Home Mortgage Disclosure (Regulation C)

Federal RegisterOct 28, 2015

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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:

Final rule; official interpretations.

SUMMARY:

The Bureau of Consumer Financial Protection is amending Regulation C to implement amendments to the Home Mortgage Disclosure Act 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 is adding several new reporting requirements and clarifying several existing requirements. The Bureau is also modifying the institutional and transactional coverage of Regulation C. The final rule also provides extensive guidance regarding compliance with both the existing and new requirements.

DATES:

This rule is effective on January 1, 2018, except that the amendment to § 1003.2 in amendatory instruction 3 is effective on January 1, 2017; the amendments to § 1003.5 in amendatory instruction 8, the amendments to § 1003.6 in amendatory instruction 10, the amendments to appendix A to part 1003 in amendatory instruction 12, and the amendments to supplement I to part 1003 in amendatory instruction 16 are effective on January 1, 2019; and the amendments to § 1003.5 in amendatory instruction 9 are effective on January 1, 2020. See part VI for more information.

FOR FURTHER INFORMATION CONTACT:

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

SUPPLEMENTARY INFORMATION:

I. Summary of the Final Rule

Regulation C implements the Home Mortgage Disclosure Act (HMDA), which was amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). On July 24, 2014, the Bureau issued a proposed rule to amend Regulation C, which was published in the

Federal Register

on August 29, 2014 (the 2014 HMDA Proposal or the proposal).

The Bureau is publishing final amendments to Regulation C modifying the types of institutions and transactions subject to the regulation, the types of data that institutions are required to collect, and the processes for reporting and disclosing the required data.

79 FR 51731 (Aug. 29, 2014).

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).

In 2010, Congress enacted the Dodd-Frank Act, which amended HMDA and 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.”

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

Dodd-Frank Act section 1094(3),

amending

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

Id.

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 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.

Depository financial institutions report HMDA data to their supervisory agencies, while nondepository financial institutions report HMDA data to the U.S. Department of Housing and Urban Development (HUD). Financial institutions report their data 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.

Overview of HMDA's Purposes and Evolution

In the decades that followed World War II, the standard of living declined sharply in many U.S. cities as people migrated to the suburbs. A significant cause of this decline was the gradual deterioration of the urban housing supply. Although Congress took several steps to address this problem, by the 1970s it was clear that inadequate private investment and a lack of access to credit was contributing to an ongoing cycle of decline in urban neighborhoods. However, Congress lacked adequate data to determine the extent and severity of these market failures. To create transparency in the mortgage market Congress enacted HMDA in 1975, which the Board implemented by promulgating Regulation C in 1976. As originally enacted, HMDA applied to certain depository institutions that were located in standard metropolitan statistical areas, and required the disclosure of a limited amount of data regarding home improvement and residential mortgage loans.

See

79 FR 51731, 51735-36 (Aug. 29, 2014).

HMDA substantially improved the public's ability to determine whether financial institutions were serving the needs of their communities, but during the 1980s several events occurred that illustrated the need to improve and expand the HMDA data. A series of investigative reports and studies revealed that discrimination against certain applicants and borrowers was common during the mortgage lending process. Concerns over this discrimination, coupled with the need to respond to the savings and loan crisis of the late 1980s, led Congress to amend HMDA significantly in 1988 and 1989. These amendments, among other things, expanded the coverage of depository and nondepository institutions, required transaction-level disclosure of applications and loans, and added new reporting requirements regarding the applicant's or borrower's race, gender, and income. These amendments dramatically improved the public's understanding of how mortgage lending decisions affected both communities and individual applicants and borrowers.

See

79 FR 51731, 51736-37 (Aug. 29, 2014).

The mortgage market evolved and became more complex during the 1990s, particularly with respect to the expansion of the secondary market and the growth of the subprime market. Faced with concerns about potential predatory and discriminatory practices in the subprime market, community groups and others began to call for new amendments to HMDA to provide increased visibility into market practices. The Board addressed some of these concerns by amending Regulation C in 2002. However, as delinquencies, foreclosures, and other harmful effects of subprime lending unfolded, it became apparent that communities throughout the nation lacked sufficient information to understand the magnitude of the risk to which they were exposed. Community groups, local, State, and Federal officials relied on the HMDA data to identify at-risk neighborhoods and to develop foreclosure relief and homeownership stabilization programs. However, the limited data provided presented several challenges for those who attempted to create effective and responsive relief programs. As discussed above, Congress added several new reporting requirements, but left the Bureau to determine which additional information is necessary. 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 Bureau believes that the HMDA data must be updated to address the informational shortcomings exposed by the financial crisis and to meet the needs of homeowners, potential homeowners, and neighborhoods throughout the nation.

See

79 FR 51731, 51737-39 (Aug. 29, 2014).

B. Applicant and Borrower Privacy

In its proposal, the Bureau set forth the approach it proposed to take to protect applicant and borrower privacy in light of HMDA's purposes. It proposed the use of a balancing test to determine whether and how HMDA data should be modified prior to its disclosure to the public in order to protect applicant and borrower privacy while also fulfilling the disclosure purposes of the statute.

For the reasons described below, the Bureau is adopting the balancing test described in the proposal. The Bureau will provide at a later date a process for the public to provide input on the application of the balancing test to determine the HMDA data to be publicly disclosed.

79 FR 51731, 51742 (Aug. 29, 2014).

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 primary source of information for regulators, researchers, economists, industry, and advocates analyzing the mortgage market both for HMDA's purposes and for general market monitoring. Developing appropriate protections for applicant and borrower

privacy in light of HMDA's purposes is a significant priority for the Bureau. The Bureau is mindful that privacy concerns may arise both when financial institutions compile and report HMDA data to their regulators and when the data are disclosed to the public.

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 regulators 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 carefully considered the potential risks to applicant and borrower privacy associated with compiling and reporting data in developing the proposal and adopting this final rule.

Neither consumer advocate commenters nor the privacy advocate that submitted a comment identified concerns about applicant and borrower privacy associated with the compilation and reporting of data to regulators under the proposal. However, the Bureau received many comments from industry arguing that the compilation and reporting of certain data under the proposal created significant and unjustified risks to applicant and borrower privacy. These comments focused on concerns relating to the potential identifiability and sensitivity of the data to be compiled and reported. Most commenters expressed concerns about potential harms to applicants and borrowers if the data compiled and reported under the proposal were subject to unauthorized access. A few commenters also expressed concerns about potential legal liability and costs to financial institutions associated with the compilation and reporting of the proposed data.

Many industry commenters argued that the proposed requirement to report the postal address of the property securing the covered loan or, in the case of an application, proposed to secure the covered loan

would allow data users to easily link all reported data to an individual applicant or borrower. Some commenters also suggested that proposed data fields other than postal address could allow individual applicants and borrowers to be identified in the reported HMDA data. Many industry commenters asserted that some of the proposed data fields, if tied to an individual, would reveal sensitive information about the applicant or borrower.

Proposed § 1003.4(a)(9)(i).

Some commenters suggested that the Bureau require certain data to be reported in ranges, rather than exact values, to mitigate privacy concerns. Comments received concerning particular data points are addressed in the applicable section-by-section analysis below.

Some industry commenters expressed general concern about government collection of information that may be linkable to individuals, but most commenters expressed specific concerns about potential harms to applicants and borrowers in the event of unauthorized access to the HMDA data maintained by the agencies. Commenters asserted that the proposal increased both the potential harm a breach of the HMDA data at the Bureau or another agency could cause affected applicants and borrowers as well as the risk that such a data breach would occur. Many comments stated that the proposed HMDA data could be used to target applicants and borrowers with marketing for harmful financial products and to commit identity theft and other fraud. Several commenters stated that data breaches at corporations and government agencies have become common and suggested that the proposed HMDA data are sufficiently valuable to identity thieves and others that agency systems maintaining the data would be subject to hacks and other attacks aiming to access the data. A few commenters expressed concern that the HMDA data would be vulnerable to unauthorized access during transmission from financial institutions to their regulators. Several industry commenters expressed particular concern with the Bureau's information security practices and suggested that HMDA data held by the Bureau would be at heightened risk of breach. A few of these commenters urged the Bureau to publish the details of its information security practices and procedures in order to address these concerns. Some industry commenters questioned the benefit of some of the proposed data in light of HMDA's purposes. Several commenters argued that, in light of the potential risks to applicant and borrower privacy presented by the compilation and reporting of the some of the proposed data, any benefits of such compilation and reporting were not justified.

In addition, a few commenters expressed concern that compiling and reporting the proposed data would create legal risks for financial institutions and would impose related costs. A few comments suggested that a financial institution would face regulatory or legal liability if an agency suffered a breach that compromised the financial institution's HMDA data. One comment suggested that reporting the proposed data would expose financial institutions to liability under the Right to Financial Privacy Act (RFPA)

and a few other commenters suggested that doing so would violate the Gramm-Leach-Bliley Act (GLBA)

. Several national trade associations argued that compiling and reporting the proposed data would require financial institutions to strengthen significantly their information security programs and would also increase costs associated with compensating customers in the event of a financial institution's data breach.

12 U.S.C. 3401

et seq.

15 U.S.C. 6801

et seq.

The Bureau has analyzed these industry comments carefully and has determined that any risks to applicant and borrower privacy created by the compilation and reporting of the data required under the final rule are justified by the benefits of the data in light of HMDA's purposes.

The Bureau takes seriously the concerns raised about the security of reported HMDA data maintained at the agencies. The Bureau has addressed or is actively addressing each of the recommendations made in the Government Accountability Office (GAO) report cited by some industry commenters as a basis for concern that the Bureau's information security practices are insufficient to protect HMDA data.

The GAO report

recognized the many steps that the Bureau has taken to ensure the privacy and security of the data it collects; indeed, the report's recommendations focused primarily on formalizing and documenting the privacy and information security practices the Bureau already had in place at the time the report was issued. The Bureau takes strong measures to mitigate and address any risks to the security of sensitive data it receives, consistent with the guidance and standards set for Federal information security programs,

and is committed to protecting the privacy and information security of the HMDA data it receives from financial institutions. As discussed in its proposal,

the Bureau is developing improvements to the HMDA data submission process, including, for example, further advancing encryption if necessary to protect data reported under the final rule.

Several industry commenters asserted that, under the Bureau's proposal, none of the proposed new data points would be made available to the public, or would be made available only in aggregate form, and that this was evidence of the limited value of the proposed data in light of HMDA's purposes. These commenters misunderstood the proposal. The Bureau proposed that the data financial institutions would disclose on their modified loan/application registers would be limited to the currently disclosed data,

see

proposed § 1003.5(c), but stated that it would apply a balancing test to determine whether and how the HMDA data should be modified prior to its public release by the agencies in their annual loan-level data release,

see

79 FR 51731, 51742, 51816 (Aug. 29, 2014). Based on its analysis to date, the Bureau believes that some of the proposed new data points may create privacy concerns sufficient to warrant some degree of modification, including redaction, before public disclosure, but it has determined that all of the data required to be compiled and reported under the final rule significantly advance HMDA's purposes.

U.S. Gov't Accountability Office, GAO-14-758,

Consumer Financial Protection Bureau: Some Privacy and Security Procedures for Data

Collections Should Continue Being Enhanced

(2014),

available at http://www.gao.gov/assets/670/666000.pdf

. In this report, the GAO examined the Bureau's authority to receive consumer financial information as well as steps taken to implement the privacy and information security protections to address risks associated with the receipt of such information. The report contained eleven recommendations directed to the Bureau.

