# Home Mortgage Disclosure (Regulation C) > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A2019-08983 ## Record - **Collection:** Federal Register - **Document type:** Proposed Rule - **Published:** May 13, 2019 - **Citation:** 84 FR 20972 ## Text BUREAU OF CONSUMER FINANCIAL PROTECTION 12 CFR Part 1003 [Docket No. CFPB-2019-0021] RIN 3170-AA76 Home Mortgage Disclosure (Regulation C) AGENCY: Bureau of Consumer Financial Protection. ACTION: Proposed rule with request for public comment. SUMMARY: The Bureau of Consumer Financial Protection (Bureau) is proposing two alternatives to amend Regulation C to increase the threshold for reporting data about closed-end mortgage loans so that institutions originating fewer than either 50 closed-end mortgage loans, or alternatively 100 closed-end mortgage loans, in either of the two preceding calendar years would not have to report such data as of January 1, 2020. The proposed rule would also adjust the threshold for reporting data about open-end lines of credit by extending to January 1, 2022, the current temporary threshold of 500 open-end lines of credit and setting the threshold at 200 open-end lines of credit upon the expiration of the proposed extension of the temporary threshold. The Bureau is also proposing to incorporate into Regulation C the interpretations and procedures from the interpretive and procedural rule that the Bureau issued on August 31, 2018, and to implement further section 104(a) of the Economic Growth, Regulatory Relief, and Consumer Protection Act. DATES: Comments on the proposed rule must be received on or before June 12, 2019, except that comments on the Paperwork Reduction Act analysis in part VIII of the Supplementary Information must be received on or before July 12, 2019. ADDRESSES: You may submit responsive information and other comments, identified by Docket No. CFPB-2019-0021 or RIN 3170-AA76, by any of the following methods: • Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions for submitting comments. • Email: 2019-NPRM-HMDAThresholds@cfpb.gov. Include Docket No. CFPB-2019-0021 or RIN 3170-AA76 in the subject line of the message. • Mail: Comment Intake, Bureau of Consumer Financial Protection, 1700 G Street NW, Washington, DC 20552. • Hand Delivery/Courier: Comment Intake, Bureau of Consumer Financial Protection, 1700 G Street NW, Washington, DC 20552. Instructions: The Bureau encourages the early submission of comments. All submissions should include the agency name and docket number or Regulatory Information Number (RIN) for this rulemaking. Because paper mail in the Washington, DC area and at the Bureau is subject to delay, commenters are encouraged to submit comments electronically. In general, all comments received will be posted without change to http://www.regulations.gov. In addition, comments will be available for public inspection and copying at 1700 G Street NW, Washington, DC 20552, on official business days between the hours of 10:00 a.m. and 5:00 p.m. Eastern Time. You can make an appointment to inspect the documents by telephoning 202-435-7275. All comments, including attachments and other supporting materials, will become part of the public record and subject to public disclosure. Proprietary information or sensitive personal information, such as account numbers or Social Security numbers, or names of other individuals, should not be included. Comments will not be edited to remove any identifying or contact information. FOR FURTHER INFORMATION CONTACT: Jaydee DiGiovanni or Shaakira Gold-Ramirez, Counsels; or Amanda Quester or Alexandra Reimelt, Senior Counsels, Office of Regulations, at 202-435-7700 or https://reginquiries.consumerfinance.gov/. If you require this document in an alternative electronic format, please contact CFPB_Accessibility@cfpb.gov. SUPPLEMENTARY INFORMATION: I. Summary Regulation C, 12 CFR part 1003, implements the Home Mortgage Disclosure Act (HMDA), 12 U.S.C. 2801 through 2810, and includes institutional and transactional coverage thresholds that determine whether financial institutions are required to collect, record, and report any HMDA data on closed-end mortgage loans or open-end lines of credit (collectively, coverage thresholds). 1 In the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA), 2 Congress added partial exemptions from HMDA's requirements that exempt certain insured depository institutions and insured credit unions from reporting some but not all HMDA data for certain transactions. The proposed rule both adjusts Regulation C's institutional and transactional coverage thresholds and implements the new, separate EGRRCPA partial exemptions. 3 1 HMDA requires financial institutions to collect, record, and report data. To simplify review of this document, the Bureau generally refers herein to the obligation to report data instead of listing all of these obligations in each instance. 2 Public Law 115-174, 132 Stat. 1296 (2018). 3 When amending commentary, the Office of the Federal Register requires reprinting of certain subsections being amended in their entirety rather than providing more targeted amendatory instructions. The sections of regulatory text and commentary included in this document show the language of those sections if the Bureau adopts its changes as proposed. In addition, the Bureau is releasing an unofficial, informal redline to assist industry and other stakeholders in reviewing the changes that it is proposing to make to the regulatory text and commentary of Regulation C. This redline can be found on the Bureau's regulatory implementation page for the HMDA Rule at https://www.consumerfinance.gov/policy-compliance/guidance/hmda-implementation/. If any conflicts exist between the redline and the text of Regulation C or this proposal, the documents published in the Federal Register and the Code of Federal Regulations are the controlling documents. Coverage thresholds adjustments: In an October 2015 final rule (2015 HMDA Rule), the Bureau established institutional and transactional coverage thresholds in Regulation C, and these thresholds affect whether a financial institution needs to report any information under HMDA for a transaction. 4 The 2015 HMDA Rule set the closed-end threshold at 25 loans in each of the two preceding calendar years, and the open-end threshold at 100 open-end lines of credit in each of the two preceding calendar years. In 2017, the Bureau temporarily increased the open-end threshold to 500 open-end lines of credit for two years (calendar years 2018 and 2019). The proposed rule provides two alternatives that would permanently raise the closed-end institutional and transactional coverage threshold to either 50 or 100 closed-end mortgage loans in each of the preceding two calendar years. The proposed rule would also extend to January 1, 2022, the current temporary threshold of 500 open-end lines of credit for open-end institutional and transactional coverage. Once that temporary extension expires, the proposed rule would set the open-end threshold permanently at 200 open-end lines of credit in each of the preceding two calendar years. The Bureau is proposing that the change to the closed-end coverage threshold and the temporary extension of the open-end coverage threshold would take effect on January 1, 2020, and the increase in the open-end coverage threshold to 200 open-end lines of credit would take effect on January 1, 2022. 4 Home Mortgage Disclosure (Regulation C), 80 FR 66128 (Oct. 28, 2015). Implementation of partial exemptions: The proposed rule also implements the partial exemptions from HMDA's requirements that the EGRRCPA recently added to HMDA. In August 2018, the Bureau issued an interpretive and procedural rule to implement and clarify the EGRRCPA amendments to HMDA (2018 HMDA Rule). 5 The 2018 HMDA Rule clarifies that insured depository institutions and insured credit unions covered by a partial exemption have the option of reporting exempt data fields as long as they report all data fields within any exempt data point for which they report data; clarifies that only loans and lines of credit that are otherwise HMDA reportable count toward the thresholds for the partial exemptions; clarifies which of the data points in Regulation C are covered by the partial exemptions; designates a non-universal loan identifier for partially exempt transactions for institutions that choose not to report a universal loan identifier; and clarifies the exception to the partial exemptions for insured depository institutions with less than satisfactory examination histories under the Community Reinvestment Act of 1977 (CRA). The proposed rule incorporates into Regulation C these interpretations and procedures, with minor adjustments, by adding new § 1003.3(d) relating to the partial exemptions and making various amendments to the data compilation requirements in § 1003.4. The proposed rule further implements the EGRRCPA by addressing certain additional interpretive issues relating to the partial exemptions that the 2018 HMDA Rule did not specifically address, such as how to determine whether a partial exemption applies to a transaction after a merger or acquisition. The Bureau is proposing that the amendments implementing the EGRRCPA would take effect on January 1, 2020. 5 Partial Exemptions from the Requirements of the Home Mortgage Disclosure Act Under the Economic Growth, Regulatory Relief, and Consumer Protection Act (Regulation C), 83 FR 45325 (Sept. 7, 2018). II. Background A. HMDA and Regulation C HMDA requires certain depository institutions and for-profit nondepository institutions to report 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). The purposes of HMDA are to provide the public with loan data that can be used: (i) To help determine whether financial institutions are serving the housing needs of their communities; (ii) to assist public officials in distributing public-sector investment so as to attract private investment to areas where it is needed; and (iii) to assist in identifying possible discriminatory lending patterns and enforcing antidiscrimination statutes. 6 Prior to enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), Regulation C required reporting of 22 data points and allowed for optional reporting of reasons an institution denied an application. 7 6 12 CFR 1003.1. 7 As used in this proposed rule, the term “data point” refers to items of information that entities are required to compile and report, generally listed in separate paragraphs in Regulation C. Some data points are reported using multiple data fields. B. Dodd-Frank Act In 2010, Congress enacted the Dodd-Frank Act, which amended HMDA and transferred HMDA rulemaking authority and other functions from the Board of Governors of the Federal Reserve System (Board) to the Bureau. 8 Among other changes, the Dodd-Frank Act expanded the scope of information relating to mortgage applications and loans that institutions must compile, maintain, and report under HMDA. Specifically, the Dodd-Frank Act amended HMDA section 304(b)(4) by adding one new data point, the age of loan applicants and mortgagors. The Dodd-Frank Act also added new HMDA section 304(b)(5) and (6), which requires the following additional new data points: Information relating to the total points and fees payable at origination (total loan costs or total points and fees); the difference between the annual percentage rate (APR) associated with the loan and a benchmark rate or rates for all loans (rate spread); 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 on the loan; the presence of contract terms allowing non-amortizing payments; the channel through which the application was made; and the credit scores of applicants and mortgagors. 9 New HMDA section 304(b)(6) in addition authorizes the Bureau to require, “as [it] may determine to be appropriate,” a unique identifier that identifies the loan originator, a universal loan identifier (ULI), and the parcel number that corresponds to the real property pledged as collateral for the mortgage loan. 10 New HMDA section 304(b)(5)(D) and (6)(J) further provides the Bureau with the authority to mandate reporting of “such other information as the Bureau may require.” 11 8 Public Law 111-203, 124 Stat. 1376, 1980, 2035-38, 2097-101 (2010). 9 Dodd-Frank Act section 1094(3), amending HMDA section 304(b), 12 U.S.C. 2803(b). 10 Id. 11 Id. C. 2015 HMDA Rule In October 2015, the Bureau issued the 2015 HMDA Rule implementing the Dodd-Frank Act amendments to HMDA. 12 Most of the 2015 HMDA Rule took effect on January 1, 2018. 13 The 2015 HMDA Rule implemented the new data points specified in the Dodd-Frank Act, 14 added a number of additional data points pursuant to the Bureau's discretionary authority under HMDA section 304(b)(5) and (6), 15 and made revisions to certain pre-existing data points to clarify their requirements, provide greater specificity in reporting, and align certain data points more closely with industry data standards, 16 among other changes. 12 80 FR 66128 (Oct. 28, 2015). 13 Id. at 66128, 66256-58. 14 The following 12 data points in 12 CFR 1003.4(a) implement specific provisions in HMDA section 304(b)(5)(A) through (C) or (b)(6)(A) through (I): ULI (1003.4(a)(1)(i)); property address (1003.4(a)(9)(i)); rate spread (1003.4(a)(12)); credit score (1003.4(a)(15)); total loan costs or total points and fees (1003.4(a)(17)); prepayment penalty term (1003.4(a)(22)); loan term (1003.4(a)(25)); introductory rate period (1003.4(a)(26)); non-amortizing features (1003.4(a)(27)); property value (1003.4(a)(28)); application channel (1003.4(a)(33)); and mortgage loan originator identifier (1003.4(a)(34)). Id. 15 For example, the 2015 HMDA Rule added a requirement to report debt-to-income ratio in § 1003.4(a)(23). Id. at 66218-20. 