Home Mortgage Disclosure (Regulation C)

Federal RegisterMay 12, 2020

Ask Donna

What actually matters in this document.

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:

Final rule; official interpretation.

SUMMARY:

The Bureau of Consumer Financial Protection (Bureau) is amending Regulation C to increase the threshold for reporting data about closed-end mortgage loans, so that institutions originating fewer than 100 closed-end mortgage loans in either of the two preceding calendar years will not have to report such data effective July 1, 2020. The Bureau is also setting the threshold for reporting data about open-end lines of credit at 200 open-end lines of credit effective January 1, 2022, upon the expiration of the current temporary threshold of 500 open-end lines of credit.

DATES:

This final rule is effective on July 1, 2020, except for the amendments to § 1003.2 in amendatory instruction 5, the amendments to § 1003.3 in amendatory instruction 6, and the amendments to supplement I to part 1003 in amendatory instruction 7, which are effective on January 1, 2022. See part VI for more information.

FOR FURTHER INFORMATION CONTACT:

Jaydee DiGiovanni, Counsel; 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 of the Final Rule

Regulation C, 12 CFR part 1003, implements the Home Mortgage Disclosure Act (HMDA), 12 U.S.C. 2801 through 2810. In an October 2015 final rule (2015 HMDA Rule), the Bureau established institutional and transactional coverage thresholds in Regulation C 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).

Home Mortgage Disclosure (Regulation C), 80 FR 66128 (Oct. 28, 2015). 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.

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, before those thresholds took effect, the Bureau temporarily increased the open-end threshold to 500 open-end lines of credit for two years (calendar years 2018 and 2019). In October 2019, the Bureau extended to January 1, 2022, the temporary threshold of 500 open-end lines of credit for open-end coverage.

This final rule adjusts Regulation C's coverage thresholds for closed-end mortgage loans and open-end lines of credit.

Effective July 1, 2020, this final rule permanently raises the closed-end coverage threshold from 25 to 100 closed-end mortgage loans in each of the two preceding calendar years. The final rule also amends § 1003.3(c)(11) and comment 3(c)(11)-2 so that institutions have the option to report closed-end data collected in 2020 if they: (1) Meet the definition of financial institution as of January 1, 2020 but are newly excluded on July 1, 2020 by the increase in the closed-end threshold, and (2) report closed-end data for the full calendar year. The final rule sets the permanent open-end threshold at 200 open-end lines of credit effective January 1, 2022, upon expiration of the temporary threshold of 500 open-end lines of credit.

When amending the Bureau's commentary, the Office of the Federal Register requires reprinting of certain subsections being amended in their entirety rather than providing more targeted amendatory instructions and commentary. The subsections of regulatory text and commentary included in this document show the complete language of those subsections. In addition, the Bureau is releasing an unofficial, informal redline to assist industry and other stakeholders in reviewing the changes that it is finalizing 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 this final rule, this final rule is the controlling document.

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.

Prior to the 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 the reasons for which an institution denied an application.

12 CFR 1003.1.

As used in this final 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.

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 Dodd-Frank Act also added new HMDA section 304(b)(5) and (6), which requires various additional new data points.

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.

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.”

Public Law 111-203, 124 Stat. 1376, 1980, 2035-38, 2097-101 (2010).

Dodd-Frank Act section 1094(3),

amending

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

Id.

C. 2015 HMDA Rule

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

Most of the 2015 HMDA Rule

took effect on January 1, 2018.

The 2015 HMDA Rule implemented the new data points specified in the Dodd-Frank Act, added a number of additional data points pursuant to the Bureau's discretionary authority under HMDA section 304(b)(5) and (6), 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, among other changes.

80 FR 66128 (Oct. 28, 2015).

Id.

at 66128, 66256-58.

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.

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.

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.

at 66173, 66310, 66322 (codified at 12 CFR 1003.3(c)(11) and (12)).

D. 2017 HMDA Rule

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.

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.

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.

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.

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

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).

Home Mortgage Disclosure (Regulation C), 82 FR 43088 (Sept. 13, 2017).

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 also issued a statement in December 2017 indicating that, for HMDA data collected in 2018 and reported in 2019, the Bureau did not intend to require data resubmission unless data errors were material. Among other things, the Bureau also 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. Bureau of Consumer Fin. Prot., “Statement with Respect to HMDA Implementation” (Dec. 21, 2017),

available at https://files.consumerfinance.gov/f/documents/cfpb_statement-with-respect-to-hmda-implementation_122017.pdf.

The Board, the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Office of the Comptroller of the Currency released similar statements relating to their supervisory examinations.

E. Economic Growth, Regulatory Relief, and Consumer Protection Act and 2018 HMDA Rule

On May 24, 2018, the President signed into law the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA).

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.

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.

Public Law 115-174, 132 Stat. 1296 (2018).

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.

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 the partial exemptions established by section 104(a) of the EGRRCPA and effectuate the purposes of the EGRRCPA and HMDA.

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.

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).

F. May 2019 Proposal and 2019 HMDA Rule

On May 2, 2019, the Bureau issued a notice of proposed rulemaking (May 2019 Proposal) relating to Regulation C's coverage thresholds and the EGRRCPA partial exemptions and requested public comment.

In the May 2019 Proposal, the Bureau proposed two alternatives to amend Regulation C to increase the current threshold of 25 closed-end mortgage loans 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. The May 2019 Proposal proposed an effective date of January 1, 2020, for the amendment to the closed-end coverage threshold. The May 2019 Proposal also proposed to adjust the coverage threshold for reporting data about open-end lines of credit by (a) extending to January 1, 2022 the current temporary coverage threshold of 500 open-end lines of credit, and (b) setting the permanent coverage threshold at 200 open-end lines of credit upon the expiration of the proposed extension of the temporary coverage threshold. In the May 2019 Proposal, the Bureau also proposed to make changes to effectuate section 104(a) of the EGRRCPA, including incorporating into Regulation C the interpretations and procedures from the 2018 HMDA Rule to implement and clarify section 104(a).

Home Mortgage Disclosure (Regulation C), 84 FR 20972 (May 13, 2019). The Bureau also issued concurrently with the May 2019 Proposal an Advance Notice of Proposed Rulemaking (ANPR) 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. Home Mortgage Disclosure (Regulation C) Data Points and Coverage, 84 FR 20049 (May 8, 2019). The Bureau anticipates that it will issue a notice of proposed rulemaking later this year to follow up on the ANPR.

The comment period for the May 2019 Proposal closed on June 12, 2019.

The Bureau received over 300 comments during the initial comment period from lenders, industry trade associations, consumer groups, consumers, members of Congress, and others. Among the comments received were a number of letters expressing concern that the national loan level dataset for 2018 and the Bureau's annual overview of residential mortgage lending based on that data (collectively, the 2018 HMDA Data

) would not be available until after the close of the comment period for the May 2019 Proposal. Stakeholders asked to submit comments on the May 2019 Proposal that reflect consideration of the 2018 HMDA Data. To allow for the submission of such comments, on July 31, 2019 the Bureau issued a notice to reopen the comment period on certain aspects of the proposal until October 15, 2019 (July 2019 Reopening Notice).

Specifically, the Bureau reopened the comment period with respect to: (1) The Bureau's proposed amendments to the permanent coverage threshold for closed-end mortgage loans, (2) the Bureau's proposed amendments to the permanent coverage threshold for open-end lines of credit, and (3) the appropriate effective date for any amendment to the closed-end coverage threshold.

The Bureau stated that, after reviewing the comments received by the October 15, 2019 deadline, it anticipated that it would issue in 2020 this separate final rule addressing the permanent thresholds for closed-end mortgage loans and open-end lines of credit.

A separate comment period related to the Paperwork Reduction Act closed on July 12, 2019. 84 FR 20972 (May 13, 2019).

This document uses “2018 HMDA Data” to refer to the publicly available national loan level dataset for 2018 and the Bureau's annual overview of residential mortgage lending, and “2018 HMDA data” to refer to the HMDA data submitted for collection year 2018.

See

Home Mortgage Disclosure (Regulation C); Reopening of Comment Period, 84 FR 37804 (Aug. 2, 2019).

Id.

at 37806.

The Bureau concluded that further comment was not necessary with respect to the other aspects of the May 2019 Proposal.

The Bureau therefore did not reopen the comment period with respect to the May 2019 Proposal's proposed two-year extension of the temporary coverage threshold for open-end lines of credit or the provisions in the May 2019 Proposal that would incorporate the EGRRCPA partial exemptions into Regulation C and further effectuate EGRRCPA section 104(a). The Bureau issued a final rule that finalized as proposed these aspects of the May 2019 Proposal on October 10, 2019 (2019 HMDA Rule).

The Bureau explained in the 2019 HMDA Rule that extending the current threshold of 500 open-end lines of credit for an additional two years would allow the Bureau to consider fully the appropriate level for the permanent open-end coverage threshold for data collected beginning January 1, 2022, after reviewing additional comments relating to that aspect of the May 2019 Proposal. The Bureau also stated that such an extension would ensure that any institutions that are covered under the new permanent open-end coverage threshold would have until January 1, 2022, to comply.

Id.

Home Mortgage Disclosure (Regulation C), 84 FR 57946 (Oct. 29, 2019).

G. 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 VII below.

The Bureau estimates that currently there are about 4,860 financial institutions required to report their closed-end mortgage loans and applications under HMDA. The Bureau estimates that approximately 4,120 of these current reporters are depository institutions and approximately 740 are nondepository institutions. The Bureau estimates that together these financial institutions originated about 6.3 million closed-end mortgage loans in calendar year 2018. The Bureau estimates that among the 4,860 financial institutions that are currently required to report closed-end mortgage loans under HMDA, about 3,250 insured depository institutions and insured credit unions are partially exempt for closed-end mortgage loans under the EGRRCPA, and thus are not required to report a subset of the data points currently required by Regulation C for these transactions.

See infra

part VII.D.1. All coverage numbers provided in this document are estimates based on available data, as explained in part VII below. Due to rounding there may be some minor discrepancies within the estimates provided. As discussed further in part VII below, the Bureau's analyses in the May 2019 Proposal were based on HMDA data collected in 2016 and 2017 and other sources. In part VII of this final rule, the Bureau has supplemented the analyses from the May 2019 Proposal with the 2018 HMDA data.

See infra

part VII.E.2 & VII.E.3. In the May 2019 Proposal, the Bureau estimated that there were about 4,960 financial institutions required to report their closed-end mortgage loans and applications under HMDA, with about 4,263 of those reporters being depository institutions and about 697 being nondepository institutions. The Bureau estimated that together, these financial institutions originated about 7 million closed-end mortgage loans in calendar year 2017. The Bureau also estimated that among the estimated 4,960 closed-end reporters, about 3,300 insured depository institutions and insured credit unions were eligible for a partial exemption under the EGRRCPA. The estimates in this final rule differ slightly from those in the May 2019 Proposal due to the supplementation of the analyses with 2018 HMDA data.

As explained in more detail in part VII.E.3 and table 4 below, under the current temporary threshold of 500 open-end lines of credit, the Bureau estimates that there are about 333 financial institutions required under HMDA to report about 1.23 million open-end lines of credit. Of these institutions, the Bureau estimates that approximately 318 are depository institutions and approximately 15 are nondepository institutions. The Bureau estimates that none of these 333 institutions are partially exempt under the EGRRCPA.

Absent this final rule, if the open-end coverage threshold were to adjust to 100 on January 1, 2022, 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 595 insured depository institutions and insured credit unions are partially exempt for open-end lines of credit under the EGRRCPA, and thus are not

required to report a subset of the data points currently required by Regulation C for these transactions. Additional information on the Bureau's estimates for open-end reporting, including the Bureau's estimates at the permanent threshold of 200 lines of credit, is provided in the section-by-section analysis of § 1003.2(g) and part VII below.