The Bureau's information security program is aligned with the requirements of the Federal Information Security Management Act of 2002 (FISMA). Like other Federal information security programs, the policies and principles that form the CFPB information security program are based on guidance and standards provided by the National Institute of Standards and Technology (NIST). The Bureau declines to publish details of its information security safeguards, as suggested by some industry commenters, because such disclosure would pose a significant security risk.

79 FR 51731, 51741 (Aug. 29, 2014).

The Bureau does not believe a financial institution could be held legally liable for the exposure of data due to a breach at a government agency or for reporting data to a government agency if the institution was legally required to provide the data to the agency and did so in accordance with other applicable law. The comments raising this concern provided no evidence or analysis concerning how such liability might be created. Contrary to a few commenters' suggestions, reporting data as required under the final rule would not create liability for a financial institution under the RFPA or cause the financial institution to violate the GLBA, as both of these laws permit financial institutions to disclose information as required by Federal law or regulation.

Finally, in light of the significant amounts of highly sensitive, personally identifiable information concerning customers that financial institutions collect and maintain in the course of conducting their business regardless of HMDA and Regulation C, the Bureau does not believe the requirement to compile and report some of these data pursuant to the final rule will meaningfully increase financial institutions' information security needs or the amounts required for victim compensation in the event of a financial institution's security breach. The industry commenters that made these arguments offered no detail or evidence of such needs or costs. It is the Bureau's understanding that substantially all of the new data to be compiled under the final rule are either data that HMDA reporters compile for reasons other than HMDA or Regulation C or are calculations that derive from such data, and must be retained by a financial institution to comply with other applicable laws.

See

12 U.S.C. 3413(d) (providing an exception to the RFPA's general prohibition on disclosure to the Federal government for financial records or information “required to be reported in accordance with any Federal statute or rule promulgated thereunder”); 15 U.S.C. 6802(e)(8), 12 CFR 1016.15(a)(7)(i) (providing an exception to GLBA's general prohibition on disclosing nonpublic personal information to a nonaffiliated third party absent notice and an opportunity to opt-out of such disclosure where the disclosure is “to comply with Federal, State, or local laws, rules, and other applicable legal requirements.”).

Disclosures of HMDA Data

As discussed in part II.A 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.

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

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

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

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 (the agencies' release). 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 are deleted from the agencies' release.

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.

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

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

Section 1003.5(f); HMDA section 310.

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).

Changes to financial institutions' disclosure obligations under the final rule.

The Bureau's proposal addressed both of the disclosures financial institutions must make to the public under current Regulation C. First, the Bureau proposed to allow a financial institution to meet its obligation to make its disclosure statement available to the public by making available a notice that clearly conveys that the disclosure statement may be obtained on the FFIEC Web site and that includes the FFIEC's Web site address.

Second, it proposed to require that the modified loan/application register a financial institution must make available show only the data fields that currently are released on the modified loan/application register.

The Bureau explained that the new data points adopted under the final rule would be disclosed in the agencies' release, modified as appropriate to protect applicant and borrower privacy.

These proposals aimed to reduce burden on financial institutions associated with their disclosure of HMDA data and allow for the appropriate protection of applicant and borrower privacy in HMDA data disclosed by shifting much of the responsibility for making HMDA data available to the public to the agencies.

Proposed § 1003.5(b)(2).

Proposed § 1003.5(c).

79 FR 51731, 51742-43, 51816 (Aug. 29, 2014).

The Bureau received several comments on the proposed provisions relating to financial institutions' disclosure obligations. As discussed below in the applicable section-by-section analysis, after consideration of

these comments and further analysis, the Bureau has decided to finalize proposed § 1003.5(b)(2) concerning the disclosure statement with minor modifications. The Bureau is not finalizing § 1003.5(c) concerning the modified loan/application register as proposed and instead is aligning § 1003.5(c) with § 1003.5(b)(2) by adopting a requirement that a financial institution make available to the public a notice that clearly conveys that the institution's modified loan/application register may be obtained on the Bureau's Web site. Thus, under the final rule, the disclosure of HMDA data is shifted entirely to the agencies; financial institutions will no longer be required to provide their HMDA data directly to the public, but only a notice advising members of the public seeking their data of where it may be obtained online.

Use of a balancing test to determine data to be publicly disclosed.

The Dodd-Frank Act amendments to HMDA added new section 304(h)(1)(E), which directs the Bureau to develop regulations, in consultation with the other 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].”

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 explained in its proposal that it interprets HMDA, as amended by the Dodd-Frank Act, to call for the use of a balancing test to determine whether and how HMDA data should be modified prior to its disclosure to the public in order to protect applicant and borrower privacy while also fulfilling HMDA's public disclosure purposes.

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 proposed to 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. The proposal explained that modifications the Bureau may consider where warranted include various disclosure limitation techniques, such as techniques aimed at masking the precise value of data points,

aggregation, redaction, use restrictions, and query-based systems. HMDA's public disclosure purposes might also be furthered by implementing a restricted access program.

The Bureau explained that it interpreted HMDA, as amended by the Dodd-Frank Act, to require that public HMDA data be modified 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 in light of the statutory purposes. The Bureau also sought comment on its view that, considering the public disclosure of HMDA data as a whole, applicant and borrower privacy interests arise under the balancing test only where the disclosure of HMDA data may both substantially facilitate the identification of an applicant or borrower in the data

and

disclose information about the applicant or borrower that is not otherwise public and may be harmful or sensitive. The proposal explained that the Bureau's analysis of the proposed HMDA data under the balancing test was ongoing and included data fields currently disclosed on the modified loan/application register and in the agencies' release. The Bureau stated that it would provide at a later date a process for the public to provide input on the application of the balancing test to determine the HMDA data to be publicly disclosed.

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.

Binning and suppression are examples of commonly-used data masking techniques. Binning, sometimes known as recoding or interval recoding, provides only a range for certain fields. Binning allows data to be shown clustered into ranges rather than as precise values.

A restricted access program could allow “trusted researchers” access to privacy-sensitive information that is unavailable to the public, for research purposes.

The Bureau received very few comments concerning the proposed balancing test itself, most of which supported the balancing test. One industry commenter stated that the balancing test was too narrow, but its comment concerned the types of available information the Bureau should consider in analyzing the potential risks of re-identification and harm to applicants and borrowers presented by the public disclosure of HMDA data, and the types of potential harmful uses of HMDA data, rather than the balancing test itself.

The Bureau received many comments from consumer advocates, researchers, industry, and a privacy advocate concerning the application of the balancing test to the current and proposed HMDA data. These comments concerned (i) the benefits of public disclosure of the data, (ii) the potential risks to applicant and borrower privacy created by such disclosure, and (iii) modifications and data access and use restrictions the Bureau might consider to protect applicant and borrower privacy where warranted.

Many comments, especially from consumer advocates and researchers, identified the benefits of public disclosure of the current and proposed HMDA data. These commenters noted that public disclosure is the fundamental purpose of the Act and argued that public availability of HMDA data: Allows the public to supplement limited government resources to enforce fair lending and other laws and otherwise accomplish the goals of the Act; mitigates the impact of regulator capture or inattention to illegal practices and troublesome trends; and reduces information asymmetry between industry and the public concerning the residential mortgage market.

Several comments raised concerns about potential risks to applicant and borrower privacy created by the disclosure of HMDA data. Similar to comments received concerning such potential risks associated with the compilation and reporting of HMDA data, these comments addressed sources of data that could be combined with HMDA data to identify applicants and borrowers in the HMDA data. Several comments also suggested that the Bureau consider how HMDA data may be combined with other available data to harm consumers. Many comments, especially from industry, raised concerns about a variety of specific proposed data points as well as potential harmful uses to which data disclosed to the public may be put, including fraud, identity theft, and

targeted marketing of harmful financial products.

Finally, several comments concerned data access and use restrictions that the Bureau could consider. Some consumer advocate and researcher comments offered suggestions and recommendations concerning a restricted access program. Several industry comments expressed concerns about the implementation of a restricted access program, however, including concerns that it may create opportunities for data leakage and unauthorized access to the HMDA data. A privacy advocate commenter urged the Bureau to restrict the uses of HMDA data to certain defined purposes, similar to the approach taken with respect to consumer reports under the Fair Credit Reporting Act.

15 U.S.C. 1681

et seq.

The Bureau has determined that its interpretation of HMDA to call for the use of the balancing test described above is reasonable and best effectuates the purposes of the statute. The Bureau interprets HMDA, as amended by the Dodd-Frank Act, to require that public HMDA data be modified 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 in light of the statutory purposes. In such circumstances, the need to protect the privacy interests of mortgage applicants or mortgagors requires that the itemized information be modified. Considering the public disclosure of HMDA data as a whole, applicant and borrower privacy interests arise under the balancing test only where the disclosure of HMDA data may both substantially facilitate the identification of an applicant or borrower in the data

and

disclose information about the applicant or borrower that is not otherwise public and may be harmful or sensitive. Thus, disclosure of an unmodified individual data point or field may create a risk to applicant or borrower privacy interests if such disclosure would either substantially facilitate the identification of an applicant or borrower or disclose information about an applicant or borrower that is not otherwise public and that may be harmful or sensitive. This interpretation implements HMDA sections 304(h)(1)(E) and 304(h)(3)(B) because it prescribes standards for requiring modification of itemized information, for the purpose of protecting the privacy interests of mortgage applicants and borrowers, that is or will be available to the public.

In applying the balancing test, the Bureau will carefully consider all comments received concerning the benefits of disclosure of HMDA data, the risks to applicant and borrower privacy created by such disclosure, and options for data use and access restrictions. However, the Bureau believes that it will be most helpful in applying the balancing test to provide an additional process through which all stakeholders can provide additional comment now that the data to be compiled and reported are finalized. Accordingly, the Bureau intends to provide a process for the public to provide input on the application of the balancing test to determine the HMDA data to be publicly disclosed.

The Bureau received some comments suggesting that disclosure of certain HMDA data could reveal confidential business information. As these comments do not concern applicant and borrower privacy, they are addressed in the appropriate section-by-section analyses below.

III. Summary of the Rulemaking Process

This final rule is the product of several years of research and analysis. 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 additional outreach by soliciting feedback in

Federal Register

notices, by meeting with community groups, financial institutions, trade associations, and other Federal agencies, and by convening a Small Business Review Panel. To prepare this final rule, the Bureau considered, among other things, the comments presented to the Board during its public hearings, feedback provided to the Bureau prior to the issuance of its proposal, including information provided during the Small Business Review Panel, interagency consultations, and feedback provided in response to the proposed rule.

A. Pre-Proposal Outreach

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

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. 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.

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

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.

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

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

See

75 FR 35030 (June 21, 2010).

Transcript of 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) (“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.”).

See, e.g.,

Transcript of 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

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.”).

See, e.g.,

Transcript of 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 39; Atlanta Hearing,

supra

note 40.

See, e.g.,

Washington Hearing,

supra

note 39.

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

and manufactured housing

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

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

and conditional approvals.

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.

See, e.g.,

San Francisco Hearing,

supra

note 42; Washington Hearing,

supra

note 39.