16 For example, the 2015 HMDA Rule replaced property type with number of total units and construction method in § 1003.4(a)(5) and (31). Id. at 66180-81, 66227. It also requires disaggregation of ethnicity and race information in § 1003.4(a)(10)(i). Id. at 66187-94. The 2015 HMDA Rule requires some financial institutions to report data on certain dwelling-secured, open-end lines of credit, including home-equity lines of credit. Prior to the 2015 HMDA Rule, Regulation C allowed, but did not require, reporting of home-equity lines of credit. The 2015 HMDA Rule also established institutional coverage thresholds based on loan volume that limit the definition of “financial institution” to include only those institutions that either originated at least 25 closed-end mortgage loans in each of the two preceding calendar years or originated at least 100 open-end lines of credit in each of the two preceding calendar years. 17 The 2015 HMDA Rule separately established transactional coverage thresholds that are part of the test for determining which loans are excluded from coverage and were designed to work in tandem with the institutional coverage thresholds. 18 17 Id. at 66148-50, 66309 (codified at 12 CFR 1003.2(g)(1)(v)). The 2015 HMDA Rule excludes certain transactions from the definition of covered loans, and those excluded transactions do not count towards the threshold. Id. 18 Id. at 66173, 66310, 66322 (codified at 12 CFR 1003.3(c)(11) and (12)). D. 2017 HMDA Rule and December 2017 Statement In April 2017, the Bureau issued a notice of proposed rulemaking to address certain technical errors in the 2015 HMDA Rule, ease the burden of reporting certain data requirements, and clarify key terms to facilitate compliance with Regulation C. 19 In July 2017, the Bureau issued a notice of proposed rulemaking (July 2017 HMDA Proposal) to increase temporarily the 2015 HMDA Rule's open-end coverage threshold of 100 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 to commence collecting or reporting data on their open-end lines of credit until January 1, 2020. 20 In August 2017, the Bureau issued the 2017 HMDA Rule, which, inter alia, temporarily increased the open-end threshold to 500 open-end lines of credit for calendar years 2018 and 2019. 21 In doing so, the Bureau indicated that the two-year period would allow time for the Bureau to decide, through an additional rulemaking, whether any permanent adjustments to the open-end threshold are needed. 22 19 Technical Corrections and Clarifying Amendments to the Home Mortgage Disclosure (Regulation C) October 2015 Final Rule, 82 FR 19142 (Apr. 25, 2017). 20 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). 21 Home Mortgage Disclosure (Regulation C), 82 FR 43088 (Sept. 13, 2017). 22 Id. at 43095. The 2017 HMDA Rule also, among other things, replaced “each” with “either” in § 1003.3(c)(11) and (12) to correct a drafting error and to ensure that the exclusion provided in that section mirrors the loan-volume threshold for financial institutions in § 1003.2(g). Id. at 43100, 43102. Recognizing the significant systems and operations challenges needed to adjust to the revised regulation, the Bureau issued a statement in December 2017 (December 2017 Statement) indicating that, for HMDA data collected in 2018 and reported in 2019, the Bureau does not intend to require data resubmission unless data errors are material. 23 The December 2017 Statement also explained that the Bureau does not intend to assess penalties with respect to errors in data collected in 2018 and reported in 2019. 24 As explained in the statement, any supervisory examinations of 2018 HMDA data would be diagnostic to help institutions identify compliance weaknesses and would credit good-faith compliance efforts. In its December 2017 Statement, the Bureau indicated that it intended to engage in a rulemaking to reconsider various aspects of the 2015 HMDA Rule, such as the institutional and transactional coverage tests and the rule's discretionary data points. The Board, the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), and the Office of the Comptroller of the Currency (OCC) released similar statements relating to their supervisory examinations. 25 23 Bureau of Consumer Fin. Prot., “Statement with Respect to HMDA Implementation” (Dec. 21, 2017), https://files.consumerfinance.gov/f/documents/cfpb_statement-with-respect-to-hmda-implementation_122017.pdf. 24 The statement also indicated that collection and submission of the 2018 HMDA data will provide financial institutions an opportunity to identify any gaps in their implementation of amended Regulation C and make improvements in their HMDA compliance management systems for future years. Id. 25 As part of its spring 2018 Call for Evidence series of Requests for Information, the Bureau issued a Request for Information Regarding the Bureau's Adopted Regulations and New Rulemaking Authorities, 83 FR 12286 (Mar. 21, 2018) (RFI on Adopted Regulations) and a Request for Information Regarding the Bureau's Inherited Regulations and Inherited Rulemaking Authorities, 83 FR 12881 (Mar. 26, 2018). The RFI on Adopted Regulations did not request feedback on the 2015 HMDA Rule nor that rule's subsequent amendments because the Bureau had previously announced in the December 2017 Statement that it intended to engage in a rulemaking process to reconsider the 2015 HMDA Rule. However, as noted below in the section-by-section analysis of § 1003.2(g)(1)(v) in part IV, the Bureau received a few comments relating to HMDA in response to the RFI on Adopted Regulations. The Bureau has considered these comments as well as other input it has received from stakeholders through its efforts to monitor and support industry implementation of the 2015 HMDA Rule and the 2017 HMDA Rule in developing this proposal and the Advance Notice of Proposed Rulemaking that the Bureau released simultaneously with this proposal. The Advance Notice of Proposed Rulemaking (FR Doc. 2019-08979) published in the Federal Register on May 8, 2019. E. EGRRCPA and 2018 HMDA Rule On May 24, 2018, the President signed into law the EGRRCPA. 26 Section 104(a) of the EGRRCPA amends HMDA section 304(i) by adding partial exemptions from HMDA's requirements for certain insured depository institutions and insured credit unions. 27 New HMDA section 304(i)(1) provides that the requirements of HMDA section 304(b)(5) and (6) shall not apply with respect to closed-end mortgage loans of an insured depository institution or insured credit union if it originated fewer than 500 closed-end mortgage loans in each of the two preceding calendar years. New HMDA section 304(i)(2) provides that the requirements of HMDA section 304(b)(5) and (6) shall not apply with respect to open-end lines of credit of an insured depository institution or insured credit union if it originated fewer than 500 open-end lines of credit in each of the two preceding calendar years. Notwithstanding the new partial exemptions, new HMDA section 304(i)(3) provides that an insured depository institution must comply with HMDA section 304(b)(5) and (6) if it has received a rating of “needs to improve record of meeting community credit needs” during each of its two most recent examinations or a rating of “substantial noncompliance in meeting community credit needs” on its most recent examination under section 807(b)(2) of the CRA. 28 26 Public Law 115-174, 132 Stat. 1296 (2018). 27 For purposes of HMDA section 104, the EGRRCPA provides that the term “insured credit union” has the meaning given the term in section 101 of the Federal Credit Union Act, 12 U.S.C. 1752, and the term “insured depository institution” has the meaning given the term in section 3 of the Federal Deposit Insurance Act, 12 U.S.C. 1813. 28 12 U.S.C. 2906(b)(2). On August 31, 2018, the Bureau issued an interpretive and procedural rule (2018 HMDA Rule) to implement and clarify section 104(a) of the EGRRCPA and effectuate the purposes of the EGRRCPA and HMDA. 29 The 2018 HMDA Rule clarifies that insured depository institutions and insured credit unions covered by a partial exemption have the option of reporting exempt data fields as long as they report all data fields within any exempt data point for which they report data; clarifies that only loans and lines of credit that are otherwise HMDA reportable count toward the thresholds for the partial exemptions; clarifies which of the data points in Regulation C are covered by the partial exemptions; designates a non-universal loan identifier for partially exempt transactions for institutions that choose not to report a ULI; and clarifies the exception to the partial exemptions for insured depository institutions with less than satisfactory CRA examination histories. The 2018 HMDA Rule also explains that, because the EGRRCPA does not provide a specific effective date for section 104(a) and because there are no other statutory indications that section 104(a) becomes effective upon regulatory action or some other event or condition, the best interpretation is that section 104(a) took effect when the EGRRCPA became law on May 24, 2018. In the 2018 HMDA Rule, the Bureau stated that it anticipated that, at a later date, it would initiate a notice-and-comment rulemaking to incorporate the interpretations and procedures into Regulation C and further implement the EGRRCPA. This proposal commences that rulemaking. The Bureau also issued concurrently an Advance Notice of Proposed Rulemaking to solicit comment, data, and information from the public about the data points that the 2015 HMDA Rule added to Regulation C or revised to require additional information and Regulation C's coverage of certain business- or commercial-purpose transactions. The Advance Notice of Proposed Rulemaking (FR Doc. 2019-08979) published in the Federal Register on May 8, 2019. 29 83 FR 45325 (Sept. 7, 2018). Prior to issuing the 2018 HMDA Rule, the Bureau, the Board, the FDIC, the NCUA, and the OCC released statements on July 5, 2018, reiterating or referring to their December 2017 compliance statements and providing information about formatting and submission of 2018 loan/application registers. See, e.g., Bureau of Consumer Fin. Prot., “Statement on the Implementation of the Economic Growth, Regulatory Relief, and Consumer Protection Act Amendments to the Home Mortgage Disclosure Act” (July 25, 2018), https://www.consumerfinance.gov/about-us/newsroom/bureau-consumer-financial-protection-issues-statement-implementation-economic-growth-regulatory-relief-and-consumer-protection-act-amendments-home-mortgage-disclosure-act/. F. HMDA Coverage Under Current Regulation C The Bureau's estimates of HMDA coverage and the sources used in deriving those estimates are explained in detail in the Bureau's analysis under Dodd-Frank Act section 1022(b) in part VI below. 30 As explained in more detail in part VI.E.3 and table 3 below, the Bureau estimates that currently there are about 4,960 financial institutions required to report their closed-end mortgage loans and applications under HMDA. The Bureau estimates that approximately 4,263 of these current reporters are depository institutions and approximately 697 are non-depository institutions. The Bureau estimates that together, these financial institutions originated about 7.0 million closed-end mortgage loans in calendar year 2017. The Bureau estimates that among those 4,960 financial institutions that are currently required to report closed-end mortgage loans under HMDA, about 3,300 insured depository institutions and insured credit unions are partially exempt for closed-end mortgage loans under the EGRRCPA and the 2018 HMDA Rule, and thus are not required to report a subset of the data points currently required by Regulation C for these transactions. 30 See infra part VI.D.1 & n.155. As explained in more detail in part VI.E.4 and table 4 below, under the temporary 500 open-end line of credit coverage threshold set in the 2017 HMDA Rule, the Bureau estimates that currently there are about 333 financial institutions required to report about 1.23 million open-end lines of credit under HMDA. Of these institutions, approximately 318 are depository institutions and approximately 15 are nondepository institutions. None of these 333 institutions are partially exempt. In comparison, if the open-end coverage threshold adjusts to 100 on January 1, 2020 pursuant to the 2017 HMDA Rule, the Bureau estimates that the number of reporters would be about 1,014, who in total originate about 1.41 million open-end lines of credit. The Bureau estimates that approximately 972 of these open-end reporters would be depository institutions and approximately 42 would be nondepository institutions. The Bureau estimates that, among the 1,014 financial institutions that would be required to report open-end lines of credit under a threshold of 100, about 618 insured depository institutions and insured credit unions are partially exempt for open-end lines of credit under the EGRRCPA and the 2018 HMDA Rule, and thus would not be required to report a subset of the data points currently required by Regulation C for these transactions. III. Legal Authority The Bureau is issuing this proposal pursuant to its authority under the Dodd-Frank Act and HMDA. Section 1061 of the Dodd-Frank Act transferred to the Bureau the “consumer financial protection functions” previously vested in certain other Federal agencies, including the Board. 31 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.” 32 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.” 33 Both HMDA and title X of the Dodd-Frank Act are Federal consumer financial laws. 34 Accordingly, the Bureau has authority to issue regulations to implement HMDA. 31 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. 32 12 U.S.C. 5581(a)(1)(A). 33 12 U.S.C. 5512(b)(1). 34 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. 35 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. 36 35 12 U.S.C. 2804(a). 36 Id. IV. Section-by-Section Analysis Section 1003.2 Definitions 2(g) Financial Institution Regulation C requires financial institutions to report HMDA data. Section 1003.2(g) defines financial institution for purposes of Regulation C and sets forth Regulation C's institutional coverage criteria for depository financial institutions and nondepository financial institutions. 