# Home Mortgage Disclosure (Regulation C)

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URL: https://www.frixlaw.com/law-library/documents/fr%3A2017-18284

## Record

- **Collection:** Federal Register
- **Document type:** Rule
- **Published:** September 13, 2017
- **Citation:** 82 FR 43088

## Text

BUREAU OF CONSUMER FINANCIAL PROTECTION
12 CFR Part 1003
[Docket Nos. CFPB-2017-0010; CFPB-2017-0021]
RIN 3170-AA64; 3170-AA76
Home Mortgage Disclosure (Regulation C)

AGENCY:

Bureau of Consumer Financial Protection.

ACTION:

Final rule.

SUMMARY:

The Bureau of Consumer Financial Protection (Bureau) is amending Regulation C to make technical corrections to and to clarify certain requirements adopted by the Bureau's Home Mortgage Disclosure (Regulation C) final rule (2015 HMDA Final Rule), which was published in the
Federal Register
on October 28, 2015. The Bureau is also amending Regulation C to increase the threshold for collecting and reporting data about open-end lines of credit for a period of two years so that financial institutions originating fewer than 500 open-end lines of credit in either of the preceding two years would not be required to begin collecting such data until January 1, 2020. The Bureau also is adopting a new reporting exclusion.

DATES:

This rule is effective on January 1, 2018, except that the amendments to § 1003.5 in amendatory instruction 8, the amendments to § 1003.6 in amendatory instruction 9, and the amendments to supplement I to part 1003 in amendatory instruction 10 are effective on January 1, 2019; and the amendments to § 1003.2 in amendatory instruction 11, the amendments to § 1003.3 in amendatory instruction 12, the amendments to § 1003.5 in amendatory instruction 13, the amendments to § 1003.6 in amendatory instruction 14, and the amendments to supplement I to part 1003 in amendatory instruction 15 are effective on January 1, 2020. See part VI for more information.

FOR FURTHER INFORMATION CONTACT:

Shaakira Gold-Ramirez, Paralegal Specialist, Joseph Devlin, Angela Fox, Kathryn Lazarev, and Alexandra W. Reimelt, Counsels; and Terry J. Randall, Senior Counsel, Office of Regulations, at 202-435-7700 or
https://www.consumerfinance.gov/policy-compliance/guidance/
.

SUPPLEMENTARY INFORMATION:

I. Summary of the Final Rule

Regulation C implements the Home Mortgage Disclosure Act (HMDA), 12 U.S.C. 2801 through 2810. For over four decades, HMDA has provided the public and public officials with information about mortgage lending activity within communities by requiring financial institutions to collect, report, and disclose certain data about their mortgage activities. The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) amended HMDA, transferring rulewriting authority to the Bureau and expanding the scope of information that must be collected, reported, and disclosed under HMDA, among other changes.
1

In October 2015, the Bureau issued the 2015 HMDA Final Rule implementing the Dodd-Frank Act amendments to HMDA.
2

The 2015 HMDA Final Rule modified the types of institutions and transactions subject to Regulation C, the types of data that institutions are required to collect, and the processes for reporting and disclosing the required data.
3

In addition, the 2015 HMDA Final Rule established transactional thresholds that determine whether financial institutions are required to collect data on open-end lines of credit or closed-end mortgage loans. The closed-end threshold was set at 25 loans in each of the two preceding calendar years, and the open-end threshold was set at 100 open-end lines of credit in each of the two preceding calendar years. Most of the 2015 HMDA Final Rule takes effect on January 1, 2018.

1
Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law 111-203, 124 Stat. 1376, section 2097-101 (2010).

2
Home Mortgage Disclosure (Regulation C); 80 FR 66128 (Oct. 28, 2015) (2015 HMDA Final Rule).

3

Id.
at 66129.

The Bureau has identified a number of areas in which implementation of the 2015 HMDA Final Rule could be facilitated through clarifications, technical corrections, or minor changes. On April 25, 2017, the Bureau published a notice of proposed rulemaking (April 2017 HMDA Proposal) that would make certain amendments to Regulation C to address those areas.
4

Since issuing the 2015 HMDA Final Rule, the Bureau also has heard concerns that the open-end threshold at 100 transactions is too low. On July 20, 2017, the Bureau published a proposal (July 2017 HMDA Proposal) to address the threshold for reporting open-end lines of credit.
5

The Bureau is publishing final amendments to Regulation C pursuant to the April 2017 HMDA Proposal and the July 2017 HMDA Proposal.

4
Technical Corrections and Clarifying Amendments to the Home Mortgage Disclosure (Regulation C) October 2015 Final Rule; 82 FR 19142 (Apr. 25, 2017) (April 2017 HMDA Proposal).

5
Home Mortgage Disclosure (Regulation C) Temporary Increase in Institutional and Transactional Coverage Thresholds for Open-End Lines of Credit, 82 FR 33455 (July 20, 2017) (July 2017 HMDA Proposal).

This final rule temporarily increases the open-end threshold to 500 or more open-end lines of credit for two years (calendar years 2018 and 2019). In addition, the final rule corrects a drafting error by clarifying both the open-end and closed-end thresholds so that only financial institutions that meet the threshold for two years in a row are required to collect data in the following calendar years. With these amendments, financial institutions that originated between 100 and 499 open-end lines of credit in either of the two preceding calendar years will not be required to begin collecting data on their open-end lending before January 1, 2020. This temporary increase in the open-end threshold will provide time for the Bureau to consider whether to initiate another rulemaking to address the appropriate level for the open-end threshold for data collected beginning January 1, 2020.

The final rule establishes transition rules for two data points, loan purpose and the unique identifier for the loan originator. The transition rules require, in the case of loan purpose, or permit, in the case of the unique identifier for the loan originator, financial institutions to report not applicable for these data points when reporting certain loans that they purchased and that were originated before certain regulatory requirements took effect. The final rule also makes additional amendments to clarify certain key terms, such as multifamily dwelling, temporary financing, and automated underwriting system, and to create a new reporting exception for certain transactions associated with New York State consolidation, extension, and modification agreements.

In addition, the 2017 HMDA Final Rule facilitates reporting the census tract of the property securing or, in the case of an application, proposed to secure a covered loan that is required to be reported by Regulation C. The Bureau plans to make available on its Web site a geocoding tool that financial institutions may use to identify the census tract in which a property is located. The final rule establishes that a financial institution would not violate Regulation C by reporting an incorrect census tract for a particular property if the financial institution obtained the incorrect census tract number from the geocoding tool on the Bureau's Web site, provided that the financial institution

entered an accurate property address into the tool and the tool returned a census tract for the address entered.

Finally, the final rule also makes certain technical corrections. These technical corrections include, for example, a change to the calculation of the check digit under § 1003.4(a)(1)(i) and replacement of the word “income” with the correct word “age” in comment 4(a)(10)(ii)-3.

II. Background

HMDA requires certain banks, savings associations, credit unions, and for-profit nondepository institutions to collect, report, and disclose data about originations and purchases of mortgage loans, as well as mortgage loan applications that do not result in originations (for example, applications that are denied or withdrawn). When the statute was originally adopted, Congress stated the purposes of HMDA as providing the public and public officials with information to help determine whether financial institutions are serving the housing needs of the communities in which they are located and to assist public officials in their determination of the distribution of public sector investments in a manner designed to improve the private investment environment.
6

Congress later expanded HMDA to require, among other things, financial institutions to report racial characteristics, gender, and income information on applicants and borrowers.
7

In light of these amendments, the Board of Governors of the Federal Reserve System (Board) subsequently recognized a third HMDA purpose of identifying possible discriminatory lending patterns and enforcing antidiscrimination statutes, which now is recited with HMDA's other purposes in Regulation C.
8

6
HMDA section 302(b), 12 U.S.C. 2801(b);
see also
12 CFR 1003.1(b)(1)(i) and (ii).

7
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).

8
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.
9

Among other changes, the Dodd-Frank Act expands the scope of information relating to mortgage applications and loans that must be collected, reported, and disclosed under HMDA. New data points specified in the Dodd-Frank Act 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, 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 nonamortizing payments, the origination channel, and the credit scores of applicants and mortgagors.
10

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.
11

The Dodd-Frank Act also provides the Bureau with the authority to require “such other information as the Bureau may require.”
12

In addition, the Dodd-Frank Act mandated that the Bureau, in consultation with other appropriate agencies, develop regulations after notice and comment that (1) 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; (2) 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; (3) require disclosure of the class of the purchaser of such loans; (4) 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 (5) 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.
13

9
Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law 111-203, 124 Stat. 1376, sections 1022, 1061, and 1094 (2010). Also, in 2010, the Board conducted public hearings on potential revisions to Regulation C.

10
Dodd-Frank Act section 1094(3)(A),
amending
HMDA section 304(b), 12 U.S.C. 2803(b).

11

Id.

12

Id.

13
Dodd-Frank Act section 1094(3)(B),
amending
HMDA section 304(h), 12 U.S.C. 2803(h).

III. Summary of Rulemaking Process

In October 2015, the Bureau issued the 2015 HMDA Final Rule, which implemented the Dodd-Frank Act amendments to HMDA.
14

The 2015 HMDA Final Rule modifies the types of institutions and transactions subject to Regulation C, the types of data that institutions are required to collect, and the processes for reporting and disclosing the required data. Most of the provisions of the 2015 HMDA Final Rule will become effective on January 1, 2018.

14
2015 HMDA Final Rule, 80 FR 66128 (Oct. 28, 2015).

The 2015 HMDA Final Rule requires some financial institutions to begin collecting data on certain dwelling-secured, open-end lines of credit, including home-equity lines of credit. Current Regulation C allows, but does not require, reporting of home-equity lines of credit.
15

In amending Regulation C, the Bureau explained that it believed collection of data on these products was important because of the risks posed by these products to consumers and local markets and the lack of visibility into these products. The Bureau noted in the 2015 HMDA Final Rule that overleverage due to open-end mortgage lending and defaults on open-end lines of credit contributed to the foreclosure crises that many communities experienced in the late 2000s.
16

More generally, as the Bureau also noted in the 2015 HMDA Final Rule, open-end lines of credit can increase borrowers' risk of losing their homes to foreclosure when property values decline.
17

The Bureau concluded that including data on such lines within the HMDA dataset would help the public and public officials understand how financial institutions are meeting the housing needs of communities, would inform public officials identify areas for targeted investment, and would assist the public and public officials in identifying potential fair lending violations.
18

For these and other reasons articulated in the 2015 HMDA Final Rule, the Bureau decided to improve visibility into this key segment of the mortgage market by requiring reporting of open-end lines of credit.

15
12 CFR 1003.4(c)(3).

16
2015 HMDA Final Rule, 80 FR 66128, 66160-61 (Oct. 28, 2015).

17

Id.

18

Id.
at 66160.

As noted in the July 2017 HMDA Proposal and in the 2015 HMDA Final Rule, in expanding coverage to include mandatory reporting of open-end lines of credit, the Bureau recognized that doing so would impose one-time and ongoing operational costs on reporting institutions; that the one-time costs of modifying processes and systems and training staff to begin open-end line of credit reporting likely would impose significant costs on some institutions; and that institutions' ongoing reporting costs would increase as a function of

their open-end lending volume.
19

The Bureau sought to avoid imposing these costs on small institutions with limited open-end lending, where the benefits of reporting the data do not justify the costs of reporting.
20

In seeking to draw such a line, the Bureau acknowledged that it was handicapped by the lack of available data concerning open-end lending.
21

This created challenges both in estimating the distribution of open-end origination volume across financial institutions and in estimating the one-time and ongoing costs that would be incurred by institutions of various sizes in collecting and reporting data on open-end lending.