See, e.g., id.

See, e.g.,

Atlanta Hearing,

supra

note 40; Transcript of 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).

See, e.g.,

Atlanta Hearing,

supra

note 40.

See, e.g.,

Washington Hearing,

supra

note 39.

See, e.g.,

Atlanta Hearing,

supra

note 40; San Francisco Hearing,

supra

note 42; Chicago Hearing,

supra

note 46.

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,

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

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

See, e.g.,

San Francisco Hearing,

supra

note 42; Chicago Hearing,

supra

note 46.

See, e.g.,

Atlanta Hearing,

supra

note 40; San Francisco Hearing,

supra

note 42; Chicago Hearing,

supra

note 46; Washington Hearing,

supra

note 39.

See, e.g.,

Chicago Hearing,

supra

note 46.

In developing the proposal to amend Regulation C, the Bureau, through outreach and meetings with stakeholders, built on the feedback received during the Board's 2010 HMDA hearings. The Bureau conducted meetings in-person and through conference calls. In addition, the Bureau solicited feedback through correspondence and

Federal Register

notices.

76 FR 31222 (May 31, 2011); 76 FR 43570 (Jul. 21, 2011); 76 FR 75825 (Dec. 5, 2011); 76 FR 78465 (Dec. 19, 2011).

In 2011, the Bureau issued a proposed rule seeking feedback on regulations inherited from other agencies (2011 Streamlining Proposal).

While the Bureau sought general feedback on opportunities to streamline inherited regulations, the Bureau also solicited specific feedback on whether a small number of refinancings should not trigger Regulation C coverage.

The Bureau received comments from consumer advocates, fair housing advocates, financial institutions, State bank supervisory organizations, and national industry trade associations. Comments addressed issues ranging from reporting thresholds and data reporting exemptions to clarifying certain definitions and reporting issues.

76 FR 75825 (Dec. 5, 2011).

The Bureau noted in the 2011 Streamlining Proposal that 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. 76 FR 75825, 75828 (Dec. 5, 2011).

The Bureau's 2014 HMDA proposal provides a more detailed description of the comments received.

See

79 FR 51731, 51744 (Aug. 29, 2014).

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).

The Bureau's 2011 Regulation C Restatement substantially duplicated the Board's Regulation C and made only non-substantive, technical, formatting, and stylistic changes. As part of the Bureau's 2011 Regulation C Restatement, the Bureau solicited comment on any outdated, unduly burdensome, or unnecessary technical issues and provisions.

Commenters generally suggested aligning Regulation C definitions with other regulations, providing a tolerance for enforcement actions based on low error rates, and establishing a loan-volume threshold. Commenters also raised other issues, some of which the Bureau discussed in the proposal and which are also discussed in the section-by-section analysis below.

76 FR 78465 (Dec. 19, 2011).

Id.

The Bureau met with a few groups to better understand existing and emerging data standards and whether Regulation C could be aligned with those standards. The Bureau met with staff from Mortgage Industry Standards Maintenance Organization (MISMO)

and the GSEs

regarding the MISMO dataset and the ULDD

, respectively. The Bureau also met with community, regional, and national banks to understand their HMDA compliance processes and obtain feedback on areas for improvement, and with consumer and fair housing advocates as well as industry trade associations to understand their concerns with the HMDA data and Regulation C.

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

Government-sponsored enterprises, specifically Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac).

The Uniform Loan Delivery Dataset is a common set of data elements required by Fannie Mae and Freddie Mac.

B. 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).

As part of this process, the Bureau prepared an outline of the proposals then 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.

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 significant economic impact on a substantial number of small entities.

See

Public Law 104-121, tit. II, 110 Stat. 847, 857 (1996) as amended by Public Law 110-28, and Public Law 111-203, section 1100G (2010).

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 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 Panel's report (Small Business Review Panel Report), which will be made part of the administrative record in this rulemaking.

The Bureau carefully considered the findings and recommendations in preparing the proposal and this final rule.

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

(April 24, 2014),

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

C. The Bureau's Proposal

In July 2014, the Bureau published on its Web site for public comment a proposed rule regarding Regulation C to implement section 1094 of the Dodd-Frank Act, which amended HMDA to improve the utility of the HMDA data and revise Federal agency rulemaking and enforcement authorities. The proposal was published in the

Federal Register

in August 2014.

The Bureau proposed modifications to the institutional coverage and transactional coverage in light of market conditions, to reduce burden on financial institutions, and to address gaps in the HMDA data regarding certain segments of the housing market. The proposed modification to institutional coverage would have simplified the coverage criteria for depository and nondepository institutions with a uniform threshold of 25 loans. Under the proposal, depository and nondepository institutions that originated 25 covered loans, excluding open-end lines of credit, in the previous calendar year would be required to report HMDA data so long as all the other reporting criteria were met. The proposed modification to transactional coverage would have expanded the types of transactions subject to Regulation C. Under the proposal, financial institutions would be required to report all closed-end loans, open-end lines of credit, and reverse mortgages secured by dwellings, which would have relieved financial institutions from the requirement to ascertain an applicant's intended purpose for a dwelling-secured loan to determine if the loan was reportable under HMDA.

79 FR 51731 (Aug. 29, 2014). See part II.A for a discussion of section 1094 of the Dodd-Frank Act.

The Bureau also proposed modifications to reportable data requirements. First, the Bureau proposed to align many HMDA data requirements with the MISMO data standards for residential mortgages. Second, the Bureau proposed to modify existing data points already established under Regulation C as well as add new data points to the reporting requirements. Some of these data points were specifically identified by the Dodd-Frank Act and others were proposed pursuant to the Bureau's discretionary rulemaking authority to carry out the purposes of HMDA by addressing data gaps. The following four categories of new or modified data points were proposed by the Bureau:

• 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.

In addition, the Bureau proposed modifications to the disclosure and reporting requirements and clarifications to the regulation. Under the proposal, financial institutions that report large volumes of HMDA data would be required to submit their data to the appropriate agency on a quarterly basis rather than an annual basis. The Bureau noted its belief that quarterly reporting would reduce reporting errors and improve the quality of HMDA data, allow regulators to use the data in a more timely and effective manner, and could facilitate an earlier release of annual HMDA data to the public. The Bureau also proposed 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, which would facilitate public access to the HMDA data and minimize the burden on HMDA reporters.

The Bureau also proposed clarifications to Regulation C to address issues that are unclear or confusing. These proposed clarifications included guidance on types of residential structures that are considered dwellings; the treatment of manufactured and modular homes and multiple properties; 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.

D. Feedback Provided to the Bureau

The Bureau received approximately 400 comments on the HMDA proposal during the comment period from, among others, consumer advocacy groups; national, State, and regional industry trade associations; banks, community banks, credit unions, software providers, housing counselors; Federal agencies, including the Office of Advocacy of the Small Business Administration (SBA); and individual consumers and academics. In addition, the Bureau also considered other information, including ex parte communications.

Materials on the record are publicly available at

http://www.regulations.gov

. This information is discussed below in the section-by-section analysis and subsequent parts of the notice, as applicable. The Bureau considered the comments and ex parte communications, modified the proposal in certain respects, and adopts the final rule as described below in the section-by-section analysis.

CFPB Bulletin 11-3,

CFPB Policy on Ex Parte Presentations in Rulemaking Proceedings

(2011),

available at http://files.consumerfinance.gov/f/2011/08/Bulletin_20110819_ExPartePresentationsRulemakingProceedings.pdf

IV. Legal Authority

The Bureau is issuing this final 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.

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.”

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.”

Both HMDA and title X of the Dodd-Frank Act are Federal

consumer financial laws.

Accordingly, the Bureau has authority to issue regulations to administer HMDA.

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.

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

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

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.

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.”

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

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.”

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.

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.”

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.

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.

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).

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

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.”

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.”

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.

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

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

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.

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.

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).

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

In preparing this final rule, the Bureau has considered the changes below in light of its legal authority under HMDA and the Dodd-Frank Act. The Bureau has determined that each of the changes addressed 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 summarized in part I, the Bureau proposed to revise the provisions of Regulation C that determine which financial institutions and transactions are covered by the regulation. The Bureau also proposed to reorganize the regulation to reduce burden. The Bureau proposed to revise § 1003.1(c) and its accompanying commentary to reflect both the proposed substantive changes to Regulation C's institutional and transactional coverage and the proposed reorganization of the regulation. The Bureau did not receive any comments addressing proposed § 1003.1(c).

discussed in the section-by-section analyses of § 1003.2(d), (e), (g), and (o) and of § 1003.3, the final rule in some cases revises the Bureau's proposed changes to institutional and transactional coverage. However, none of those changes affect the technical revisions that the Bureau proposed for § 1003.1(c). The Bureau thus is finalizing § 1003.1(c) largely as proposed, with several non-substantive revisions for clarity.

The Bureau received a large number of comments about the proposed revisions to Regulation C's transactional and institutional

coverage. Those comments are addressed in the section-by-section analyses of § 1003.2(d), (e), (g), (o) and of § 1003.3(c)(10).

Section 1003.2 Definitions

Section 1003.2 of Regulation C sets forth definitions that are used in the regulation. As discussed below, the Bureau proposed both substantive revisions to several definitions and technical revisions to § 1003.2 to enumerate the terms defined therein. The Bureau addresses comments concerning its proposed substantive revisions below. The Bureau received no comments opposing its proposal to enumerate the terms in § 1003.2, and the final rule sets forth enumerations for all such terms. The Bureau believes that this technical revision will facilitate compliance with Regulation C by making defined terms easier to locate and cross-reference in the regulation, commentary, and the procedures published by the Bureau.

2(a) Act

Section 1003.2 of Regulation C sets forth a definition for the term “act.” The Bureau is adopting a technical amendment to add a paragraph designation for this definition. No substantive change is intended.

2(b) Application

2(b)(1) In General

Section 1003.2 currently 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 the procedures used by a financial institution for the type of credit requested. The Bureau proposed to make technical corrections and minor wording changes to conform the definition of application to the proposed changes in transactional coverage. In addition, the Bureau proposed to make technical and minor wording changes to the applicable commentary. For the reasons discussed below, the Bureau is adopting § 1003.2(b)(1) and the associated commentary as proposed.

Commenters generally addressed aspects of the definition of application that differ from other regulations or challenges in applying the definition in multifamily and commercial lending. The Bureau received several comments urging that the Regulation C definition of application should be aligned with the definition used in Regulation Z § 1026.2(a)(3)(ii) to simplify compliance across regulations. As the Bureau noted in the proposed rule, the Bureau did not propose to align the definitions because they serve different purposes.

The definition of application in Regulation Z § 1026.2(a)(3)(ii) establishes a clear rule for triggering when disclosures must be provided. In contrast, the definition for Regulation C is closely related to Regulation B and serves HMDA's fair lending purposes by requiring information about the disposition of credit requests received by financial institutions that do not lead to originations.

Therefore it is important for the Regulation C definition of application to be based on the procedures used by the financial institution for the type of credit requested rather than the defined elements of the definition in Regulation Z § 1026.2(a)(3)(ii) under which creditors may be sequencing and structuring their information collection processes in various different ways.