37 In the 2015 HMDA Rule, the Bureau adjusted the institutional coverage criteria under Regulation C so that depository institutions and nondepository institutions are required to report HMDA data if they: (1) Originated at least 25 closed-end mortgage loans or 100 open-end lines of credit in each of the two preceding calendar years, and (2) meet all of the other applicable criteria for reporting. In the 2017 HMDA Rule, the Bureau amended § 1003.2(g) and related commentary to increase temporarily from 100 to 500 the number of open-end originations required to trigger reporting responsibilities. 38 For the reasons discussed below, the Bureau proposes (1) to amend §§ 1003.2(g)(1)(v)(A) and (g)(2)(ii)(A) and 1003.3(c)(11) and related commentary to raise the closed-end coverage threshold to either 50 or 100 closed-end mortgage loans, and (2) to amend §§ 1003.2(g)(1)(v)(B) and (g)(2)(ii)(B) and 1003.3(c)(12) and related commentary to extend to January 1, 2022, the current temporary open-end coverage threshold of 500 open-end lines of credit and then to set the threshold permanently at 200 open-end lines of credit beginning in calendar year 2022. The Bureau is also seeking comment on whether other closed- and open-end coverage thresholds may be appropriate. These proposed changes are discussed below in the order in which they appear in the proposed regulation text and commentary. 37 12 CFR 1003.2(g)(1) (definition of depository financial institution); § 1003.2(g)(2) (definition of nondepository financial institution). 38 82 FR 43088, 43095 (Sept. 13, 2017). In the 2015 HMDA Rule, the Bureau adopted the thresholds for certain depository institutions in § 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 in the judgment of the Bureau 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 Rule, the Bureau found that the exception in § 1003.2(g)(1) is necessary and proper to effectuate the purposes of and facilitate compliance with HMDA. The Bureau found that the provision, by reducing burden on financial institutions and establishing a consistent loan-volume test applicable to all financial institutions, would facilitate compliance with HMDA's requirements. 39 Additionally, as discussed in the 2015 HMDA Rule, the Bureau adopted the thresholds for certain nondepository institutions in § 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 number of mortgage loans. 40 Pursuant to its authority under HMDA section 305(a), and for the reasons discussed below, the Bureau believes that the proposed threshold changes in § 1003.2(g)(1) and (2) would be necessary and proper to effectuate the purposes of HMDA and facilitate compliance with HMDA by reducing burden and establishing a consistent loan-volume test. 39 80 FR 66128, 66150 (Oct. 28, 2015). 40 Id. at 66153. 2(g)(1) Depository Financial Institution 2(g)(1)(v) 2(g)(1)(v)(A) Closed-End Mortgage Loan Threshold for Institutional Coverage of Depository Institutions HMDA and its implementing regulation, Regulation C, require certain depository institutions (banks, savings associations, and credit unions) to report 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). In the 2015 HMDA Rule, the Bureau added the 25 closed-end coverage threshold to the preexisting regulatory coverage scheme for depository institutions. 41 In adopting this threshold, the Bureau stated that it believed that the institutional coverage criteria should balance the burden on financial institutions of reporting HMDA data against the value of the data reported and that a threshold should be set that did not impair HMDA's ability to achieve its purposes but also did not impose burden on institutions if their data are of limited value. 42 41 Prior to the 2015 HMDA Rule, a bank, savings association, or credit union was covered under Regulation C if: (1) On the preceding December 31, it satisfied an asset-size threshold; (2) on the preceding December 31, it had a home or branch office in a Metropolitan Statistical Area (MSA); (3) during the previous calendar year, it originated at least one home purchase loan or refinancing of a home purchase loan secured by a first lien on a one- to four-unit dwelling; and (4) the institution is federally insured or regulated, or the mortgage loan referred to in item (3) was insured, guaranteed, or supplemented by a Federal agency or intended for sale to the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation. 12 CFR 1003.2 (2016). 42 80 FR 66128, 66147 (Oct. 28, 2015). In the 2015 HMDA Rule, the Bureau also stated that in adopting the 25 closed-end coverage threshold, it would meaningfully reduce burden by relieving an estimated 1,400 depository institutions, or 22 percent of depository institutions that previously reported HMDA data, of their obligations to report HMDA data on closed-end mortgage loans. 43 The Bureau acknowledged that it would be possible to maintain reporting of a significant percentage of the national mortgage market with a closed-end coverage threshold set higher than 25 loans annually and that data reported by some institutions that would satisfy the 25 closed-end coverage threshold may not be as useful for statistical analysis as data reported by institutions with much higher loan volumes. 44 However, the Bureau determined that a higher closed-end coverage threshold would have a material negative impact on the availability of data about patterns and trends at the local level and the data about local communities are essential to achieve HMDA's purposes. 45 The Bureau concluded that, if it were to set the closed-end coverage threshold higher than 25, the resulting loss of data at the local level would substantially impede the public's and public officials' ability to understand access to credit in their communities. 46 43 Id. at 66148, 66277. 44 Id. at 66147. 45 Id. 46 Id. at 66148. However, since issuing the 2015 HMDA Rule and 2017 HMDA Rule, the Bureau has heard concerns that lower-volume institutions continue to experience significant burden at the 25 closed-end coverage threshold. 47 Various industry stakeholders have advocated for an increase to the coverage threshold in order to reduce burden on additional lower-volume financial institutions. For example, although the 2015 HMDA Rule was outside the scope of the Bureau's 2018 Request for Information Regarding the Bureau's Adopted Regulations and New Rulemaking Authorities (RFI on Adopted Regulations), 48 several depository institutions recommended in that context that the Bureau use its exemption authority to increase the 25-loan closed-end coverage threshold and stated that the costs associated with HMDA reporting and its impact on the operations of lower-volume financial institutions do not justify the small amount of data such institutions would report. The closed-end coverage threshold should not be so high as to impair HMDA's ability to achieve its purposes; however, the threshold should not be so low that institutions bear the burden of reporting data that would be of limited value. In light of the recent concerns expressed by industry stakeholders regarding the considerable burden associated with reporting the new data points required by the 2015 HMDA Rule on closed-end mortgage loans, the Bureau is reconsidering whether the current 25-loan closed-end coverage threshold for depository institutions appropriately balances the benefits of the HMDA data reported by lower-volume depository institutions in furthering HMDA's purposes with the burden on such institutions associated with reporting closed-end data. The Bureau believes that increasing the closed-end coverage threshold may provide meaningful burden relief for lower-volume depository institutions without reducing substantially the data reported under HMDA. Accordingly, based on its evaluation of more recent available data, the Bureau is proposing two alternative increases to the closed-end coverage threshold and seeking comment on whether either of these alternatives, or some other alternative, would more appropriately balance the benefits and burdens of covering institutions based on their closed-end lending. 47 The Bureau temporarily raised the threshold for open-end lines of credit in the 2017 HMDA Rule because of concerns that the Bureau may have underestimated in the 2015 HMDA Rule the number of institutions that would be required to report open-end lines of credit under the threshold adopted and that it also may have underestimated the cost of reporting. However, the Bureau declined to raise the threshold for closed-end mortgage loans and stated that in developing the 2015 HMDA Rule, it had robust data to make a determination about the number of transactions that would be reported at the 25 closed-end coverage threshold as well as the one-time and ongoing costs to industry. 82 FR 43088, 43095-96 (Sept. 13, 2017). 48 83 FR 12286, 12288 (Mar. 21, 2018). The Bureau recognizes that in the EGRRCPA, Congress provided a partial exemption to institutions that would be affected by this proposed increase to the threshold so that the benefit in terms of reduced burden would be less than it would have been absent the EGRRCPA. Even so, the Bureau believes that, for the depository institutions that would be relieved of all reporting obligations under either of the alternatives in this proposal, the burden reduction would be substantial and would outweigh the limited value of their data in achieving HMDA's purposes. The Bureau has also heard feedback suggesting that—consistent with its own estimates—a modest increase in the closed-end coverage threshold likely would have very little impact on the overall HMDA data, because the amount of data reported by the lower-volume depository institutions that would be excluded at such a higher threshold is insignificant as compared to the total HMDA data reported annually. The Bureau now believes a higher closed-end coverage threshold may more appropriately balance the burden on lower-volume depository institutions while at the same time maintaining sufficient reporting to achieve HMDA's purposes. As discussed below, the Bureau is proposing two alternatives to the closed-end coverage threshold. These proposed alternatives would maintain a uniform loan-volume threshold for depository and nondepository institutions. 49 Alternative 1 proposes to set the closed-end coverage threshold at 50 while Alternative 2 proposes to set the closed-end coverage threshold at 100. The Bureau reviewed multiple data sources, including recent HMDA data 50 and Reports of Condition and Income (Call Reports) and developed estimates for each proposal as described below. 51 49 For a discussion on the proposed closed-end coverage threshold for nondepository institutions, see the section-by-section analysis of § 1003.2(g)(2)(ii)(A) below. 50 As discussed further in the analysis under Dodd-Frank Act section 1022(b) in part VI, note 155, these estimates are based on HMDA data collected in 2016 and 2017 and other sources. The Bureau intends to review the 2018 HMDA data more closely in connection with this rulemaking once the 2018 submissions are more complete. 51 The estimates described in each alternative proposal in this section cover only depository institutions. Estimates for nondepository institutions are described in the section-by-section analysis of § 1003.2(g)(2)(ii)(A). For estimates that are comprehensive of depository and nondepository institutions, see part VI.E.3 below. Alternative 1: Threshold Set at 50 The Bureau estimates that if the closed-end coverage threshold were increased from 25 to 50 loans, approximately 3,518 out of approximately 4,263 depository institutions covered under the current rule (or approximately 83 percent) would continue to be required to report HMDA data on closed-end mortgage loans. Approximately 745 depository institutions covered under the current rule (or approximately 17 percent) would be relieved of their HMDA reporting responsibilities for closed-end mortgage loans. Further, the Bureau estimates that, with the proposed increase from 25 to 50 loans in the closed-end coverage threshold, about 99 percent of total originations of closed-end mortgage loans reported by depository institutions under the current Regulation C coverage criteria, or approximately 3.54 million closed-end mortgage loan originations under the current market conditions, would continue to be reported. The Bureau noted in the 2015 HMDA Rule that any loan-volume threshold will affect individual markets differently, depending on the extent to which smaller creditors service individual markets and the market share of those creditors. In the 2015 HMDA Rule, the Bureau examined the extent to which varying thresholds would cause a loss of data at the census tract level. For this proposal the Bureau also reviewed estimates at varying closed-end coverage thresholds to examine the potential effect on available data at the census tract level. 52 The Bureau estimates that, with the proposed increase to the closed-end coverage threshold from 25 to 50, just under 300 out of approximately 74,000 total census tracts, or less than one-half of 1 percent of the total number of census tracts, would lose at least 20 percent of reportable HMDA data on closed-end mortgage loans relative to the current threshold. 53 With respect to low-to-moderate income census tracts, the Bureau estimates that relative to the current threshold, there would be at least a 20 percent loss of reportable HMDA data on closed-end mortgage loans in less than 1 percent of such tracts if the closed-end coverage threshold were increased from 25 to the proposed 50. In addition, the Bureau examined the effects on rural census tracts and estimates that relative to the current threshold, there would be at least a 20 percent loss of reportable HMDA data on closed-end mortgage loans in less than one-half of 1 percent of such tracts. 52 The estimates of the effect on reportable HMDA data at the census tract level comprise both depository institutions and nondepository institutions. The effect of a closed-end coverage threshold set at 100 on reportable HMDA data at the census tract level is discussed in Alternative 2 below. 