19

Id.
at 66161.

20

Id.
at 66149.

21

Id.

Concerning open-end origination volume, the Bureau used multiple data sources, including credit union Call Reports, Call Reports for banks and thrifts, and data from the Bureau's Consumer Credit Panel to develop estimates for different potential thresholds in the 2015 HMDA Final Rule.
22

The Bureau assumed that all of the depository institutions that were exempted from HMDA reporting under Regulation C because of their location or asset size would continue to be exempt.
23

Concerning the remaining depositories, the Bureau developed the following estimates:
24

22

Id.
at 66261, 66275 n.477. As the Bureau explained, credit union Call Reports provide the number of originations of open-end lines of credit secured by real estate but exclude lines of credit with first-lien status and may include business loans that are excluded from reporting under the 2015 HMDA Final Rule.
Id.
at 66281 n.489.

23

Id.
at 66281 n.489. The Bureau limited its estimate to depositories because it believes that most nondepositories do not originate open-end lines of credit.
Id.
at 66281.

24
The first row in the chart, labeled “Proposed,” assumed that financial institutions would be required to report on their open-end lines of credit regardless of the number originated so long as the institution originated at least 25 closed-end mortgages during each of the prior two calendar years. This row reflects the impact of the rule that the Bureau had proposed. The remaining rows assume that reporting of open-end lines of credit would be required without regard to the number of closed-end loans originated and, instead, only if the financial institution originated the number of open-end lines of credit shown in the various rows.
Id.
at 66281.

Table 8—Estimates of Depository Institution Coverage by Open-End Line of Credit Thresholds

Potential open-end-line-of-credit threshold

Number of
reporting
financial
institutions

Number of
open-end
lines of credit
(rounded
to nearest
ten thousand)

Percentage
of market
covered

Number of reporting
financial institutions
that also report
closed-end mortgage loans

Not a closed-
end reporter

Closed-end
reporter

Proposed
4,146
910,000
94
0
4,146

25
1,770
900,000
93
103
1,667

50
1,155
870,000
91
55
1,100

100
749
850,000
88
24
725

500
231
730,000
76
3
228

1,000
123
650,000
68
0
123

5,000
25
440,000
46
0
25

The Bureau noted that expansions or contractions in the number of financial institutions, or changes in product offerings and demands during implementation could alter the estimated impacts.
25

25

Id.
at 66275 n.477.

To estimate the one-time and ongoing costs of collecting and reporting data under HMDA in the 2015 HMDA Final Rule, the Bureau identified seven “dimensions” of compliance operations and used those to define three broadly representative financial institutions according to the overall level of complexity of their compliance operations: “tier 1” (high-complexity); “tier 2” (moderate-complexity); and “tier 3” (low-complexity).
26

In estimating costs specific to collecting and reporting data for open-end lines of credit, the Bureau assumed that tier 1 institutions each originate more than 7,000 such lines of credit, that tier 2 institutions each originate between 200 and 7,000 such lines of credit, and that tier 3 institutions each originate fewer than 200 such lines of credit.
27

The Bureau then sought to estimate one-time and ongoing costs for the average-size institution in each tier.
28

26

Id.
at 66261. The seven factors were: the reporting system used; the degree of system integration; the degree of system automation; the compliance program; and the tools for geocoding, performing completeness checks, and editing.
Id.
at 66269.

27

Id.
at 66285.

28
For purposes of calculating aggregate costs, the Bureau assumed that the average tier 1 institution received 30,000 applications for open-end lines of credit; the average tier 2 institution received 1,000 such applications; and the average tier 3 institution received 150 such applications.
Id.
at 66286.

Concerning one-time costs, the Bureau recognized in the 2015 HMDA Final Rule that the one-time cost of reporting open-end lines of credit could be substantial because most financial institutions do not report open-end lines of credit currently and thus would have to develop completely new systems to begin reporting these data. As a result, there would be one-time costs to create processes and systems for open-end lines of credit.
29

However, for tier 3, low-complexity institutions, the Bureau believed that the additional one-time costs of open-end reporting would be relatively low because these institutions are less reliant on information technology systems for HMDA reporting and that they may process open-end lines of credit on the same system and in the same business unit as closed-end mortgage loans, so that their one-time costs would be derived mostly from new training and procedures adopted for the overall changes in the final rule, not distinct from costs related to changes in reporting of closed-end mortgage loans.
30

29

Id.
at 66264;
see also id.
at 66284-85.

30

Id.
at 66265;
see also id.
at 66284.

Concerning ongoing costs, the Bureau acknowledged that costs for open-end reporting vary by institutions due to many factors, such as size, operational structure, and product complexity, and that this variance exists on a continuum that was impossible to capture fully.
31

At the same time, the Bureau stated it believed that the HMDA reporting process and ongoing operational cost structure for open-end reporting would be fundamentally similar to closed-end reporting.
32

Thus, using the ongoing cost estimates developed for closed-end reporting, the Bureau estimated that for the average tier 1 institutions the ongoing operational costs would be

$273,000 per year; for the average tier 2 institution $43,400 per year; and for the average tier 3 institution $8,600 per year.
33

These translated into average costs per HMDA record of $9, $43, and $57 respectively.
34

Importantly, the Bureau acknowledged that, precisely because no good source of publicly available data exists concerning open-end lines of credit, it was difficult to predict the accuracy of the Bureau's cost estimates but also stated its belief that they were reasonably reliable.
35

31

Id.
at 66285.

32

Id.

33

Id.
at 66286.

34

Id.

35

Id.
at 66162.

Drawing on all of these estimates, the Bureau decided to establish an open-end threshold that would require institutions that originate 100 or more open-end lines of credit to collect and report data. The Bureau estimated that this threshold would avoid imposing the burden of establishing open-end reporting on approximately 3,000 predominantly smaller-sized institutions with low-volume open-end lending
36

and would require reporting by only 749 financial institutions, all but 24 of which would also report data on their closed-end mortgage lending.
37

The Bureau explained that it believed this threshold appropriately balanced the benefits and burdens of covering institutions based on their open-end mortgage lending.
38

36

Id.
The estimate of the number of institutions that would be excluded by the transaction coverage threshold was relative to the number that would have been covered under the Bureau's proposal that led to the 2015 HMDA Final Rule. Under that proposal, a financial institution would have been required to report its open-end lines of credit if it had originated at least 25 closed-end mortgage loans in each of the preceding two years without regard to how many open-end lines of credit the institution originated.
See
Home Mortgage Disclosure (Regulation C), 79 FR 51732 (Aug. 29, 2014).

37
2015 HMDA Final Rule, 80 FR 66128, 66281 (Oct. 28, 2015).

38

Id.
at 66162.

To effectuate this decision, the 2015 HMDA Final Rule amended Regulation C to define two discrete thresholds that were intended to work in tandem. First, the rule established an institutional coverage threshold that limits the definition of “financial institution” to include only those institutions that either originated at least 25 covered closed-end mortgages in each of the preceding years or that originated at least 100 covered open-end lines of credit in each of the two preceding years.
39

Second, the rule separately established a transactional coverage threshold for open-end lines of credit by providing that an open-end line of credit is an excluded transaction if the financial institution originated fewer than 100 open-end lines of credit in each of the two preceding calendar years.
40

39
Revised § 1003.2(g)(1)(v) and (g)(2)(ii). The 2015 HMDA Final Rule excludes certain transactions from the definition of covered loans and those excluded transactions do not count towards the institutional transaction threshold.

40
Revised § 1003.3(c)(12). As discussed below, the exclusion as adopted in the 2015 HMDA Final Rule was intended to apply if the financial institution originated fewer than 100 open-end lines of credit in either of the two preceding calendar years; the current text of the rule was a drafting error that the Bureau is correcting with this notice. The 2015 HMDA Final Rule created a separate transactional coverage threshold for closed-end mortgages, treating those as excluded transactions if an institution originated fewer than 25 closed-end mortgage loans in each of the two preceding calendar years.
Id.
at § 1003.3(c)(11). As discussed below, the Bureau is adopting a proposal to change the “each” in this text to “either.”

April 2017 HMDA Proposal

Since issuing the 2015 HMDA Final Rule, the Bureau has conducted outreach with financial institutions, HMDA vendors, and other interested parties. As part of these efforts and through its own analysis of the 2015 HMDA Final Rule, the Bureau identified certain technical errors in the Final Rule, potential ways to ease burden of reporting certain data requirements, and clarification of key terms that will facilitate compliance with Regulation C. On April 13, 2017, the Bureau issued the April 2017 HMDA Proposal, which was published in the
Federal Register
on April 25, 2017,
41

addressing these issues.

41
April 2017 HMDA Proposal, 82 FR 19142 (Apr. 25, 2017).

The comment period for the April 2017 HMDA Proposal closed on May 25, 2017. The Bureau received a total of 51 comments from financial institutions, financial trade associations, compliance and software vendors, consumer advocacy groups, and individuals. The Bureau has considered all the comments and discusses the responsive comments below and now issues this final rule with certain changes and adjustments, as described below. As discussed in a number of instances below, the Bureau received comments on topics related to the 2015 HMDA Final Rule, but not relevant to those topics the Bureau had raised in the April and July 2017 HMDA Proposals. The Bureau considered all the comments but, as discussed further below, in many instances, found that these comments did not raise points relevant to the Bureau's decisions raised in its proposals.

July 2017 HMDA Proposal

Since the Bureau issued the 2015 HMDA Final Rule, many industry stakeholders have expressed concerns over the levels for the transactional coverage thresholds. Recent credit union Call Report data, coupled with the evidence as to the number of institutions that would be covered by the open-end threshold contained in the 2015 HMDA Final Rule, led the Bureau to seek comment to determine whether an adjustment to the threshold is appropriate. On July 14, 2017, the Bureau issued the July 2017 HMDA Proposal, which was published in the
Federal Register
on July 20, 2017.
42

The proposal would have increased temporarily the open-end threshold for both institutional and transactional coverage so that institutions originating fewer than 500 open-end lines of credit in either of the two preceding calendar years would not have been required to commence collecting or reporting data on their open-end lines of credit until January 1, 2020.

42
July 2017 HMDA Proposal, 82 FR 33455 (July 20, 2017).

The comment period for the July 2017 HMDA Proposal closed on July 31, 2017. The Bureau received 35 comments, which were from financial institutions, financial trade associations, consumer advocacy groups, and individuals. The Bureau has considered all comments and now finalizes the amendments as proposed for the reasons discussed below.

The Bureau consulted or offered to consult with the appropriate Federal agencies concerning both proposals, at both the proposed and final rule stages of the rulemaking. The Bureau consulted or offered to consult with the Board, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the National Credit Union Administration, the Department of Housing and Urban Development, the Securities and Exchange Commission, the Department of Justice, the Department of Veterans Affairs, the Federal Housing Finance Agency (FHFA), the Department of the Treasury, the Department of Agriculture, the Federal Trade Commission, and the Federal Financial Institutions Examination Council (FFIEC).

