Home Mortgage Disclosure

FEDERAL RESERVE SYSTEM

12 CFR Part 203

[Regulation C; Docket No. R-0839]

Home Mortgage Disclosure

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The Board is publishing a final rule to amend Regulation C

(Home Mortgage Disclosure) and to revise the instructions and reporting

forms that financial institutions must use in complying with the annual

reporting requirements. The amendments respond to the statutory

provisions regarding earlier availability of the Home Mortgage

Disclosure Act (HMDA) disclosure statements to the public; provide

clarifications requested by financial institutions that report under

HMDA; and are intended to help improve the quality of the HMDA data.

The amendments require reporting in machine-readable format; require

institutions to update their loan application registers quarterly

during the year as data are being collected; and make a number of other

changes.

DATES: Effective date: January 1, 1995.

Compliance dates: Compliance is mandatory for paragraphs III.B. and

III.C. of Appendix A to Part 203, the amendment regarding the

transmittal sheet, for the submission of calendar year 1995 data, which

is due no later than March 1, 1996. For all other amendments,

compliance is mandatory for the collection of data that begins January

1, 1996, which is to be submitted to supervisory agencies no later than

March 1, 1997. Institutions may comply with the amendments beginning

January 1, 1995.

FOR FURTHER INFORMATION CONTACT: Jane Jensen Gell, Staff Attorney, or

John C. Wood, Senior Attorney, Division of Consumer and Community

Affairs, Board of Governors of the Federal Reserve System, Washington,

DC 20551, at (202) 452-2412 or (202) 452-3667; for the hearing impaired

only, contact Dorothea Thompson, Telecommunications Device for the

Deaf, at (202) 452-3544.

SUPPLEMENTARY INFORMATION:

I. Background

The Board's Regulation C (12 CFR Part 203) implements the Home

Mortgage Disclosure Act of 1975 (HMDA) (12 U.S.C. 2801 et seq.). The

regulation requires most mortgage lenders located in metropolitan

statistical areas (MSAs) to report annually to federal supervisory

agencies, and disclose to the public, information about their home

mortgage and home improvement lending activity. The reports and

disclosures cover loan originations, applications that do not result in

originations (for example, applications that are denied or withdrawn),

and purchases of loans. Information reported includes the location of

the property to which the loan or application relates; the race or

national origin, gender, and income of the applicant; and the type of

purchaser for loans sold in the secondary market.

Lenders are required to report data about originations,

applications, and purchased loans for each calendar year to their

supervisory agency by March 1 of the following year. The reports are

made on a HMDA Loan/Application Register (HMDA-LAR) in a transaction-

by-transaction format. The lender's supervisory agency submits the data

to the Federal Reserve Board, which processes the data on behalf of

member agencies of the Federal Financial Institutions Examination

Council (FFIEC) and the Department of Housing and Urban Development.

The Board then prepares public disclosure statements for each reporting

lender. The statements are sent to lenders and the lenders are required

to make the statements available to the public at their home office and

at certain branch offices.

The Board also prepares aggregate disclosure tables covering all

lenders in each MSA, and sends them, along with the individual lenders'

disclosure statements, to a central data depository in each MSA. The

central depositories are usually public libraries, regional planning

agencies, or other public offices.

II. Summary of Amendments

In June 1994, the Board proposed amendments to Regulation C (59 FR

30310, June 13, 1994). Approximately 300 comments were received on the

proposal. While many commenters supported the proposal, a number raised

concerns about some of the specific provisions. After reviewing the

comment letters and upon further analysis the Board is adopting

amendments to Regulation C.

A principal reason for amending Regulation C is to make HMDA data

available to the public earlier than has been the case in the past.

Statutory amendments to HMDA enacted in 1992 provide that starting with

the HMDA reports for calendar year 1994, the FFIEC should make every

effort to ensure that disclosure statements for individual lenders are

available to the public by July 1 of the following year, and that

aggregate tables are available at the central depositories by September

1.

Another purpose for the amendments is to improve further the

accuracy of the HMDA data. The accuracy of the HMDA reports has been

improving from year to year, but concerns continue about data quality.

Amendments that require institutions to report in machine-readable

format and to update their HMDA/LARs on a quarterly basis are intended

to help improve data quality, as well as aid in earlier data

availability.

Institutions are expected to accurately compile and check their

data before submission. Some of the amendments are intended to clarify

and simplify the reporting requirements, thus facilitating

institutions' performance of these tasks.

The Board intends to publish by year-end 1994 a proposed staff

commentary to Regulation C. The commentary will provide a vehicle for

interpretations to help lenders better understand and comply with the

regulation's requirements. The commentary will supplement the

instructions provided in Appendix A to Regulation C for completion of

the HMDA-LAR.

The Board, the Office of the Comptroller of the Currency (OCC), the

Federal Deposit Insurance Corporation (FDIC), and the Office of Thrift

Supervision (OTS) recently proposed to amend their Community

Reinvestment Act (CRA) regulations, and included a proposal that would

require some lenders to collect additional mortgage data (59 FR 51232,

October 7, 1994). Accordingly, the Board published for comment proposed

amendments to Regulation C to implement the CRA changes (59 FR 51323);

the final amendments set forth below do not include final action on

that HMDA proposal.

Institutions must comply with the new or changed requirements

beginning with the collection of data for calendar year 1996, to be

reported by March 1, 1997; institutions may choose to comply beginning

January 1, 1995. (For the amendments concerning the transmittal sheet,

compliance is mandatory beginning with the submission of the 1995 data

that are due by March 1, 1996.) In other cases, the amendments merely

clarify existing rules already in effect, with no substantive change,

and institutions must continue to comply with the existing rule. The

amendments setting forth such clarifications are those relating to: the

definition of ``financial institution'' (Sec. 203.2(e)); reporting of

gross annual income (Sec. 203.4(a)(7)); treatment of counteroffers

(Appendix A, paragraphs V.A.8.f. and V.B.2.a. and c.); and reporting of

property location (Appendix A, paragraph V.C.5.).