53 The Bureau estimates that at least 80 percent of reportable HMDA data would be retained in over 73,500 tracts. In certain tracts, substantially more than 80 percent of reportable HMDA data would be retained. Ongoing cost reduction from proposed Alternative 1: Threshold set at 50. The proposed increase in the closed-end coverage threshold from 25 to 50 would relieve institutions that originate between 25 and 49 closed-end mortgage loans of the ongoing costs associated with reporting such loans that they might otherwise incur if the closed-end coverage threshold remained at the current 25. The Bureau estimates that the proposed increase in the closed-end coverage threshold to 50 would result in aggregate savings on the operational costs associated with reporting closed-end mortgage loans of approximately $2.2 million per year. 54 54 These cost estimates reflect the combined ongoing reduction in costs for depository and nondepository institutions. These estimates also take into account the enactment of the EGRRCPA, which created partial exemptions from HMDA's requirements that certain insured depository institutions and insured credit unions may now use. See part VI.E.3 below for a more comprehensive analysis on cost estimates. Therefore, the Bureau believes that if the closed-end coverage threshold were raised from 25 to the proposed 50, the loss in data from these depository institutions and for this relatively small number of census tracts may be justified by the significant reduction in compliance costs for the approximately 745 lower-volume depository institutions that would no longer be required to report HMDA data. Alternative 2: Threshold Set at 100 The Bureau estimates that if the closed-end coverage threshold were increased from 25 to 100 loans, approximately 2,581 out of about 4,263 depository institutions covered under the current rule (or approximately 61 percent) would continue to be required to report HMDA data on closed-end mortgage loans. Approximately 1,682 depository institutions covered under the current rule (or approximately 39 percent) would be relieved of their HMDA reporting responsibilities with respect to closed-end mortgage loans. The Bureau estimates that with this proposed increase to the closed-end coverage threshold, approximately 96 percent of total originations of closed-end mortgage loans reported by depository institutions under the current coverage criteria, or approximately 3.43 million closed-end mortgage loan originations under the current market conditions, would continue to be reported. With respect to the potential effect on available data at the census tract level, the Bureau estimates that if the closed-end coverage threshold were increased from 25 to the proposed 100, there would be a loss of at least 20 percent of reportable HMDA data in about 1,100 out of approximately 74,000 total census tracts, or 1.5 percent of the total number of census tracts, relative to the current threshold. 55 For low-to-moderate income census tracts, the Bureau estimates that if the closed-end coverage threshold were increased from 25 to the proposed 100, there would be at least a 20 percent loss of reportable HMDA data in 3 percent of such tracts if the closed-end coverage threshold were set at the proposed 100. In addition, the Bureau examined the effects on rural census tracts and estimates that relative to the current threshold, there would be at least a 20 percent loss of reportable HMDA data in less than 3 percent of such tracts. 55 The Bureau estimates that at least 80 percent of reportable HMDA data would be retained in approximately 73,000 tracts. In certain tracts, substantially more than 80 percent of reportable HMDA data would be retained. Ongoing cost reduction from proposed Alternative 2: Threshold set at 100. The proposed increase in the closed-end coverage threshold from 25 to 100 would relieve institutions that originate between 25 and 99 closed-end mortgage loans of the ongoing costs associated with reporting such loans that they might otherwise incur if the closed-end coverage threshold remained at the current 25. The Bureau estimates that the proposed increase in the closed-end coverage threshold to 100 would result in aggregate savings on the operational costs associated with reporting closed-end mortgage loans of approximately $8.1 million per year. 56 56 These cost estimates reflect the combined ongoing reduction in costs for depository and nondepository institutions. These estimates also take into account the enactment of the EGRRCPA, which created partial exemptions from HMDA's requirements that certain insured depository institutions and insured credit unions may now use. See part VI.E.3 below for a more comprehensive analysis on cost estimates. Therefore, the Bureau believes that if the closed-end coverage threshold were set at the proposed 100 the loss in data from these depository institutions and for this relatively small number of census tracts, although greater than at the proposed 50 closed-end coverage threshold, may be justified by the significant reduction in compliance costs for the approximately 1,682 lower-volume depository institutions that would no longer be required to report HMDA data relative to the current threshold. Estimates for Other Closed-End Coverage Thresholds The Bureau also generated estimates for closed-end coverage thresholds higher than the ones in the proposed alternatives. These estimates reflect that the decrease in the number of depository institutions that would be required to report HMDA data and the resulting decrease in the HMDA data that would be reported becomes more pronounced at thresholds higher than 100. For example, if the closed-end coverage threshold were increased from 25 to 250 loans, the Bureau estimates that approximately 1,413 out of approximately 4,263 depository institutions would continue to report HMDA data and approximately 2,850 depository institutions, or approximately 67 percent of depository institutions covered under the current rule, would be relieved of their HMDA reporting responsibilities. The Bureau estimates that with an increase in the closed-end coverage threshold from 25 to 250, approximately 90 percent of total originations of closed-end mortgage loans reported by depository institutions under the current coverage criteria, or approximately 3.21 million closed-end mortgage loan originations under the current market conditions, would continue to be reported. Further, if the closed-end coverage threshold were increased from 25 to 500 loans, the Bureau estimates that approximately 798 out of 4,263 depository institutions would continue to be required to report HMDA data and approximately 3,465 depository institutions, or approximately 81 percent of depository institutions covered under the current coverage criteria, would be relieved of their HMDA reporting responsibilities. The Bureau estimates that with an increase in the closed-end coverage threshold to 500, approximately 83 percent of total originations of closed-end mortgage loans reported by depository institutions under the current Regulation C coverage criteria, or approximately 2.97 million closed-end mortgage loan originations under the current market conditions, would continue to be reported. The Bureau's estimates also reflect that the effect on data available at the census tract level would become more pronounced at closed-end mortgage loan coverage thresholds above 100. For example, the Bureau estimates that increasing the closed-end coverage threshold from 25 to 250 loans would result in a loss of at least 20 percent of reportable HMDA data on closed-end mortgage loans in over 4,000 out of approximately 74,000 total census tracts, or 5.4 percent of the total number census tracts. Of the approximately 4,000 census tracts where there would be a loss of at least 20 percent of reportable HMDA data on closed-end mortgage loans at such threshold, about 14 percent are rural tracts 57 and just over 8 percent are low-to-moderate income tracts. Further, the Bureau estimates that increasing the closed-end coverage threshold from 25 to 500 loans would result in a loss of at least 20 percent of reportable HMDA data on closed-end mortgage loans in approximately 11,000 out of approximately 74,000 total census tracts, or 14.9 percent of the total number of census tracts. Of the approximately 11,000 census tracts where there would be a loss of at least 20 percent of reportable HMDA data on closed-end mortgage loans at such threshold, about 32 percent are rural tracts and about 17 percent are low-to-moderate income tracts. 57 As discussed in part VI.F.2 below, recent research suggests that financial institutions that serve rural areas are generally not HMDA reporters. HMDA data do, however, contain information about some covered loans involving properties in rural areas and these higher thresholds would thus result in decreased information on such lending activity. The Bureau is not proposing these higher thresholds because of concerns that the resulting reduction in HMDA's overall coverage of the mortgage market may affect the usefulness of the HMDA data. For example, a reduction in HMDA data may affect bank regulators' and the public's ability to use HMDA data to evaluate a depository institution's performance under the CRA. HMDA data are also used for identifying possible discriminatory lending patterns and potential violations of antidiscrimination statutes, such as the Equal Credit Opportunity Act and Fair Housing Act, including through redlining analyses, which aim to compare lenders and their peers. As noted in the 2015 HMDA Rule, data about local communities is essential to achieve HMDA's purposes. 58 Among other things, public officials, community advocates, and researchers use HMDA data to analyze access to credit at the neighborhood level and to target programs to assist underserved communities and consumers. 59 A reduction in HMDA's overall coverage of the mortgage market could thus reduce the usefulness of HMDA data for identifying opportunities for public and private investment, and for assessing whether lenders are meeting the housing needs of their communities. 60 Therefore, the Bureau believes that if the closed-end coverage threshold were increased from 25 loans to a level above 100 loans, the more notable decrease in the number of institutions required to report HMDA data and the loss of reportable HMDA data, particularly at the local level, available to serve HMDA's purposes may not be justified by the significant reduction in compliance costs for the depository institutions that would no longer be required to report HMDA data at such higher thresholds. 58 80 FR 66128, 66147 (Oct. 28, 2015). The 2015 HMDA Rule explained that public officials, community advocates, and researchers rely on HMDA data to analyze access to credit at the neighborhood level and to target programs to assist underserved communities and consumers. It explained that, for example, local and state officials have used HMDA data to identify and target relief to localities impacted by high-cost lending or discrimination. Id. 59 Id. at 66280. 60 Id. at 66276. Request for Feedback For the reasons discussed above, the Bureau proposes to increase the closed-end coverage threshold for depository institutions in § 1003.2(g)(1)(v)(A) from 25 to 50 in Alternative 1 or from 25 to 100 in Alternative 2, and to make conforming amendments to comments (2)(g)-1 and -5. The Bureau seeks comment on whether the data that would be reported at thresholds of 50 or 100 closed-end mortgage loans would achieve the purposes of HMDA. 61 The Bureau also seeks comment on whether the value of the data that would be reported by institutions that originate between 25 and 50 closed-end mortgage loans, or alternatively between 25 and 100 closed-end mortgage loans, is outweighed by the burden on those institutions of reporting HMDA data and undergoing examinations to validate the accuracy of their submissions. The Bureau seeks comment on these alternative proposals as well as any other closed-end coverage threshold, including any threshold significantly above 100, that would more appropriately balance the burden of reporting with the value of the data reported to achieving the purposes of HMDA. Specifically, the Bureau seeks comment on: (1) How the proposed increase to the closed-end coverage threshold to 50, 100, or another number would affect the number of depository institutions required to report data on closed-end mortgage loans; (2) the significance of the data that would not be available for achieving HMDA's purposes as a result of the proposed increase to the closed-end coverage threshold to 50, 100, or another number, including (a) whether, and under what circumstances, the proposed increase would prevent public officials and the public from understanding if depository institutions excluded by the proposed 50, 100, or another closed-end coverage threshold are serving the needs of their community, (b) whether, and under what circumstances, the proposed increase to the closed-end coverage threshold to 50, 100, or another number would negatively impact the ability of public officials to make determinations with respect to the distribution of public sector investments in a manner designed to improve the private investment environment, and (c) whether, and under what circumstances, the proposed 50, 100, or another number for the closed-end coverage threshold would exclude data that would be valuable for identifying possible fair lending violations or enforcing antidiscrimination laws; and (3) the reduction in burden that would result from the proposed increase for institutions that would not be required to report (addressing separately the burden reduction for depository institutions that are eligible for the EGRRCPA's partial exemption for closed-end mortgage loans and the burden reduction for depository institutions that are not). 61 As originally adopted, HMDA identifies its purposes as providing the public and public officials with information to help determine whether financial institutions are serving the housing needs of the communities in which they are located, and assisting public officials in their determination of the distribution of public sector investments in a manner designed to improve the private investment environment. Following Congress's expansion of HMDA, the Board recognized a third purpose of identifying possible discriminatory lending patterns and enforcing antidiscrimination statutes. 