IV. Legal Authority

The Bureau is issuing this final rule pursuant to its authority under the Dodd-Frank Act and HMDA. This final rule consists of amendments and corrections to the 2015 HMDA Final Rule and a temporary change to the threshold for reporting open-end lines of credit established in the 2015 HMDA Final Rule. 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.
43

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.”
44

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.”
45

Both HMDA and title X of the Dodd-Frank Act are Federal consumer financial laws.
46

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

43
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.

44
12 U.S.C. 5581(a)(1)(A).

45
12 U.S.C. 5512(b)(1).

46
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.
47

These regulations may 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.”
48

47
12 U.S.C. 2804(a).

48

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.”
49

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.
50

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.”
51

HMDA section 304(j)(7) also directs the Bureau to make every effort in prescribing regulations under the section to minimize the costs incurred by a depository institution in complying with such regulations.
52

49

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(b)(6)(I), 12 U.S.C. 2803(b)(6)(I) (requiring covered institutions to use “such form as the Bureau may prescribe” in reporting credit scores of mortgage applicants and mortgagors). HMDA section 304(k)(1) also requires depository institutions covered by HMDA to make disclosure statements available “[i]n accordance with procedures established by the Bureau pursuant to this section.” 12 U.S.C. 2803(k)(1).

50
12 U.S.C. 2803(j)(1).

51
12 U.S.C. 2803(j)(2)(B).

52
12 U.S.C. 2803(j)(7).

HMDA section 304(e) directs the Bureau to prescribe a standard format for HMDA disclosures required under HMDA section 304.
53

As amended by the Dodd-Frank Act, HMDA section 304(h)(1) requires HMDA data to be submitted to the Bureau or to the appropriate agency for the reporting financial institution “in accordance with rules prescribed by the Bureau.”
54

HMDA section 304(h)(1) also directs the Bureau, in consultation with other appropriate agencies, to develop regulations after notice and comment that (1) 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; (2) 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; (3) require disclosure of the class of the purchaser of such loans; (4) 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 (5) 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.
55

HMDA also authorizes the Bureau to issue regulations relating to the timing of HMDA disclosures.
56

53
12 U.S.C. 2803(e).

54
12 U.S.C. 2803(h)(1);
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 HUD. 12 U.S.C. 2803(h)(2).

55
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).

56
HMDA section 304(
l
)(2)(A), 12 U.S.C. 2803(
l
)(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.”
57

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.”
58

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.
59

57
HMDA section 304(b)(5)(D), (b)(6)(J), 12 U.S.C. 2803(b)(5)(D), (b)(6)(J).

58
HMDA section 304(b)(6)(F), (G), (H), 12 U.S.C. 2803(b)(6)(F), (G), (H).

59
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.
60

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 million or less.
61

60
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).

61
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

The discussion below uses the following terminology to refer to provisions or proposed provisions of Regulation C, as applicable: “Current § 1003.X” refers to the provision currently in effect, which does not reflect amendments to Regulation C made by the 2015 HMDA Final Rule that have not yet taken effect; “Revised § 1003.X” refers to the provision as revised by the 2015 HMDA Final Rule; “§ 1003.X as adopted by the 2015 HMDA Final Rule,” refers to a provision newly adopted by the 2015 HMDA Final Rule; and “Proposed § 1003.X” refers to the proposed amendments from the April 2017 HMDA Proposal or the July 2017 HMDA Proposal, pursuant to which this final rule is adopted.

Section 1003.2 Definitions

2(d) Closed-End Mortgage Loan

In the 2015 HMDA Final Rule, the Bureau adopted § 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. Comment 2(d)-2, as adopted by the 2015 HMDA Final Rule, provides guidance on what constitutes an extension of credit, including an example of a transaction that would not be 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. The comment provides that 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 proposed certain clarifying amendments to comment 2(d)-2.

As adopted by the 2015 HMDA Final Rule, the example in comment 2(d)-2 illustrating a transaction in which there is no extension of credit discussed installment land sales contracts and included a specific description of an installment land sales contract that would not be considered an extension of credit. The Bureau proposed to remove this specific description from comment 2(d)-2, while also providing more generally that installment land sales contracts, depending on the facts and circumstances, may or may not involve extensions of credit rendering the transactions closed-end mortgage loans.

Three industry commenters expressed support for the proposed change. One stated that the new language would add clarity by acknowledging the complexity of the determination of whether the transaction involves an extension of credit. Two industry commenters expressed opposition to the proposal, stating that it would introduce additional ambiguity and reporting challenges.

For the reasons discussed below, the Bureau is adopting the provision as proposed. The Bureau believes that the specific description of an installment land sales contract that would not be an extension of credit, which was included in the 2015 HMDA Final Rule, is not helpful for illustrating a transaction in which there is no extension of credit. Whether an installment land sales contract is an extension of credit is a fact-specific inquiry that depends on the particular installment contract's terms and other facts and circumstances. A short description without relevant details does not accurately illustrate the complexity of such a determination. Although making this determination may be challenging for some financial institutions, it is not feasible for the Bureau to provide specific examples, due to the numerous and complex forms of installment land sales contracts and situations in which they arise.

Comment 2(d)-2.ii, as adopted by the 2015 HMDA Final Rule, also provides a narrow exception to revised Regulation C's general rule that an extension of credit occurs only when a new debt obligation is created. Under that exception, a transaction completed pursuant to a New York State consolidation, extension, and modification agreement and classified as a supplemental mortgage under New York Tax Law section 255, such that the borrower owes reduced or no mortgage recording taxes (New York CEMA), is deemed an extension of credit.
62

The Bureau proposed no changes to the extension of credit exception for New York CEMAs in comment 2(d)-2.ii but did propose to include in it a clarifying reference to the new § 1003.3(c)(13) exclusion for preliminary transactions consolidated into New York CEMAs, discussed below. There were no comments on this clarifying reference, and the Bureau is adopting it as proposed with minor edits for clarity.

62
Revised comment 2(d)-2.i provides another exception, for assumptions, which Regulation C historically has covered. The Bureau is not making any change to the assumptions exception.

2(f) Dwelling

The Bureau proposed to revise comment 2(f)-2 as adopted by the 2015 HMDA Final Rule by adding language to clarify treatment of multi-location loans. The Bureau is revising the proposed language, and is incorporating that language into new comment 2(n)-3, as discussed below.

In addition to the multi-location loan clarification, the Bureau proposed a technical correction to comment 2(f)-2. The Bureau proposed to change the term “complexes” to “housing complexes” for clarity, with no change in meaning intended. The Bureau received only one comment on this change, and the commenter expressed support for the change. The Bureau is now adopting this technical correction as proposed.

2(g) Financial Institution

Section 1003.2(g) defines financial institution for purposes of Regulation C, and sets forth Regulation C's institutional coverage for depository financial institutions and nondepository financial institutions. The Bureau proposed amendments to § 1003.2(g) and associated commentary to increase temporarily the level of open-end originations required to trigger collection and reporting responsibilities and to make conforming changes related to a new reporting exclusion for preliminary transactions providing new funds before consolidation as part of a New York CEMA. The Bureau is adopting the proposed amendments as proposed for the reasons discussed below.

Open-End Line of Credit Threshold

Section 1003.2(g), as adopted by the 2015 HMDA Final Rule, conditions Regulation C's institutional coverage, in part, on the lender's volume of origination of open-end lines of credit or closed-end mortgage loans by establishing loan-volume thresholds. The threshold for closed-end mortgage loans is at least 25 in each of the two preceding calendar years, and the threshold for open-end lines of credit is at least 100 in each of the two preceding calendar years. Section 1003.3(c)(11) and (12), as adopted by the 2015 HMDA Final Rule, includes complementary thresholds set at the same levels that determine whether a financial institution is required to collect and report data on closed-end mortgage loans or open-end lines of credit, respectively.
63

In the July 2017 HMDA

Proposal, the Bureau proposed to amend § 1003.2(g)(1)(v)(B) and (g)(2)(ii)(B), effective January 1, 2018, to increase the open-end threshold from 100 to 500 and, effective January 1, 2020, to amend § 1003.2(g)(1)(v)(B) and (g)(2)(ii)(B) to restore the threshold to 100. The Bureau proposed conforming amendments to comments 2(g)-3 and -5. As discussed in the section-by-section analysis of § 1003.3(c)(12), the Bureau also proposed conforming amendments to the open-end threshold in § 1003.3(c)(12). For the reasons discussed below, the Bureau is finalizing the amendments as proposed.

63
As noted below and as explained in the April 2017 HMDA Proposal, under the institutional coverage threshold adopted by the 2015 HMDA Final Rule, the definition of financial institution included only institutions that originate either 25 or more closed-end mortgage loans or 100 or more open-end lines of credit in each of the two preceding calendar years and satisfy the other applicable coverage criteria. That threshold and the transactional coverage threshold in 12 CFR

1003.3(c)(11) and (12) were intended to be complementary exclusions. This final rule corrects a drafting error. April 2017 HMDA Proposal, 82 FR 19142, 19149 (Apr. 25, 2017).

As noted in the 2015 HMDA Final Rule, the Bureau believes that including dwelling-secured lines of credit within the scope of Regulation C is a reasonable interpretation of HMDA section 303(2), which defines “mortgage loan” as a loan secured by residential real property or a home improvement loan. In the 2015 HMDA Final Rule, the Bureau interpreted “mortgage loan” to include dwelling-secured lines of credit, as they are secured by residential real property and they may be used for home improvement purposes.
64

As further noted in the 2015 HMDA Final Rule, pursuant to section 305(a) of HMDA, the Bureau believes that requiring reporting of dwelling-secured, consumer purpose open-end lines of credit is necessary and proper to effectuate the purposes of HMDA and prevent evasions thereof.
65

64
2015 HMDA Final Rule, 80 FR 66128, 66160 (Oct. 28, 2015).

65

Id.
(noting “HMDA and Regulation C are designed to provide citizens and public officials sufficient information about mortgage lending to ensure that financial institutions are serving the housing needs of their communities, to assist public officials in distributing public sector investments, and to identify possible discriminatory lending patterns” and that the “Bureau believes that collecting information about all dwelling-secured, consumer-purpose open-end lines of credit serves these purposes.”).

In establishing the open-end threshold at 100 in the 2015 HMDA Final Rule, the Bureau drew on estimates of the distribution of open-end origination volume across financial institutions and estimates of the one-time and ongoing costs that would be incurred by institutions of various sizes in collecting and reporting data on open-end lines of credit. The Bureau explained that it believed this threshold appropriately balanced the benefits and burdens of covering institutions based on their open-end mortgage lending.
66

In striking this balance, the Bureau estimated that, based on 2013 data, 749 depository institutions would be required to report their open-end lines of credit under the 100-loan threshold. However, as discussed in part III above, the Bureau lacked robust data for the estimates that were used to establish the open-end threshold in the 2015 HMDA Final Rule.

66

Id.
at 66162. The Bureau also explained that it believed “that adopting a 100-open-end line of credit threshold will avoid imposing the burden of establishing open-end reporting on many small institutions with low open-end lending volumes.”
Id.
at 66149.