79 FR 51731, 51746 (Aug. 29, 2014).

12 CFR 1003.2, comment Application-1; 12 CFR 1002.2(f).

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

Some comments argued that the definition of application would be difficult to comply with for multifamily loans, which generally involve a more fluid application process. They also argued that the Bureau should exclude “pitch book requests” from the definition of application. Pitch book requests are preliminary investment packages related to multifamily residential structures requesting specific loans terms. The Bureau has considered the comments but believes that changes to the proposed definition of application related to multifamily loans are not warranted. Because the definition of application in Regulation C is closely related to the Regulation B definition of application and Regulation B applies to business credit, including multifamily lending,

the Bureau believes that the flexible definition of application as proposed and the commentary in Regulation B and Regulation C provide adequate guidance for multifamily lending. The Bureau is also concerned that an exception for pitch book requests may be difficult to adopt because financial institutions may have different definitions of pitch book request or procedures for handlings them. The Bureau is not adopting an exclusion specific to pitch book requests, and believes that the existing commentary regarding the definition of application and prequalifications is appropriate.

Whether pitch book requests would be considered applications under Regulation C would depend on how the specific financial institution treated such requests under its application process for covered loans secured by multifamily residential structures under the definition of application in Regulation C. As discussed below, the Bureau is also excluding covered loans secured by multifamily dwellings from the definition of a preapproval program, which may address some of the commenters' concerns. After considering the comments, the Bureau is finalizing § 1003.2(b)(1) and comments 2(b)-1 and 2(b)-2 as proposed.

12 CFR 1002.2(j), comment 2(j)-1.

See existing comment Application-2, final comment 2(b)-2.

2(b)(2) Preapproval Programs

Regulation C incorporates certain requests under preapproval programs into the definition of application under § 1003.2. 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. The Bureau proposed to make technical and clarifying wording changes to the definition of a preapproval program under § 1003.2(b)(2) and the applicable commentary to add language adapted from additional FAQs regarding preapproval programs that had been provided by the FFIEC.

For the reasons discussed below, the Bureau is finalizing § 1003.2(b)(2) with modifications to exclude certain types of covered loans from the definition.

79 FR 51731, 51747 (Aug. 29, 2014).

Several commenters addressed the Bureau's proposed definition of preapproval programs. Some commenters questioned the value of preapproval reporting or argued that preapproval reporting discourages financial institutions from offering preapproval programs. However, the Bureau is not excluding preapproval requests from Regulation C in this final rule because this information is valuable for fair lending purposes, as it provides visibility into how applicants are treated in an early stage of the lending

process.

The statute requires lenders to report action taken on applications,

and the Bureau believes that requests for preapproval as defined in the proposal and final rule represent credit applications. The Bureau does not believe that Regulation C's coverage of preapproval programs has discouraged offering of preapproval programs, and it concludes that any discouragement would be justified by the benefits of reporting. The reporting requirement is limited only to preapproval programs that meet certain conditions. Additionally, the Bureau is finalizing changes to comment 2(b)-3 that specify that programs described as preapproval programs that do not meet the definition in § 1003.2(b)(2) are not preapproval programs for purposes of HMDA reporting.

67 FR 7222, 7224 (Feb. 15, 2002); 79 FR 51731, 51747 (Aug. 29, 2014).

HMDA section 303(4).

Some commenters requested clarification about occasional preapprovals and some argued for a broader and more flexible definition of preapproval programs. The Bureau is not adopting a broader or more flexible definition of preapproval programs because it believes that limiting the scope of the definition allows for comparison of similar programs across institutions, where a broader definition could expand reportable transactions, lead to new compliance issues, and make preapproval data less comparable across institutions. The Bureau continues to believe that a financial institution that does not have a preapproval program and only occasionally considers preapproval requests on an ad hoc basis need not report those transactions and believes that proposed comment 2(b)-3 addresses the commenters' concerns. It provides, in part, that a financial institution need not treat ad hoc requests as part of a preapproval program for purposes of Regulation C. The Bureau is therefore finalizing comment 2(b)-3 as proposed.

After considering the comments and conducting additional analysis, the Bureau is finalizing § 1003.2(b)(2) generally as proposed, with minor revisions to exclude home purchase loans that will be open-end lines of credit, reverse mortgages, or secured by multifamily dwellings. Some loans secured by multifamily dwellings have been previously reported in HMDA under preapproval programs. The definition of a home purchase loan could include these types of loans. The definition of preapproval programs in current Regulation C and adopted by the final rule is primarily focused on programs associated with closed-end home purchase loans for one- to four-unit dwellings. The Bureau believes it is appropriate to categorically exclude loans secured by multifamily dwellings, open-end lines of credit, and reverse mortgages from the definition of preapproval programs in order to facilitate consistent reporting and analysis of preapprovals by limiting the definition to closed-end home purchase loans for one- to four-unit dwellings.

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 proposed technical and nonsubstantive modifications to the definition of branch office. The Bureau received no comments on proposed § 1003.2(c) or proposed comments 2(c)-2 and -3. The Bureau is adopting § 1003.2(c) and comments 2(c)-2 and -3, renumbered as comment 2(c)(1)-2 and comment 2(c)(2)-1, with technical modifications. The Bureau is also republishing comment (Branch Office)-1, renumbered as comment 2(c)(1)-1.

2(d) Closed-End Mortgage Loan

Under existing Regulation C, financial institutions must report information about applications for, and originations of, closed-end loans made for one of three purposes: Home improvement, home purchase, or refinancing.

Closed-end home purchase loans and refinancings must be reported if they are dwelling-secured.

Closed-end home improvement loans must be reported whether or not they are dwelling-secured.

Reverse mortgages currently are subject to these same criteria for reporting; thus, a closed-end reverse mortgage currently must be reported if it is for one of Regulation C's three purposes.

Regulation C defines “dwelling” broadly to include single-family homes, rental properties, multifamily residential structures (

e.g.,

apartment buildings), manufactured homes, and vacation homes.

See

the section-by-section analysis of § 1003.2(f) and related commentary.

As discussed in the section-by-section analysis of § 1003.2(e) (“covered loan”), the Bureau proposed to adjust Regulation C's transactional coverage to require financial institutions to report all dwelling-secured loans (and applications), instead of reporting only those loans and applications for the purpose of home improvement, home purchase, or refinancing.

To facilitate this shift in transactional coverage, the Bureau proposed to define the term “closed-end mortgage loan” in Regulation C. Proposed § 1003.2(d) provided that a closed-end mortgage loan was a dwelling-secured debt obligation that was not an open-end line of credit under § 1003.2(o), a reverse mortgage under § 1003.2(q), or an excluded transaction under § 1003.3(c). The Bureau did not propose commentary to accompany proposed § 1003.2(d) but solicited feedback about whether commentary would be helpful.

As discussed in the section-by-section analysis of § 1003.2(o) and (q), the proposal applied the same dwelling-secured test to open-end lines of credit and reverse mortgages, the two other categories of “covered loans” in proposed § 1003.2(e).

The proposal to remove Regulation C's current purpose-based reporting approach for closed-end mortgage loans in some cases broadened, and in some cases limited, the closed-end loans that would be reported under the regulation. For example, the proposal provided for reporting of all closed-end home-equity loans and all closed-end, dwelling-secured commercial-purpose loans. At the same time, the proposal eliminated the requirement to report home improvement loans not secured by a dwelling.

As discussed in the section-by-section analysis of § 1003.2(e), the Bureau is finalizing the proposed shift to dwelling-secured transactional coverage for consumer-purpose transactions and is retaining Regulation C's traditional purpose test for commercial-purpose transactions. The Bureau believes that the shift serves HMDA's purposes, will improve HMDA data, and will simplify transactional reporting requirements. Accordingly, the Bureau is finalizing § 1003.2(d) largely as proposed, but with technical revisions for clarity, to define the universe of closed-end mortgage loans that must be reported under Regulation C unless otherwise excluded under § 1003.3(c). The Bureau also is finalizing commentary to § 1003.2(d) to address questions that commenters raised about the scope of the closed-end mortgage loan definition.

Relatively few commenters specifically addressed the benefits and burdens of reporting all dwelling-secured, consumer-purpose, closed-end mortgage loans.

Consumer advocacy

group commenters supported the proposal to cover all such loans, and industry stakeholders expressed mixed views. A number of consumer advocacy group commenters also requested that the Bureau clarify in the final rule whether particular categories of transactions are included under the closed-end mortgage loan definition.

As discussed in the section-by-section analysis of § 1003.2(e), nearly all commenters addressed in some fashion the Bureau's proposal to shift Regulation C's transactional coverage test from a purpose-based test to a collateral-based test. However, most commenters focused either on the benefits and burdens of the shift overall, or on the

specific benefits and burdens of reporting all open-end lines of credit, all reverse mortgages, or all dwelling-secured, commercial-purpose mortgage loans and lines of credit. Those comments are addressed in the section-by-section analyses of § 1003.2(e), (o), (q), and § 1003.3(c)(10), respectively. The section-by-section analysis of § 1003.2(d) focuses on the comments that specifically addressed the proposal to cover all consumer-purpose, closed-end home-equity loans.

Coverage of Dwelling-Secured, Consumer-Purpose, Closed-End Mortgage Loans

A large number of consumer advocacy group and community development commenters supported having information about all closed-end home-equity loans. They stated that having information about all such loans would be valuable in assessing whether neighborhoods that the consumer groups serve, especially those that are low- and moderate-income, are receiving the full range of credit that they need and would be appropriate to ensure an adequate understanding of the mortgage market.

A small group of industry commenters supported the proposed shift to dwelling-secured coverage to the extent that it meant reporting all dwelling-secured, closed-end, consumer-purpose loans. Some of these commenters argued that reporting all such loans would be less burdensome than discerning whether each loan was for a reportable purpose.

Others asserted that dwelling-secured coverage would eliminate the possibility that exists under current Regulation C of erroneously gathering race, gender, and ethnicity data for consumer-purpose loans that later are determined not to be reportable. One industry commenter supported dwelling-secured coverage only for closed-end, consumer-purpose loans secured by one- to four-unit dwellings, arguing that these transactions are the most common, are similar in their underwriting and in their risks to consumers, and have hit the economy hardest when they default en masse. Other industry commenters agreed that the shift to dwelling-secured coverage for closed-end, consumer-purpose loans was appropriate and would serve HMDA's purposes, would simplify reporting, would improve data for HMDA users, and would better align Regulation C's coverage with Regulations X and Z.

100

One commenter provided a specific example. The commenter stated that, when a borrower owns a home outright but takes out a dwelling-secured debt consolidation loan, the loan is recorded as a refinancing in the lender's loan origination system and on the GSE's standard loan application form. However, the loan currently is not reported under Regulation C because it does not meet the purpose-based test. Therefore, an employee later must remove the transaction manually from the institution's HMDA report. If all dwelling-secured, consumer-purpose, closed-end loans were covered, the transaction would be reported and the extra, manual step of removing the transaction would be unnecessary.

100

Regulation X implements the Real Estate Settlement Procedures Act (RESPA), 12 U.S.C. 2601

et seq.

Regulation Z implements the Truth in Lending Act (TILA), 15 U.S.C. 1601

et seq.