2(g)(1)(v)(B) Background on Reporting Data Concerning Open-End Lines of Credit Under the 2015 HMDA Rule and the 2017 HMDA Rule By its terms, the definition of “mortgage loan” in HMDA covers all loans secured by residential real property and home improvement loans whether open- or closed-end. 62 However, home-equity lines of credit were uncommon in the 1970s and early 1980s when Regulation C was first issued, and the Board's definition covered only closed-end loans. In 2000, in response to the increasing importance of open-end lending in the housing market, the Board proposed to revise Regulation C to require mandatory reporting of all home-equity lines of credit, which were optionally reported. 63 However, the Board's 2002 final rule left open-end reporting voluntary, as the Board determined that the benefits of mandatory reporting relative to other then proposed changes (such as collecting information about higher-priced loans) did not justify the increased burden. 64 62 HMDA section 303(2), 12 U.S.C. 2802(2). 63 65 FR 78656, 78659-60 (Dec. 15, 2000). In 1988, the Board had amended Regulation C to permit, but not require, financial institutions to report certain home-equity lines of credit. 53 FR 31683, 31685 (Aug. 19, 1988). 64 67 FR 7222, 7225 (Feb. 15, 2002). As discussed in the 2015 HMDA Rule, open-end mortgage lending continued to increase in the years following the Board's 2002 final rule, particularly in areas with high home-price appreciation. 65 In light of that development and the role that open-end lines of credit played in contributing to the financial crisis, 66 the Bureau decided in the 2015 HMDA Rule to require reporting of dwelling-secured, consumer purpose open-end lines of credit, 67 concluding that doing so was a reasonable interpretation of “mortgage loan” in HMDA and necessary and proper to effectuate the purposes of HMDA and prevent evasions thereof. 68 65 80 FR 66128, 66160 (Oct. 28, 2015). 66 Id. As the Bureau explained in the 2015 HMDA Rule, research indicated that some real estate investors used open-end, home-secured lines of credit to purchase non-owner occupied properties, which correlated with higher first-mortgage defaults and home-price depreciation during the financial crisis. Id. In the years leading up to the crisis, such home-equity lines of credit often were made and fully drawn more or less simultaneously with first-lien home purchase loans, essentially creating high loan-to-value home purchase transactions that were not visible in the HMDA dataset. Id. 67 The Bureau also required reporting of applications for, and originations of, dwelling- secured commercial-purpose lines of credit for home purchase, home improvement, or refinancing purposes. Id. at 66171. 68 Id. at 66157-62. 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 investment so as to attract private investment to areas where it is needed, and to assist in identifying possible discriminatory lending patterns and enforcing antidiscrimination statutes. The Bureau believes that collecting information about all dwelling-secured, consumer-purpose open-end lines of credit serves these purposes. As noted in the 2015 HMDA 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. 69 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. 70 In seeking to draw such a line, the Bureau acknowledged that it was handicapped by the lack of available data concerning open-end lending. 71 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 institutions of various sizes would incur in reporting data on open-end lending. 69 80 FR 66128, 66161 (Oct. 28, 2015). 70 Id. at 66149. 71 Id. To estimate the one-time and ongoing costs of reporting data under HMDA in the 2015 HMDA 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). 72 The Bureau then sought to estimate one-time and ongoing costs for a representative institution in each tier. 73 72 Id. at 66261, 66269-70. In the 2015 HMDA Rule and the 2017 HMDA Rule, the Bureau assigned financial institutions to tiers by adopting cutoffs based on the estimated open-end line of credit volume. Id. at 66285; 82 FR 43088, 43128 (Sept. 13, 2017). Specifically, the Bureau assumed the lenders that originated fewer than 200 but more than 100 open-end lines of credit were tier 3 (low-complexity) open-end reporters; lenders that originate between 200 and 7,000 open-lines of credit were tier 2 (moderate-complexity) open-end reporters; and lenders that originated more than 7,000 open-end lines of credit were tier 1 (high-complexity) open-end reporters. 80 FR 66128, 66285 (Oct. 28, 2015); 82 FR 43088, 43128 (Sept. 13, 2017). As explained below in part VI.D.1, for purposes of this proposal, the Bureau has used a more precise methodology to assign eligible financial institutions to tiers 2 and 3 for their open-end reporting, which relies on constraints relating to the estimated numbers of impacted institutions and loan/application register records for the applicable provision. 73 80 FR 66128, 66264-65 (Oct. 28, 2015); see also id. at 66284. The Bureau recognized in the 2015 HMDA Rule that the one-time cost of reporting open-end lines of credit could be substantial because most financial institutions had not reported open-end lines of credit 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. 74 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 they may process open-end lines of credit on the same system and in the same business unit as closed-end mortgage loans, 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. 75 74 Id. at 66264; see also id. at 66284-85. 75 Id. at 66265; see also id. at 66284. The Bureau acknowledged in the 2015 HMDA Rule that ongoing 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. 76 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. 77 Thus, using the ongoing cost estimates developed for closed-end reporting, the Bureau estimated that for a representative tier 1 institution the ongoing operational costs would be $273,000 per year; for a representative tier 2 institution $43,400 per year; and for a representative tier 3 institution $8,600 per year. 78 These translated into costs per HMDA record of approximately $9, $43, and $57 respectively. 79 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 these estimates were reasonably reliable. 80 76 Id. at 66285. 77 Id. 78 Id. at 66264, 66286. 79 Id. 80 Id. at 66162. Drawing on all of these estimates, the Bureau decided in the 2015 HMDA Rule to establish an open-end coverage threshold that would require institutions that originate 100 or more open-end lines of credit in each of the two preceding calendar years to report data on such lines of credit. The Bureau estimated that this threshold would avoid imposing the burden of establishing mandatory open-end reporting on approximately 3,000 predominantly smaller-sized institutions with low-volume open-end lending 81 and would require reporting by 749 financial institutions, all but 24 of which would also report data on their closed-end mortgage lending. 82 The Bureau explained that it believed this threshold appropriately balanced the benefits and burdens of covering institutions based on their open-end mortgage lending. 83 However, as discussed in the 2017 HMDA Rule, the Bureau lacked robust data for the estimates that it used to establish the open-end threshold in the 2015 HMDA Rule. 84 81 Id. The estimate of the number of institutions that would be excluded from reporting open-end lines of credit by the transactional coverage threshold was relative to the number that would have been covered under the Bureau's proposal that led to the 2015 HMDA 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). 82 80 FR 66128, 66281 (Oct. 28, 2015). 83 Id. at 66162. 84 82 FR 43088, 43094 (Sept. 13, 2017). The 2017 HMDA Rule explained that, between 2013 and 2017, the number of dwelling-secured open-end lines of credit financial institutions originated had increased by 36 percent. 85 The Bureau noted that, to the extent institutions that had been originating fewer than 100 open-end lines of credit shared in that growth, the number of institutions at the margin that would be required to report under an open-end threshold of 100 lines of credit would also increase. 86 Additionally, in the 2017 HMDA Rule, the Bureau explained that information received by the Bureau since issuing the 2015 HMDA Rule had caused the Bureau to question its assumption that certain low-complexity institutions 87 process home-equity lines of credit on the same data platforms as closed-end mortgages, on which the Bureau based its assumption that the one-time costs for these institutions would be minimal. 88 After issuing the 2015 HMDA Rule, the Bureau had heard anecdotes suggesting that one-time costs to begin reporting open-end lines of credit could be as high as $100,000 for such institutions. 89 The Bureau likewise had heard anecdotes 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 than the Bureau had estimated. 90 85 Id. 86 Id. 87 See supra notes 72-75 and accompanying text. 88 82 FR 43088, 43094 (Sept. 13, 2017). 89 Id. 90 Id. Based on this information 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 Rule, the Bureau proposed in 2017 to increase temporarily the open-end threshold to 500 for two years, until January 1, 2020. 91 This temporary increase was intended to allow for additional data collection and assessment as to what threshold would best balance the benefits and burdens of covering institutions based on their open-end mortgage lending. The Bureau finalized the proposal after notice and comment in the 2017 HMDA Rule. 92 91 82 FR 33455 (July 20, 2017). 92 82 FR 43088 (Sept. 13, 2017). Comments received on the July 2017 HMDA Proposal to change temporarily the open-end threshold are discussed in the 2017 HMDA Rule. Id. at 43094-95. Since the Bureau issued the 2017 HMDA Rule, various trade associations and smaller financial institutions have urged the Bureau to increase permanently the open-end line of credit coverage threshold in order to reduce the burden on smaller institutions. For example, some Federal credit unions suggested in response to the Bureau's March 2018 RFI on Adopted Regulations that the Bureau consider increasing both the open- and closed-end thresholds that trigger the applicability of HMDA requirements to credit unions. Open-End Line of Credit Threshold for Institutional Coverage of Depository Institutions As explained above, the 2015 HMDA Rule established an institutional coverage threshold in § 1003.2(g) for open-end lines of credit of at least 100 open-end lines of credit in each of the two preceding calendar years. 93 In the 2017 HMDA Rule, the Bureau amended § 1003.2(g)(1)(v)(B) and comments 2(g)-3 and -5, effective January 1, 2018, to increase temporarily the open-end threshold from 100 to 500 and, effective January 1, 2020, to restore a permanent threshold of 100. 94 For the reasons discussed below, the Bureau now proposes to amend § 1003.2(g)(1)(v)(B) and comments 2(g)-3 and -5, effective January 1, 2020, to extend until January 1, 2022, the temporary open-end institutional coverage threshold for depository institutions of 500 open-end lines of credit. When this temporary threshold expires, the Bureau is proposing to set a permanent threshold at 200 open-end lines of credit. The Bureau is also proposing conforming changes to the institutional coverage threshold for nondepository institutions in § 1003.2(g)(2)(ii)(B) and to the transactional coverage threshold in § 1003.3(c)(12), as discussed below. 93 The 2015 HMDA Rule established complementary thresholds that determine whether a financial institution is required to report data on closed-end mortgage loans or open-end lines of credit, respectively. 80 FR 66128, 66146, 66149, 66162 (Oct. 28, 2015). The 2017 HMDA Rule corrected a drafting error to ensure the institutional coverage threshold and the transactional coverage threshold were complementary. 82 FR 43088, 43100, 43102 (Sept. 13, 2017). These institutional and transactional coverage thresholds are distinct from the thresholds for the EGRRCPA partial exemptions in proposed § 1003.3(d)(2) and (3). 94 82 FR 43088, 43094 (Sept. 13, 2017). In the 2015 HMDA Rule and 2017 HMDA Rule, the Bureau declined to retain optional reporting of open-end lines of credit, after concluding that improved visibility into this 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. Id. at 43095; 80 FR 66128, 66160-61 (Oct. 28, 2015). However, Regulation C as amended by the 2017 HMDA Rule permits voluntary reporting by financial institutions that do not meet the open-end threshold. 12 CFR 1003.3(c)(12). Several developments since the Bureau issued the 2015 HMDA Rule have affected the Bureau's analyses of the costs and benefits associated with the open-end line of credit coverage threshold. As the 2017 HMDA Rule explained, the Bureau is concerned that, in establishing a 100-loan threshold for open-end lines of credit in the 2015 HMDA Rule, it may have underestimated the number of institutions that would be covered and the reporting burden on smaller covered institutions. In the 2017 HMDA Rule, the Bureau noted that there had been a 36 percent increase in the number of dwelling-secured open-end lines of credit originated between 2013 (the most recent data cited by the Bureau for its analysis of the 2015 HMDA Rule) and 2016. 95 The number of dwelling-secured open-end line of credit originations in 2018 was again approximately 36 percent higher than the number of such originations in 2013. 96 Table 4 in the Bureau's analysis under Dodd-Frank Act section 1022(b) in part VI.E.4 below provides the Bureau's updated coverage estimates for reporting thresholds of 100, 200, and 500 open-end lines of credit. 97 As explained in more detail in part VI.E.4, the Bureau's updated coverage estimates indicate that the total number of institutions exceeding the open-end coverage threshold of 100 open-end lines of credit in 2018 would be approximately 1,014, which is significantly higher than the estimate of 749 in the 2015 HMDA Rule that was based on 2013 data. 98 95 82 FR 43088, 43094 (Sept. 13, 2017) (citing July 2017 HMDA Proposal, 82 FR 33455, 33459 (July 20, 2017)). 