III. Summary of the Rulemaking Process

On May 2, 2019, the Bureau issued the May 2019 Proposal, which was published in the

Federal Register

on May 13, 2019.

As explained in part II.F above, the comment period on the May 2019 Proposal closed on June 12, 2019, and the Bureau subsequently reopened the comment period with respect to certain aspects of the May 2019 Proposal until October 15, 2019.

In total, the Bureau received over 700 comments in response to the May 2019 Proposal and the July 2019 Reopening Notice from lenders, industry trade associations, consumer groups, consumers, and others.

As discussed in more detail below, the Bureau has considered the comments received both during the initial comment period and in response to the July 2019 Reopening Notice in adopting this final rule.

Home Mortgage Disclosure (Regulation C), 84 FR 20972 (May 13, 2019).

Home Mortgage Disclosure (Regulation C); Reopening of Comment Period, 84 FR 37804 (Aug. 2, 2019).

A large number of consumer groups, civil rights groups, and other organizations stated in a joint comment letter in response to the July 2019 Reopening Notice that, because the 2018 HMDA Data were released in late August 2019, the reopened comment period did not provide sufficient time for the public to analyze the proposed changes prior to October 15, 2019. These commenters stated further that the public was not provided a meaningful opportunity to comment on the May 2019 Proposal and that the Bureau would not have the benefit of fully informed comments that took into consideration the 2018 HMDA Data. The Bureau determines that additional time to comment on the aspects of the May 2019 Proposal addressed in this final rule is not necessary. The Bureau believes the more than 45-day period between the release of the 2018 HMDA Data and the close of the reopened comment period on October 15, 2019, provided interested persons sufficient time to meaningfully review the proposed changes relating to the permanent open-end and closed-end thresholds and provide comment informed by the 2018 HMDA Data. Regarding commenters' separate concerns over the Bureau's dissemination of the data, the Bureau made available with the 2018 HMDA Data a HMDA data browser that facilitates analysis in spreadsheet software, such as Excel, and allows users to filter the national loan-level data to create summary tables and custom datasets. The HMDA data browser allows users to, for example, create summary tables that can be used to show which institutions are active in a particular Metropolitan Statistical Area (MSA), state, or county. Users can develop some understanding of the effect of various loan-volume thresholds, for individual institutions, by analyzing the publicly available modified loan/application register data or, for all institutions, by analyzing the publicly available national loan-level dataset.

IV. Legal Authority

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

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

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

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

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

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

et seq.

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

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

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

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

These regulations 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.

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

Id.

V. 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.

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.

In the May 2019 Proposal, the Bureau proposed (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. In the 2019 HMDA Rule, as discussed in part II.F above, the Bureau finalized the proposed amendments relating to the two-year extension of the temporary open-end coverage threshold. The Bureau stated at that time that it anticipated that it would issue a separate final rule in 2020 addressing the permanent thresholds for closed-end mortgage loans and open-end lines of credit.

For the reasons discussed below, the Bureau is raising the closed-end coverage threshold to 100, effective July 1, 2020, and is finalizing the proposed permanent open-end coverage threshold of 200, effective January 1, 2022, upon expiration of the current temporary open-end coverage threshold of 500.

12 CFR 1003.2(g)(1) (definition of depository financial institution); 1003.2(g)(2) (definition of nondepository financial institution).

82 FR 43088, 43095 (Sept. 13, 2017).

84 FR 57946, 57949 (Oct. 29, 2019).

For discussion of the effective dates, see part VI.

Legal Authority for Changes to § 1003.2(g)

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.

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.

Pursuant to its authority under HMDA section 305(a), and for the reasons discussed below, the Bureau believes that the final rule's amendments to the thresholds in § 1003.2(g)(1) and (2) are necessary and proper to effectuate the purposes of HMDA and facilitate compliance with HMDA by reducing burden and establishing a consistent loan-volume test, while still providing significant market coverage.

80 FR 66128, 66150 (Oct. 28, 2015).

Id.

at 66153.

A State attorney general suggested in its comments that increasing the thresholds exceeds the Bureau's legal authority, but as discussed above, the Bureau is adopting the increased thresholds based on its authority under section 305(a) of HMDA.

2(g)(1) Depository Financial Institution

2(g)(1)(v)

2(g)(1)(v)(A)

Section 1003.2(g) defines financial institution for purposes of Regulation C and conditions Regulation C's institutional coverage, in part, on the institution's closed-end mortgage loan origination volume. In the 2015 HMDA Rule, the Bureau added the threshold of 25 closed-end mortgage loans to the pre-existing regulatory coverage scheme for depository institutions.

In the May 2019 Proposal, the Bureau proposed to amend § 1003.2(g)(1)(v)(A) and related commentary to increase the closed-end threshold for depository institutions from 25 to 50 or, alternatively, 100 closed-end mortgage loans. For the reasons discussed below, the Bureau is now amending § 1003.2(g)(1)(v)(A) and related commentary to raise the threshold to 100 closed-end mortgage loans.

80 FR 66128, 66129 (Oct. 28, 2015). 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 an 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).

In addition to finalizing changes that the Bureau proposed to comment 2(g)-1 and changes related to optional reporting that are discussed below, the final rule makes minor changes to comment 2(g)-1 to update the years and loan-volumes in an example that illustrates how the closed-end mortgage loan threshold works.

Background on 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 adopting the threshold of 25 closed-end mortgage loans in the 2015 HMDA Rule, 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.

The Bureau also stated that the closed-end threshold of 25 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.

The Bureau acknowledged that it would be possible to maintain reporting of a significant percentage of the national mortgage market with a closed-end threshold set higher than 25 loans annually and that data reported by some institutions that would satisfy the threshold of 25 closed-end mortgage loans may not be as useful for statistical analysis as data reported by institutions with much higher loan volumes.

However, the Bureau determined that a higher closed-end 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.

The Bureau concluded that, if it were to set the closed-end 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.

80 FR 66128, 66147 (Oct. 28, 2015).

Id.

at 66148, 66277.

Id.

at 66147.

Id.

at 66148.

However, after issuing the 2015 HMDA Rule and the 2017 HMDA Rule, the Bureau heard concerns that lower-volume institutions continue to experience significant burden with the threshold set at 25 closed-end mortgage loans.

For example, several depository institutions recommended that the Bureau use its exemption authority to increase the closed-end loan threshold and stated that the costs of 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.

In light of the concerns expressed by industry stakeholders regarding the considerable burden associated with reporting the new data points on closed-end mortgage loans required by the 2015 HMDA Rule, in the May 2019 Proposal the Bureau proposed to increase the closed-end threshold for institutions to ensure that it appropriately balances the benefits of the HMDA data reported by lower-volume institutions in furthering HMDA's purposes with the burden on

such institutions associated with reporting closed-end data. The Bureau stated in the proposal that increasing the closed-end threshold may provide meaningful burden relief for lower-volume depository institutions without reducing substantially the data reported under HMDA. The Bureau sought comments on how the proposed increase to the closed-end threshold would affect the number of depository institutions required to report data on closed-end mortgage loans, the significance of the data that would not be available for achieving HMDA's purposes as a result of the proposed increase, and the reduction in burden that would result from the proposed increase for depository institutions that would not be required to report.

The Bureau temporarily raised the threshold for open-end lines of credit in the 2017 HMDA Rule because of concerns based on new information that the estimates the Bureau used in the 2015 HMDA Rule may have understated the burden that open-end reporting would impose on smaller institutions if they were required to begin reporting on January 1, 2018. However, the Bureau declined to raise the threshold for closed-end mortgage loans at that time 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 threshold of 25 closed-end mortgage loans as well as the one-time and ongoing costs to industry. 82 FR 43088, 43095-96 (Sept. 13, 2017).

In the May 2019 Proposal, the Bureau stated that it received this recommendation in response to the Bureau's 2018 Request for Information Regarding the Bureau's Adopted Regulations and New Rulemaking Authorities (RFI) although the 2015 HMDA Rule was outside the scope of the RFI.

See

84 FR 20972, 20976 (May 13, 2019).

Comments Received on Closed-End Threshold for Institutional Coverage of Depository Institutions

The Bureau received many comments regarding the proposed alternatives for increasing the closed-end threshold from 25 to 50 or, alternatively, 100 in proposed § 1003.2(g)(1)(v)(A). Except for comments related to the EGRRCPA, commenters typically did not distinguish between their recommended closed-end threshold for depository institutions under § 1003.2(g)(1)(v)(A) and their recommended closed-end threshold for nondepository institutions under § 1003.2(g)(2)(ii)(A).

Many commenters, including most financial institutions and national and State trade associations that commented, supported increasing the closed-end threshold. Most of these commenters discussed the burden of collecting and reporting HMDA data, and despite acknowledging the importance of HMDA data, stated that the cost of complying with regulations has affected their ability to serve their communities. Many industry commenters stated that the burden of complying with HMDA requirements is exacerbated in smaller financial institutions due to fewer staff and a lack of automated processes. A number of small financial institutions stated that they have only a few employees who work in mortgage lending and that these employees spend a considerable amount of time on HMDA compliance, including collecting and entering HMDA data into the appropriate software system and reviewing the data for accuracy. One national trade association added that many small financial institutions operate in geographic areas with shortages of compliance professionals. Several industry commenters also noted that the economies of scale that larger financial institutions can leverage are generally not available to small financial institutions. Many small financial institutions stated that, if the Bureau increased the closed-end threshold and thus excluded them from HMDA's coverage, the significant burden relief would allow their staff to focus on serving customers.

A national trade association stated that a significant number of small financial institutions limit or no longer offer specific mortgage products due to the increased regulatory burden and legal risks associated with such loans. This commenter stated that certain institutions manage their mortgage lending to stay below the threshold for HMDA reporting, which ultimately leaves customers with fewer lending options, and suggested that an increase in the closed-end threshold could increase the flow of credit by small banks into their communities. For example, one small financial institution suggested that, if it did not have to collect HMDA data, the resulting decrease in compliance costs would allow it to maintain a program that provides mortgages to low-to-moderate income families.

Several industry commenters stated that the loss of HMDA data as a result of an increase in the closed-end threshold would not impact the ability to identify potentially discriminatory lending or areas in need of public sector investment. One national trade association stated that institutions that would qualify for the exclusion under the thresholds proposed by the Bureau were extremely small market participants with limited loan volumes and that data on their lending patterns could be obtained through the examination process. This commenter also suggested that any type of fair lending peer comparisons using the HMDA data could still be accurate because, under the proposed threshold of 100, at least 96 percent of total originations would be retained. Many small financial institutions stated that, in their fair lending exams, their regulators have relied on HMDA data, but also on transaction testing data and staff interviews, partly because of the limited number of mortgage applications these institutions receive. These commenters stated further that their regulators also retain full access to their lending files and data needed for their fair lending assessment. A number of commenters, including many small financial institutions and a State trade association, stated that small financial institutions are eligible for partial exemptions under the EGRRCPA and thus are already exempt from reporting much of the data on their credit decisions that would signal lending disparities, such as pricing information and credit scores. The State trade association further stated that examiners already need to review such institutions' files, rather than relying on their HMDA data, to identify potentially discriminatory lending patterns. A State trade association expressed the belief that, due to budget constraints for some local governments and housing authorities, HMDA data are not considered in the distribution of public sector investments in certain areas. Moreover, this commenter stated that, in areas where government authorities do consider HMDA data in making public investment decisions, HMDA data from lower-volume institutions make up a small percentage of the overall lending data within the area and thus do not impact such investment decisions.