As discussed in the section-by-section analysis of § 1003.2(e), a majority of industry commenters opposed the proposed shift to dwelling-secured coverage, and some of those commenters specifically objected to reporting data about all closed-end home-equity loans. Some argued that the Bureau should maintain current coverage; a few argued that closed-end home-equity loans should be excluded from coverage altogether. The commenters argued that funds obtained through home-equity loans could be used for any purpose. If a transaction's funds were not used for home purchase, home improvement, or refinancing purposes, commenters asserted, then having data about that transaction would not serve HMDA's purpose of ensuring that financial institutions are meeting the housing needs of their communities. One commenter argued that concerns about home-equity lending's role in the financial crisis no longer justified covering all home-equity loans, because the Bureau's ability-to-repay and qualified mortgage rules have addressed any issues with such lending.

101

A few commenters also objected that such reporting would increase loan volume or argued that compiling data about all closed-end home-equity loans would be onerous, would require costly systems upgrades, or would distort HMDA data because loans would be reported even if their funds were not used for housing-related purposes.

101

See

the Bureau's Ability-to-Repay and Qualified Mortgage Standards rule (2013 ATR Final Rule), 78 FR 6408 (Jan. 30, 2013).

As discussed in the proposal, the Bureau believes that covering all dwelling-secured, consumer-purpose, closed-end mortgage loans will provide useful data that will serve HMDA's purposes by providing additional information about closed-end home-equity loans, which research indicates were a significant factor leading up to the financial crisis,

102

and which impeded some borrowers' ability to receive assistance through foreclosure relief programs during and after the crisis.

103

The Bureau also believes, as some industry commenters observed, that covering all such transactions will simplify the regulation and ease compliance burden. The Bureau thus is adopting proposed § 1003.2(d) largely as proposed, but with several revisions for clarity, as discussed below.

102

See

79 FR 51731, 51747-48 (Aug. 29, 2014) (citing Atif Mian & Amir Sufi,

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

101 Am. Econ. Rev. 2132, 2154 (Aug. 2011) and Donghoon Lee et al., Fed. Reserve Bank of New York, Staff Report No. 569,

A New Look at Second Liens,

at 11 (Aug. 2012)).

103

See id.

(citing Vicki Been et al., Furman Ctr. for Real Estate & Urban Policy,

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

at 13-18 (Aug. 2012)).

Clarifications to the Closed-End Mortgage Loan Definition

General.

The Bureau is making two clarifying changes to § 1003.2(d) and is adding comment 2(d)-1 to provide general guidance about the definition of closed-end mortgage loan. First, proposed § 1003.2(d) provided that a closed-end mortgage loan was a dwelling-secured debt obligation that was not an open-end line of credit under § 1003.2(o), a reverse mortgage under § 1003.2(q), or an excluded transaction under § 1003.3(c). To align with lending practices, to streamline the definitions of closed-end mortgage loan and open-end line of credit, and to streamline the reverse mortgage flag in final § 1003.4(a)(36), the final rule eliminates the mutual exclusivity between closed-end mortgage loans and reverse mortgages.

104

Second, the final rule eliminates the proposed language that provided that an excluded transaction under § 1003.3(c) was not a closed-end mortgage loan. The Bureau is making this change to avoid circularity with final § 1003.3(c), which incorporates for clarity the defined terms “closed-end mortgage loan” and “open-end line of credit” into the descriptions of excluded transactions. Final § 1003.2(d) thus provides that a closed-end mortgage loan is a dwelling-secured extension of credit that is not an open-end line of credit under § 1003.2(o). Comment 2(d)-1 provides an example of a loan that is not a closed-end mortgage loan because it is not dwelling-secured.

104

As discussed in the section-by-section analysis of § 1003.2(q), under the final rule a reverse mortgage thus may be either a closed-end mortgage loan or an open-end line of credit, as appropriate.

Extension of credit and loan modifications.

As proposed, § 1003.2(d)

generally provided that a closed-end mortgage loan was a dwelling-secured “debt obligation.” Many consumer advocacy group commenters asked the Bureau to clarify the scope of transactions covered under the term “debt obligation.” In particular, a large number of consumer advocacy group commenters asked the Bureau to require reporting of all loan modifications.

105

The commenters argued that financial institutions' performance in modifying loans is and will continue to be a major factor in determining whether they are meeting local housing needs, particularly the needs of communities that have been devastated by the mortgage crisis. The commenters also argued that financial institutions' loan modification performance will be a major factor in determining whether they are complying with fair housing and fair lending laws. Specifically, commenters cited several studies showing that, since the mortgage crisis, borrowers of color, or borrowers who live in communities of color or in low-to-moderate income communities, have received less favorable loss mitigation outcomes than white borrowers. Commenters stated that many millions of loan modifications have been made since the mortgage crisis, and millions more will be made in the coming years. Commenters argued that the need for data about loan modifications is compelling given the volume of transactions, the identified fair lending concerns, and the lack of other publicly available data about them.

105

These comments related to loan workout modifications. Several commenters also addressed coverage of loan consolidation, extension, and modification agreements. Those comments are discussed separately, below.

As several of these commenters noted, however, loan modifications currently are not reported because they are not “originations” under existing Regulation C. Indeed, since its adoption, Regulation C has required reporting only of applications, originations, and purchases, and the proposal did not seek to change this. While there is a need for publicly available data about loan modifications, the final rule does not require reporting of loan modifications. Covering all loan modifications would be a complex undertaking and would constitute a major revision of Regulation C. However, the Bureau has no information about the burdens to financial institutions of reporting loan modifications under Regulation C, and the Bureau neither has proposed, nor has received feedback about, how existing data points would need to be modified, or whether additional data points would be required, to accommodate reporting of loan modifications.

After considering the comments, the Bureau is adopting § 1003.2(d) to provide that a “closed-end mortgage loan” is a dwelling-secured “extension of credit” that is not an open-end line of credit under § 1003.2(o). Comment 2(d)-2 provides guidance about “extension of credit.” First, comment 2(d)-2 provides an example of a transaction that is not a closed-end mortgage loan because no credit is extended. Comment 2(d)-2 also explains that, for purposes of Regulation C, an “extension of credit” refers to the granting of credit pursuant to a new debt obligation. If a transaction modifies, renews, extends, or amends the terms of an existing debt obligation without satisfying and replacing the original debt obligation with a new debt obligation, the transaction generally is not an extension of credit under Regulation C.

The Bureau understands that it is interpreting the phrase “extension of credit” differently in § 1003.2(d) than in Regulation B, 12 CFR part 1002, which implements the Equal Credit Opportunity Act (ECOA).

106

Regulation B defines “extension of credit” under § 1002.2(q) to include the granting of credit in any form, including the renewal of credit and the continuance of existing credit in some circumstances. As discussed above, the Bureau generally is interpreting the phrase “extension of credit” in § 1003.2(d) to refer at this time only to the granting of credit pursuant to a new debt obligation. The Bureau may in the future revisit whether it is appropriate to require loan modifications to be reported under Regulation C.

106

15 U.S.C. 1691

et seq.

Exceptions to “extension of credit” rule.

As discussed below, comments 2(d)-2.i and .ii provide two narrow exceptions to the general rule that an “extension of credit” under the final rule occurs only when a new debt obligation is created. One exception addresses assumptions, which Regulation C historically has covered. The second addresses transactions completed pursuant to New York consolidation, extension, and modification agreements (New York CEMAs). As discussed below, the Bureau believes that both assumptions and transactions completed pursuant to New York CEMAs represent situations where a new debt obligation is created in substance, if not in form, and that the benefits of requiring such transactions to be reported justify the burdens.

Assumptions.

The final rule adds new comment 2(d)-2.i to address Regulation C's coverage of assumptions. Under existing comment 1(c)-9, assumptions are reportable transactions. Existing comment 1(c)-9 provides that assumptions occur when an institution enters into a written agreement accepting a new borrower as the obligor on an existing obligation. Existing comment 1(c)-9 also provides that assumptions are reportable as home purchase loans. The Bureau proposed to move existing comment 1(c)-9 to the commentary to the definition of home purchase loan, and the Bureau is finalizing that comment, with certain modifications, as comment 2(j)-5. See the section-by-section analysis of § 1003.2(j).

Consistent with the final rule's continued coverage of assumptions, the Bureau is adding comment 2(d)-2.i to the definition of closed-end mortgage loan to clarify that an assumption is an “extension of credit” under Regulation C even though the new borrower assumes an existing debt obligation. When the Board first clarified Regulation C's application to assumptions, it stated that, when an institution expressly agrees in writing with a new party to accept that party as the obligor on an existing home purchase loan, the transaction should be treated as a new home purchase loan.

107

The Bureau agrees and final comment 2(d)-2.i thus provides that assumptions are considered “extensions of credit” even if the new borrower assumes an existing debt obligation.

107

See

53 FR 31683, 31685 (Aug. 19, 1988).

Comment 2(d)-2.i also addresses successor-in-interest transactions. A successor-in-interest transaction is a transaction in which an individual first succeeds the prior owner as the property owner and afterward seeks to take on the debt secured by the property. One industry association recommended that the Bureau exclude successor-in-interest transactions from Regulation C's definition of assumption. The comment noted that the Bureau recently published interpretive guidance under Regulation Z stating that successor-in-interest transactions are not assumptions under that regulation because the successor already owns the property when the debt is assumed.

108

The comment argued that successor-in-interest transactions should be treated the same under Regulations C and Z.

108

See

79 FR 41631 (July 17, 2014).

The Bureau is clarifying in comment 2(d)-2.i that successor-in-interest transactions are assumptions under Regulation C. The Bureau's interpretive guidance providing that successor-in-interest transactions are not assumptions under Regulation Z relies on Regulation Z's existing definition of assumption in § 1026.2(a)(24), which provides that the new transaction must be a residential mortgage transaction,

i.e.,

a transaction to finance the acquisition or initial construction of the dwelling being financed. Successor-in-interest transactions do not fit Regulation Z's definition because no dwelling is being acquired or constructed.

109

In contrast, Regulation C's definition of assumption requires only that a new borrower be accepted as the obligor on an existing obligation. Successor-in-interest transactions fit Regulation C's definition.

110

109

See id.

at 41633 (“Although [successor-in-interest] transactions are commonly referred to as assumptions, they are not assumptions under § 1026.20(b) because the transaction is not a residential mortgage transaction as to the successor.”)

110

Consistent with Regulation Z's interpretive guidance, however, final comment 2(j)-5 provides that successor-in-interest transactions are not home purchase loans under § 1003.2(j).

Moreover, when the Bureau issued its Regulation Z interpretive guidance, it was concerned that subjecting successor-in-interest transactions to an ability-to-repay analysis could decrease the frequency of such transactions, which could harm successors inheriting homes after, for example, a family member's death. The Bureau does not believe that similar concerns apply to requiring such transactions to be reported under Regulation C. On the contrary, the Bureau believes that collecting information about successor-in-interest transactions under Regulation C will help to monitor for discrimination in such transactions. Comment 2(d)-2.i thus specifies that successor-in-interest transactions are assumptions under Regulation C. Like assumptions generally, successor-in-interest transactions represent an exception to the general rule that an “extension of credit” requires a new debt obligation. As noted, the Bureau believes that assumptions, including successor-in-interest transactions, represent new debt obligations in substance, if not in form, and should be reported as such.

