan volume test to require reporting by additional nondepository institutions.

See

67 FR 7222, 7224 (Feb. 15, 2002).

204

Under § 1003.2 (definition of branch office), a nondepository institution has a branch office in an MSA if it originated, received applications for, or purchased five or more covered loans in that MSA.

205

In 1989, the $10 million asset test, derived from section 309, applied to both depository and nondepository institutions.

See

54 FR 51356, 51359 (Dec. 15, 1989). Because the 1989 amendments failed to cover as many nondepository lenders as Congress had intended, in 1991, Congress amended the asset test in HMDA section 309 to apply only to depository institutions, and it granted the Board discretion to exempt comparable nondepository institutions.

See

Public Law 102-242, section 224 (1991). Pursuant to that authority, the Board added the 100 loan volume test for nondepository institutions in 1992.

See

57 FR 56963, 56964-65 (Dec. 2, 1992).

As discussed below, the Bureau proposes to modify the coverage criteria applicable to nondepository institutions by replacing the current loan volume or amount test with the same 25-loan volume test that the Bureau proposes for depository institutions. Under this approach, a nondepository institution would be required to report HMDA data if it had a home or branch office in an MSA on the preceding December 31 and it originated at least 25 covered loans, excluding open-end lines of credit, in the preceding calendar year. For the reasons discussed below, the Bureau believes that it may be appropriate to adopt a different formulation for determining whether a nondepository institutio

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