As explained in the July 2017 HMDA Proposal, since 2013 the number of dwelling-secured open-end lines of credit originated has increased by 36 percent and continues to grow.
67

To the extent that institutions that had been originating fewer than 100 open-end lines of credit share in that growth, the number of institutions at the margin that will be required to report under the 2015 HMDA Final Rule open-end threshold will also increase. In the July 2017 HMDA Proposal, the Bureau explained that its available data concerning open-end lines of credit extended by banks and thrifts are not sufficiently robust to allow the Bureau to estimate with any precision the number of such institutions that have crossed over the open-end threshold adopted in the 2015 HMDA Final Rule. The Bureau also explained, however, that there are reliable data concerning credit unions that are required to report open-end originations in their Call Reports. The Bureau's review of credit union Call Report data for the July 2017 HMDA Proposal indicates that the number of credit unions that originated 100 or more open-end lines of credit in 2015 was up 31 percent over 2013,
68

the most recent data cited by the Bureau for its analysis of the 2015 HMDA Final Rule. The Bureau explained in the July 2017 HMDA Proposal that, if there were a comparable increase among banks and thrifts, the total number of open-end reporters exceeding the transactional coverage threshold could be estimated at 980, as compared to the estimate of 749 in the 2015 HMDA Final Rule, which was based on 2013 data.
69

67
July 2017 HMDA Proposal, 82 FR 33455, 33459 (July 20, 2017).

68

Id.

69

Id.

Additionally, in the July 2017 HMDA Proposal, the Bureau explained that information received by the Bureau since issuing the 2015 HMDA Final Rule has caused the Bureau to question its assumption that tier 3, low-complexity institutions process home-equity lines of credit on the same data platforms as closed-end mortgages, which in turn drove the Bureau's assumption that the one-time costs for these institutions would be minimal. After issuing the 2015 HMDA Final Rule, the Bureau had heard anecdotal evidence suggesting that one-time costs to begin reporting open-end lines of credit could be as high as $100,000 for tier 3, low-complexity institutions. The Bureau likewise had heard anecdotal evidence suggesting that the ongoing costs for these institutions to report open-end lines of credit, which the Bureau estimated would be under $10,000 per year and add under $60 per line of credit, could be at least three times higher.

Based on this anecdotal evidence regarding one-time and ongoing costs and new data indicating that more institutions would have reporting responsibilities under the 100-loan open-end threshold than estimated in the 2015 HMDA Final Rule, the Bureau believed it was appropriate to seek comment on whether a temporary adjustment to the open-end threshold was advisable to allow for additional data collection and assessment. The temporary increase proposed in the July 2017 HMDA Proposal would allow the Bureau to do such an evaluation without requiring financial institutions originating fewer than 500 open-end lines of credit per year to collect and report data concerning open-end lines of credit in the meantime.

The Bureau sought comment on whether to increase the open-end threshold temporarily and, if so, whether to raise the threshold to 500 or to a larger or smaller number. The Bureau also sought comment on what time period to increase the open-end threshold, should it do so.

Comments regarding the proposed changes to the open-end threshold in both §§ 1003.2(g) and 1003.3(c)(12) are discussed below. Industry commenters expressed support for increasing the threshold, but requested that the Bureau further raise the threshold to exclude more financial institutions from the obligation to report open-end lines of credit. Commenters most often requested that the Bureau raise the open-end threshold to 1,000. Many commenters also requested that the Bureau make the open-end threshold increase permanent instead of temporary. Some commenters also urged the Bureau to reverse the 2015 HMDA Final Rule's decision to require some financial institutions to report data on open-end lines of credit and, instead, to maintain optional reporting. Further, many commenters requested that the Bureau also increase the closed-end threshold.

Consumer advocacy groups opposed the Bureau's proposal. These commenters expressed concern about the gaps in the HMDA data resulting from the proposed increase in the threshold. They noted that these gaps in the HMDA data would make it harder for them and other members of the public to understand whether open-end credit lending is conducted in a responsible and non-discriminatory manner, and whether credit needs are being met in communities, particularly if the major lenders in their areas are institutions below the temporarily raised threshold. They stated that the benefits of reporting were clear and based on concrete evidence, but that the costs of reporting were not clear, arguing that industry cost estimates relied on by the Bureau in the proposal were based on anecdotal evidence. They suggested that only by allowing open-end reporting to begin as provided in the 2015 HMDA Final Rule would the Bureau learn the concrete costs. Further, they expressed support for the Bureau's decision not to propose changes to the closed-end threshold.

The Bureau is finalizing the proposed temporary increase in the open-end threshold to 500 loans. The Bureau is amending § 1003.2(g)(1)(v)(B) and (g)(2)(ii)(B) and comment 2(g)-3 and -5, effective January 1, 2018, to increase the open-end threshold from 100 to 500 and, effective January 1, 2020, to restore the threshold to 100.

The Bureau does not believe that increasing the threshold to 1,000 is appropriate at this time. The Bureau believes that the temporary increase in the threshold will avoid imposing the costs of reporting on tier 3, low-complexity institutions, while the Bureau studies the appropriate level of the threshold in light of the market conditions described in the July 2017 HMDA Proposal. The Bureau estimates that, in 2015, 289 depository institutions originated 500 or more open-end lines of credit as compared to an estimated 980 depository institutions that originated at least 100 open-end lines of credit.
70

On average, the institutions that would be excluded by increasing the open-end threshold from 100 to 500 loans originated fewer than 250 open-end lines of credit per year.
71

Under a 500-loan open-end threshold, approximately three quarters of the loan application volume in the open-end market would be reported.
72

Increasing the open-end threshold to 1,000 would reduce the number of institutions reporting open-end lines of credit by 90 in 2016 relative to a 500-loan threshold.
73

While this represents a relatively low number of institutions relative to the number under a 500-loan open-end threshold, in 2016, those institutions originated, on average, close to 1,000 open-end lines of credit per year.
74

The Bureau believes that institutions with that level of loan volume have moderately-complex operations able to collect and report data on their open-end lines of credit without major disruptions or burdens to their existing operations.
75

Thus, increasing the threshold to 1,000 is not needed to achieve the Bureau's goal of avoiding imposing costs on, and only on, tier 3, low-complexity institutions while the Bureau studies the appropriate level of the threshold. None of the commenters advocating for a higher threshold took issue with the Bureau's estimate as to the number of institutions that would be affected by increasing the threshold to 1,000 open-end lines of credit nor did any of the commenters offer evidence inconsistent with the Bureau's estimate of the compliance costs for moderately complex, tier 2, institutions.

70

Id.

71

Id.
In estimating costs specific to collecting and reporting data for open-end lines of credit in the 2015 HMDA Final Rule, the Bureau assumed that that tier 2 institutions originate between 200 and 7,000 such lines of credit and that tier 3 institutions originate fewer than 200 such lines of credit. 2015 HMDA Final Rule, 80 FR 66128, 66285 (Oct. 28, 2015).

72

Id.

73
One commenter asserted that a 1,000-loan threshold would have relieved significantly more institutions from reporting. However, in subsequent ex parte communication, the commenter determined that its calculations were mistaken.

74
July 2017 HMDA Proposal, 82 FR 33455, 33459-60 (July 20, 2017).

75

Id.
at 33460. The July 2017 HMDA Proposal explained as an example that it had received information from the credit league of one State indicating that, of the seven credit unions in that State that had originated more than 250 home-equity lines of credit in the first six months of 2016 (and thus were on track to originate 500 for the year), six had assets over $1 billion.

Additionally, the Bureau agrees generally with consumer advocacy groups about the importance of increasing visibility into the open-end line of credit market. Increasing the threshold from 100 to 500 will decrease visibility into the open-end line of credit market. The Bureau believes, however, that the limited loss of visibility occasioned by increasing the threshold from 100 to 500, at least for the next two years while the Bureau further studies the issue, is justified by the uncertainty surrounding the costs of reporting borne by tier 3, low-complexity institutions and the recent trends in the market. However, the Bureau is not persuaded that the limited benefits of an even higher threshold would justify any additional loss of data.

The Bureau is not making the threshold increase for open-end lines of credit permanent at this time. As discussed in the July 2017 HMDA Proposal, the Bureau believes it is vitally important to begin the collection and reporting of data on the growing market for open-end lines of credit and that the increase in open-end origination volume since 2013 further demonstrates the importance of these data. However, the Bureau recognizes that anecdotal evidence and recent market trends suggest that costs associated with the 100-loan open-end threshold may be significantly higher and affect more institutions than the Bureau estimated in the 2015 HMDA Final Rule. The two-year period will allow time for the Bureau to decide, through an additional rulemaking, whether any adjustments to the open-end threshold are needed. The Bureau intends to make that determination in sufficient time so that if institutions are covered under any permanent threshold set by the Bureau but not under the temporary threshold, those institutions will be able to resume and complete their implementation processes.
76

76

Id.

Similarly, the Bureau declines to retain optional reporting of open-end lines of credit. As discussed in the 2015 HMDA Final Rule, improved visibility into this key segment of the mortgage market is critical because of the risks posed by these products to consumers and local markets and the lack of other publicly available data about these products.
77

However, the Bureau agrees that optional reporting should be allowed for those financial institutions that do not meet the open-end threshold and is providing for optional reporting, as discussed below in the section-by-section analysis of § 1003.3(c)(12).

77
2015 HMDA Final Rule, 80 FR 66128, 66160-61 (Oct. 28, 2015).

The Bureau, as explained in the July 2017 HMDA Proposal, does not believe increasing the closed-end threshold is appropriate.
78

Unlike open-end lines of credit, when adopting the 2015 HMDA Final Rule, the Bureau had robust data to make a determination about the number of transactions that would be reported and the costs, both one-time and ongoing, that industry would face. Additionally, unlike open-end lines of credit, there is no evidence of a similar change in market conditions post issuance of the 2015 HMDA Final Rule

for closed-end mortgage loans. None of the commenters advocating a change in the closed-end threshold took issue with the Bureau's estimates of costs for closed-end reporters or offered any data inconsistent with the Bureau's estimates.

78
July 2017 HMDA Proposal, 82 FR 33460 (July 20, 2017).

As discussed in the 2015 HMDA Final Rule, the Bureau adopted § 1003.2(g)(1) pursuant to its authority under section 305(a) of HMDA to provide for such adjustments and exceptions for any class of transactions that the Bureau judges are necessary and proper to effectuate the purposes of HMDA. Pursuant to section 305(a) of HMDA, for the reasons given in the 2015 HMDA Final Rule, the Bureau found that the exception in § 1003.2(g)(1) is necessary and proper to effectuate the purposes of HMDA. By reducing burden on financial institutions and establishing a consistent loan-volume test applicable to all financial institutions, the Bureau found that the provision will facilitate compliance with HMDA's requirements.
79

Similarly, the Bureau believes that the temporary change in the open-end threshold in § 1003.2(g)(1) is necessary and proper to effectuate the purposes of HMDA, including to facilitate compliance and reduce burden. Additionally, as discussed in the 2015 HMDA Final Rule, the Bureau adopted § 1003.2(g)(2) pursuant to its interpretation of HMDA sections 303(3)(B) and 303(5), which require persons other than banks, savings associations, and credit unions that are “engaged for profit in the business of mortgage lending” to report HMDA data. The Bureau stated that it interprets these provisions, as the Board also did, to evince the intent to exclude from coverage institutions that make a relatively small volume of mortgage loans.
80

Pursuant to its authority under section 305(a) of HMDA, and for the reasons discussed above, the Bureau finds that the temporary change of the open end threshold from 100 to 500 for two years in both § 1003.2(g)(1) and 1003.2(g)(2) is necessary and proper to facilitate compliance.

79
2015 HMDA Final Rule, 80 FR 66128, 66150 (Oct. 28, 2015).

80

Id.
at 66153.