Consolidation, Extension, and Modification Agreements

Several consumer advocacy group commenters stated that it was unclear whether the proposal covered transactions completed pursuant to modification, extension, and consolidation agreements (MECAs) or consolidation, extension, and modification agreements (CEMAs). They asked the Bureau to specify that MECAs/CEMAs are reportable transactions. As noted below, Regulation C's commentary at one time specified that MECAs/CEMAs were not reportable as refinancings, and this guidance currently exists in an FFIEC FAQ. Some uncertainty has remained, however, about the reportability of MECAs/CEMAs used for home purchase or home improvement purposes. For the reasons discussed below, the final rule clarifies that CEMAs completed pursuant to section 255 of the New York Tax Law are covered loans. Other MECA/CEMA transactions are not covered loans under the final rule.

New York CEMAs are loans secured by dwellings located in New York State. They generally are used in place of traditional refinancings, either to amend a transaction's interest rate or loan term, or to permit a borrower to take cash out. However, unlike in traditional refinancings, the existing debt obligation is not “satisfied and replaced.” Instead, the existing obligation is consolidated into a new loan, either by the same or a different lender, and either with or without new funds being added to the existing loan balance. Under New York State law, if no new money is added during the transaction, there is no “new” mortgage, and the borrower avoids paying the mortgage recording taxes that would have been imposed if a traditional refinancing had been used and the original obligation had been satisfied and replaced. If new money is part of the consolidated loan, the borrower pays mortgage recording taxes only on the new money.

111

While generally used in place of traditional refinancings, New York CEMAs also can be used for home purchases (

i.e.,

to complete an assumption), where the seller and buyer agree that the buyer will assume the seller's outstanding principal balance, and that balance is consolidated with a new loan to the borrower for the remainder of the purchase price.

111

See

N.Y. Tax Law § 255 (Consol. 2015).

A number of consumer advocacy group commenters stated that the Bureau should include MECAs/CEMAs, particularly New York CEMAs, as reportable transactions under the dwelling-secured coverage scheme. These commenters stated that New York CEMAs very often are used in lieu of traditional refinance loans, especially for larger-dollar, multifamily apartment building loans, which are central to maintaining the stock of private affordable housing complexes. The commenters argued that, without New York CEMA data, it is difficult or impossible to know where and how much credit banks are extending for such residential buildings, and whether the credit is extended on equitable terms. The commenters noted that CEMAs optionally are reported under the Community Reinvestment Act (CRA) but that CRA reporting provides less data to the public or to policymakers than if the transactions were HMDA-reportable.

These commenters also stated that HMDA reporters historically have experienced confusion about whether to report MECAs/CEMAs. Under Regulation C's traditional loan-purpose coverage scheme, the Board declined to extend coverage to MECAs/CEMAs, because the Board found that the transactions did not meet the definition of a refinancing (because the existing debt obligation was not satisfied and replaced). The Board determined that maintaining a bright-line “satisfies and replaces” rule for refinancings was preferable to revising the definition to a “functional equivalent” test that would cover MECAs/CEMAs but that also would introduce uncertainty about whether other types of transactions should be reported as refinancings.

112

Because the Board's guidance concerning MECAs/CEMAs was limited to refinancings, however, it appears that at least some financial institutions have reported MECAs/CEMAs as home improvement loans when the transactions involved new money for home improvement purposes, or as home purchase loans when the transactions were the functional equivalent of traditional assumptions.

112

See

59 FR 63698, 63702 (Dec. 9, 1994); 65 FR 78656 (Dec. 15, 2000); 67 FR 7222, 7227 (Feb. 15, 2002). In 1995, the Board adopted commentary to clarify that MECAs/CEMAs were not reportable as refinancings. 60 FR 63393 (Dec. 11, 1995). This commentary later was dropped from Regulation C inadvertently, but it was retained in an FFIEC FAQ.

The various consumer advocacy group commenters that addressed MECAs/CEMAs asserted that the proposal did not resolve the uncertainty that has existed about whether to report these transactions. Proposed § 1003.2(d) provided that all closed-end, dwelling-secured “debt obligations” were reportable transactions, and “debt obligations” arguably would include MECAs/CEMAs. At the same time, however, the proposal retained Regulation C's existing definition of “refinancing,” which arguably would continue to exclude MECAs/CEMAs from coverage or would make it unclear

how such transactions should be reported.

The Bureau concludes that having data about New York CEMAs, in particular, will improve HMDA data. These transactions are used regularly in New York in place of traditional refinancings and sometimes in place of traditional home purchase loans. New York CEMAs are used not only for multifamily dwellings, but also for single-family transactions in high-cost areas like New York City. While it is difficult to identify precisely how often New York CEMAs are used, industry professionals familiar with the New York CEMA market believe that the transactions are used on a daily basis in New York State and represent a significant percentage of the refinancings that occur in the State. Requiring reporting of New York CEMAs will improve HMDA data and also will resolve lingering confusion about how Regulation C applies to them. Finally, the change is consistent with the shift to dwelling-secured coverage for most transactions.

113

The Bureau understands that MECAs/CEMAs may be used in States other than New York. However, based on the comments received and the Bureau's own research, it appears that CEMAs are particularly common in New York State. As noted elsewhere in this section-by-section analysis, the Bureau understands that, by requiring reporting of New York CEMAs, it is departing from the Board's historical guidance on this topic. The Bureau believes that such a departure is warranted based on the apparent frequency with which such transactions are used. Like the Board, however, the Bureau believes that the benefits of modifying the overall “satisfies and replaces” standard for refinancings to capture MECAs/CEMAs do not justify the burdens of such a change. Therefore, the Bureau is incorporating New York CEMAs into the final rule by referencing the specific provision of the New York Tax Code that permits them. If the Bureau becomes aware of CEMAs/MECAs being completed in significant numbers in other States, the Bureau may evaluate whether it would be practicable to require them to be reported in a similar manner.

Like assumptions, New York CEMAs represent an exception to the general rule that an “extension of credit” requires a new debt obligation. However, the Bureau believes that New York CEMAs represent new debt obligations in substance, if not in form, and should be reported as such. The Bureau acknowledges that, by requiring reporting of New York CEMAs, it is departing from the Board's historical guidance that such transactions need not be reported. The Bureau believes that the benefits of this departure justify the burdens both for the reasons discussed above and because the Bureau is defining the scope of transactions to be reported narrowly to encompass only those transactions that fall within the scope of New York Tax Law section 255.

114

The Bureau believes that limiting the scope of reportable MECAs/CEMAs to those covered by New York Tax Law section 255 will permit New York CEMAs to be reported while avoiding the confusion that, as the Board worried, could result from departing from a bright-line “satisfies and replaces” rule for the definition of refinancings generally.

114

Under the final rule, MECAs/CEMAs completed in States other than New York are not reported, regardless of whether they are used for home purchase, home improvement, or refinancing purposes, and regardless of whether new money is extended as part of the transaction.

After considering the comments received, the Bureau is adopting new comment 2(d)-2.ii, specifying that a transaction completed pursuant to a New York CEMA and classified as a supplemental mortgage under N.Y. Tax Law § 255, such that the borrower owed reduced or no mortgage recording taxes, is an extension of credit under § 1003.2(d). To avoid any implication that other types of loan modifications or extensions must be reported, the commentary language is narrowly tailored to require reporting only of transactions completed pursuant to this specific provision of New York law.

See

the section-by-section analysis of § 1003.2(i), (j), and (p) for details about whether a New York CEMA is a home improvement loan, a home purchase loan, or a refinancing.

2(e) Covered Loan

HMDA requires financial institutions to collect and report information about “mortgage loans,” which HMDA section 303(2) defines as loans secured by residential real property or home improvement loans. When the Board adopted Regulation C, it implemented this requirement by mandating that financial institutions report information about applications and closed-end loans made for one of three purposes: Home improvement, home purchase, or refinancing.

115

As noted, under existing Regulation C, closed-end home purchase loans and refinancings must be reported if they are dwelling-secured, and closed-end home improvement loans must be reported whether or not they are dwelling-secured.

116

For transactions that meet one of the three purposes, reporting of closed-end loans is mandatory and reporting of home-equity lines of credit is optional.

117

Under existing Regulation C, reverse mortgages are subject to these same criteria for reporting: A closed-end reverse mortgage must be reported if it is for one of the three purposes; a reverse mortgage that is an open-end line of credit is optionally reported.

115

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

116

See

the section-by-section analysis of § 1003.2(d), (f), (i).

117

Specifically, under existing § 1003.4(c)(3), financial institutions optionally may report home-equity lines of credit made in whole or in part for the purpose of home improvement or home purchase.

To simplify Regulation C's transactional coverage test and to expand the types of transactions reported, the Bureau proposed to require financial institutions to report applications for, and originations and purchases of, all dwelling-secured loans and lines of credit. The Bureau also proposed to add the defined term “covered loan” in § 1003.2(e). The term referred to all transactions reportable under the proposed dwelling-secured coverage scheme: Closed-end mortgage loans under proposed § 1003.2(d), open-end lines of credit under proposed § 1003.2(o), and reverse mortgages under proposed § 1003.2(q). The term provided a shorthand phrase that HMDA reporters and data users could use to refer to any transaction reportable under Regulation C. For the reasons discussed below, the Bureau is finalizing in § 1003.2(e) the defined term “covered loan” and the shift to dwelling-secured coverage largely as proposed for consumer-purpose loans and lines of credit. The Bureau is retaining Regulation C's existing purpose-based test for commercial-purpose loans and lines of credit.

Only a few commenters specifically addressed the Bureau's proposal to add the defined term “covered loan” to Regulation C to refer to all covered transactions, and the commenters generally favored the proposal. They believed that having a standard shorthand for all covered transactions would facilitate compliance. The Bureau is finalizing § 1003.2(e) “covered loan” to define the universe of transactions covered under Regulation C.

A large number of commenters addressed the proposed shift from purpose-based to collateral-based transactional coverage, with consumer advocacy group commenters supporting the shift and industry commenters expressing mixed views.

118

Some consumer advocacy groups stated that having information about all loans secured by residential property would

improve the usefulness and quality of HMDA data. Others stated that having data about all such loans would be valuable in assessing whether financial institutions are providing the neighborhoods that the consumer advocacy groups serve with the full range of credit the neighborhoods need. One consumer advocacy commenter asserted that financial institutions should report any transaction that could result in a borrower losing his or her home. Another stated that removing the subjectivity from determining whether to report a loan would ease burden for financial institutions, and that having information about more loans would improve HMDA's usefulness. The commenter noted that consumer mortgage lending products evolve rapidly, and there is no principled reason to require reporting of some but not others.

118

This section-by-section analysis provides a high-level discussion of comments concerning the proposed shift to dwelling-secured coverage.

See

the section-by-section analyses of § 1003.2(d), (i), (o), (q) and of § 1003.3(c)(10) for specific comments concerning closed-end mortgage loans, home improvement loans, open-end lines of credit, reverse mortgages, and commercial-purpose transactions, respectively.

Industry commenters and a group of State regulators expressed mixed views about the proposed shift to dwelling-secured coverage. A small number of industry commenters supported the proposal unconditionally because they believed that it would ease burden. These commenters, who generally were smaller financial institutions and compliance consultants, stated that deciding which loans meet the current purpose test is confusing. They stated that a simplified transactional coverage test would stop the erroneous over-reporting of loans that has occurred despite financial institutions' best efforts,

119

and that the benefits of a streamlined test justified the burdens of more reporting. One industry commenter appreciated the fact that HMDA would provide a more comprehensive view of mortgage transactions across the country. A group of State regulators supported dwelling-secured coverage for consumer-purpose transactions only.