Relying on the reasons described above, most of the commenters supporting the proposed increase to the closed-end threshold stated that they preferred the proposed threshold of 100 closed-end mortgage loans over the proposed threshold of 50 closed-end mortgage loans. In some cases, commenters urged the Bureau to consider increasing the closed-end threshold even higher, such as to 250, 500, or 1,000. A national trade association recommended increasing the closed-end threshold to 500 to harmonize HMDA's coverage requirements with the threshold for the EGRRCPA partial exemptions. A trade association and some small financial institutions suggested that the Bureau increase the threshold to 1,000 closed-end mortgage loans, expressing the belief that the Bureau's proposal did not go far enough to distinguish small lending institutions from larger institutions in the mortgage market. The trade association reasoned that increasing the threshold to at least 1,000 closed-end mortgage loans would meaningfully reduce regulatory burden associated with HMDA compliance and allow institutions to direct their cost savings towards improving customer service, increasing consumer-friendly products, and continuing to invest in their communities.

Other commenters, including many community organizations, consumer advocates, research organizations, and individuals, opposed the Bureau's proposal to increase the closed-end threshold. These commenters stated that an increase to the closed-end threshold, which would result in a decrease in HMDA data, would imperil HMDA's purpose of assessing whether financial institutions are meeting the housing

needs of their communities. For example, one research organization stated that robust, quality data are critical to the work of regulators and community reinvestment advocates in assessing how well institutions are serving their communities. One commenter stated that lenders rely on HMDA data for internal fair lending and community reinvestment compliance efforts and to assess their performance relative to that of their peers and competitors. A comment letter from 19 U.S. Senators stated that the Bureau's proposal ignores existing exemptions that already reduce the usefulness of HMDA data in many communities. These Senators pointed out that the 2015 HMDA Rule exempted 22 percent of depository institutions that had previously been required to report HMDA data, which resulted in a significant loss of data in certain census tracts. They also noted that an underlying purpose of HMDA is to show how institutions are serving local communities and stated that, even if the loss of data from smaller-volume institutions would be limited when compared to the overall market, the loss of the data would have a real and meaningful impact for residents of affected communities. In a joint comment letter, a large number of consumer groups, civil rights groups, and other organizations expressed a similar concern that increasing the threshold would result in a large loss of HMDA reporting that would otherwise provide a view of lending trends in underserved areas.

Many consumer groups, civil rights groups, and other organizations also discussed the importance of HMDA data for transparency and accountability, noting that the public visibility of HMDA data has motivated financial institutions to increase lending to traditionally underserved borrowers and communities. They expressed concern that the smaller institutions that would no longer be required to report closed-end data at the proposed higher thresholds disproportionately lend in underserved neighborhoods and that the proposed threshold increase would result in a more notable decrease in closed-end data for distressed urban areas, rural areas, tribal areas, communities of color, and neighborhoods that have a high number of immigrants. These commenters asserted that for decades the public has used HMDA data to uncover and address redlining and other fair lending and fair housing violations and stated that an increase in the threshold would make identifying such practices more difficult. A consumer advocacy organization stated that lenders offering unfavorable and unsustainable loan terms and refinance loans in the period just before the financial crisis disproportionally targeted certain groups. Many commenters also stated that an increase in the closed-end threshold would impact the public's ability to evaluate whether public investments are successful in revitalizing struggling areas. For example, one community group noted that the loss of HMDA data from banks and credit unions operating in rural towns and communities would result in less information about where capital is being deployed in those areas.

Many commenters who were opposed to increasing the closed-end threshold pointed out the impact that an increase to the closed-end threshold would have on the work of Federal and State agencies. They stated that raising the thresholds would compromise enforcement work against unfair and deceptive lending because there would be less data available to monitor such activity. Similarly, commenters stated that examinations pursuant to the Community Reinvestment Act (CRA) would become more burdensome because examiners would likely need to be onsite to review data rather than using publicly available HMDA data. A State attorney general commenter suggested that under the Bureau's proposal, major lenders would be exempt from HMDA reporting and that the lack of data from such lenders would affect its ability to ensure that all of its residents are able to access affordable credit free of discrimination. In addition, this commenter stated that the proposed closed-end threshold increase would all but eliminate its ability to enforce fair lending laws in “hyper-localized” markets in rural areas because small, local lenders are disproportionately represented in rural areas (the commenter did not define the term “hyper-localized,” but the Bureau understands this term as referring to markets that are limited to a small geographic area).

Several commenters also expressed concerns about the impact that an increase in the closed-end threshold would have on visibility into specific loan products, such as loans for multifamily housing and manufactured housing. For example, a State attorney general expressed concerns that a threshold higher than the current threshold of 25 would limit data reported on multifamily dwellings that provide a significant source of affordable housing in urban areas across the State. Another commenter opposed an increase to the closed-end threshold because of concerns that it would decrease visibility into manufactured housing loans, reasoning that there are a small number of lenders that make such loans.

Many commenters who opposed an increase in the closed-end threshold also stated that the cost savings that would result from excluding lenders from HMDA reporting would be modest. These commenters asserted that the burden of HMDA reporting is not so significant as to make up for the loss of data that would otherwise be available at the current threshold of 25 closed-end mortgage loans for the public and regulators to monitor fair lending compliance. These commenters stated further that the estimates of potential cost savings provided by the Bureau in the proposal were too high and that the cost of HMDA reporting is low. First, they stated that most of the lenders that would be excluded under the Bureau's proposed rule are already exempt from reporting many of the new HMDA data points because they qualify for partial exemptions under the EGRRCPA and would therefore be reporting data that lenders have been reporting for decades. Second, these commenters noted that much of the data reportable under HMDA must be collected for other rules, including the TILA-RESPA Integrated Disclosure and Ability-to-Repay/Qualified Mortgage rules, and ordinary underwriting standards. Finally, these commenters stated that HMDA data should be collected as a matter of sound banking practices and asserted that reporting the data is unlikely to require substantial resources given modern technological advancements.

Final Rule

Pursuant to its authority under HMDA section 305(a) as discussed above, the Bureau is finalizing the closed-end threshold for depository institutions at 100 in § 1003.2(g)(1)(v)(A). As discussed below, the Bureau believes that increasing the closed-end threshold to 100 will provide meaningful burden relief for lower-volume depository institutions while maintaining reporting sufficient to achieve HMDA's purposes.

Since the 2015 HMDA Rule was issued, a few developments have affected the Bureau's analyses of the costs and benefits associated with the closed-end threshold. The Bureau has gathered extensive information regarding stakeholders' experience with the 2015 HMDA Rule, through comments received in this rulemaking and other feedback. As stated above, the Bureau has heard that financial institutions have encountered

significant burdens in complying with the rule, and the Bureau is particularly concerned about the increased burdens faced by smaller institutions. Additionally, the Bureau now has access to HMDA data from 2018, which was the first year that financial institutions collected data under the 2015 HMDA Rule, and has used these data in updating and generating the estimates provided in this final rule. With the benefit of this additional information about the 2015 HMDA Rule, and the new data to supplement the Bureau's analyses, the Bureau is now in a better position to assess both the benefits and burdens of the reporting required under the 2015 HMDA Rule.

Another development since 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.

The partial exemption for closed-end mortgage loans under the EGRRCPA relieves certain insured depository institutions and insured credit unions that originated fewer than 500 closed-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.

While the EGRRCPA relieves burden for some depository institutions, it does not relieve smaller depository institutions from the burdens of reporting entirely.

Public Law 115-174, 132 Stat. 1296 (2018).

See

84 FR 57946 (Oct. 29, 2019).

The Bureau has considered the appropriate closed-end threshold in light of these developments and the comments received. On balance, the Bureau determines that the threshold of 100 closed-end mortgage loans provides sufficient information on closed-end mortgage lending to serve HMDA's purposes, while appropriately reducing ongoing costs that smaller institutions are incurring under the current threshold. 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 VII.E.2 below.

Effect on Market Coverage

For this final rule, the Bureau reviewed multiple data sources, including recent HMDA data

and Reports of Condition and Income (Call Reports), and developed estimates for the two thresholds the Bureau proposed in the alternative, 50 and 100, as well as thresholds of 250 and 500, which many commenters suggested the Bureau consider. The Bureau notes that many of the estimates provided in this final rule differ slightly from the initial estimates provided in the May 2019 Proposal. As discussed below in part VII.E.2, the estimates in this final rule update the initial estimates provided in the May 2019 Proposal with the 2018 HMDA data, which were not available at the time the Bureau developed the May 2019 Proposal. For the May 2019 Proposal, the Bureau used data from 2016 and 2017 with a two-year look-back period covering calendar years 2016 and 2017 to estimate potential reporters and projected the lending activities of financial institutions using their 2017 data as proxies. In generating the updated estimates provided in this final rule, the Bureau has used data from 2017 and 2018 with a two-year look-back period covering calendar years 2017 and 2018 to estimate potential reporters and has projected the lending activities of financial institutions using their 2018 data as proxies. In addition, for the estimates provided in the May 2019 Proposal and in this final rule, the Bureau restricted the projected reporters to only those that actually reported data in the most recent year of HMDA data considered (2017 for the May 2019 Proposal and 2018 for this final rule).

The Bureau stated in the May 2019 Proposal that it intended to review the 2018 HMDA data more closely in connection with this rulemaking once the 2018 submissions were more complete. The Bureau released the 2018 HMDA Data including the two data point articles on August 30, 2019, and reopened the comment period until October 15, 2019, to give commenters an opportunity to comment on the 2018 HMDA Data. The estimates reflected in this final rule are based on the HMDA data collected in 2017 and 2018 as well as other sources.

The Bureau recognizes that the coverage estimates generated using this restriction may omit certain financial institutions that should have reported but did not report in the most recent HMDA reporting year. However, the Bureau applied this restriction to ensure that institutions included in its coverage estimates are in fact financial institutions for purposes of Regulation C because it recognizes that institutions might not meet the Regulation C definition of financial institution for reasons that are not evident in the data sources that it utilized.

The estimates below compare coverage under these thresholds to coverage under the current threshold of 25 closed-end mortgage loans. The estimated effect that increasing the threshold from 25 closed-end mortgage loans to various higher thresholds would have on the overall HMDA data, local-level HMDA data, and specific loan products reported are discussed in turn below.

Effect on covered depository institutions and reportable originations.

For this final rule, the Bureau has considered the impact that the two alternative proposed thresholds and other possible thresholds would have on the number of depository institutions that would report HMDA data and how many originations they would report.

The Bureau estimates that if the closed-end threshold were increased from 25 to 50, approximately 3,400 out of approximately 4,120 depository institutions covered under the current threshold of 25 (or approximately 85 percent) would continue to be required to report HMDA data on closed-end mortgage loans. Further, the Bureau estimates that if the threshold were increased from 25 to 50, approximately 98.9 percent or approximately 2.89 million total originations of closed-end mortgage loans in current market conditions reported by depository institutions under the current Regulation C coverage criteria would continue to be reported.

The estimates for coverage and reportable originations described in this section cover only depository institutions. Estimates for coverage of nondepository institutions and reportable originations of nondepository institutions are described in the section-by-section analysis of § 1003.2(g)(2)(ii)(A) below. For estimates that are comprehensive of depository and nondepository institutions, see part VII.E.2 below.

In the May 2019 Proposal, the Bureau estimated that if the closed-end threshold were increased from 25 to 50, about 3,518 out of about 4,263 depository institutions covered under the current threshold of 25 (or approximately 83 percent) would continue to report HMDA data on closed-end mortgage loans, and approximately 99 percent or approximately 3.54 million total originations of closed-end mortgage loans in current market conditions reported by depository institutions under the current Regulation C coverage criteria would continue to be reported. As explained above and in greater detail in part VII.E.2 below, the differences in the estimates between the May 2019 Proposal and this final rule are mostly due to updates made to incorporate the newly available 2018 HMDA data.

The Bureau estimates that with the closed-end threshold set at 100 under the final rule, approximately 2,480 out of approximately 4,120 depository institutions covered under the current threshold of 25 (or approximately 60 percent) will continue to be required to report HMDA data on closed-end mortgage loans. Further, the Bureau estimates that when the final rule increases the closed-end threshold from 25 to 100 loans, approximately 96 percent or approximately 2.79 million total originations of closed-end mortgage loans in current market conditions reported by depository institutions under the current Regulation C coverage criteria will continue to be reported.