Conforming Amendment Related to New York CEMAs

As discussed below, the Bureau proposed an exclusion from reporting, in proposed § 1003.3(c)(13), for any preliminary transaction providing new funds before consolidation as part of a New York CEMA. Consistent with that proposal, the Bureau proposed a conforming change to § 1003.2(g)(1)(v)(A) and (2)(ii)(A), as adopted by the 2015 HMDA Final Rule, in the definition of “financial institution,” which would add the new exclusion to a list of exclusions referenced in that definition regarding closed-end mortgage loans.

The Bureau received no comments on this conforming change, and now adopts the provision as proposed.

2(i) Home Improvement Loan

HMDA section 303(2) defines a mortgage loan as a loan that is secured by residential real property or a home improvement loan. Regulation C currently defines home improvement loan and provides guidance in commentary about mixed-use property,
i.e.,
a dwelling used for both residential and commercial purposes. Pursuant to the Bureau's authority under HMDA section 305(a), the Bureau revised the current definition of home improvement loan in § 1003.2(i), as adopted by the 2015 HMDA Final Rule, and revised the accompanying commentary regarding mixed-use property. In the April 2017 HMDA Proposal, the Bureau proposed to amend the commentary to § 1003.2(i) to clarify further the reporting requirements for home improvement loans secured by mixed-use property. Specifically, the Bureau proposed to amend comment 2(i)-4 to clarify that the comment applies only to multifamily dwellings.
81

For the reasons discussed below, the Bureau is adopting comment 2(i)-4 as proposed, with a minor amendment for further clarity.

81
As discussed in more detail in the section-by-section analysis of § 1003.3(c)(10), the Bureau proposed to revise the example in comment 3(c)(10)-3.ii to clarify that it applies to dwellings other than multifamily dwellings.

Several State trade associations and one large financial institution supported the proposed amendments to comment 2(i)-4. One commenter stated that the proposal would ease the compliance burden regarding mixed-use properties. Another commenter stated that it shared the Bureau's concern that, as adopted by the 2015 HMDA Final Rule, comments 2(i)-4 and 3(c)(10)-3.ii could be interpreted as providing inconsistent guidance. This commenter stated that it agreed that loans or lines of credit to improve primarily the commercial portion of a multifamily dwelling should not be reported because they involve relatively small housing components and large commercial components of the dwelling in comparison to loans or lines of credit to improve primarily the commercial portion of a non-multifamily dwelling.

A few commenters recommended alternative reporting requirements for loans to improve primarily the commercial portion of a mixed-use dwelling. One national trade association suggested that, if a property is subject to HMDA reporting requirements and a loan is made for any improvement on that property, that loan should be considered a home improvement loan. It stated that this recommendation would simplify compliance by providing a single standard for all loans to improve property used for residential and commercial purposes and avoid financial institutions having to determine the percentage of loan proceeds used for a residential purpose and whether the loan is for a non-multifamily or multifamily dwelling. Another national trade association suggested that it would improve consistency to apply the same treatment to all loans that improve mixed-use properties. Alternatively, one State trade association recommended that, if any portion of the loan proceeds will be used to improve the commercial portion of a mixed-use property, the loan should not be a reportable home improvement loan, regardless of whether the dwelling is a multifamily dwelling. It suggested that, if the Bureau were to adopt the proposed guidance on reporting loans to improve commercial portions of mixed-use property, it would be helpful to clarify in comment 2(i)-4 that a loan to improve commercial space in a dwelling other than a multifamily dwelling would be a reportable home improvement loan. A national trade association stated that all commercial-purpose loans should be excluded from HMDA reporting. Finally, a few commenters expressed concern that the proposed guidance did not address how to treat loans to improve commercial portions of mixed-use property where the property would have been considered a multifamily dwelling under the proposed guidance in comment 2(f)-2, which would have explained that a loan secured by five or more separate dwellings in more than one location is a loan secured by a multifamily dwelling.

The Bureau is adopting comment 2(i)-4 as proposed, with a minor amendment to provide further clarity. As adopted, comment 2(i)-4 also includes a cross-reference to comment 3(c)(10)-3.ii for guidance on loans to improve primarily the commercial portion of a dwelling other than a multifamily dwelling. The Bureau declines to treat all loans to improve mixed-use property as home improvement loans as this would expand coverage of commercial-purpose transactions and result in the reporting of loans or lines of credit to improve

primarily the commercial portion of a multifamily dwelling. As discussed in the April 2017 HMDA Proposal, such loans or lines of credit involve relatively small housing components and large commercial components of the dwelling in comparison to loans or lines of credit to improve primarily the commercial portion of a dwelling other than a multifamily dwelling. Consequently, reporting such loans would provide limited information, at best, toward HMDA's purpose of helping determine whether financial institutions are serving the housing needs of the communities in which they are located. The Bureau also declines to exclude all loans or lines of credit where any portion of the loan proceeds will be used to improve the commercial portion of a mixed-use property or to exclude all commercial-purpose loans. Regulation C currently covers closed-end, commercial-purpose loans made to purchase, refinance, or improve a dwelling, including certain loans to improve mixed-use property, and the Bureau has not proposed or seen any new reason to decrease the coverage of commercial-purpose transactions from its current level.
82

Finally, as discussed in more detail in the section-by-section analysis of § 1003.2(f) above, the Bureau believes the revisions adopted in comment 2(f)-2 regarding the definition of multifamily dwellings address potential uncertainty that may have arisen regarding how proposed comment 2(f)-2 would have applied to the Bureau's guidance regarding reporting requirements for loans to improve various types of mixed-use property.

82
Current comment 2 (Home Improvement Loan)-4. In the 2015 HMDA Final Rule, the Bureau explained that “[e]xamples of commercial-purpose loans that currently are reported are: (1) A loan to an entity to purchase or improve an apartment building (or to refinance a loan secured thereby); and (2) a loan to an individual to purchase or improve a single-family home to be used either as a professional office or as a rental property (or to refinance a loan secured thereby).” 2015 HMDA Final Rule, 80 FR 66128, 66169 (Oct. 28, 2015).

2(j) Home Purchase Loan

Current § 1003.2 provides a definition of home purchase loan and provides guidance in commentary. The 2015 HMDA Final Rule revised the current definition of home purchase loan in § 1003.2(j) and revised the current home purchase loan commentary to conform to revised § 1003.2(j) and to provide additional clarifications. As discussed in more detail in the section-by-section analysis of § 1003.3(c)(3), the Bureau proposed certain amendments to the § 1003.3(c)(3) commentary regarding temporary financing. The Bureau proposed conforming amendments to comment 2(j)-3 to reflect the proposed revisions to the § 1003.3(c)(3) commentary. Commenters supported the proposed amendments to comment 2(j)-3. The Bureau is adopting comment 2(j)-3 as proposed, with a minor amendment to conform to a clarification the Bureau is adopting in the commentary to § 1003.3(c)(3).

2(n) Multifamily Dwelling

In revised § 1003.2(f) and comment 2(f)-2, the 2015 HMDA Final Rule revised and clarified the definition of “dwelling” in Regulation C to provide, among other things, that multifamily residential structures include housing complexes and manufactured home communities and that such communities are dwellings. Revised § 1003.2(n) provides that a “multifamily dwelling” is a dwelling that contains five or more individual dwelling units. To apply this definition and ease compliance, the Bureau proposed to add language to comment 2(f)-2 that would have clarified that a loan secured by five or more separate dwellings in more than one location is a loan secured by a multifamily dwelling and provided an example.

Revised § 1003.4(a) excludes several data points for covered loans secured by or applications proposed to be secured by multifamily dwellings because such data may not be easily available, relevant, or useful for multifamily transactions. During implementation of the 2015 HMDA Final Rule, the Bureau was asked whether loans that are secured by five or more separate dwellings that each contain fewer than five individual dwelling units in more than one location are loans secured by multifamily dwellings and, thus, may take advantage of the exclusions for covered loans secured by or applications proposed to be secured by multifamily dwellings in revised § 1003.4(a). For example, a landlord might use a covered loan to improve five or more single-family dwellings in different locations, with those properties securing the loan. At the time of the April 2017 HMDA Proposal, the Bureau believed that such a loan should be reported as secured by a multifamily dwelling. The Bureau believed that as with loans that are secured by multifamily dwellings in one location, the information that would be excluded from reporting under revised § 1003.4(a), such as the debt-to-income ratio, might also not be easily available, relevant, or useful for loans secured by five or more separate non-multifamily dwellings in more than one location. Consequently, the Bureau proposed to add language to comment 2(f)-2 making clear that a loan secured by five or more separate dwellings in more than one location is a loan secured by a multifamily dwelling and providing an example.

The Bureau received 14 comments discussing the proposed change to comment 2(f)-2. Five commenters expressed support for the change, and nine expressed opposition to it. The commenters supporting the change stated that it would ease compliance, and one wanted clarification of how loans with cross-collateralization clauses, which the commenter stated are often used in the multi-location loans that are implicated in the change, should be reported.

The commenters opposing the proposed change stated several different objections. Several commenters stated that the change would not ease compliance but, instead, would make it more confusing and difficult. Commenters said that the new provision conflicted with Regulations X, Z, and B, as well as the Call Report
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instructions that they were required to follow and the definition of multifamily under the Community Reinvestment Act (CRA).
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They stated that the proposed change to Regulation C's definition of multifamily would require double tracking of multifamily loans under HMDA and CRA. Two commenters pointed out that the proposed change appeared to conflict with the proposed clarification on home improvement loans in comment 2(i)-4 because that provision relies on non-multifamily status to determine a loan's purpose, but the change to comment 2(f)-2 would make non-multifamily structures potentially part of multifamily dwellings, muddling their status. One commenter suggested that the proposed change could make rural lending to investors look like loans secured by apartment buildings. Another commenter stated that the proposed language would conflict with

the definition of multifamily in Regulation C itself.

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Every national bank, State member bank, insured nonmember bank, and savings association is required by its primary Federal regulator to file consolidated Reports of Condition and Income, also known as Call Reports, for each quarter as of the close of business on the last day of each calendar quarter. The specific reporting requirements depend upon the size of the institution, the nature of its activities, and whether it has any foreign offices.
See, e.g.,
FDIC, “Consolidated Reports of Condition and Income,”
https://www.fdic.gov/regulations/resources/call/index.html
(last visited Aug. 13, 2017). Credit unions that are not privately insured are also required to report Call Report data to NCUA.
See, e.g.,
NCUA, “Credit Union and Corporate Call Report Data,”
http://www.ncua.gov/DataApps/QCallRptData/Pages/default.aspx
(last visited Aug. 13, 2017).

84
12 U.S.C. 2901
et seq.

After careful consideration of all the comments received, the Bureau now believes that it is not appropriate to add language to comment 2(f)-2 providing that a loan secured by five or more separate dwellings in more than one location is a loan secured by a multifamily dwelling. To ensure clarity and facilitate compliance, the Bureau is now changing the language proposed in the April 2017 HMDA Proposal to provide explicitly that such a loan is not secured by a multifamily dwelling. The Bureau is also altering the example provided to clarify that the multi-location loan described in the example should not be reported as secured by a multifamily dwelling. In addition, the Bureau has incorporated the new language into new comment 2(n)-3, because the comment involves the definition of multifamily dwelling in § 1003.2(n), rather than the definition of dwelling in § 1003.2(f). The Bureau has also added to the new comment a description and example of a situation similar to that of multi-location loans, as discussed below.