119

These commenters seemed to be concerned about erroneously classifying consumer-purpose transactions as HMDA-reportable and, in turn, unnecessarily collecting race, sex, and ethnicity data from applicants and borrowers.

The majority of industry commenters that addressed transactional coverage opposed the proposed shift to dwelling-secured coverage, supported it only for consumer-purpose transactions or for closed-end mortgage loans, or supported it only to the extent that it would eliminate reporting of home improvement loans not secured by a dwelling. Numerous industry commenters generally objected to the overall compliance burdens and costs of reporting additional transactions, particularly in light of the Bureau's proposal simultaneously to expand the data reported about each transaction and to lower (for some institutions) the institutional coverage threshold.

120

One government agency commenter expressed concern that the revisions to transactional coverage would burden small financial institutions and urged the Bureau not to adopt the proposed changes. Some industry commenters generally asserted that their reportable transaction volume would increase significantly,

121

that they would not be able to comply without hiring additional staff, and that compliance costs would be passed to consumers. Others generally argued that the Bureau should keep Regulation C's existing purpose-based coverage because it serves HMDA's purposes better than a collateral-based scheme. Most industry commenters that opposed the proposed shift, however, specifically objected to the burdens of reporting all home-equity lines of credit and all dwelling-secured commercial-purpose loans and lines of credit.

120

A number of commenters argued that, in light of the Bureau's proposal to expand transactional coverage, the Bureau should modify its institutional coverage threshold proposal. Those comments are discussed in the section-by-section analysis of § 1003.2(g).

121

Many commenters discussed the overall increase in reporting from a shift to dwelling-secured coverage. Others estimated only the increase from particular categories of transactions, such as home-equity lines of credit or commercial-purpose transactions. Those estimates are discussed in the section-by-section analyses of § 1003.2(o) and of § 1003.3(c)(10).

As explained in the section-by-section analyses of § 1003.2(d) and (o), the Bureau is finalizing the shift to dwelling-secured coverage for closed- and open-end consumer-purpose transactions, with some modifications to ease burden for open-end reporting. After considering the comments received, and as discussed fully in the section-by-section analyses of those sections, the Bureau believes that the benefits of expanded reporting justify the burdens. As discussed in the section-by-section of § 1003.3(c)(10), however, the Bureau is maintaining Regulation C's existing purpose-based coverage test for commercial-purpose transactions.

2(f) Dwelling

The Bureau proposed to revise the definition of dwelling in § 1003.2 by moving the geographic location requirement currently in the definition of dwelling to § 1003.1(c), to add additional examples of dwellings to the definition and commentary, and to revise the commentary to exclude certain structures from the definition of dwelling. A few commenters supported the proposed changes to the definition of dwelling, while others argued that certain types of structures should be included or excluded from the definition. For the reasons discussed below, the Bureau is finalizing § 1003.2(f) with minor technical revisions to the definition and with additional revisions to the commentary discussed in detail below. The definition is revised to clarify that multifamily residential structures include complexes and manufactured home communities.

Some commenters argued that second homes and investment properties should no longer be covered by Regulation C and that only primary residences should be reported because second homes and investment properties do not relate to housing needs in the same way that primary residences do. HMDA section 303(2) defines a mortgage loan, in part, as one secured by “residential real property” and HMDA section 304(b)(2) requires collection of information regarding “mortgagors who did not, at the time of execution of the mortgage, intend to reside in the property securing the mortgage loan.” The Bureau believes that second homes as well as investment properties are within the scope of information required by HMDA and should continue to be covered by Regulation C. The Bureau is therefore finalizing comment 2(f)-1 generally as proposed, with certain material from proposed comment 2(f)-1 incorporated into comment 2(f)-2 as discussed below.

Some commenters argued that all multifamily properties should be excluded from Regulation C. The Bureau believes that multifamily residential structures should continue to be included within Regulation C because they provide for housing needs and because, as the Bureau noted in the proposal, HMDA data highlight the importance of multifamily lending to the recovering housing finance market and to consumers.

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79 FR 51731, 51800 (Aug. 29, 2014); San Francisco Hearing,

supra

note 42.

Many commenters addressed multifamily loan reporting in more specific ways. Some commenters supported the proposal's coverage of manufactured home community loans and other aspects related to multifamily lending. Others requested guidance on reporting multifamily transactions. Some commenters argued that certain types of multifamily lending should be excluded from Regulation C. The Bureau is adopting new comment 2(f)-2 dealing specifically with multifamily residential structures and communities,

which incorporates certain material from proposed comment 2(f)-1 and additional material in response to comments. The Bureau believes that providing a specific comment relating to multifamily residential structures will facilitate compliance by providing guidance on when loans related to multifamily dwellings would be considered loans secured by a dwelling for purposes of Regulation C. The comment provides that a manufactured home community is a dwelling for purposes of Regulation C regardless of whether any individual manufactured homes also secure the loan. The comment also provides examples of loans related to certain multifamily structures that would nevertheless not be secured by a dwelling for purposes of Regulation C, and would therefore not be reportable, such as loans secured only by an assignment of rents or dues or only by common areas and not individual dwelling units.

The Bureau is adopting new comment 2(f)-3 relating to exclusions from the definition of dwelling (incorporating material from proposed comment 2(f)-2) and clarifying that recreational vehicle parks are excluded from the definition of dwelling for purposes of Regulation C. Several commenters agreed with the proposed exclusions for recreational vehicles, houseboats, mobile homes constructed prior to June 15, 1976 (pre-1976 mobile homes),

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and other types of structures.

123

The HUD standards for manufactured homes do not cover mobile homes constructed before June 15, 1976. 24 CFR 3282.8(a). 79 FR 51731, 51749 (Aug. 29, 2014).

Regarding the exclusion of recreational vehicles, the Bureau agrees with the commenters that supported the proposed clarification that recreational vehicles are not dwellings for purposes of Regulation C, regardless of whether they are used as residences. As noted in the proposal, the Bureau believes that making this exclusion explicit will provide more clarity on what structures qualify as dwellings and reduce burden on financial institutions. The Bureau also believes it will improve the consistency of reported HMDA data. Clarifying that recreational vehicle parks are excluded from the definition of dwelling for purposes of Regulation C is consistent with the exclusion of recreational vehicles. The Bureau believes that, as discussed above, while manufactured home communities should be included in the definition of dwelling for purposes of Regulation C, including recreational vehicle parks would not be appropriate given that they are not frequently intended as long-term housing.

Some commenters stated that the proposed exclusion of pre-1976 mobile homes would create compliance problems because the financial institution could mistakenly collect race, ethnicity, and sex information before knowing whether the home was a manufactured home and therefore violate Regulation B. The Bureau believes that this concern is unlikely to result in ECOA violations because Regulation B would still require collection of demographic information on some pre-1976 mobile home lending.

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Other commenters argued that pre-1976 mobile home lending should be reported under Regulation C because of consumer protection and housing needs concerns related to this type of housing. The Bureau does not believe this concern justifies the additional burden of requiring financial institutions to report these loans and identify them distinctly from manufactured home loans, especially given that the amount of lending secured by this type of collateral will continue to decrease as time passes. Therefore, the Bureau is finalizing the exclusion of pre-1976 mobile homes as part of comment 2(f)-3. Clarifying that recreational vehicle parks are excluded from the definition of dwelling for purposes of Regulation C is consistent with the exclusion of recreational vehicles.

125

The Bureau believes that, as discussed above, while manufactured home communities should be included in the definition of dwelling for purposes of Regulation C, including recreational vehicle parks would not be appropriate given that they are not frequently intended as long term housing.

124

12 CFR 1002.13(a)(2).

125

As discussed in the proposal, the final rule's definition of dwelling would differ from Regulation Z's definition of dwelling with respect to some recreational vehicles, because Regulation Z treats recreational vehicles used as residences as dwellings. 12 CFR part 1026, comment 2(a)(19)-2. 79 FR 51731, 51749 (Aug. 29, 2014).

The Bureau proposed a special rule for mixed-use properties that contained five or more individual dwelling units. The Bureau proposed that such a property always be considered to have a primary residential use and therefore report a covered loan secured by it. A few commenters supported the proposal to report all residential structures with five or more individual dwelling units, but most commenters who addressed mixed-use property argued that this was overbroad and that the current primary use rules should apply to multifamily residential structures as well. The Bureau is revising comment 2(f)-3 relating to mixed-use properties and finalizing it as comment 2(f)-4 by removing the sentence requiring that financial institutions always treat residential structures with five or more individual dwelling units as having a primary residential purpose. Requiring financial institutions to report mixed-use multifamily properties in all circumstances would result in reporting of multifamily properties with relatively small housing components and large commercial components. Data users could not differentiate between those properties and multifamily properties with larger housing components, which would decrease the data's usefulness. Thus retaining the existing discretion for financial institutions to determine the primary use for multifamily properties is appropriate.

The Bureau is adopting new comment 2(f)-5 relating to properties with medical and service components. Some commenters requested guidance on when properties such as retirement homes, assisted living, and nursing homes should be reported under Regulation C. Other commenters requested exclusions for all properties that provide any service or medical care component. The Bureau does not believe it is appropriate to exclude all such properties. Information about loans secured by properties that provide long-term housing and that are not transitory or primarily medical in nature provides valuable information on how financial institutions are serving the housing needs of their communities. The comment provides that properties that provide long-term housing with related services are reportable under Regulation C, while properties that provide medical care are not, consistent with the exclusion of hospitals in comment 2(f)-3. The comment also clarifies that such properties are reportable when they combine long-term housing and related services with a medical care component. The comment will facilitate compliance by expanding on earlier guidance provided by the Board.

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Section 1003.2(f) is being adopted 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 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 adopted 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 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.

126

60 FR 63393, 63395 (Dec. 11, 1995). Fed. Reserve Bank of St. Louis, CRA/HMDA Reporter,

Census 2000 and CRA/HMDA Data Collection,

(Sept. 2000),

available at

http://www.ffiec.gov/hmda/pdf/00news.pdf

2(g) Financial Institution

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

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Under the current definition, 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.

127

HMDA sections 303(3) and 309(a); Regulation C § 1003.2 (definition of financial institution).

The Bureau proposed to adjust Regulation C's institutional coverage to adopt a uniform loan-volume threshold of 25 loans applicable to all financial institutions. Under the proposal, depository institutions 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.

For the reasons discussed below, the Bureau is finalizing changes to Regulation C's institutional coverage and adopting uniform loan-volume thresholds for depository and nondepository institutions. The loan-volume thresholds require an institution that originated at least 25 closed-end mortgage loans or at least 100 open-end lines of credit in each of the two preceding calendar years to report HMDA data, provided that the institution meets all of the other criteria for institutional coverage.

The final rule's changes to institutional coverage will provide several important benefits. First, the coverage test will improve the availability of data concerning the practices of nondepository institutions. The expanded coverage of nondepository institutions will ensure more equal visibility into the practices of nondepository institutions and depository institutions. With expanded HMDA data about nondepository lending, the public and public officials will be better able to protect consumers because historically, some riskier lending practices, such as those that led to the financial crisis, have emerged from the nondepository market sector.

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See the section-by-section analysis of § 1003.2(g)(ii) below for complete discussion.