In the May 2019 Proposal, the Bureau estimated that if the closed-end threshold were increased from 25 to 100, about 2,581 out of about 4,263 depository

institutions covered under the current threshold of 25 (or approximately 61 percent) would continue to report HMDA data on closed-end mortgage loans, and approximately 90 percent or approximately 3.43 million total originations of closed-end mortgage loans in current market conditions reported by depository institutions under the current Regulation C coverage criteria would continue to be reported. As explained above and in greater detail in part VII.E.2 below, the differences in the estimates between the May 2019 Proposal and this final rule are mostly due to updates made to incorporate the newly available 2018 HMDA data.

The Bureau also generated estimates for closed-end thresholds higher than those that the Bureau proposed. These estimates indicate 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 threshold were set at 250, the Bureau estimates that approximately 1,340 out of approximately 4,120 depository institutions covered under the current threshold of 25 (or approximately 32 percent) would continue to be required to report HMDA data on closed-end mortgage loans. Further, the Bureau estimates that, if the threshold were set at 250 closed-end mortgage loans, approximately 89 percent or approximately 2.57 million total originations of closed-end mortgage loans in current market conditions reported by depository institutions under the current Regulation C coverage criteria would continue to be reported.

In the May 2019 Proposal, the Bureau estimated that if the closed-end threshold were increased from 25 to 250, about 1,413 out of about 4,263 depository institutions covered under the current threshold of 25 (or approximately 33 percent) would continue to report HMDA data on closed-end mortgage loans, and approximately 90 percent or approximately 3.21 million total originations of closed-end mortgage loans in current market conditions reported by depository institutions under the current Regulation C coverage criteria would continue to be reported. As explained above and in greater detail in part VII.E.2 below, the differences in the estimates between the May 2019 Proposal and this final rule are mostly due to updates made to incorporate the newly available 2018 HMDA data.

The Bureau estimates that if the closed-end threshold were set at 500, approximately 720 out of approximately 4,120 depository institutions covered under the current threshold of 25 (or approximately 18 percent) would continue to be required to report HMDA data on closed-end mortgage loans. Further, the Bureau estimates that, if the threshold were set at 500, approximately 81 percent or approximately 2.34 million total originations of closed-end mortgage loans in current market conditions reported by depository institutions under the current Regulation C coverage criteria would continue to be reported.

In the May 2019 Proposal, the Bureau estimated that if the closed-end threshold were increased from 25 to 500, about 798 out of about 4,263 depository institutions covered under the current threshold of 25 (or approximately 19 percent) would continue to report HMDA data on closed-end mortgage loans, and approximately 83 percent or approximately 2.97 million total originations of closed-end mortgage loans in current market conditions reported by depository institutions under the current Regulation C coverage criteria would continue to be reported. As explained above and in greater detail in part VII.E.2 below, the differences in the estimates between the May 2019 Proposal and this final rule are mostly due to updates made to incorporate the newly available 2018 HMDA data.

As described above, many commenters opposed increasing the closed-end threshold because of concerns that there would be less data with which to further HMDA's statutory purposes. While the Bureau recognizes that the increase in the threshold to 100 closed-end mortgage loans will reduce market coverage compared to the current threshold of 25, the Bureau estimates that information covering approximately 96 percent of loans currently reported will still be available to further HMDA's statutory purposes. The Bureau believes that the small amount of HMDA data obtained from lower-volume depository institutions does not justify the costs imposed on those institutions to comply with HMDA data reporting requirements.

Although a commenter suggested the Bureau increase the closed-end threshold to 500 to harmonize the thresholds with the EGRRCPA provisions, the Bureau determines that it is not appropriate to set the closed-end threshold at 500. Doing so would provide a complete exclusion from reporting all closed-end data for institutions below the threshold of 500, even though Congress opted to provide only a partial exemption at the threshold of 500, and would extend that complete exclusion to institutions that Congress did not include in even the partial exemption. The EGRRCPA partial exemption already relieves most lenders originating fewer than 500 closed-end loans in each of the two preceding calendar years from the requirement to report many data points associated with their closed-end transactions.

Providing a complete exclusion at 500 closed-end mortgage loans would exclude visibility into approximately 82 percent of institutions covered under the current threshold of 25 closed-end mortgage loans, which would result in a significant loss of coverage in closed-end lending and negatively impact the utility of HMDA data.

As discussed in more detail in part VII.E.2 below, about 1,620 of the estimated 2,480 financial institutions that the Bureau estimates will report closed-end loans at the threshold of 100 are eligible for a partial exemption under the EGRRCPA. The Bureau estimates that these partially exempt institutions report only 369,000 out of the estimated 2.7 million closed-end mortgage loans that will be reported at the threshold of 100.

Effect on HMDA data at the local level.

For the proposal and this final rule, the Bureau reviewed estimates at varying closed-end thresholds to examine the potential effect on available data at the census tract level. The Bureau's estimates of the effect on reportable HMDA data at the census tract level comprise both depository institutions and nondepository institutions. The Bureau estimates that, if the closed-end threshold were raised from 25 to 50, approximately 74,300 out of the approximately 74,600 total census tracts in which HMDA data are currently reported, or over 99 percent, would retain more than 80 percent of reportable HMDA data, relative to the current threshold. The Bureau estimates there would be a decrease of at least 20 percent of reportable HMDA data on closed-end mortgage loans relative to the current threshold in approximately 300 out of approximately 74,600 total census tracts in which HMDA data are currently reported, or less than one-half of 1 percent. With respect to low-to-moderate income census tracts, if the closed-end threshold were raised from 25 to 50, the Bureau estimates that, relative to the current threshold of 25, over 99 percent of low-moderate income census tracts would retain more than 80 percent of reportable HMDA data, and there would be at least a 20 percent decrease in reportable HMDA data on closed-end mortgage loans in less than 1 percent of such tracts. In addition, the Bureau examined the effects on rural census tracts and estimates that, relative to the current threshold of 25, more than 98 percent of rural tracts would retain more than 80 percent of reportable HMDA data, and there would be at least a 20 percent decrease in reportable HMDA data in just over 1 percent of rural tracts.

In the May 2019 Proposal, the Bureau estimated that if the closed-end threshold were increased from 25 to 50, there would be 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, relative to the current threshold. For low-to-moderate income census tracts, the Bureau estimated that there would be a loss of at least 20 percent of reportable HMDA data in less than 1 percent of such tracts relative to the current threshold, and for rural census tracts, the Bureau estimated there would be at least a 20 percent loss of reportable HMDA data in less than one-half of 1 percent of such tracts relative to the current threshold. As explained above and in greater detail in part VII.E.2 below, the differences in the

estimates between the May 2019 Proposal and this final rule are mostly due to updates made to incorporate the newly available 2018 HMDA data.

With the threshold of 100 closed-end mortgage loans established by this final rule, the Bureau estimates that, relative to the current threshold of 25, approximately 73,400 census tracts out of approximately 74,600 total census tracts in which HMDA data are currently reported, or over 98 percent, would retain more than 80 percent of reportable HMDA data. The Bureau estimates that there will be a decrease of at least 20 percent of reportable HMDA data on closed-end mortgage loans relative to the current threshold in about 1,200 out of approximately 74,600 total census tracts in which HMDA data are currently reported, or under 2 percent. For low-to-moderate income census tracts, with the threshold of 100 closed-end mortgage loans, the Bureau estimates that, relative to the current threshold of 25, approximately 97 percent of such tracts will retain more than 80 percent of reportable HMDA data, and there will be a decrease of at least 20 percent of reportable HMDA data in approximately 3 percent of such tracts. The Bureau also estimates that, relative to the current threshold of 25, approximately 95 percent of rural tracts will retain more than 80 percent of reportable HMDA data, and there will be a decrease of at least 20 percent of reportable HMDA data in approximately 5 percent of such tracts.

In the May 2019 Proposal, the Bureau estimated that if the closed-end threshold were increased from 25 to 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. For low-to-moderate income census tracts, the Bureau estimated that there would be a loss of at least 20 percent of reportable HMDA data in 3 percent of such tracts relative to the current threshold, and for rural census tracts, the Bureau estimated there would be at least a 20 percent loss of reportable HMDA data in less than 3 percent of such tracts relative to the current threshold. As explained above and in greater detail in part VII.E.2 below, the differences in the estimates between the May 2019 Proposal and this final rule are mostly due to updates made to incorporate the newly available 2018 HMDA data.

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 thresholds above 100. For example, the Bureau estimates that, if the threshold were increased from 25 to 250 loans, approximately 68,800 out of the approximately 74,600 total census tracts in which HMDA data are currently reported, or over 92 percent, would retain more than 80 percent of reportable HMDA data, relative to the current threshold. The Bureau estimates there would be a decrease of at least 20 percent of reportable HMDA data on closed-end mortgage loans in about 5,800 out of approximately 74,600 total census tracts in which HMDA data are currently reported, or about 8 percent of those census tracts, relative to the current threshold. For low-to-moderate income census tracts, if the threshold were increased from 25 to 250, the Bureau estimates that approximately 90 percent of tracts would retain more than 80 percent of reportable HMDA data, and there would be a decrease of at least 20 percent of reportable HMDA data in approximately 10 percent of such tracts, relative to the current threshold. For rural tracts, the Bureau estimates that approximately 81 percent of tracts would retain more than 80 percent of reportable HMDA data, and there would be a decrease of at least 20 percent of reportable HMDA data in approximately 19 percent of such tracts, relative to the current threshold.

In the May 2019 Proposal, the Bureau estimated that if the closed-end threshold were increased from 25 to 250, there would be 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 of census tracts, relative to the current threshold. For low-to-moderate income census tracts, the Bureau estimated that there would be a loss of at least 20 percent of reportable HMDA data in just over 8 percent of such tracts relative to the current threshold, and for rural census tracts, the Bureau estimated there would be at least a 20 percent loss of reportable HMDA data in about 14 percent of such tracts relative to the current threshold. As explained above and in greater detail in part VII.E.2 below, the differences in the estimates between the May 2019 Proposal and this final rule are mostly due to updates made to incorporate the newly available 2018 HMDA data.

Further, the Bureau estimates that, if the closed-end threshold were increased from 25 to 500 loans, approximately 60,500 out of approximately 74,600 total census tracts in which HMDA data are currently reported, or approximately 81 percent, would retain more than 80 percent of reportable HMDA data. The Bureau estimates there would be a decrease of at least 20 percent of reportable HMDA data on closed-end mortgage loans in approximately 14,100, or 19 percent of the total number of census tracts in which HMDA data are currently reported, relative to the current threshold of 25. For low-to-moderate income census tracts, the Bureau estimates that, if the threshold were increased from 25 to 500, over 78 percent of such tracts would retain more than 80 percent of reportable HMDA data, and there would be a decrease of at least 20 percent of reportable HMDA data in over 21 percent of such tracts. For rural census tracts, the Bureau estimates that approximately 62 percent of such tracts would retain more than 80 percent of reportable HMDA data, and there would be a decrease of at least 20 percent of reportable HMDA data in approximately 37 percent of such tracts, relative to the current threshold.

In the May 2019 Proposal, the Bureau estimated that if the closed-end threshold were increased from 25 to 500, there would be 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 of census tracts, relative to the current threshold. For low-to-moderate income census tracts, the Bureau estimated that there would be a loss of at least 20 percent of reportable HMDA data in 17 percent of such tracts relative to the current threshold, and for rural census tracts, the Bureau estimated there would be at least a 20 percent loss of reportable HMDA data in 32 percent of such tracts relative to the current threshold. As explained above and in greater detail in part VII.E.2 below, the differences in the estimates between the May 2019 Proposal and this final rule are mostly due to updates made to incorporate the newly available 2018 HMDA data.