The Bureau believes that the conflicts commenters described regarding the CRA and Call Reports would create the compliance burdens described by commenters. In addition, the Bureau acknowledges that additional clarification would be required to reconcile the proposed classification of multi-site loans language with the proposed change to the commentary on loans for improvement of commercial space in a non-multifamily dwellings in comment 2(i)-4. Consequently, the Bureau believes that the proposed language might have increased the compliance burden rather than decreased it as intended.

In addition, further review of the five data points that are excluded
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for multifamily loans suggests that it will be feasible for reporters of the multi-location loans that were the subject of the proposal to provide entries for them. If the borrower of such a loan is not a natural person, two of the data points, income and debt-to-income ratio, can be excluded. If the borrower is a natural person, these two data points will need to be reported only if they are relied on in making the credit decision or in processing the application. Similarly, the financial institution should be able to answer whether the application or covered loan involved a preapproval request. The two other data points that are excluded from reporting for loans secured by multifamily dwellings involve questions about manufactured housing that the financial institution should be able to answer for these loans. To the extent the clarifications in this rule require financial institutions to make technical changes, those changes require only minor adjustments, not significant system updates. In addition, the Bureau has issued this final rule in August, four months before 2018, which the Bureau believes should afford ample time to implement any necessary minor system adjustments. The Bureau is releasing implementation aids with this final rule to facilitate implementation.

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Covered loans secured by a multifamily dwelling are subject to additional reporting requirements under revised § 1003.4(a)(32), but are not subject to reporting requirements under revised § 1003.4(a)(4), (a)(10)(iii), (a)(23), (a)(29), or (a)(30). Revised comment 2(n)-2.

During consideration of the public comments and consultation with the relevant Federal agencies, the Bureau became aware that it might also be useful to provide guidance on the treatment of covered loans that are secured by multiple dwellings within a multifamily dwelling, but not secured by the entire multifamily dwelling itself. The Bureau has been told that these loans potentially could increase similar issues for HMDA, CRA, and Call Report reporting requirements unless the Bureau clarifies that they are not secured by a multifamily dwelling. In addition, revised § 1002.2(n)'s definition of a multifamily dwelling, stating that a multifamily dwelling is one that “contains” five or more individual dwelling units, is reasonably interpreted to mean that a loan secured by five or more separate dwellings located in a multifamily dwelling but not secured by the entire multifamily dwelling is not secured by a loan that “contains” five or more individual dwelling units, just as it is reasonably interpreted to mean that a loan secured by a multi-location loan is not secured by a dwelling that “contains” five or more dwelling units.

Consequently, the Bureau is adding language to new comment 2(n)-2 stating that a covered loan secured by five or more separate dwellings that are located within a multifamily dwelling, but which is not secured by the entire multifamily dwelling (
e.g.,
an entire apartment building or housing complex), is not secured by a multifamily dwelling as defined by § 1003.2(n), and providing an example. The Bureau is also adding cross references and instructions to comment 2(n)-2 to facilitate reporting of both the multi-location loans and the loans secured by multiple dwellings within a multifamily dwelling.

Regarding reporting cross-collateralized loans, the Bureau notes that § 1003.4(a)(31) requires reporting of the number of individual dwelling units related to the property “securing” the covered loan or, in the case of an application, proposed to “secure” the covered loan. If the documents for a multi-location loan or a loan secured by multiple dwellings within a multifamily dwelling include a cross-collateralization clause that results in the loan being secured by six dwelling units, the financial institution complies with § 1003.4(a)(31) by reporting “6,” even though the loan is not secured by a multifamily dwelling. Nonetheless, the HMDA data will have a clear indication of whether a loan is in fact wholly or partially secured by a multifamily dwelling in the response to § 1003.4(a)(32), which requires reporting of income restricted dwelling units if the property securing or proposed to secure the loan includes a multifamily dwelling. Revised comment 4(a)(32)-6 makes clear that when no multifamily dwelling is included in the collateral, the institution reports that the data point is not applicable. The Filing Instructions Guide for HMDA Data Collected in 2018 (2018 FIG)
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reflects this rule, further providing that when a multifamily dwelling is part of the collateral for a loan, the institution must report a number or “0,” and reports “NA” for not applicable if the requirement to report multifamily affordable units does not apply to the covered loan or application. Therefore, any correctly reported loan or application with a value of “NA” in response to § 1003.4(a)(32) will not be either wholly or partially secured or proposed to be secured by a multifamily dwelling.

86
FFIEC, “Filing Instructions Guide for HMDA Data Collected in 2018,” (2018 FIG),
available at https://www.consumerfinance.gov/data-research/hmda/static/for-filers/2018/2018-HMDA-FIG.pdf
. The 2018 FIG is a compendium of resources to help financial institutions file HMDA data collected in 2018 with the Bureau in 2019.

Section 1003.3 Exempt Institutions and Excluded Transactions

3(c) Excluded Transactions

3(c)(3)

Current Regulation C provides an exclusion for temporary financing in § 1003.4(d)(3). The 2015 HMDA Final Rule revised the exclusion for temporary financing in § 1003.3(c)(3) and adopted comment 3(c)(3)-1 to clarify the scope of the exclusion and to incorporate existing guidance included in a Federal Financial Institutions Examination Council (FFIEC) Frequently Asked Question (FAQ).
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As

adopted by the 2015 HMDA Final Rule, comment 3(c)(3)-1 provides that temporary financing is excluded from coverage and explains that a loan or line of credit is temporary financing if it is designed to be replaced by permanent financing at a later time. The comment provides several illustrative examples to clarify whether a loan or line of credit is designed to be replaced by permanent financing. The Bureau proposed to clarify further the meaning of comment 3(c)(3)-1 and to add new comment 3(c)(3)-2 to clarify that a construction-only loan or line of credit is considered temporary financing and excluded under § 1003.3(c)(3) if the loan or line of credit is extended to a person exclusively to construct a dwelling for sale. For the reasons discussed below, the Bureau is adopting the § 1003.3(c)(3) commentary as proposed, with certain minor amendments for further clarity.

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See
FFIEC, “Home Mortgage Disclosure Act: Regulatory & Interpretive FAQ's, Temporary

Financing,”
http://www.ffiec.gov/hmda/faqreg.htm#TemporaryFinancing
(last visited Aug. 9, 2017). The existing FFIEC FAQ concerning temporary financing acknowledges that temporary financing is exempt and states that “financing is temporary if it is designed to be replaced by permanent financing of a much longer term. A loan is not temporary financing merely because its term is short. For example, a lender may make a loan with a one-year term to enable an investor to purchase a home, renovate it, and re-sell it before the term expires. Such a loan must be reported as a home purchase loan.”

The majority of commenters supported the proposed changes to the § 1003.3(c)(3) commentary. Several expressed support for the proposed clarifications generally, while a few State and national trade associations stated that the proposal would reduce burden and uncertainty. A few commenters indicated that construction-only loans are often originated through separate channels from residential loans and that it would be expensive to develop systems to report construction-only loans. A few commenters that supported the proposed clarifications regarding construction-only loans or lines of credit stated that buyers of the newly-constructed dwellings would often seek permanent financing that would be reportable under HMDA.

One national trade association stated that the proposal would not clarify what constitutes temporary financing and that temporary financing may be structured in different ways, may involve a change in lender, or may involve only a single set of loan documents that does not reflect the permanent financing. This commenter suggested that the Bureau define temporary financing as any dwelling-secured loan to a borrower for any purpose where the initial advance of funds will be replaced by permanent financing at a later date. One State trade association requested further clarification on which loans would be excluded as temporary financing and expressed the belief that the proposal did not sufficiently distinguish between one-time closing home purchase loans and short-term construction loans with permanent financing to be obtained at a later date. A few commenters requested additional clarification on the treatment of bridge loans or construction loans that are paid in full with proceeds from the sale of the borrower's current dwelling without the borrower obtaining permanent financing.

The Bureau is adopting the amendments to the § 1003.3(c)(3) commentary substantially as proposed, with minor clarifications to comment 3(c)(3)-1. Final comment 3(c)(3)-1 states that § 1003.3(c)(3) provides that closed-end mortgage loans or open-end lines of credit obtained for temporary financing are excluded transactions. The comment then provides that a loan or line of credit is considered temporary financing and excluded under § 1003.3(c)(3) if the loan or line of credit is designed to be replaced by separate permanent financing extended by any financial institution to the same borrower at a later time. The Bureau is also adopting revisions to the illustrative example in comment 3(c)(3)-1.i to provide that the borrower obtains permanent financing for his or her new home either from the same lender or from another lender.

Final comment 3(c)(3)-1 thus clarifies further that the applicability of the temporary financing exclusion does not depend on whether the financial institution that originates the permanent financing is the same institution that originated the loan or line of credit the permanent financing is designed to replace. The Bureau notes that, as adopted by the 2015 HMDA Final Rule, comment 3(c)(3)-1.ii provides an illustrative example of a construction loan that is excluded because it is designed to be replaced by permanent financing from either the lender that originated the loan or another lender. Nevertheless, the Bureau believes that the additional revisions adopted here to comment 3(c)(3)-1 clarify further that the determination of whether a loan or line of credit is temporary financing does not depend on the identity of the financial institution that originates the permanent financing to replace that loan or line of credit. Final comment 3(c)(3)-1 also omits proposed language regarding “except as provided in comment 3(c)(3)-2,” because both comments 3(c)(3)-1 and -2 set forth independent criteria for determining whether a loan or line of credit is considered temporary financing.

Final comment 3(c)(3)-2 provides that a construction-only loan or line of credit is considered temporary financing and excluded under § 1003.3(c)(3) if the loan or line of credit is extended to a person exclusively to construct a dwelling for sale and cross-references comment 3(c)(3)-1.ii through .iv for examples of the reporting requirement for construction loans that are not extended to a person exclusively to construct a dwelling for sale.

The Bureau declines to adopt further revisions to the § 1003.3(c)(3) commentary as it believes the guidance adopted in this final rule provides a clear standard that serves HMDA's purposes. Regarding the treatment of loans that close in a single transaction, the 2015 HMDA Final Rule explained that “the loan is temporary financing if it is designed to be replaced by longer-term financing at a later time (
e.g.,
financing completed through a separate closing that will pay off the short-term loan).”
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Final comment 3(c)(3)-1 clarifies further that, for the temporary financing exclusion to apply, the permanent financing must be separate from the loan or line of credit it is designed to replace. Regarding the treatment of loans that are paid in full without the borrower obtaining separate permanent financing, except as provided in comment 3(c)(3)-2, the applicability of the temporary financing exclusion depends on whether the loan or line of credit is designed to be replaced by separate permanent financing extended to the same borrower at a later time. As discussed in the 2015 HMDA Final Rule, the commentary to § 1003.3(c)(3) will help to ensure reporting of short-term transactions that function as permanent financing while excluding those transactions that will be captured by the separate reporting of the longer-term financing, if it otherwise is covered by Regulation C.
89

88
2015 HMDA Final Rule, 80 FR 66128, 66168 (Oct. 28, 2015).

89

Id.