96 Experian-Oliver Wyman Market Intelligence Reports show that in 2013 there were 1.14 million home-equity lines of credit originated. Experian & Oliver Wyman, 2015 Q1 Experian-Oliver Wyman Market Intelligence Report: Home Equity Lines Report, at 6 fig. 1 (2015). In 2018 that number grew to 1.555 million. Experian & Oliver Wyman, 2018 Q4 Experian-Oliver Wyman Market Intelligence Report: Home Equity Lines Report, at 6 fig. 1 (2019). 97 As discussed further in the analysis under Dodd-Frank Act section 1022(b) in part VI, in note 172 below, the Bureau's analyses in this proposal are based on HMDA data collected in 2016 and 2017 and other sources. The Bureau intends to review the 2018 HMDA data more closely in connection with this rulemaking once the 2018 submissions are more complete. 98 82 FR 43088, 43094 (Sept. 13, 2017). As explained in more detail in part VI below, the estimates the Bureau used in the 2015 HMDA Rule may understate the burden that open-end reporting would impose on smaller institutions if they were required to begin reporting on January 1, 2020. For example, in developing the one-time cost estimates for open-end lines of credit in the 2015 HMDA Rule, the Bureau had envisioned that there would be cost sharing between the line of business that conducts open-end lending and the line of business that conducts closed-end lending at the corporate level, as the implementation of open-end reporting that became mandatory under the 2015 HMDA Rule would coincide with the implementation of the changes to closed-end reporting under the 2015 HMDA Rule. However, this type of cost sharing is less likely now since financial institutions have already implemented almost all of the closed-end reporting changes required under the 2015 HMDA Rule. Another development since the Bureau finalized the 2015 HMDA Rule is the enactment of the EGRRCPA, which created partial exemptions from HMDA's requirements that certain insured depository institutions and insured credit unions may now use. 99 The partial exemption for open-end lines of credit under the EGRRCPA relieves certain insured depository institutions and insured credit unions that originated fewer than 500 open-end mortgage loans in each of the two preceding calendar years of the obligation to report many of the data points generally required by Regulation C. 100 The partial exemptions are available to the vast majority of the financial institutions that would be excluded by the proposed increases in the open-end coverage threshold. 101 The EGRRCPA has thus changed the costs and benefits associated with different possible coverage thresholds, as discussed in more detail below. 99 Public Law 115-174, 132 Stat. 1296 (2018). 100 See the section-by-section analysis of § 1003.3(d) in part IV above. 101 See infra part VI.E.4. The Bureau has considered the appropriate open-end threshold in light of these developments and believes that the proposed changes to the open-end threshold would reduce one-time and ongoing costs and provide other benefits, while still providing significant market coverage. These considerations are discussed in turn below, and additional explanation of the Bureau's cost estimates is provided in the Bureau's analysis under Dodd-Frank Act section 1022(b) in part VI.E.4 below. 102 102 As explained in part VI below, the Bureau derived these estimates using estimates of savings for open-end lines of credit for representative financial institutions. One-time cost reduction from proposed threshold of 200. The Bureau's proposed increase of the open-end coverage threshold to 200 open-end lines of credit after the proposed temporary extension expires in 2022 would avoid imposing one-time costs of reporting open-end lines of credit on institutions originating between 100 and 199 open-end lines of credit. The Bureau estimates that setting the coverage threshold at 200 rather than 100 would exclude 401 institutions from reporting open-end lines of credit starting in 2022. According to the Bureau's estimates, about 391 of those 401 financial institutions are low-complexity tier 3 open-end reporters, about 10 are moderate-complexity tier 2 open-end reporters, and none are high-complexity tier 1 reporters. 103 103 For an explanation of the Bureau's assumptions in assigning institutions to tiers 1, 2, and 3, see supra note 72 and infra part VI.D.1. The Bureau recognizes that many financial institutions, especially larger and more complex institutions, process applications for open-end lines of credit in their consumer lending departments using procedures, policies, and data systems that are separate from those used for closed-end loans. Some institutions that would have to report with a threshold of 100 after the proposed extension of the temporary threshold of 500 expires in 2022 do not currently report open-end lines of credit. These institutions might have to develop completely new reporting infrastructures to comply with mandatory reporting if the threshold of 100 lines of credit were to take effect. As a result, these institutions would incur one-time costs to create processes and systems for open-end lines of credit in addition to the one-time costs to modify processes and systems used for other mortgage products. As explained in part VI below, the Bureau estimates that increasing the open-end coverage threshold from 100 to 200 starting in 2022 would result in an aggregate savings of about $3.8 million in avoided one-time costs associated with open-end lines of credit. Ongoing cost reduction from proposed threshold of 200. The proposed increase of the open-end coverage threshold from 100 to 200 starting in 2022 would permanently relieve institutions that originate between 100 and 199 open-end lines of credit of the ongoing costs associated with reporting open-end lines of credit that they might otherwise incur if the 2017 HMDA Rule's permanent threshold of 100 were to take effect. The Bureau estimates that the proposed increase in the permanent threshold would result in aggregate savings on the operational costs associated with open-end lines of credit of about $2.1 million per year starting in 2022. Benefits of two-year extension. The proposed two-year extension of the temporary coverage threshold of 500 open-end lines of credit would ensure that any institutions that would be required to report under the proposed threshold of 200 open-end lines of credit but that are not required to report under the current temporary threshold of 500 would have time to adapt their systems and prepare for compliance. The Bureau estimates that there are 280 institutions that fall within this category. Industry stakeholders provided feedback in connection with the 2015 HMDA Rule and the 2017 HMDA Rule indicating that they strongly prefer a long implementation period when coverage changes result in new institutions having open-end reporting obligations under HMDA. The Bureau believes that the two-year extension of the temporary threshold of 500 lines of credit would provide any newly covered institutions with sufficient time to revise and update policies and procedures, implement any necessary systems changes, and train staff before the proposed threshold of 200 lines of credit would take effect in 2022. The proposed extension of the temporary coverage threshold would also provide the Bureau with additional time to assess how a requirement to report open-end lines of credit would affect institutions whose origination volume falls just above the proposed threshold of 200 open-end lines of credit. The Bureau is reviewing HMDA data on open-end lines of credit submitted in 2019 by financial institutions that originated 500 or more open-end lines of credit in 2016 and 2017 and invites comment on financial institutions' experiences with collecting and reporting these open-end data. The Bureau will also continue to monitor HMDA data in the future. A two-year temporary extension of the current coverage threshold would ensure the Bureau has time to consider further the open-end data submitted for 2018 and 2019 and any additional information stakeholders provide before any permanent threshold established through this rulemaking takes effect. The proposed extension of the temporary coverage threshold would also relieve institutions that originate between 100 and 499 open-end lines of credit of ongoing costs associated with reporting open-end lines of credit over the next two years. In total, the Bureau estimates that extending the temporary open-end coverage threshold for two years would reduce operational costs for institutions by about $5.6 million per year in the years 2020 and 2021. Effect on market coverage. While the proposed permanent and temporary threshold increases would reduce market coverage, information about a sizeable portion of the market would still be available in the next two years under the proposed temporary threshold of 500 and thereafter under the proposed threshold of 200. The Bureau has used multiple data sources, including credit union Call Reports, Call Reports for banks and thrifts, HMDA data, and Consumer Credit Panel data, in order to develop updated estimates for this proposal about open-end originations for institutions that are active in the market and to assess the impact of various thresholds on the numbers of institutions which report and the number of loans about which they report under various scenarios. 104 Based on this information, the Bureau estimates that, as of 2018, approximately 613 financial institutions originated at least 200 open-end lines of credit in both of the two preceding years, as compared to approximately 333 financial institutions that originated at least 500 open-end lines of credit in both of the two preceding years, and about 1,014 financial institutions that originated at least 100 open-end lines of credit in both of the two preceding years. 105 Under the temporary 500-loan open-end threshold, the Bureau estimates about 1.23 million lines of credit or approximately 78 percent of origination volume would reported by about 5 percent of all institutions in the open-end line of credit market. 106 Under a permanent 200-loan open-end threshold, the Bureau estimates about 1.34 million lines of credit or approximately 84 percent of origination volume would be reported by approximately 9 percent of all institutions in the open-end line of credit market. 107 As compared to a 100-loan threshold, the 200-loan threshold would reduce the number of institutions reporting by approximately 40 percent (from 1,014 to 613), while reducing coverage of originations by approximately 5 percentage points from approximately 89 percent to 84 percent. 104 Because collection of data on open-end lines of credit only became mandatory starting in 2018 under the 2015 HMDA Rule and 2017 HMDA Rule, no single data source exists as of the time of this proposal that can accurately capture the number of originations of open-end lines of credit in the entire market and by lenders. For information about the HMDA data used in updating the Bureau estimates, see infra note 172. 105 See infra part VI.E.4 at Table 4 for estimates of coverage among all lenders that are active in the open-end line of credit market at various open-end coverage thresholds. 106 Id. 107 Id. Extending the temporary threshold of 500 open-end lines of credit for two years and raising the open-end threshold from 100 to 200 after the temporary threshold expires in 2022 would decrease visibility into the open-end line of credit market relative to the visibility that would be obtained if the Bureau were to allow the 100-loan threshold to take effect on January 1, 2020. However, the effect of these threshold increases would be limited, because the EGRRCPA now provides a partial exemption that exempts almost all of the institutions that the proposed increases would affect from any obligation to report many of the data points generally required by Regulation C for their open-end lines of credit. In light of the EGRRCPA's partial exemption from reporting certain data for open-end lines of credit for certain insured depository institutions and insured credit unions, increasing the open-end line of credit coverage threshold to 500 temporarily and to 200 permanently would result in a much smaller loss of data than the Bureau anticipated when it adopted a permanent threshold of 100 open-end lines of credit in the 2015 HMDA Rule or when it revisited the open-end line of credit coverage threshold in the 2017 HMDA Rule. The Bureau believes that the limited decrease in visibility occasioned by the proposed adjustments to the open-end threshold would appear to be justified by the benefits discussed above of reducing the burden on smaller institutions. This burden reduction is greater than the Bureau anticipated in the 2015 HMDA Rule, because the number of institutions affected and the costs per institution associated with reporting are higher than anticipated, as explained above and in part VI below. The Bureau now proposes to set the open-end line of credit coverage threshold at 200 after a two-year extension of the temporary increase. Using a threshold of 200 as compared to 100 loans would better balance the benefits and burdens of covering institutions based on their open-end mortgage lending. As noted above, the Bureau is particularly interested in comments on how a requirement to report open-end lines of credit would affect institutions whose origination volume falls just above the proposed threshold of 200 open-end lines of credit. For the reasons discussed above, the Bureau proposes to amend § 1003.2(g)(1)(v)(B) and comments 2(g)-3 and -5, to set the open-end institutional coverage threshold for depository institutions at 500, effective January 1, 2020, and at 200, effective January 1, 2022. The Bureau seeks comment on whether it should extend the temporary institutional coverage threshold of 500 open-end lines of credit as proposed and, if so, for how long. The Bureau also seeks comment on whether to increase permanently the open-end institutional coverage threshold when the proposed temporary extension expires and, if so, whether a threshold of 200 or another threshold would most appropriately balance the benefits and burdens of covering institutions based on their open-end lending beginning in 2022. The Bureau also seeks comment specifically on: (1) How the proposed temporary and permanent increases would affect the number of financial institutions required to report data on open-end lines of credit; (2) the significance of the data that would not be available as a result of the proposed temporary and permanent increases (including (a) whether, and under what circumstances, the proposed temporary and permanent increases would prevent public officials and the public from understanding if financial institutions excluded by the proposed temporary and permanent increases are serving the needs of their community, (b) whether, and under what circumstances, the proposed temporary and permanent increases would negatively impact the ability of public officials to make determinations with respect to the distribution of public sector investments in a manner designed to improve the private investment environment, and (c) whether, and under what circumstances, the proposed temporary and permanent increases would exclude data that would be valuable for identifying possible fair lending violations or enforcing antidiscrimination laws); and (3) the reduction in burden that would result from the proposed temporary and permanent increases for institutions that would not be required to report their open-end lines of credit (addressing separately the burden reduction for institutions that are eligible for the EGRRCPA's partial exemption for open-end lines of credit and for institutions that are not). 