The Bureau recognizes 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. The Bureau concludes, however, based on the estimates provided above, that the threshold of 100 closed-end loans adopted in this final rule will provide substantial visibility into rural and low-to-moderate income tracts and permit the public and public officials to identify patterns and trends at the local level. At the same time, the Bureau is concerned that the higher closed-end mortgage loan-volume thresholds above 100 suggested by industry commenters could have a material negative impact on the availability of data about patterns and trends at the local level and could affect the availability of data necessary to achieve HMDA's purposes.

Specific types of data.

The Bureau has also considered the impact that increasing the threshold could have on data related to specific types of closed-end lending mentioned by commenters, such as applications and originations related to multifamily housing and manufactured housing lending. The Bureau estimates that with the closed-end threshold increased from 25 to 100 under the final rule, approximately 87 percent of multifamily loan applications and originations will continue to be reported by depository and nondepository institutions combined, when compared to the current threshold of 25 closed-end mortgage loans in today's market conditions. Regarding the effect on manufactured housing data, the Bureau estimates that at a threshold of 100 closed-end mortgage loans, approximately 96 percent of loans and applications related to manufactured housing will continue to

be reported by depository and nondepository institutions combined, when compared to the current threshold of 25 closed-end mortgage loans in today's market conditions. Increasing the threshold above 100 would have a more pronounced impact on data regarding both multifamily housing and manufactured housing lending. Although less data will be available regarding multifamily housing and manufactured housing lending at the threshold of 100 than at the current threshold, the Bureau believes that the limited decreases in the amount of data are justified by the benefits of relieving smaller-volume institutions of the burdens of HMDA reporting.

Ongoing Cost Reduction From Threshold of 100

As noted above, small financial institutions and trade associations commented on the cost of HMDA reporting, suggesting that compliance costs have had an impact on the ability of small financial institutions to serve their customers and communities. For the proposal and this final rule, the Bureau developed estimates for depository and nondepository institutions combined to determine the savings in annual ongoing costs at various thresholds.

These estimates illustrate the cost savings under the various thresholds when compared to the current threshold of 25.

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 use, and reflect updates made to the cost estimates since the May 2019 Proposal. See part VII.E.2 below for a more comprehensive discussion of the cost estimates.

The Bureau estimates that if the closed-end threshold were set at 50, institutions that originate between 25 and 49 closed-end mortgage loans would save approximately $3.7 million per year in total annual ongoing costs, relative to the current threshold of 25.

The Bureau estimates that with a threshold of 100 closed-end mortgage loans established by the final rule, institutions that originate between 25 and 99 closed-end mortgage loans will save approximately $11.2 million per year, relative to the current threshold of 25.

With a threshold of 250 or 500 closed-end mortgage loans, the Bureau estimates that institutions would save approximately $27.2 million and $45.4 million, respectively, relative to the current threshold of 25. Based on the Bureau's estimates, the Bureau believes that the cost reduction from increasing the threshold from 25 to 100 closed-end mortgage loans is significant and more than double the cost savings that a threshold of 50 closed-end mortgage loans would have provided, providing meaningful cost savings to institutions.

In the May 2019 Proposal, the Bureau estimated that if the closed-end threshold were increased from 25 to 50, the aggregate savings on the operational costs associated with reporting closed-end mortgage loans would be approximately $2.2 million per year. As explained above and in greater detail in part VII.E.2 below, the differences in the estimates between the May 2019 Proposal and this final rule are mostly due to updates made to incorporate the newly available 2018 HMDA data.

In the May 2019 Proposal, the Bureau estimated that if the closed-end threshold were increased from 25 to 100, the aggregate savings on the operational costs associated with reporting closed-end mortgage loans would be approximately $8.1 million per year. As explained above and in greater detail in part VII.E.2 below, the differences in the estimates between the May 2019 Proposal and this final rule are mostly due to updates made to incorporate the newly available 2018 HMDA data.

The Bureau recognizes that the estimated ongoing costs savings associated with increasing the threshold from 25 to 100 closed-end loans are less than they would have been absent the relief provided by the EGRRCPA. Nonetheless, the Bureau determines that these ongoing cost savings will provide meaningful burden reduction to smaller institutions that are currently covered at the threshold of 25 closed-end loans but will be excluded from closed-end reporting under the increased threshold in this final rule. Avoiding the imposition of such costs for these affected institutions may also enable smaller institutions to focus on lending activities and serving their communities, as suggested by some commenters.

The Bureau concludes that increasing the closed-end threshold to 100 will provide meaningful burden relief for lower-volume depository institutions while maintaining reporting sufficient to achieve HMDA's purposes. As discussed above, the Bureau has heard of significant burdens in complying with the 2015 HMDA Rule, especially from smaller institutions, and the Bureau has been able to confirm the impact of the rule and any potential changes to the closed-end threshold, based on the new 2018 HMDA data. The Bureau recognizes that there is some loss of data at this threshold but believes that it strikes the right balance between the burden of collecting and reporting and the benefit of HMDA data. The Bureau's estimates reflect an estimated decrease of about 4 percent of total originations by depository institutions reportable under the current closed-end threshold of 25 in today's market conditions. According to the Bureau's estimates, about 60 percent of current HMDA reporters that are depository institutions will continue to report HMDA data, and only approximately 1,200 out of 74,600 census tracts will reflect a decrease of at least 20 percent in HMDA data from depository and nondepository institutions. Therefore, the Bureau believes that the decrease in data from institutions that will be newly excluded with the closed-end threshold set at 100 is justified by the significant reduction in burden for the approximately 1,640 lower-volume depository institutions that will no longer be required to report HMDA data when compared to the current threshold of 25. The threshold of 100 closed-end mortgage loans balances the benefits and burdens of covering institutions engaged in closed-end mortgage lending by retaining significant coverage of the closed-end market while excluding from coverage smaller institutions whose limited closed-end data would be of lesser utility in furthering HMDA's purposes. For the reasons stated above, the Bureau is amending § 1003.2(g)(1)(v)(A) and comments 2(g)-1 and 2(g)-5 to adjust the threshold to 100 closed-end mortgage loans. As discussed in part VI.A below, the change to the closed-end threshold will take effect on July 1, 2020, to provide relief quickly.

Thus, as comment 2(g)-1 explains, in 2021, a financial institution does not meet the loan-volume test described in § 1003.2(g)(1)(v)(A) if it originated fewer than 100 closed-end mortgage loans during either 2019 or 2020. See part VI.A below for a discussion of the HMDA obligations for the 2020 data collection year of institutions affected by the closed-end threshold change, and see the section-by-section analysis of § 1003.3(c)(11) in this part for a discussion of optional reporting of 2020 closed-end data permitted for such institutions.

2(g)(1)(v)(B)

Section 1003.2(g) defines financial institution for purposes of Regulation C and conditions Regulation C's institutional coverage, in part, on the institution's open-end line of credit origination volume. In the 2015 HMDA Rule, the Bureau established the threshold at 100 open-end lines of credit and required financial institutions that originate at least 100 open-end lines of credit in each of the two preceding calendar years to report data on open-end lines of credit.

In the 2017 HMDA Rule, the Bureau amended § 1003.2(g) to increase for two years (calendar years 2018 and 2019) the open-end threshold from 100 to 500 open-end lines of credit. In the May 2019 Proposal, the Bureau proposed 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. Upon expiration of this temporary threshold, the Bureau proposed to increase the permanent threshold from 100 to 200 open-end lines of credit.

The Bureau sought comments on how the proposed temporary and permanent increases to the open-end threshold would affect the number of financial institutions required to report data on open-end lines of credit, the significance of the data that would not be available for achieving HMDA's purposes as a result of the proposed increases, and the reduction in burden that would result from the proposed increases for institutions that would not be required to report. In the 2019 HMDA Rule, the Bureau finalized the proposed extension of the temporary open-end institutional coverage threshold for depository institutions of 500 open-end lines of credit in § 1003.2(g)(1)(v)(B) until January 1, 2022.

For the reasons discussed below, the Bureau is now finalizing the proposed amendments to § 1003.2(g)(1)(v)(B) and comments 2(g)-3 and -5 to increase the permanent threshold from 100 to 200 open-end lines of credit, effective January 1, 2022.

Section 1003.3(c)(12) includes a complementary transactional coverage threshold set at the same level that determines whether a financial institution is required to collect and report data on open-end lines of credit.

The Bureau also proposed 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.

The Bureau also finalized conforming amendments to extend for two years the temporary open-end institutional coverage threshold for nondepository institutions in § 1003.2(g)(2)(ii)(B) and to align the timeframe of the temporary open-end transactional coverage threshold in § 1003.3(c)(12). Because the extension of the temporary threshold lasts two years, and the Bureau had not yet made a determination about its proposed permanent threshold when it issued the 2019 HMDA Rule, that rule would have restored effective January 1, 2022 the threshold set in the 2015 HMDA Rule of 100 open-end lines of credit in §§ 1003.2(g) and 1003.3(c)(12) absent this final rule.

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.

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 of mortgage loan 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 lenders had the option to report.

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 amendments (such as collecting information about higher-priced loans) did not justify the increased burden.

HMDA section 303(2), 12 U.S.C. 2802(2).

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).

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.

In light of that development and the role that open-end lines of credit may have played in contributing to the financial crisis,

the Bureau decided in the 2015 HMDA Rule to require reporting of dwelling-secured, consumer purpose open-end lines of credit,

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.

80 FR 66128, 66160 (Oct. 28, 2015).

Id.

The Bureau stated in the 2015 HMDA Rule that 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.

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.

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.

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

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

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 be likely to incur in reporting data on open-end lending.

Id.

at 66128, 66161.

Id.

at 66149.

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).

The Bureau then sought to estimate one-time and ongoing costs for a representative institution in each tier.

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 VII.D.1, for purposes of this final rule, the Bureau has used a more precise methodology to assign excluded 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.

80 FR 66128, 66264-65 (Oct. 28, 2015);

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 makes it impossible to provide complete and definitive cost estimates.

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

Thus, using the ongoing cost estimates developed for closed-end reporting, the Bureau estimated that for a representative high-complexity tier 1 institution the ongoing operational costs would be $273,000 per year; for a representative moderate-complexity tier 2 institution $43,400 per year; and for a representative low-complexity tier 3 institution $8,600 per year.

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

The Bureau acknowledged that, precisely because no good source of publicly available data existed 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.

Id.

at 66285.

Id.

at 66264, 66286.

Id.

at 66162.

Drawing on all of these estimates, the Bureau decided in the 2015 HMDA Rule to establish an open-end 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

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

The Bureau explained in the 2015 HMDA Rule that it believed this threshold appropriately balanced the benefits and burdens of covering institutions based on their open-end mortgage lending.

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.

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 two preceding 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).

80 FR 66128, 66281 (Oct. 28, 2015).

Id.

at 66162.

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.

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.

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

100

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.

101

After issuing the 2015 HMDA Rule, the Bureau heard reports suggesting that one-time costs to begin reporting open-end lines of credit could be as high as $100,000 for such institutions.

102

The Bureau likewise heard reports 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.

103

Id.

100

See supra

notes 85-93 and accompanying text.

101

82 FR 43088, 43094 (Sept. 13, 2017).

102

Id.

103

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 increased for two years (

i.e.,

until January 1, 2020) the open-end threshold to 500 in the 2017 HMDA Rule.

104

Specifically, 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 revert to a permanent threshold of 100. This temporary increase was intended to allow the Bureau to collect additional data and assess what open-end threshold would best balance the benefits and burdens of covering institutions.

104

Id.

at 43088. 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. In the 2015 HMDA Rule and the 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).