3(c)(10)

Regulation C currently covers closed-end, commercial-purpose loans made to purchase, refinance, or improve a dwelling. The 2015 HMDA Final Rule adopted § 1003.3(c)(10) to provide that loans and lines of credit made primarily for a commercial or business purpose are excluded transactions unless they are for the purpose of home purchase under § 1003.2(j), home improvement under § 1003.2(i), or refinancing under

§ 1003.2(p). The Bureau proposed to amend the example in comment 3(c)(10)-3.ii to clarify that its guidance applies in the case of a dwelling other than a multifamily dwelling and to provide an additional illustration.
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As discussed in more detail in the section-by-section analysis of § 1003.2(i), the Bureau proposed to revise comment 2(i)-4 to clarify that it applies to multifamily dwellings.

Comments addressing the proposed changes to both comments 2(i)-4 and 3(c)(10)-3.ii and comments related to the proposed clarifications regarding reporting requirements for loans to improve mixed-use property generally are discussed above in the section-by-section analysis of § 1003.2(i). One large financial institution expressed the belief that the examples in proposed comment 3(c)(10)-3.ii would lead to uncertainty and stated that neither a doctor's office nor a daycare center is considered a dwelling for purposes of HMDA reporting because they are commercial properties without any residential purposes.

The Bureau is adopting comment 3(c)(10)-3.ii as proposed. The Bureau notes that final comment 3(c)(10)-3.ii provides an illustrative example regarding a doctor's office or a daycare center located in a dwelling other than a multifamily dwelling. Final comment 3(c)(10)-3.ii does not affect the definition of dwelling in § 1003.2(f) or the guidance in comment 2(f)-4 regarding the determination of whether a property used for both residential and commercial purposes is a dwelling for purposes of Regulation C.

3(c)(11)

Section 1003.2(g), as adopted by the 2015 HMDA Final Rule, provides loan-volume thresholds for closed-end mortgage loans and open-end lines of credit for Regulation C's coverage of financial institutions. The threshold for closed-end mortgage loans is 25 loans originated in each of the two preceding calendar years. Section 1003.3(c)(11), as adopted by the 2015 HMDA Final Rule, provides a complementary exclusion for financial institutions with loan volumes below the threshold, providing that a closed-end mortgage loan is an excluded transaction if a financial institution originated fewer than 25 closed-end mortgage loans in each of the two preceding calendar years. However, the use of the word “each” in § 1003.3(c)(11) was a drafting error.
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Therefore, the Bureau proposed to amend § 1003.3(c)(11) and comment 3(c)(11)-1 by replacing the word “each” with “either” to clarify how a financial institution applies the exclusion and to include an unrelated clarifying reference to purchased loans. In addition, the Bureau proposed to allow financial institutions voluntarily to report covered loans and applications excluded by § 1003.3(c)(11).

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As noted in the April 2017 HMDA Proposal, this provision as adopted by the 2015 HMDA Final Rule states the test as “fewer than 100 open-end lines of credit in each of the two preceding calendar years,” but this was a drafting error; the intent was to require that a financial institution exceeded the threshold in both of the two preceding calendar years to be subject to closed-end mortgage loan reporting, thus the exclusion should require that a financial institution originate fewer than 100 such lines of credit in either of the two preceding calendar years.
See
April 2017 HMDA Proposal, 82 FR 19142, 19148-49 (Apr. 25, 2017).

Replacing “Each” With “Either”

Five financial industry and vendor commenters supported the proposal to replace the word “each” with “either,” stating that it would add clarity. One consumer advocacy group commenter opposed the change, stating that the word “each” would increase the number of institutions reporting, and would particularly promote accountability for small financial institutions. One industry commenter requested that the Bureau add more examples so that community banks can better understand application of the loan-volume test.

The Bureau is adopting the provision as proposed. To ensure that the exclusion mirrors the loan-volume threshold for financial institutions in § 1003.2(g) and excludes transactions when that threshold is not met, § 1003.3(c)(11) must provide that a closed-end mortgage loan is an excluded transaction if a financial institution originated fewer than 25 closed-end mortgage loans in “either” of the two preceding calendar years.
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Using the word “each” would increase the reporting requirements for smaller volume financial institutions, as one commenter explained, but the decision regarding how to apply the thresholds was carefully considered and explained when the Bureau adopted the 2015 HMDA Final Rule,
93

and commenters have not provided a basis to restructure the two-year look-back period in a way that would avoid re-introducing the reporting uncertainty that the structure of the thresholds aims to eliminate. The April 2017 HMDA Proposal did not envision increasing small entity reporting requirements. In addition, the Bureau did not propose additional compliance examples, and does not believe they are needed at this time. With the change from “each” to “either,” the application of the thresholds and complementary exclusions should be much clearer than before.

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The preamble to the 2015 HMDA Final Rule reflected this intent: “The institutional and transactional coverage thresholds are designed to operate in tandem. Under these thresholds, a financial institution will report closed-end mortgage loans only if it satisfies the closed-end mortgage threshold and will report open-end lines of credit only if it satisfies the separate open-end credit threshold.” 2015 HMDA Final Rule, 80 FR 66128, 66149 (Oct. 28, 2015).

93

Id.
at 66150.

The Bureau also proposed a technical clarification to the example in comment 3(c)(11)-1 to describe more thoroughly the reporting requirements for financial institutions whose origination totals for the prior two years are above the threshold. The clarification would specify that the financial institution must report purchased loans, as well as originated loans and applications, as required by §§ 1003.4(a) and 1003.5(a). One commenter stated its support for the change, without further discussion, and no other commenters discussed it. The Bureau now adopts the clarification as proposed.

Optional Reporting

Although the 2015 HMDA Final Rule did not specifically state that optional reporting of the loans excluded by § 1003.3(c)(11) is allowed, comment 3(c)(11)-1 states that a financial institution that is below the 25-mortgage loan threshold “need not” report such loans, suggesting that it might choose to report them. The Bureau proposed to clarify further that it interprets the exclusion in § 1003.3(c)(11), providing that the requirements of Regulation C do not apply to a closed-end mortgage loan if the financial institution originated fewer than 25 closed-end mortgage loans in either of the two preceding calendar years, to permit a financial institution to report closed-end mortgage loans and applications for closed-end mortgage loans voluntarily. The Bureau also solicited comment on whether a financial institution that reports such transactions voluntarily should be required to report all such transactions, and whether the voluntary reporting provision should be included in the regulation text, as well as the commentary.

The Bureau received six comments discussing the voluntary reporting clarification. Four commenters expressed support for the provision and none expressed opposition. One commenter stated that voluntary reporting would reduce burden on smaller institutions. Another stated that voluntary reporting would allow financial institutions to prepare for implementation before they are required to report. A third commenter stated that a financial institution may prefer

voluntary reporting because it may continue to use the same compliance processes without incurring additional cost by switching implementation on and off from year to year, should its loan volumes vary above and below the threshold over time. However, one commenter stated that it did not believe that the information from voluntary reporting would be useful for fair lending analyses and that it would not itself choose to voluntarily report. Another commenter suggested that the Bureau explicitly state that the voluntary reporting provision includes and authorizes voluntary collection of demographic and other information. This commenter also requested that the Bureau clarify how the “permissible” collection of such information referenced in Regulation B relates to voluntary reporting. Regulation B generally prohibits the collection of certain consumer information unless such collection is required or permitted by law. The Bureau recently issued a proposed rule that would amend Regulation B.
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Under that proposal, proposed Regulation B § 1002.5(a)(4)(i) would permit certain voluntary collection of information as discussed in greater detail below.

94
Amendments to Equal Credit Opportunity Act (Regulation B) Ethnicity and Race Information Collection, 82 FR 16307 (Apr. 4, 2017).

Three commenters expressed support for the inclusion of a requirement that voluntary reporters report all the relevant excluded covered loans and applications. No commenters expressed opposition to including this requirement. One industry commenter stated that requiring the reporting of all excluded covered loans and applications would give financial institutions a more complete understanding of the HMDA requirements. A consumer advocacy group commenter stated that selective reporting of excluded transactions could hide fair lending violations and compromise CRA exams.

Two commenters expressed support for including the voluntary reporting provision in the regulation text rather than just the comment. No commenters expressed opposition. One of these commenters said that including the provision in the regulation text would avoid confusion, and the other stated that it would highlight the Bureau's demonstrated attempts to harmonize regulations to reduce obligations on smaller institutions.

The Bureau has considered the comments and is adopting the provision allowing optional reporting of the loans excluded by § 1003.3(c)(11) as proposed, and is placing it in the rule text with additional explanation in the commentary. Final § 1003.3(c)(11) includes new language stating that a financial institution may collect, record, report, and disclose information, as described in §§ 1003.4 and 1003.5, a closed-end mortgage loan that would otherwise be excluded under § 1003.3(c)(11) because of the threshold as though it is a covered loan, provided that the financial institution complies with such requirements for all applications for closed-end mortgage loans which it receives, closed-end mortgage loans that it originates, and closed-end mortgage loans that it purchases during the calendar year during which final action is taken on the closed-end mortgage loan. As noted above, the Bureau recently proposed to amend Regulation B to add § 1002.5(a)(4)(i), which would permit a creditor that is a financial institution under 12 CFR 1003.2(g) to collect information regarding the ethnicity, race, and sex of an applicant for a closed-end mortgage loan that is an excluded transaction under 12 CFR 1003.3(c)(11) if it submits HMDA data concerning such closed-end mortgage loans and applications or if it submitted HMDA data concerning closed-end mortgage loans for any of the preceding five calendar years. The Bureau is in the process of reviewing the comments and considering whether to issue a final rule, which the Bureau expects would be issued soon after the date this rule is issued. The Bureau may offer additional clarification about the relationship between permissible collection and reporting at that time.

The Bureau believes that the exclusion in § 1003.3(c)(11) (and, as discussed below, in § 1003.3(c)(12)), differs from the exclusions in § 1003.3(c)(1)-(10), and the new § 1003.3(c)(13), discussed below, because the applicability of the § 1003.3(c)(11) exclusion is not intrinsic to the loan. Whether the loan is excluded can be determined only by reference to the financial institution's origination activity over two years. The Bureau believes that financial institutions that choose to report when they are not required to, particularly when the institution's total of closed-end mortgage loans may fluctuate above or below the threshold, may reduce their regulatory burden by doing so. In addition, the Bureau believes that requiring financial institutions that choose to report such excluded loans to report all such covered loans and applications will help ensure the accuracy and usefulness of the HMDA data reported and prevent selective reporting that could disguise fair lending violations. The Bureau agrees that including the optional reporting provision in the regulation text will avoid confusion and facilitate compliance.

As discussed in the 2015 HMDA Final Rule, the Bureau adopted § 1003.2(g)(1) pursuant to its authority under section 305(a) of HMDA to provide for such adjustments and exceptions for any class of transactions that the Bureau judges are necessary and proper to effectuate the purposes of HMDA. Pursuant to section 305(a) of HMDA, for the reasons given in the 2015 HMDA Final Rule, the Bureau found that the exception in § 1003.2(g)(1) exception is necessary and proper to effectuate the purposes of HMDA. The Bureau found that by reducing burden on financial institutions and establishing a consistent loan-volume test applicable to all financial institutions, the provision will facilitate compliance with HMDA's requirements.
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As discussed in the 2015 HMDA Final Rule, the Bureau adopted § 1003.2(g)(2) pursuant to its interpretation of HMDA sections 303(3)(B) and 303(5), which require persons other than banks, savings associations, and credit unions that are “engaged for profit in the business of mortgage lending” to report HMDA data. The Bureau stated that it interprets these provisions, as the Board also did, to evince the intent to exclude from coverage institutions that make a relatively small volume of mortgage loans.
96

The Bureau implemented § 1003.3(c)(11) (and, for similar reasons, § 1003.3(c)(12), as discussed further below), because the Bureau does not believe that it is useful to burden such institutions with reporting closed-end mortgage data merely because their open-end lending exceeded the separate, open-end loan volume threshold in § 1003.2(g).
97

As discussed above, the Bureau believes that permitting optional reporting of these excluded loans by a financial institution is consistent with the statute and will reduce burden on certain financial institutions.