2(g)(2) Nondepository Financial Institution 2(g)(2)(ii)(A) Closed-End Mortgage Loan Threshold for Institutional Coverage of Nondepository Institutions HMDA extends reporting responsibilities to certain nondepository institutions, defined as any person engaged for profit in the business of mortgage lending other than a bank, savings association, or credit union. 108 HMDA section 309(a) authorizes the Bureau to adopt an exemption for covered nondepository institutions that are comparable within their respective industries to banks, savings associations, and credit unions with $10 million or less in assets in the previous fiscal year. 109 Regulation C implements HMDA's coverage criteria for nondepository institutions in § 1003.2(g)(2). The Bureau revised the coverage criteria for nondepository institutions in the 2015 HMDA Rule by requiring such institutions to report HMDA data if they met the statutory location test and exceeded either the closed-end or open-end line of credit coverage thresholds. 110 108 HMDA section 303(5) (defining “other lending institutions”). 109 HMDA section 309(a), 12 U.S.C. 2808(a). 110 Prior to the 2015 HMDA Rule, for-profit nondepository institutions that met the location test only had to report if: (1) In the preceding calendar year, the institution originated home purchase loans, including refinancings of home purchase loans, that equaled either at least 10 percent of its loan-origination volume, measured in dollars, or at least $25 million; and (2) On the preceding December 31, the institution had total assets of more than $10 million, counting the assets of any parent corporation; or in the preceding calendar year, the institution originated at least 100 home purchase loans, including refinancings of home purchase loans. 12 CFR 1003.2 (2017). HMDA sections 303(3)(B) and 303(5) 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. As the Bureau stated in the 2015 HMDA Rule, the Bureau interpreted 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. 111 In the 2015 HMDA Rule, the Bureau interpreted “engaged for profit in the business of mortgage lending” to include nondepository institutions that originated at least 25 closed-end mortgage loans or 100 open-end lines of credit in each of the two preceding calendar years. Due to the questions raised about potential risks posed to applicants and borrowers by nondepository institutions and the lack of other publicly available data sources about nondepository institutions, the Bureau believed that requiring additional nondepository institutions to report HMDA data would better effectuate HMDA's purposes. The Bureau estimated in 2015 that these changes could result in HMDA coverage for up to an additional 450 nondepository institutions. The Bureau stated in the 2015 HMDA Rule its belief that it was important to increase visibility into the lending practices of nondepository institutions because of their history of making riskier loans than depository institutions, including their role in the financial crisis and lack of available data about the mortgage lending practices of lower-volume nondepository institutions. The Bureau also stated that expanded coverage of nondepository institutions would ensure more equal visibility into the practices of nondepository institutions and depository institutions. 111 80 FR 66128, 66153 (Oct. 28, 2015) (citing 54 FR 51356, 51358-59 (Dec. 15, 1989)). Since issuing the 2015 Final Rule and 2017 HMDA Rule, the Bureau has heard concerns that lower-volume institutions continue to experience significant burden at a 25 closed-end coverage threshold. 112 Various industry stakeholders have advocated for an increase to the closed-end coverage threshold in order to reduce burden on additional lower-volume financial institutions. In light of the concerns raised by industry stakeholders, the Bureau is considering whether a higher closed-end coverage threshold would more appropriately cover nondepository institutions that are “engaged for profit in the business of mortgage lending” and maintain sufficient visibility into the lending practices of such institutions. The Bureau believes that increasing the closed-end coverage threshold may provide meaningful burden relief for lower-volume nondepository institutions without reducing substantially the data reported under HMDA, and more appropriately exclude lower-volume mortgage lenders. Therefore, the Bureau seeks comment on whether an increase to this threshold would more appropriately balance the benefits and burdens of covering lower-volume nondepository institutions based on their closed-end lending. 112 The Bureau temporarily raised the threshold for open-end lines of credit in the 2017 HMDA Rule because of concerns that the Bureau may have underestimated in the 2015 HMDA Rule the number of institutions that would be required to report open-end lines of credit under the threshold adopted and that it also may have underestimated the cost of reporting. However, the Bureau declined to raise the threshold for closed-end mortgage loans and stated that in developing the 2015 HMDA Rule, it had robust data to make a determination about the number of transactions that would be reported at the 25 closed-end coverage threshold as well as the one-time and ongoing costs to industry. 82 FR 43088, 43095-96 (Sept. 13, 2017). As discussed below, the Bureau is proposing two alternatives to the closed-end mortgage loan coverage threshold. These proposals would maintain a uniform closed-end coverage threshold for depository and nondepository institutions. 113 Alternative 1 proposes to set the closed-end coverage threshold at 50 while Alternative 2 proposes to set the closed-end coverage threshold at 100. The Bureau reviewed multiple data sources, including recent HMDA data 114 and Call Reports and developed estimates for each proposal as described below. 113 For a discussion on the proposed closed-end coverage threshold for depository institutions, see the section-by-section analysis of § 1003.2(g)(1)(v)(A) above. 114 For further discussion of the recent HMDA data used, see infra note 155. Alternative 1: Threshold Set at 50 The Bureau estimates that if the closed-end coverage threshold were increased from 25 to 50 loans, approximately 683 out of about 697 nondepository institutions covered under the current rule (or approximately 98 percent) would continue to be required to report HMDA data on closed-end mortgage loans. Approximately 14 nondepository institutions covered under the current rule (or approximately 2 percent) would be relieved of their HMDA reporting responsibilities on closed-end mortgage loans. Further, the Bureau estimates that with this proposed increase to the closed-end coverage threshold, over 99 percent of total originations of closed-end mortgage loans reported by nondepository institutions under the current coverage criteria, or approximately 3.44 million closed-end mortgage loan originations under the current market conditions, would continue to be reported. The loss of data from these approximately 14 nondepository institutions would amount to an estimated 1,000 closed-end mortgage loan originations or less than one-half of 1 percent of closed-end mortgage loan originations reportable under the current market conditions. At the census tract level the Bureau estimates that, as noted above in the section-by section analysis of § 1003.2(g)(1)(v)(A), increasing the closed-end coverage threshold from 25 to the proposed 50 loans for both depository and nondepository institutions would result in a loss of at least 20 percent of reportable HMDA data in just under 300 out of approximately 74,000 total census tracts, or less than one-half of 1 percent of the total number of census tracts. 115 With respect to low-to-moderate income census tracts, the Bureau estimates if the closed-end threshold were increased from 25 to 50 loans, there would be at least a 20 percent loss of reportable HMDA data in less than 1 percent of such tracts. In addition, the Bureau examined the effects of an increase in the closed-end threshold from 25 to 50 loans and estimates that such a change would result in at least a 20 percent loss of reportable HMDA data in less than one-half of 1 percent of such tracts. 115 The estimates of the effect on reportable HMDA data at the census tract level comprise both depository institutions and nondepository institutions. The Bureau estimates that at least 80 percent of reportable HMDA data would be retained in over 73,500 tracts. In certain tracts, substantially more than 80 percent of reportable HMDA data would be retained. Therefore, the Bureau believes that it is reasonable to interpret “engaged for profit in the business of mortgage lending” to include nondepository institutions that originated at least 50 closed-end mortgage loans in each of the two preceding calendar years. The Bureau believes that the proposed increase to the closed-end coverage threshold for nondepository institutions would effectuate the purposes of HMDA by ensuring significant coverage of nondepository mortgage lending, while facilitating compliance with HMDA by reducing burden on smaller institutions and excluding nondepository institutions that are not engaged for profit in the business of mortgage lending. The Bureau believes that the reasons provided for the proposed changes to the closed-end coverage threshold for depository institutions in the section-by-section analysis of § 1003.2(g)(1)(v)(A) above apply to the threshold for nondepository institutions as well. Additionally, the proposed increase to the closed-end coverage threshold would promote consistency by subjecting nondepository institutions to the same threshold that applies to depository institutions. Alternative 2: Threshold Set at 100 The Bureau estimates that if the closed-end mortgage loan threshold were increased from 25 to 100, approximately 661 out of about 697 nondepository institutions covered under the current rule (or approximately 95 percent) would continue to be required to report HMDA data on closed-end mortgage loans. Approximately 36 nondepository institutions covered under the current rule (or approximately 5 percent) would be relieved of their HMDA reporting responsibilities on closed-end mortgage loans. In terms of the effect on the total number of originations, the Bureau estimates that with an increase in the closed-end mortgage threshold from 25 to the proposed 100 loans, over 99 percent of total originations of closed-end mortgage loans reported by nondepository institutions under the current Regulation C coverage criteria, or approximately 3.44 million closed-end mortgage loan originations under the current market conditions, would continue to be reported. The loss of data from these approximately 36 nondepository institutions would amount to about 3,000 closed-end mortgage originations under the current market conditions, or less than 1 percent of closed-end mortgage loan originations reportable under the current market conditions. With respect to the potential effect on available data at the census tract level and as noted above in the section-by section analysis of § 1003.2(g)(1)(v)(A), the Bureau estimates that if the closed-end coverage threshold were increased from 25 to the proposed 100, there would be a loss of at least 20 percent of reportable HMDA data in about 1,100 out of approximately 74,000 total census tracts, or 1.5 percent of the total number of census tracts. 116 For low-to-moderate income census tracts, the Bureau estimates that if the closed-end threshold were increased from 25 to 100 loans, there would be a loss of at least 20 percent of reportable HMDA data in approximately 3 percent of such tracts. In addition, the Bureau examined the effects on rural census tracts and estimates that relative to the current threshold, there would be at least a 20 percent loss of reportable HMDA data in less than 3 percent of such tracts. 