In the May 2019 Proposal, the Bureau proposed to extend until January 1, 2022, the temporary open-end institutional coverage threshold for depository institutions of 500 open-end lines of credit. Upon expiration of this temporary threshold, the Bureau proposed to set the permanent threshold at 200 open-end lines of credit.

105

In the 2019 HMDA Rule, the Bureau finalized the proposed two-year extension of the temporary threshold of 500 open-end lines of credit.

106

The Bureau explained that the extension of the temporary threshold would provide additional time for the Bureau to issue this final rule in 2020 on the permanent open-end threshold and for affected institutions to prepare for compliance with the final rule.

107

105

The Bureau proposed conforming amendments to § 1003.3(c)(12).

106

84 FR 57946 (Oct. 29, 2019).

107

Id.

at 57953.

Comments Received on Permanent Open-End Line of Credit Threshold for Institutional Coverage of Depository Institutions

The Bureau received a number of comments relating to the proposed permanent increase in the open-end threshold from 100 to 200 open-end lines of credit in §§ 1003.2(g) and 1003.3(c)(12). Commenters typically discussed the open-end threshold without distinguishing between the threshold applicable to depository institutions under § 1003.2(g)(1)(v)(B) and the threshold applicable to nondepository institutions under § 1003.2(g)(2)(ii)(B).

Industry commenters generally expressed support for an increase in the permanent open-end threshold, indicating that a threshold of 200 open-end lines of credit would be preferable to the threshold of 100 open-end lines of credit that would otherwise take effect beginning in 2022. Many industry commenters described the significant costs that HMDA data collection and reporting impose on small institutions, and some expressed concern that they might not be able to offer open-end lines of credit at all if the threshold of 100 open-end lines of credit were to take effect. One national trade association and many small financial institutions stated that open-end lines of credit are crucial products for borrowers and expressed concern that the costs associated with reporting such lines of credit would make them unprofitable, leading banks to either discontinue offering such loans or to pass on cost increases to consumers. Many industry commenters also suggested that higher thresholds would allow institutions to focus on making loans in the communities they serve rather than diverting resources to HMDA compliance. Another national trade association stated that lenders may seek to manage their origination volumes to stay below the applicable open-end threshold, which could limit consumers' access to credit. This commenter stated that compliance with HMDA requires specialized staffing and training as well as dedicated software, policies, and procedures, and that an institution's decision to exceed the origination volume that triggers open-end reporting would involve a careful assessment of the time, cost, and risk associated with implementing and supporting ongoing open-end reporting. Several commenters stated that there would be significant costs to implementing open-end reporting for institutions that have not previously reported such transactions, with one small financial institution stating that it originated between 100 and 200 open-end lines of credit annually and that reporting such loans would entail considerable effort because these transactions are processed by a different department and system than its reportable closed-end mortgage loans.

Some industry commenters advocating for an increase in the open-end threshold asserted that data on open-end lines of credit are of limited value in serving HMDA's statutory purposes. A few national trade associations stated that open-end lines of credit provide little information about whether lenders are serving the housing needs of their communities because such loans are generally used for non-housing related purposes, such as paying for educational expenses or consolidating outstanding debt. One national trade association stated that open-end lending data are of limited value for fair lending purposes because of the unique features typically present in such transactions and because only certain borrowers—existing homeowners with equity in their homes—can obtain them.

A large number of industry commenters recommended that the Bureau make the temporary threshold of 500 open-end lines of credit permanent or raise the threshold even higher, such as to 1,000. These commenters noted that based on the Bureau's estimates, maintaining the current threshold of 500 open-end lines of credit would relieve approximately 280 institutions from reporting open-end data with only a 6 percent decrease in the overall number of open-end lines of credit reported relative to the proposed permanent threshold of 200. One State trade association expressed concern that the limited increase in open-end data reported at a permanent threshold of 200 as compared to 500 open-end lines of credit would not justify the costs for the institutions that would be newly required to report open-end data. One national trade association stated that many smaller institutions originate close to 500 open-end lines of credit annually and that if the permanent threshold were set at 200 these lenders might curtail their open-end lending to avoid incurring the additional compliance costs associated with open-end reporting. A few industry commenters stated that the continuity that would be provided by a permanent 500 open-end threshold would be valuable and questioned why the Bureau would set the open-end threshold at 500 for several years but not retain this threshold. Although not part of the May 2019 Proposal, many industry commenters recommended that the Bureau return to optional rather than mandatory reporting of open-end lines of credit.

Other commenters, including many consumer and civil rights groups, a bank, a State attorney general, and some members of Congress, expressed opposition to the proposed increase from 100 to 200 in the permanent open-end threshold based on their concerns about the consequences of excluding more institutions and open-end lines of credit from HMDA reporting. Many of these commenters stated that, in the years before the 2008 financial crisis, abuses pervaded in open-end lending that resulted in distress or foreclosure for large numbers of homeowners. A State attorney general noted that open-end lines of credit were often extended simultaneously with closed-end home purchase loans in place of down payments, thus bypassing the need for borrowers to obtain private mortgage insurance and creating higher debt obligations that increased the risk to both closed-end mortgage lenders and borrowers. A large number of consumer groups, civil rights groups, and other organizations noted in a joint comment letter the Bureau's estimates in the May 2019 Proposal that increasing the permanent threshold from 100 to 200 open-end lines of credit would exempt 401 lenders originating 69,000 open-end lines of credit from reporting such data under HMDA. These commenters expressed concern that too many lenders and open-end lines of credit might escape public scrutiny at such a higher permanent threshold and thus make it more likely that events similar to those that led to the 2008 financial crisis would occur again.

These consumer groups, civil rights groups, and other organizations also stated that the 2018 HMDA Data indicated that open-end lines of credit have a high incidence of features that can be risky for borrowers, particularly when layered on top of one another. They explained that the 2018 HMDA Data show that 77 percent of open-end lines of credit have adjustable rates, 50 percent feature interest-only payments, and 28 percent include prepayment penalties. These commenters also stated that the 2018 HMDA Data show that the median interest rate, as well as the interest rate at the 95th percentile, was significantly higher for open-end lines of credit than for closed-end mortgage loans and suggested that the most vulnerable borrowers were obtaining the open-end lines of credit with the highest interest rates.

These commenters stated further that the increase in open-end lending

between 2013 and 2017 discussed in the May 2019 Proposal supports maintaining the permanent threshold of 100 open-end lines of credit to increase visibility into open-end lending. A State attorney general expressed concern that the May 2019 Proposal did not provide a rationale as to how decreasing open-end reporting by increasing the permanent open-end threshold serves the purposes of HMDA. This commenter stated that the Bureau's analysis instead focused almost entirely on the cost to lenders associated with open-end reporting. Some members of Congress stated that data on open-end lines of credit remain limited and noted that the Bureau had to consult multiple sources to estimate the impact of the proposed changes to the open-end threshold. These commenters expressed concern that the Bureau would reduce future open-end reporting based on limited data, particularly in light of the local and national concerns related to open-end lending prior to the financial crisis in 2008 cited by the Bureau in the 2015 HMDA Rule.

Final Rule

The Bureau has considered the comments received and, pursuant to its authority under HMDA section 305(a) as discussed above, has decided to increase the permanent open-end threshold to 200 open-end lines of credit, as proposed. As discussed below, the increase in the permanent threshold from 100 to 200 open-end lines of credit will provide meaningful burden relief for smaller institutions while still providing significant market coverage of open-end lending.

As discussed in the May 2019 Proposal, 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 threshold. As explained in more detail in part VII 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, 2022. 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. As explained in more detail in part VII.E.3, the Bureau's coverage estimates also indicate that the total number of institutions exceeding the 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.

108

82 FR 43088, 43094 (Sept. 13, 2017).

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.

109

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.

110

The EGRRCPA has thus changed the costs and benefits associated with different coverage thresholds, as the partial exemptions are available to the vast majority of the depository financial institutions that originate fewer than 500 open-end lines of credit annually.

111

109

Public Law 115-174, 132 Stat. 1296 (2018).

110

See

84 FR 57946 (Oct. 29, 2019).

111

See infra

part VII.E.3.

The Bureau has considered the appropriate permanent open-end threshold in light of these developments and the comments received in response to the May 2019 Proposal and the July 2019 Reopening Notice. On balance, the Bureau determines that the permanent threshold of 200 open-end lines of credit provides sufficient information on open-end lending to serve HMDA's purposes while appropriately reducing one-time and ongoing costs for smaller institutions that would be incurred if the threshold of 100 open-end lines of credit were to take effect.

112

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 VII.E.3 below.

113

112

One commenter expressed concern as to how the increase in the open-end threshold would serve HMDA's purposes. As discussed above, this increase in the permanent open-end threshold effectuates the purposes of HMDA and facilitates compliance with HMDA by reducing burden, while still providing significant market coverage.

113

As explained in part VII below, the Bureau derived these estimates using estimates of savings for open-end lines of credit for representative financial institutions.

Effect on market coverage.

While the increase in the permanent threshold to 200 open-end lines of credit will reduce market coverage compared to the threshold of 100 that would otherwise take effect, information about a sizeable portion of the open-end lending market will still be available. 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, to develop estimates about open-end originations for institutions that offer open-end lines of credit and to assess the impact of various thresholds on the numbers of institutions that report and the number of lines of credit about which they report under various scenarios.

114

Based on this information, the Bureau estimates that, as of 2018, approximately 333 financial institutions originated at least 500 open-end lines of credit in each of the two preceding years, approximately 613 financial institutions originated at least 200 open-end lines of credit in each of the two preceding years, and approximately 1,014 financial institutions originated at least 100 open-end lines of credit in each of the two preceding years.

115

Under the permanent threshold of 200 open-end lines of credit, the Bureau estimates about 1.34 million lines of credit or approximately 84 percent of origination volume will be reported by about 9 percent of all institutions providing open-end lines of credit.

116

By comparison, the Bureau estimates that about 1.41 million lines of credit or approximately 89 percent of origination volume would be reported by about 15 percent of all institutions providing open-end lines of credit if the permanent threshold were to adjust to

100 open-end lines of credit. The Bureau determines that the benefits of the one-time and ongoing cost savings for the estimated 401 affected institutions originating between 100 and 199 open-end lines of credit, all but 17 of which are depository financial institutions, justify the limited decrease in the data reported about open-end lending that will result from this threshold increase. The permanent threshold of 200 open-end lines of credit balances the benefits and burdens of covering institutions engaged in open-end mortgage lending by retaining significant coverage of the open-end market while excluding from coverage smaller institutions whose limited open-end data would be of lesser utility in furthering HMDA's purposes.

114

As noted by several members of Congress, the Bureau consulted multiple sources to develop its open-end estimates for the May 2019 Proposal. Because collection of data on open-end lines of credit only became mandatory starting in 2018 under the 2015 HMDA Rule and the 2017 HMDA Rule, no single data source existed as of the time of the May 2019 Proposal that could accurately capture the number of originations of open-end lines of credit in the entire market and by lenders. In part VII of this final rule, the Bureau has supplemented the analyses from the May 2019 Proposal with the 2018 HMDA data. For information about the HMDA data used in developing and supplementing the Bureau estimates, see

infra

part VII.E.3.

115

See infra

part VII.E.3 at table 4 for estimates of coverage among all lenders that are active in the open-end line of credit market at open-end coverage thresholds of 100, 200, and 500.

116

Id.

Additionally, the effect of a threshold of 200 open-end lines of credit will be limited because the EGRRCPA now provides a partial exemption that exempts approximately 378 of the estimated 401 institutions that the permanent threshold increase will affect from any obligation to report many of the data points generally required by Regulation C for 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, setting the permanent threshold at 200 open-end lines of credit will result in a much smaller decrease in data than the Bureau anticipated when it adopted a threshold of 100 open-end lines of credit in the 2015 HMDA Rule or when it revisited the open-end line of credit threshold in the 2017 HMDA Rule.