95
2015 HMDA Final Rule, 80 FR 66128, 66150 (Oct. 28, 2015).

96

Id.
at 66153.

97

Id.
at 66173.

In addition to the comments directly addressing the voluntary reporting provision, two commenters suggested that the Bureau provide a safe harbor in relation to voluntary reporting. One of these commenters stated that the Bureau should provide voluntary reporters a safe harbor or other relief from liability

under Regulation C. The other suggested that financial institutions should be given a safe harbor to collect demographic data if they are using the information for fair lending self-testing in accordance with Regulation B or the institution has met the reporting threshold in either of the previous two years.

The Bureau did not propose a safe harbor for voluntary reporters of excluded transactions below the origination threshold and therefore does not believe that adopting one in this final rule would be appropriate. A safe harbor may weaken the reliability of the data reported, and the Bureau has not had the benefit of notice and public comment in considering this complex issue.

3(c)(12)

As adopted in the 2015 HMDA Final Rule, § 1003.3(c)(12) provides an exclusion from the requirement to report open-end lines of credit for institutions that did not originate at least 100 such loans in each of the two preceding calendar years. This threshold was intended to complement an open-end reporting threshold included in the definition of financial institution in § 1003.2(g), which sets forth Regulation C's institutional coverage. The Bureau proposed amendments to § 1003(c)(12) and its commentary to raise temporarily the open-end threshold to 500 loans and to make the same clarifying amendments, including optional reporting, as in § 1003.3(c)(11), which addresses the reporting threshold for closed-end mortgage loans. The Bureau is finalizing the proposed amendments as discussed below.

Level of Threshold

Section 1003.3(c)(12), as adopted by the 2015 HMDA Final Rule, provides that an open-end line of credit is an excluded transaction, and thus not subject to Regulation C, if the financial institution originated fewer than 100 open-end lines of credit in each of the two preceding calendar years. As discussed in more detail in the section-by-section analysis of § 1003.3(c)(11) and further below, the exclusion as adopted in the 2015 HMDA Final Rule was intended to apply if the financial institution originated fewer than 100 open-end lines of credit in either of the two preceding calendar years.
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As discussed in more detail in the section-by-section analysis of § 1003.(2)(g), in the July 2017 HMDA Proposal, the Bureau proposed to raise temporarily the open-end threshold to 500 loans. The Bureau proposed conforming amendments to § 1003.3(c)(12) and comment 3(c)(12)-1, and to proposed new comment 3(c)(12)-2, which was included in the April 2017 HMDA Proposal, as discussed in more detail below, to provide guidance regarding voluntary reporting. Under proposed § 1003.3(c)(12), for calendar years 2018 and 2019, a financial institution that originated between 100 and 499 open-end lines of credit in either of the two preceding calendar years would not be required to begin collecting data on such open-end lines of credit before 2020. Comments regarding the proposed temporary adjustment to the open-end threshold are discussed in the section-by-section analysis of § 1003.2(g). For the reasons discussed in the section-by-section analysis of § 1003.2(g), the Bureau is adopting the amendments as proposed, increasing the open-end line of credit threshold to 500 for calendar years 2018 and 2019.

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As noted above and as explained in the April 2017 HMDA Proposal, under the institutional coverage threshold adopted by the 2015 HMDA Final Rule, the definition of financial institution included only institutions that originate either 25 or more closed-end mortgage loans or 100 or more open-end lines of credit in each of the two preceding calendar years and satisfy the other applicable coverage criteria. That threshold and the transactional coverage threshold in 12 CFR 1003.3(c)(11) and (12) were intended to be complementary exclusions. April 2017 HMDA Proposal, 82 FR 19142, 19149 (Apr. 25, 2017).

Optional Reporting and Other Technical and Clarifying Amendments

Section 1003.2(g), as adopted by the 2015 HMDA Final Rule, provides loan-volume thresholds, for closed-end mortgage loans and open-end lines of credit, for Regulation C's coverage of financial institutions. As discussed above, the 2015 HMDA Final Rule set the threshold for open-end lines of credit at 100 open-end lines originated in each of the two preceding calendar years. Section 1003.3(c)(12), as adopted by the 2015 HMDA Final Rule, provides an exclusion for loans below a given threshold, providing that an open-end line of credit is an excluded transaction if a financial institution originated fewer than 100 open-end lines of credit in each of the two preceding calendar years. The use of the word “each” in § 1003.3(c)(12) is a drafting error. For the same reason as described above in the section-by-section analysis of § 1003.3(c)(11), the Bureau proposed to amend § 1003.3(c)(12) and comment 3(c)(12)-1 by replacing the word “each” with “either” to clarify how a financial institution applies the exclusion. The Bureau is now adopting that correction. Comments generally discussing the proposed adjustment to the open-end threshold are discussed in the section-by-section analysis of § 1003.2(g). None of the comments received on the proposal to replace “each” with “either” differentiated between the § 1003.3(c)(11) closed-end mortgage loan exclusion explained above and the § 1003.3(c)(12) open-end line of credit exclusion, and the Bureau believes that the same reasoning applies to both.

Similarly, the Bureau adopts the clarification that would specify that the financial institution must report purchased loans, as well as originated loans and applications, as required by §§ 1003.4(a) and 1003.5(a), for the same reasons as described above in the section-by-section analysis of § 1003.3(c)(11).

As with the § 1003.3(c)(11) exclusion for closed-end mortgage loans, the Bureau proposed to clarify that it interprets the exclusion in § 1003.3(c)(12), now providing that the requirements of Regulation C do not apply to an open-end line of credit if the financial institution originated fewer than 500 open-end lines of credit in either of the two preceding calendar years, to permit a financial institution to report such open-end lines of credit and applications for open-end lines of credit voluntarily.

For the same reasons as explained above regarding the § 1003.3(c)(11) closed-end mortgage loan exclusion, the Bureau is adopting the provision allowing optional reporting of transactions excluded by § 1003.3(c)(12) by including language in the regulation text that states that a financial institution may collect and report data on such loans provided that it reports all open-end lines of credit and applications that would otherwise be covered loans for a given calendar year. None of the comments received on the issue of optional reporting differentiated between the § 1003.3(c)(11) closed-end mortgage loan exclusion explained above and the § 1003.3(c)(12) open-end line of credit exclusion, and the Bureau believes that the same reasoning applies to both.

3(c)(13)

Comment 2(d)-2.ii, as adopted by the 2015 HMDA Final Rule, provided a narrow exception to Regulation C's general rule that an extension of credit occurs only when a new debt obligation is created.
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The exception covers

transactions completed pursuant to a New York State consolidation, extension, and modification agreement and classified as a supplemental mortgage under New York Tax Law section 255, such that the borrower owes reduced or no mortgage recording taxes (New York CEMAs). To facilitate the newly required reporting of New York CEMAs, the Bureau proposed an exclusion from reporting for preliminary transactions that provide new funds that are then consolidated into New York CEMAs, as explained below, and an associated comment. The Bureau is adopting this provision largely as proposed, with language added to the associated comment to clarify use of the exclusion.

99
In the 2015 HMDA Final Rule, the Bureau adopted § 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. Revised comment 2(d)-2 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 revised Regulation C. In addition, revised comment 2(d)-2.i provided another exception, for assumptions, which Regulation C historically has covered. The Bureau is not making any change to the assumptions exception.

New York CEMAs are loans secured by dwellings located in New York. 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 a traditional refinancing, the existing debt obligation is not satisfied and replaced by a new obligation. Instead, the existing obligation or obligations are 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 through a preliminary credit transaction that then becomes part of the consolidation. Under New York State law, if no new money is added by a preliminary, subsequently consolidated 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 added through a preliminary transaction that then becomes part of the consolidated loan, the borrower pays mortgage recording taxes only on the new money.
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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 that the buyer is financing.

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See
N.Y. Tax Law section 255 (McKinney. 2004).

The Bureau explained in the 2015 HMDA Final Rule preamble that New York CEMAs are to be reported because the Bureau believed that they present a situation 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.
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Such transactions are relatively common in New York, and the Bureau believed that reporting of New York CEMAs would provide useful information about this segment of the market. The provision interpreting “extension of credit” to include New York CEMAs in comment 2(d)-2.ii as adopted by the 2015 HMDA Final Rule was meant to clarify the reporting requirements regarding New York CEMAs.

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2015 HMDA Final Rule, 80 FR 66128, 66143 (Oct. 28, 2015).

In treating New York CEMAs as extensions of credit, the 2015 HMDA Final Rule departed from prior guidance from the Board that CEMAs, which modify and consolidate existing debt while generally extending the loan term, were not covered transactions because they did not meet the definition of a refinancing.
102

Comment 2(d)-2.ii, as adopted by the 2015 HMDA Final Rule, explains that a New York CEMA should be considered an extension of credit for purposes of Regulation C, and a financial institution must report New York CEMAs if they are otherwise covered transactions. To facilitate the reporting of New York CEMAs, the Bureau's April 2017 HMDA Proposal would include an exclusion from reporting for preliminary transactions that provide new funds that are then consolidated into New York CEMAs, as explained above. The exception would further provide that the transaction is excluded only if final action on the consolidation was taken in the same calendar year as final action on the new funds.

102

See id.
at 66142.

Four commenters discussed the proposed exclusion. Three expressed support for the exclusion, and the fourth only objected to the proposed timing requirement, as discussed below. A consumer advocacy group commenter stated that the proposal would eliminate double counting and lead to a more accurate picture of how successful financial institutions are at meeting credit needs. Although they expressed support for the proposal, two industry commenters objected to the 2015 HMDA Final Rule's treatment of New York CEMAs as extensions of credit, and another requested that the proposed exclusion for preliminary transactions be expanded to include non-New York consolidations.

The Bureau has considered the comments and is adopting the proposed exclusion as proposed, with the clarifications discussed below. The Bureau is adopting the exclusion to simplify and clarify reporting requirements regarding transactions associated with New York CEMAs. As explained above, a borrower may enter into a CEMA that consolidates both the prior debt and new funds. The new funds are added through a preliminary credit transaction in which the borrower obtains an extension of credit providing only the new funds. Then, the CEMA consolidates the new-funds transaction with the original mortgage loan into a single loan. Because the initial transaction is an extension of credit, it would be reportable under revised Regulation C if it were otherwise a covered loan. Regarding New York CEMAs, this would lead to double reporting of the new funds, once through reporting of the preliminary transaction, and again through reporting of the full New York CEMA, which includes the new funds. The Bureau believes that such an outcome would elevate the form of the transaction over the substance of the resulting consumer indebtedness and could present challenges in interpreting the reported data. Therefore, the Bureau believes it is appropriate to require that only the New York CEMA,
i.e.,
the single, consolidated loan that results after both sequential transactions are completed, be reported. Insofar as a New York CEMA is the functional equivalent of a refinancing achieved by other means purely for tax reasons, a New York CEMA that consolidates a preliminary extension of new funds is generall

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2017-18284. Public record. Not legal advice.