116 The Bureau estimates that at least 80 percent of reportable HMDA data would be retained in approximately 73,000 tracts. In certain tracts, substantially more than 80 percent of reportable HMDA data would be retained. Therefore, the Bureau believes that it is reasonable to interpret “engaged for profit in the business of mortgage lending” to include nondepository institutions that originated at least 100 closed-end mortgage loans in each of the two preceding calendar years. The Bureau believes that the proposed increase to the closed-end coverage threshold for nondepository institutions would effectuate the purposes of HMDA by ensuring significant coverage of nondepository mortgage lending, while facilitating compliance with HMDA by reducing burden on smaller institutions and excluding nondepository institutions that are not engaged for profit in the business of mortgage lending. The Bureau believes that the reasons provided for the proposed changes to the closed-end coverage threshold for depository institutions in the section-by-section analysis of § 1003.2(g)(1)(v)(A) above apply to the threshold for nondepository institutions as well. Additionally, the proposed increase to the threshold would promote consistency by subjecting nondepository institutions to the same threshold that applies to depository institutions. Estimates for Other Closed-End Coverage Thresholds The Bureau also generated estimates for closed-end coverage thresholds higher than those in the proposed alternatives. Similar to the estimates for depository institutions, these estimates reflect that the decrease in the number of nondepository institutions that would be required to report HMDA data becomes more pronounced at thresholds higher than 100. Moreover, such thresholds would decrease visibility into nondepository institutions relative to the coverage criteria that pre-dated the 2015 HMDA Rule. 117 For example, if the closed-end coverage threshold were increased from 25 to 250 loans, the Bureau estimates that approximately 573 out of about 697 nondepository institutions would continue to be required to report HMDA data and approximately 124 nondepository institutions, or about 18 percent of nondepository institutions covered under the current rule, would be relieved of their HMDA reporting responsibilities. The Bureau estimates that with an increase in the closed-end coverage threshold to 250, about 99 percent of total originations of closed-end mortgage loans reported by nondepository institutions under the current Regulation C coverage criteria, or approximately 3.42 million closed-end mortgage loan originations under the current market conditions, would continue to be reported. 117 The Bureau noted in the 2015 HMDA Rule that any closed-end reporting threshold set at 100 loans would not provide enhanced insight into lending practices of nondepository institutions and that a threshold above 100 closed-end mortgage loans would decrease visibility into nondepository institutions' practices. At the time, the Bureau explained its belief that, due to the questions raised about potential risks posed to applicants and borrowers by nondepository institutions and the lack of other publicly available data sources about nondepository institutions, requiring additional nondepository institutions to report HMDA data will better effectuate HMDA's purposes. 80 FR 66128, 66153, 66281 (Oct. 28, 2015). Further, if the closed-end coverage threshold were increased from 25 to 500 loans, for example, the Bureau estimates that approximately 477 out of about 697 nondepository institutions would continue to be required to report HMDA data and approximately 220 nondepository institutions, or about 32 percent of nondepository institutions covered under the current coverage criteria, would be relieved of their HMDA reporting responsibilities. The Bureau estimates that with an increase of the closed-end coverage threshold to 500, about 98 percent of total originations of closed-end mortgage loans reported by nondepository institutions under the current Regulation C coverage criteria, or approximately 3.38 million closed-end mortgage loan originations under the current market conditions, would continue to be reported. The Bureau's estimates also reflect that the effect on data available at the census tract level would become more pronounced at closed-end mortgage loan coverage thresholds above 100. For example, the Bureau estimates that increasing the closed-end coverage threshold from 25 to 250 would result in a loss of at least 20 percent of reportable HMDA data in over 4,000 out of approximately 74,000 total census tracts, or 5.4 percent of the total number census tracts. Of the approximately 4,000 census tracts where there would be a loss of at least 20 percent of reportable HMDA data at such threshold, about 14 percent are rural tracts and just over 8 percent are low-to-moderate income tracts. Further, the Bureau estimates that increasing the closed-end coverage threshold from 25 to 500 would result in a loss of at least 20 percent of reportable HMDA data in approximately 11,000 out of approximately 74,000 total census tracts, or 14.9 percent of the total number census tracts. Of the approximately 11,000 census tracts where there would be a loss of at least 20 percent of reportable HMDA data at such threshold, about 32 percent are rural tracts and about 17 percent are low-to-moderate income tracts. Although the estimates for these higher closed-end coverage thresholds reflect that a high percentage of total originations of closed-end mortgage loans would continue to be reported by nondepository institutions, the Bureau believes that the decrease in coverage of nondepository institutions relative to the level of coverage that pre-dated the 2015 HMDA Rule could make it more difficult for the public and public officials to analyze whether lower-volume nondepository institutions are serving the housing needs of their communities. Therefore, the Bureau believes that if the closed-end coverage threshold were increased to a level above 100 loans, the loss of visibility into nondepository lending and the loss of reportable HMDA data at the census tract level available to serve HMDA's purposes may not be justified by the significant reduction in compliance costs for the nondepository institutions that would no longer be required to report HMDA data at such higher thresholds. Request for Feedback For the reasons discussed above, the Bureau proposes to increase the closed-end mortgage loan-volume threshold in § 1003.2(g)(2)(ii)(A) from 25 to 50 in Alternative 1, or from 25 to 100 in Alternative 2, and to make conforming amendments to comments 2(g)-1 and -5. The Bureau requests comment on the proposed changes to the closed-end coverage threshold for institutional coverage of nondepository institutions in § 1003.2(g)(2)(ii)(A). Specifically, the Bureau solicits feedback on the proposed increase, including comments on: (1) How the proposed increase to the closed-end coverage threshold to 50, 100, or another number, including any threshold significantly above 100, would affect the number of nondepository financial institutions required to report data on closed-end mortgage loans; (2) the significance of the data that would not be available as a result of the proposed increase to the closed-end coverage threshold to 50, 100, or another number, including (a) whether, and under what circumstances, the proposed increase would prevent public officials and the public from understanding if nondepository financial institutions excluded by the proposed 50, 100, or another closed-end coverage threshold are serving the needs of their community, (b) whether, and under what circumstances, the proposed increase to the closed-end coverage threshold to 50, 100, or another number would negatively impact the ability of public officials to make determinations with respect to the distribution of public sector investments in a manner designed to improve the private investment environment, and (c) whether, and under what circumstances, the proposed increase to the closed-end coverage threshold would exclude data that would be valuable for identifying possible fair lending violations or enforcing antidiscrimination laws; and (3) the reduction in burden that would result from the proposed increase to the closed-end coverage threshold for institutions that would not be required to report. 2(g)(2)(ii)(B) Open-End Line of Credit Threshold for Institutional Coverage of Nondepository Institutions The 2015 HMDA Rule established a coverage threshold of 100 open-end lines of credit in § 1003.2(g)(2)(ii)(B) as part of the definition of nondepository financial institution. As discussed in more detail in the section-by-section analysis of § 1003.2(g)(1)(v)(B) above, the 2017 HMDA Rule amended §§ 1003.2(g)(1)(v)(B) and (g)(2)(ii)(B) and 1003.3(c)(12) and related commentary to raise temporarily the open-end coverage threshold to 500 loans for calendar years 2018 and 2019. 118 For the reasons discussed in the section-by-section analysis of § 1003.2(g)(1)(v)(B), and to ensure the thresholds are consistent for depository and nondepository institutions, the Bureau is now proposing to extend to January 1, 2022, Regulation C's temporary open-end threshold of 500 open-end lines of credit for institutional and transactional coverage of both depository and nondepository institutions and then set the threshold at 200 open-end lines of credit upon the expiration in 2022 of the proposed extension of the temporary threshold. The Bureau is therefore proposing to set the open-end line of credit threshold for institutional coverage of nondepository institutions in § 1003.2(g)(2)(ii)(B) at 500 effective January 1, 2020, and then at 200 effective January 1, 2022. These changes would conform to the changes that the Bureau is proposing with respect to the open-end threshold for institutional coverage for depository institutions in § 1003.2(g)(1)(v)(B) and the open-threshold for transactional coverage in § 1003.3(c)(12). 118 82 FR 43088, 43095 (Sept. 13, 2017). The Bureau believes that these proposed changes to the threshold in § 1003.2(g)(2)(ii)(B) would effectuate the purposes of HMDA by ensuring significant coverage of nondepository mortgage lending, while facilitating compliance with HMDA by reducing burden on smaller institutions and excluding nondepository institutions that are not engaged for profit in the business of mortgage lending. The Bureau believes that the reasons provided for the proposed changes to the open-end threshold for depository institutions in the section-by-section analysis of § 1003.2(g)(1)(v)(B) above apply to the threshold for nondepository institutions as well. Additionally, the proposed changes to the threshold in § 1003.2(g)(2)(ii)(B) would promote consistency by subjecting nondepository institutions to the same threshold that applies to the depository institutions that make up the bulk of the open-end line of credit market. According to the Bureau's estimates, nondepository institutions account for only a small percentage of the institutions and loans in the open-end line of credit market. 119 Table 4 in the Bureau's analysis under Dodd-Frank Act section 1022(b) in part VI.E.4 below provides coverage estimates for nondepository institutions at the current temporary threshold of 500 open-end lines of credit that the Bureau proposes to extend and at the proposed threshold of 200 open-end lines of credit that would take effect when the temporary threshold expires. The Bureau requests comment on the proposed changes to the open-end line of credit threshold for institutional coverage of nondepository institutions in § 1003.2(g)(2)(ii)(B). 119 See infra part VI.E.4 at Table 4. Section 1003.3 Exempt Institutions and Excluded and Partially Exempt Transactions 3(c) Excluded Transactions 3(c)(11) As adopted in the 2015 HMDA Rule, § 1003.3(c)(11) provides an exclusion from the requirement to report closed-end mortgage loans for institutions that did not originate at least 25 closed-end mortgage loans in each of the two preceding calendar years. This transactional coverage threshold was intended to complement a closed-end mortgage loan reporting threshold included in the definition of financial institution in § 1003.2(g). The 2017 HMDA Rule replaced “each” with “either” in § 1003.3(c)(11) to correct a drafting error and to ensure that the exclusion provided in that section mirrors the loan-volume threshold for financial institutions in § 1003.2(g). 120 For the reasons discussed in the section-by-section analysis of § 1003.2(g), the Bureau is now proposing to increase Regulation C's closed-end threshold for institutional and transactional coverage from 25 to 50 under Alternative 1 and from 25 to 100 under Alternative 2. Therefore, the Bureau proposes to increase the closed-end threshold for transactional coverage from 25 to 50 under Alternative 1 in § 1003.3(c)(11) and comments 3(c)(11)-1 and -2, and from 25 to 100 under Alternative 2 in § 1003.3(c)(11) and comments 3(c)(11)-1 and -2. This proposed change would conform to the related changes the Bureau is proposing with respect to the closed-end threshold for institutional coverage in § 1003.2(g). 120 82 FR 43088, 43100 (Sept. 13, 2017). 3(c)(12) As adopted in the 2015 HMDA 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 transactional coverage 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 2017 HMDA Rule replaced “each” with “either” in § 1003.3(c)(12) to correct a drafting error and to ensure that the exclusions provided in that section mirror the loan-volume thresholds for financial institutions in § 1003.2(g). 121 As discussed in more detail in the section-by-section analysis of § 1003.2(g), in the 2017 HMDA Rule the Bureau also amended §§ 1003.2(g) and 1003.3(c)(12) and related commentary to raise temporarily the open-end threshold in those provisions to 500 loans for calendar years 2018 and 2019. 122 For the reasons discussed in the section-by-section analysis of § 1003.2(g), the Bureau is now proposing to extend to January 1, 2022, Regulation C's current temporary open-end threshold for institutional and transactional coverage of 500 open-end lines of credit and then to set the threshold at 200 open-end lines of credit upon the expiration of the proposed extension of the temporary threshold. The Bureau therefore proposes to adjust the open-end line of credit threshold for transactional coverage in § 1003.3(c)(12) and comments 3(c)(12)-1 and -2 to 500 effective January 1, 2020, and to 200 effectiv [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2019-08983. Public record. Not legal advice.