The Bureau declines to increase the permanent threshold further, as suggested by several commenters. Under a threshold of 500 open-end lines of credit, the Bureau estimates that about 1.23 million lines of credit or approximately 78 percent of origination volume would be reported by about 5 percent of all institutions providing open-end lines of credit. The Bureau determines that the more significant reduction in open-end reporting that would result if the current threshold of 500 open-end lines of credit were permanent, or if the Bureau increased the threshold to a level above 500, is not warranted. The temporary threshold of 500 open-end lines of credit was intended to allow the Bureau time to collect additional data and assess the appropriate level of the permanent threshold.

117

Although the Bureau appreciates some commenters' suggestions regarding the benefits of continuity that would result from a permanent threshold of 500 open-end lines of credit, it determines that the permanent threshold of 200 open-end lines of credit adopted in this rule best balances the benefits and burdens of covering institutions based on their open-end lending volume. The data about open-end lines of credit that will be reported at this threshold will assist HMDA data users in understanding how financial institutions are serving the housing needs of their communities and assist in the distribution of public sector investments. The Bureau recognizes, as noted by several commenters, that open-end lines of credit may be used for non-housing related purposes, but the Bureau believes the data on these dwelling-secured loans will further HMDA purposes. The visibility into this segment of the mortgage market that will result from the permanent threshold of 200 open-end lines of credit, as opposed to a higher threshold, will also allow for a better understanding of these products and monitoring of the potential risks, as noted by many commenters, that could be associated with such loans. Such data could also help to assist in identifying possible discriminatory lending patterns if, for example, risky lending practices were concentrated among certain borrowers or communities.

118

117

See

84 FR 57946, 57953 (Oct. 29, 2019); 82 FR 43088, 43095-96 (Sept. 13, 2017).

118

One commenter suggested that data on open-end lines of credit are less valuable for fair lending analyses because these products are limited to borrowers with existing equity in their homes. In the 2015 HMDA Rule, the Bureau recognized that borrowers may not be evaluated for open-end credit in the same manner as for traditional mortgage loans, with adequate home equity being a factor. It stated further, however, that lending practices during the financial crisis demonstrated that during prolonged periods of home-price appreciation lenders became increasingly comfortable originating home-equity products to borrowers with less and less equity to spare. 80 FR 66128, 66161 (Oct. 28, 2015). The Bureau continues to believe that the more leveraged the borrower, the more at risk the borrower is of losing his or her home.

Id.

Additionally, and as discussed above, the EGRRCPA partial exemption already relieves most lenders originating fewer than 500 open-end lines of credit in each of the two preceding years from the requirement to report many data points associated with their open-end transactions. In light of the concerns discussed above and the existing relief provided by the EGRRCPA at a threshold of 500, the Bureau determines that it is not appropriate to set the permanent threshold for open-end lines of credit at 500 or higher. Doing so would provide a complete exclusion from reporting all open-end data for institutions below the threshold of 500, even though Congress opted to provide only a partial exemption at the threshold of 500, and would extend that complete exclusion to institutions that Congress did not include in even the partial exemption. For the reasons stated above, the Bureau also declines to adopt the recommendation of several commenters to return to voluntary open-end reporting, which it did not propose.

119

See supra

note 104. In establishing partial exemptions for reporting data on open-end lines of credit in the EGRRCPA, Congress appears to have assumed that open-end lines of credit should be reported, building upon the Bureau's decision in the 2015 HMDA Rule to require reporting of open-end lines of credit.

Reduction in one-time costs from permanent threshold of 200.

The Bureau's increase in the permanent open-end threshold to 200 open-end lines of credit after the temporary extension expires in 2022 will 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 permanent threshold at 200 rather than 100 open-end lines of credit will exclude 401 institutions from reporting open-end lines of credit starting in 2022. According to the Bureau's estimates, about 309 of those 401 financial institutions are low-complexity tier 3 open-end reporters, about 92 are moderate-complexity tier 2 open-end reporters, and none are high-complexity tier 1 reporters.

120

For an explanation of the Bureau's assumptions in assigning institutions to tiers 1, 2, and 3, see

supra

note 85 and

infra

part VII.D.1.

The Bureau recognizes that, as a small financial institution commenter discussed, financial institutions may process applications for open-end lines of credit in different departments and on different systems than those used for closed-end loans. Many institutions that would have had to report with a threshold of 100 after the 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, including new training, software, and policies and procedures. As a result, these institutions would incur one-time costs to create processes and systems for reporting open-end lines of credit in addition to the one-time costs to modify processes and systems used for reporting other mortgage products.

As explained in part VII below, the Bureau estimates that increasing the

threshold from 100 to 200 open-end lines of credit starting in 2022 will result in a one-time cost savings of approximately $3,000 for low-complexity tier 3 reporters and $250,000 for moderate-complexity tier 2 reporters, for an aggregate savings of about $23.9 million in avoided one-time costs associated with reporting open-end lines of credit.

121

The Bureau determines that avoiding the burden on smaller institutions of implementing open-end reporting, which as commenters noted could involve setting up entirely new reporting infrastructures distinct from those used for closed-end mortgage loans, is justified by the limited decrease in open-end data that will be reported under this final rule, as discussed in more detail above.

121

As discussed in more detail in part VII below, the Bureau has supplemented its analyses from the May 2019 Proposal with 2018 HMDA data. These data allow the Bureau to develop estimates based on the total number of open-end loan/application register records, rather than the number of open-end originations. As a result, the Bureau has assigned more of the estimated 401 institutions affected by the increase in the threshold from 100 to 200 open-end lines of credit to the tier 2 category and fewer to the tier 3 category as compared to the May 2019 Proposal. This increase in the estimated number of affected tier 2 institutions results in a higher estimated aggregate one-time cost savings associated with the threshold increase than the Bureau's estimate of $3.8 million in the May 2019 Proposal. For information about the HMDA data used in developing and supplementing the Bureau estimates, see

infra

part VII.E.3.

Ongoing cost reduction from permanent threshold of 200.

The increase in the open-end threshold from 100 to 200 open-end lines of credit starting in 2022 will 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 threshold of 100 open-end lines of credit established in the 2015 HMDA Rule were to take effect. As noted above, many industry commenters expressed how costly and resource-intensive HMDA compliance can be on an ongoing basis for smaller institutions.

As discussed in more detail in part VII below, the Bureau estimates that increasing the permanent threshold from 100 to 200 open-end lines of credit will result in annual ongoing cost savings of approximately $4,300 for low-complexity tier 3 institutions eligible for the EGRRCPA partial exemption and $21,900 for moderate-complexity tier 2 institutions eligible for the EGRRCPA partial exemption. For the low-complexity tier 3 and moderate-complexity tier 2 institutions that are not eligible for the EGRRCPA partial exemption, the Bureau estimates that the increase in the permanent threshold from 100 to 200 open-end lines of credit will result in annual ongoing cost savings of approximately $8,800 and $44,700, respectively. The Bureau estimates that the increase in the permanent threshold will result in aggregate savings on the ongoing operational costs associated with open-end lines of credit of about $3.7 million per year starting in 2022.

122

The Bureau recognizes that the estimated ongoing costs savings associated with increasing the permanent threshold from 100 to 200 open-end lines of credit are less than they would have been absent the relief provided by the EGRRCPA. Nonetheless, the Bureau determines that these ongoing cost savings, coupled with the one-time cost savings discussed above, will provide meaningful burden reduction to smaller institutions that would have been covered at the threshold of 100 open-end lines of credit but will be excluded from open-end reporting under this final rule. Avoiding the imposition of such costs for these affected institutions will also limit any potential for cost increases to borrowers or other disruptions in open-end lending that could result from HMDA coverage, as discussed by some commenters.

122

As noted above, as compared to the May 2019 Proposal the Bureau now assigns more of the estimated 401 institutions affected by the increase in the threshold from 100 to 200 to the tier 2 category and fewer to the tier 3 category. As a result, the Bureau's estimated aggregate savings on ongoing operational costs associated with the threshold increase is higher than the Bureau's estimate of $2.1 million in the May 2019 Proposal. For information about the HMDA data used in developing and supplementing the Bureau estimates, see

infra

part VII.E.3.

For the reasons discussed above, the Bureau amends § 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 200, effective January 1, 2022.

2(g)(2) Nondepository Financial Institution

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.

123

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.

124

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 did, to evince the intent to exclude from coverage institutions that make a relatively small volume of mortgage loans.

125

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 to institutional coverage 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.

123

HMDA section 303(5) (defining “other lending institutions”).

124

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

125

80 FR 66128, 66153 (Oct. 28, 2015) (citing 54 FR 51356, 51358-59 (Dec. 15, 1989)).

For the reasons discussed below, the Bureau has now determined that higher thresholds for closed-end mortgage loans and open-end lines of credit will more appropriately cover nondepository institutions that “are engaged for profit in the business of mortgage lending” and maintain visibility into the lending practices of such institutions.

2(g)(2)(ii)(A)

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 thresholds.

126

In the May 2019 Proposal, the Bureau proposed to amend § 1003.2(g)(2)(ii)(A) and related commentary to raise the closed-end threshold for nondepository institutions to either 50 or, alternatively, 100 closed-end mortgage loans. For the reasons discussed below, the Bureau is amending § 1003.2(g)(1)(ii)(A) and related commentary to raise the threshold to 100 closed-end mortgage loans.

126

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).

Background on Closed-End Mortgage Loan Threshold for Institutional Coverage of Nondepository Institutions

After issuing the 2015 HMDA Rule and the 2017 HMDA Rule, the Bureau heard concerns that lower-volume institutions experience significant burden with the current threshold of 25 closed-end mortgage loans.

127

Various industry stakeholders advocated for an increase to the closed-end threshold in order to reduce burden on additional lower-volume financial institutions. In light of the concerns raised by industry stakeholders, the Bureau proposed to raise the closed-end threshold for nondepository institutions and indicated that it was considering whether a higher threshold would more appropriately cover nondepository institutions that “are engaged for profit in the business of mortgage lending” and maintain visibility into the lending practices of such institutions. The Bureau sought comment on whether an increase to the threshold would more appropriately balance the benefits and burdens of covering lower-volume nondepository institutions based on their closed-end lending.

127

The Bureau temporarily raised the threshold for open-end lines of credit in the 2017 HMDA Rule because of concerns based on new information that the estimates the Bureau used in the 2015 HMDA Rule may have understated the burden that open-end reporting would impose on smaller institutions if they were required to begin reporting on January 1, 2018. 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 with a threshold of 25 closed-end mortgage loans as well as the one-time and ongoing costs to industry. 82 FR 43088, 43095-96 (Sept. 13, 2017).

The Bureau proposed two alternatives to the closed-end mortgage loan threshold, and both proposed alternatives would have maintained a uniform closed-end threshold for depository and nondepository institutions.

128

The Bureau sought specific comment on how the proposed increase to the closed-end threshold would affect the number of nondepository institutions required to report data on closed-end mortgage loans, the significance of the data that would not be available as a result of the proposed increase to the closed-end threshold, and the reduction in burden that would result from the proposed increase to the closed-end threshold for nondepository institutions that would not be required to report.

128

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.

Comments Received on Closed-End Threshold for Institutional Coverage for Nondepository Institutions

As mentioned above, commenters typically discussed the closed-end threshold without distinguishing between the threshold applicable to depository institutions under § 1003.2(g)(1)(v)(A) and the threshold applicable to nondepository institutions under § 1003.2(g)(2)(ii)(A). Comments received regarding the Bureau's proposal to increase the closed-end threshold are discussed in more detail in the section-by-section analysis of § 1003.2(g)(1)(v)(A) above.