Second, a significant number of lower-volume depository institutions will no longer be required to report HMDA data under the revised coverage test, which will eliminate those institutions' compliance costs. At the same time, the coverage test will preserve sufficient data for analyzing mortgage lending at the national, local, and institutional levels.

Third, the coverage test, by considering both an institution's closed-end and open-end origination volumes, will support the goal of increasing visibility into open-end dwelling-secured lending. This change to institutional coverage, along with the change to transactional coverage discussed in the section-by-section analysis of § 1003.2(o), will improve the public and public officials' ability to understand whether, and how, financial institutions are using open-end lines of credit to serve the housing needs of their communities. Incorporating open-end lending into the institutional coverage test will not require financial institutions that originate a small number of closed-end mortgage loans or open-end lines of credit to report those loans. As discussed below in the section-by-section analysis of § 1003.3(c)(11) and (12), the final rule also includes transactional thresholds. The transactional thresholds ensure that financial institutions that meet only the 25 closed-end mortgage loan threshold are not required to report their open-end lending, and that financial institutions that meet only the 100 open-end line of credit threshold are not required to report their closed-end lending.

Finally, by considering two years of lending for coverage, the final rule will provide stability in reporting obligations for institutions. Accordingly, a financial institution that does not meet the loan-volume thresholds established in the final rule and that has an unexpected and unusually high loan-origination volume in one year will not be required to report HMDA data unless it maintains that level of lending for two consecutive years. The specific changes to the definition of financial institution applicable to nondepository institutions and depository institutions are discussed below separately.

The Bureau also proposed technical modifications to the commentary to the definition of financial institution. The Bureau received no comments on the proposed comments 2(g)-1 or -3 through -6, and is finalizing the commentary as proposed and with technical modifications to conform to definition of financial institution included in the final rule. The Bureau is also renumbering proposed comments 2(g)-3 through -6 as comments 2(g)-4 through -7. The Bureau is also adopting new comment 2(g)-3 to address how to determine whether an institution satisfies the definition of financial institution after a merger or acquisition.

For ease of publication, the Bureau is reserving comment 2(g)-2, which sets forth the asset-size adjustment for depository financial institutions for each calendar year. The Bureau updates comment 2(g)-2 annually to make the adjustments to the level of the asset-size exemption for depository financial institutions required by HMDA section 309(b). The reserved comment will be replaced when the asset-size adjustment for the 2018 calendar year is published.

2(g)(1) Depository Financial Institutions

HMDA extends reporting responsibilities to depository institutions (banks, savings associations, and credit unions) that satisfy certain location, asset-size, and federally related requirements.

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Regulation C implements HMDA's coverage criteria in the definition of financial institution in § 1003.2. Under the current definition of financial institution in § 1003.2, a bank, savings association, or credit union meets the definition of financial institution if it satisfies all of the following criteria: (1) On the preceding December 31, it had assets of at least $44 million;

130

(2) on the preceding December 31, it had a home or branch office in a Metropolitan Statistical Area (MSA); (3) during the previous calendar

year, it originated at least one home purchase loan or refinancing of a home purchase loan secured by a first-lien on a one- to four-unit dwelling; and (4) the institution is federally insured or regulated, or the mortgage loan referred to in item (3) was insured, guaranteed, or supplemented by a Federal agency or intended for sale to the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation.

131

129

12 U.S.C. 2802(3).

130

Comment Financial institution-2 to § 1003.2.

131

Section 1003.2(financial institution)(1).

Proposed § 1003.2(g)(1) modified the definition of financial institution by defining a new term, depository financial institution, and adding a loan-volume threshold to the coverage criteria for depository institutions. The proposed loan-volume threshold would require reporting only by depository institutions that met the current criteria in § 1003.2 and that originated at least 25 covered loans, excluding open-end lines of credit, in the preceding calendar year.

The Bureau received a large number of comments on proposed § 1003.2(g)(1). Industry commenters generally supported eliminating the requirement to report from low-volume depository institutions, but urged the Bureau to exclude more institutions from the requirement to report HMDA data. Consumer advocate commenters generally opposed decreasing Regulation C's depository institution coverage.

The Bureau is adopting § 1003.2(g)(1), which defines depository financial institution, to include banks, savings associations, and credit unions, that meet the current criteria to be considered a financial institution,

132

and originated at least 25 closed-end mortgage loans or 100 open-end lines of credit in each of the two preceding calendar years. The Bureau is finalizing the proposed exclusion of depository institutions that originate fewer than 25 closed-end mortgage loans. In addition, the final rule also requires lenders that meet the other criteria and that originate at least 100 open-end lines of credit to report HMDA data, even if those institutions did not originate at least 25 closed-end mortgage loans. The final rule includes a two-year look-back period for the loan-volume threshold. Each of these aspects of the final rule is discussed below separately.

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Under § 1003.2, a bank, savings association, or credit union meets the definition of financial institution if it satisfies all of the following criteria: (1) On the preceding December 31, it had assets in excess of the asset threshold established and published annually by the Bureau for coverage by the Act; (2) on the preceding December 31, it had a home or branch office in a MSA; (3) during the previous calendar year, it originated at least one home purchase loan or refinancing of a home purchase loan secured by a first-lien on a one- to four-unit dwelling; and (4) the institution is federally insured or regulated, or the mortgage loan referred to in item (3) was insured, guaranteed, or supplemented by a Federal agency or intended for sale to the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation.

Loan-Volume Threshold for Closed-End Mortgage Loans

The Bureau received many comments on proposed § 1003.2(g)(1). Industry commenters generally supported adopting a loan-volume threshold that would eliminate reporting by low-volume depository institutions,

133

but urged the Bureau to adopt a much higher loan-volume threshold that would exempt more depository institutions from reporting. Industry commenters stated that low-volume depository institutions lack resources and sophistication and that their data have limited value. Industry commenters argued that a higher loan-volume threshold would not impact the availability of data for analysis at the national level or the ability to analyze lending at an institutional level. The commenters also advocated a consistent approach between the loan-volume threshold in Regulation C and the small creditor and small servicer definitions in the Bureau's title XIV Rules.

134

133

Participants in the Board's 2010 Hearings also urged the Board to eliminate reporting by lower-volume depository institutions.

See, e.g.,

Atlanta Hearing,

supra

note 40, (remarks of Phil Greer, Senior Vice President of Loan Administration, State Employees Credit Union) (noting that the burden of reporting only one loan would be low, but that the data reported would not provide “meaningful information”).

134

12 CFR 1026.35(b)(2)(iii)(B) (describing small creditor thresholds); 12 CFR 1026.41(e)(4) (defining small servicer).

On the other hand, several community advocate commenters expressed strong opposition to decreasing Regulation C's coverage of depository institutions. Most noted that the depository institutions that would be excluded are currently reporting, and therefore are accustomed to reporting. Many also highlighted the importance of the data reported by the depository institutions that would be excluded at the community level, especially in rural and underserved areas or to low- and moderate-income (LMI) individuals and minorities. Commenters provided examples of reports and programs that rely on HMDA data at the census tract level.

Other community advocate commenters expressed support for the proposed loan-volume threshold, but noted concerns about the loss of data that may result if the Bureau adopted a loan-volume threshold greater than 25 loans. They highlighted concerns about the loss of data on particular types of transactions, such as applications submitted by African Americans, loans related to multifamily properties, and loans related to manufactured housing.

The Bureau believes that Regulation C's institutional coverage criteria should balance the burden on financial institutions with the value of the data reported. Depository institutions that are currently reporting should not bear the burden of reporting under Regulation C if their data are of limited value in the HMDA data set. At the same time, Regulation C's institutional coverage criteria should not impair HMDA's ability to achieve its purposes.

Higher closed-end mortgage loan-volume thresholds, as suggested by industry, might not significantly impact the value of HMDA data for analysis at the national level. For example, it is possible to maintain reporting of a significant percentage of the national mortgage market with a closed-end mortgage loan-volume threshold higher than 25 loans annually. In addition, it may also be true that data reported by some institutions that satisfy the proposed 25-loan-volume threshold may not be as useful for statistical analysis as data reported by institutions with much higher loan volumes.

However, the higher closed-end mortgage loan-volume thresholds suggested by industry commenters would have a material negative impact on the availability of data about patterns and trends at the local level. Data about local communities is essential to achieve HMDA's three purposes, which are to provide the public and public officials with sufficient information: (1) To determine whether institutions are meeting their obligations to serve the housing needs of the communities in which they are located; (2) to identify communities in need of targeted public and private investment; and (3) to assist in identifying discriminatory lending patterns and enforcing antidiscrimination statutes.

135

Public officials, community advocates, and researchers rely on HMDA data to analyze access to credit at the neighborhood level and to target programs to assist underserved communities and consumers.

135

Section 1003.1(b).

Local and State officials have used HMDA data to identify and target relief to localities impacted by high-cost lending or discrimination. For example, policy makers in Lowell, Massachusetts identified a need for homebuyer counseling and education in Lowell, based on HMDA data, which showed a high percentage of high-cost loans

compared to surrounding communities.

136

Similarly, 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.

137

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 origination rates.

138

In addition, the City of Flint Michigan, in collaboration with the Center for Community Progress, used HMDA data to identify neighborhoods in Flint to target for a blight eradication program.

139

Similarly, HMDA data helped bring to light discriminatory lending patterns in Chicago neighborhoods, resulting in a large discriminatory lending settlement.

140

Researchers and consumer advocates also analyze HMDA data at the census tract level to identify patterns of discrimination at the national level.

141

136

See

City of Lawrence, Massachusetts,

HUD Consolidated Plan 2010-2015,

at 68 (2010),

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

137

See

City of Albuquerque,

Five Year Consolidated Plan and Workforce Housing Plan,

at 100 (2008),

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

138

See

City of Antioch, California,

Fiscal Year 2012-2013 Action Plan,

at 29 (2012),

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

139

Luke Telander,

Flint's Framework for the Future,

Ctr. for Cmty. Progress, Cmty. Progress Blog (July 1, 2014),

http://www.communityprogress.net/blog/flints-framework-future

140

See, e.g.,

Yana Kunichoff,

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

Chicago Muckrakers Blog (June 14, 2013, 2:53 p.m.),

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.”).

141

See, e.g.,

California Reinvestment Coalition,

et al, Paying More for the American Dream VI: Racial Disparities in FHA/VA Lending

(2012),

available at http://www.woodstockinst.org/sites/default/files/attachments/payingmoreVI_multistate_july2012_0.pdf

; Samantha Friedman & Gregory D. Squires,

Does the Community Reinvestment Act Help Minorities Access Traditionally Inaccessible Neighborhoods?,

52 Social Problems 209 (2005).

Any loan-volume threshold will affect individual markets differently, depending on the extent to which individual markets are served by smaller creditors and the market share of those creditors. The Bureau believes that a 25-closed-end mortgage loan-volume threshold would impact the robustness of the data that would remain available only in a relatively small number of markets. For example, only about 45 census tracts would lose over 20 percent of currently reported data if a 25 closed-end mortgage loan-volume threshold is used to trigger reporting.

142

In contrast, the higher closed-end mortgage loan-volume thresholds requested by industry commenters would have a negative impact on data about more communities and consumers. For example, at a closed-end mortgage loan-volume threshold set at 100, the numb

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