Final Rule

Pursuant to its authority under HMDA section 305(a), the Bureau is finalizing the closed-end threshold for nondepository institutions at 100 in § 1003.2(g)(1)(ii)(A). The Bureau has considered the comments received in response to the May 2019 Proposal and updated estimates in determining the appropriate threshold. As discussed below, 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 and that doing so will effectuate the purposes of HMDA and facilitate compliance. The Bureau believes that increasing the closed-end threshold to 100 will provide meaningful burden relief for lower-volume nondepository institutions while maintaining sufficient reporting to achieve HMDA's purposes. The final rule's uniform loan-volume threshold applicable to depository and nondepository institutions also maintains the simplicity of this aspect of the reporting regime, thereby facilitating compliance.

129

The 2015 HMDA Rule simplified the reporting regime by establishing a uniform loan-volume threshold applicable to depository and nondepository institutions.

As explained in the section-by-section analysis of § 1003.2(g)(1)(v)(A) above, a few developments have affected the Bureau's analyses of the costs and benefits associated with the closed-end threshold for depository and nondepository institutions since the 2015 HMDA Rule was issued. The Bureau has gathered extensive information regarding stakeholders' experience with the 2015 HMDA Rule through comments received in this rulemaking and other feedback. As described above, the Bureau has heard that financial institutions have encountered significant burdens in complying with the 2015 HMDA Rule, and the Bureau is particularly concerned about the increased burdens faced by smaller institutions. Additionally, the Bureau now has access to HMDA data from 2018, which was the first year that financial institutions collected data under the 2015 HMDA Rule, and has used these data in updating and confirming the estimates included in this final rule. With the benefit of this additional information about the 2015 HMDA Rule and the new data to supplement the Bureau's analyses, the Bureau is now in a better position to assess both the benefits and burdens of the reporting required under the 2015 HMDA Rule.

The Bureau has considered the appropriate closed-end threshold for nondepository institutions in light of these developments and the comments received. The Bureau determines that the threshold of 100 closed-end mortgage loans for nondepository institutions provides sufficient information on closed-end mortgage lending to serve HMDA's purposes and maintains uniformity with the closed-end threshold for depository institutions established in this rule, while appropriately reducing ongoing costs that smaller nondepository institutions are incurring under the current threshold. 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 VII.E.2 below.

Effect on Market Coverage

Similar to the estimates in the section-by-section analysis of § 1003.2(g)(1)(v)(A), the Bureau developed estimates for nondepository institution coverage at varying thresholds. Using multiple data sources, including recent HMDA data

130

and Call Reports, the Bureau developed estimates for the two thresholds the Bureau proposed in the alternative, 50 and 100, as well as the thresholds of 250 and 500, which many commenters suggested the Bureau consider.

131

These estimates compare coverage under these thresholds to coverage under the current threshold of 25.

130

The Bureau stated in the May 2019 Proposal that it intended to review the 2018 HMDA data more closely in connection with this rulemaking once the 2018 submissions were more complete. The estimates reflected in this final rule are based on the HMDA data collected in 2017 and 2018 as well as other sources. These estimates are discussed further in the analysis under Dodd-Frank Act section 1022(b) in part VII below.

131

Except for the estimates provided at the census tract level, the estimates provided for potential thresholds in this section cover only nondepository institutions. Estimates for depository institutions are described in the section-by-section analysis of § 1003.2(g)(1)(v)(A). For estimates that are comprehensive of depository and nondepository institutions, see part VII.E.2 below.

Similar to the estimates described above for the closed-end threshold for depository institutions, many of the estimates provided for the closed-end threshold for nondepository institutions differ slightly from the initial estimates provided in the May 2019 Proposal. The estimates in this final rule update the initial estimates provided in the May 2019 Proposal using the 2018 HMDA data, which were not available at the time the Bureau developed the May 2019 Proposal. For the May 2019 Proposal, the Bureau used HMDA data from 2016 and 2017 with a two-year look-back period covering calendar years 2016 and 2017 to estimate potential reporters and projected the lending activities of financial institutions using their 2017 HMDA data as proxies. In generating the updated estimates provided in this final rule, the Bureau used data from 2017 and 2018 with a two-year look-back period covering calendar years 2017 and 2018 to estimate potential reporters and has projected the lending activities of financial institutions using their 2018 data as proxies. In addition, for the estimates provided in the May 2019 Proposal and in this final rule, the Bureau restricted the projected reporters to only those that actually reported data in the most recent year of HMDA data considered (2017 for the May 2019 Proposal and 2018 for this final rule).

132

Effect on covered nondepository institutions and reportable originations.

As discussed above, many commenters opposed increasing the closed-end threshold because of concerns that there would be less data with which to evaluate whether HMDA's statutory purposes are being met. However, the Bureau's analysis indicates that the proposed thresholds of either 50 or 100 closed-end mortgage loans will maintain sufficient reporting to achieve HMDA's purposes.

If the threshold were increased to 50 closed-end mortgage loans, the Bureau estimates that approximately 720 out of approximately 740 nondepository institutions covered under the current threshold of 25 (or approximately 97 percent) would continue to be required to report HMDA data on closed-end mortgage loans. Further, the Bureau estimates that if the threshold were increased from 25 to 50, this would result in about 99.97 percent of closed-end mortgage loan originations currently reported or approximately 3.428 million total closed-end mortgage loan originations, under current market conditions, that would continue to be reported by nondepository institutions.

133

In the May 2019 Proposal, the Bureau estimated that if the closed-end threshold were increased from 25 to 50, about 683 out of about 697 nondepository institutions covered under the current threshold of 25 (or approximately 98 percent) would continue to report HMDA data on closed-end mortgage loans, and over 99 percent or approximately 3.44 million total originations of closed-end mortgage loans in current market conditions reported by depository institutions under the current Regulation C coverage criteria would continue to be reported. As explained above and in greater detail in part VII.E.2 below, the differences in the estimates between the May 2019 Proposal and this final rule are mostly due to updates made to incorporate the newly available 2018 HMDA data.

The Bureau estimates that with the closed-end threshold set at 100 under the final rule, approximately 680 out of approximately 740 nondepository institutions covered under the current threshold of 25 (or approximately 92 percent) will continue to be required to report HMDA data on closed-end mortgage loans. Further, the Bureau estimates that when the final rule increases the threshold to 100, about 99.9 percent of originations of closed-end mortgage loans currently reported or approximately 3.425 million total originations of closed-end mortgage loans reported by nondepository institutions, under current market conditions, will continue to be reported.

134

In the May 2019 Proposal, the Bureau estimated that if the closed-end threshold were increased from 25 to 100, about 661 out of about 697 nondepository institutions covered under the current threshold of 25 (or approximately 95 percent) would continue to report HMDA data on closed-end mortgage loans, and over 99 percent or approximately 3.44 million total originations of closed-end mortgage loans in current market conditions reported by depository institutions under the current Regulation C coverage criteria would continue to be reported. As explained above and in greater detail in part VII.E.2 below, the differences in the estimates between the May 2019 Proposal and this final rule are mostly due to updates made to incorporate the newly available 2018 HMDA data.

The Bureau also generated estimates for closed-end thresholds higher than the ones the Bureau proposed, as many commenters suggested that the Bureau consider thresholds higher than proposed. These estimates reflect the decrease in the number of nondepository 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 threshold were set at 250, the Bureau estimates that approximately 590 out of approximately 740 nondepository institutions covered under the current threshold of 25 (or approximately 80 percent) would continue to be required to report HMDA data on closed-end mortgage loans. Further, the Bureau estimates that if the threshold were increased from 25 to 250 loans, this would result in about 99.4 percent of closed-end mortgage loan originations currently reported or approximately 3.408 million total closed-end mortgage loan originations, under current market conditions, that would continue to be reported by nondepository institutions.

135

If the closed-end

threshold were set at 500, the Bureau estimates that approximately 480 out of approximately 740 nondepository institutions covered under the current threshold of 25 (or approximately 65 percent) would continue to be required to report HMDA data on closed-end mortgage loans. Further, the Bureau estimates that if the threshold were increased from 25 to 500 loans, this would result in about 98.2 percent of closed-end mortgage loan originations currently reported or approximately 3.367 million total closed-end mortgage loan originations, under current market conditions, that would continue to be reported by nondepository institutions.

136

135

In the May 2019 Proposal, the Bureau estimated that if the closed-end threshold were increased from 25 to 250, about 573 out of about 697 nondepository institutions covered under the current threshold of 25 (or approximately 82 percent) would continue to report HMDA data on closed-end mortgage loans, and about 99 percent or approximately 3.42 million total originations of closed-end mortgage loans in current market conditions reported by depository institutions under the current Regulation C coverage criteria would continue to be reported. As explained above and in greater detail in part VII.E.2 below, the differences in the estimates between the May 2019 Proposal and this final rule are mostly due to updates made to incorporate the newly available 2018 HMDA data.

136

In the May 2019 Proposal, the Bureau estimated that if the closed-end threshold were increased from 25 to 500, about 477 out of about 697 nondepository institutions covered under the current threshold of 25 (or approximately 68 percent) would continue to report HMDA data on closed-end mortgage loans, and about 98 percent or approximately 3.38 million total originations of closed-end mortgage loans in current market conditions reported by depository institutions under the current Regulation C coverage criteria would continue to be reported. As explained above and in greater detail in part VII.E.2 below, the differences in the estimates between the May 2019 Proposal and this final rule are mostly due to updates made to incorporate the newly available 2018 HMDA data.

The Bureau recognizes the importance of maintaining data about the lending practices of nondepository institutions. The Bureau also acknowledges the concerns raised by commenters that setting the threshold higher than 25 will result in less data, but the Bureau believes that the modest decrease in data at the threshold of 100 (estimated at less than one percent of data currently reported) will not undermine enforcement of fair lending laws or regulators' ability to identify potentially discriminatory lending through HMDA data. The Bureau believes that retaining approximately 99.9 percent of the data that would be reported under the current threshold of 25 will result in nondepository institutions reporting sufficient HMDA data to enable the public and regulators to monitor risks posed by nondepository institutions.

Effect on HMDA data at the local level.

The Bureau recognizes 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. For the proposal and this final rule, the Bureau reviewed estimates at varying closed-end thresholds to examine the potential effect on available data at the census tract level. The estimates of the effect on reportable HMDA data at the census tract level are discussed in the section-by-section analysis of § 1003.2(g)(1)(v)(A) above. Based on the Bureau's review of the estimates, the Bureau believes that an increase to the closed-end threshold from 25 to 100 will result in sufficient data at the local level, including with respect to rural and low-to-moderate income census tracts, to further HMDA's purposes.

Specific types of data.

As mentioned in the section-by-section analysis in § 1003.2(g)(1)(v)(A), a number of commenters expressed concerns about the impact that an increase to the closed-end threshold would have on HMDA data regarding specific types of loan products, such as loans for multifamily housing and manufactured housing. The Bureau believes that data on these types of loan products will still be available at the threshold of 100 set by this final rule. For example, the Bureau estimates that with the closed-end threshold increased from 25 to 100 under the final rule, approximately 87 percent of multifamily loan applications and originations will continue to be reported by depository and nondepository institutions combined, when compared to the current threshold of 25 closed-end mortgage loans in today's market conditions. Regarding the effect on manufactured housing data, the Bureau estimates that at a threshold of 100 closed-end mortgage loans, approximately 96 percent of loans and applications related to manufactured housing will continue to be reported by depository and nondepository institutions combined, when compared to the current threshold of 25 closed-end mortgage loans in today's market conditions. The Bureau's estimates indicate that a significant number of multifamily housing and manufactured housing loans and applications under today's market conditions will continue to be reported under the final rule's threshold of 100.

Ongoing Cost Reduction From Threshold of 100

As noted above, small financial institutions and trade associations commented on the cost of HMDA reporting, suggesting that compliance costs have had an impact on the ability of small financial institutions to serve their communities. For the May 2019 Proposal and this final rule, the Bureau developed estimates for deposito

This text is long and has been trimmed here. Open the source document for the complete record.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.