Section 203.2--Definitions

Paragraph (e)--Financial Institution

The Board is amending paragraphs (e)(1) and (e)(2) to clarify that

a refinancing of a home purchase loan is itself a home purchase loan

for the purposes of this definition. This technical revision (which was

not addressed in the proposed rule) conforms the regulatory language to

existing language in the HMDA-LAR instructions (see Appendix A,

paragraphs I.B., C., and D. of this part).

Paragraph (f)--Home Improvement Loan

The existing definition of ``home improvement loan'' sets two

conditions: The stated purpose of the loan is to repair, rehabilitate,

or remodel a dwelling; and the loan is classified by the financial

institution as a home improvement loan.

The Board proposed to define a home improvement loan as a loan

``stated by the borrower (at the time of the loan application) to be

for home improvement purposes,'' to broaden the coverage to

improvements to the real property but not to the ``dwelling'' itself.

Some commenters expressed concerns that the proposed definition

would cover only loans expressly stated by the borrower to be for home

improvement purposes, noting that an applicant might not specifically

say that a loan is ``for a home improvement purpose.'' Commenters

suggested deleting the requirement that the borrower ``state'' that a

loan is for ``home improvement.''

Based on the comments received and upon further analysis, the Board

has revised the definition to provide that a home improvement loan is

one for the purpose of repairing, rehabilitating, remodeling, or

improving either a dwelling or the real property on which the dwelling

is located (even if it is not called a ``home improvement'' loan by the

borrower). For example, a loan that the borrower states is for a

driveway, detached garage, or landscaping is a home improvement loan

subject to the regulation.

The Board proposed to eliminate the second part of the definition--

that the loan be classified in the records of the financial institution

as a home improvement loan. This revision would have made the manner in

which an institution classifies a loan irrelevant for HMDA purposes.

This proposed change was intended to enable an institution to report

home improvement loans on its HMDA-LAR even if the institution did not

record them as home improvement loans for other purposes. Commenters

supporting the proposal noted that loans may be for home improvement

purposes but may not be ``classified'' in the institution's records as

home improvement loans.

Many other commenters requested that the Board not change this part

of the definition. They said that deleting the classification aspect of

the home improvement loan definition could work a hardship on

institutions that do not now classify loans in all their product lines,

and that would have to adopt procedures to identify which loans are in

fact used for home improvement purposes. The Board has retained the

current classification provision. The Board believes, however, that

institutions wishing to report loans that have a home improvement

purpose need not make major modifications to their recording procedures

to meet the definition. Classification can mean that a loan is recorded

on an institution's books or otherwise identified or coded in some

manner as a home improvement loan. For example, loans that are

marketed, ``booked,'' or classified on call reports as home improvement

loans could be considered ``classified'' as home improvement loans

under the revised definition.

Some commenters requested a change in the treatment of a multiple-

purpose loan where a portion is for home improvement. The Board has

previously interpreted the definition of home improvement loan to mean

that if more than 50 percent of the proceeds of a loan will be used for

home improvement purposes, the total loan amount may be reported as a

home improvement loan. Commenters suggested that compliance would be

made easier if the Board instead provided that regardless of the amount

of a multi-purpose loan specified for home improvement purposes,

institutions may report the loan as a home improvement loan. After

further analysis, the Board has revised the definition of a home

improvement loan to provide that if a portion of a loan is for home

improvement purposes, it may be reported as such, assuming it is

classified by the institution as a home improvement loan. The Board

believes that in most instances this revision will not result in

institutions having to report multipurpose transactions not previously

reportable, because reporting is still limited to those transactions

that are classified by an institution as home improvement loans.

Section 203.4--Compilation of Loan Data

Paragraph (a)--Data Format and Itemization

Maintenance of LARs on current basis. The regulation requires

covered institutions to report HMDA data for a given calendar year to

their supervisory agency by March 1 of the following year. The Board

proposed to require institutions to record transactions on the HMDA-LAR

within one month after final action is taken (such as origination of a

loan, or denial or withdrawal of an application). Comment was requested

on whether any burden caused by a periodic maintenance requirement

might be reduced if institutions were required to update the HMDA-LAR

on a quarterly basis.

Most commenters who addressed the issue stated that it would be

costly and burdensome to record all the HMDA-LAR information within one

month after final action. On the other hand, commenters generally

supported the Board's alternative proposal requiring institutions to

maintain the HMDA-LAR on a quarterly basis. These commenters believed

that it would be feasible to update the HMDA-LAR quarterly, noting that

the OCC requires national banks to update their HMDA-LARs within thirty

calendar days after the end of each calendar quarter (12 CFR

27.3(a)(1)(ii)). The FDIC requires institutions it supervises to enter

all required information on the HMDA-LAR within thirty calendar days of

final action (12 CFR 338.8(c)).

The Board believes that quarterly updating will help in improving

the accuracy and timeliness of the HMDA data without imposing an undue

compliance burden on institutions. Under the final rule, an institution

must record transactions within thirty calendar days after the end of

the calendar quarter in which final action is taken (such as

origination of a loan, or denial or withdrawal of an application). For

example, institutions must record by April 30 all transactions in which

final action is taken during the first quarter. Calendar year 1996 is

the first year during which quarterly updating will be required.

Under this final rule, current-year registers will be available to

examiners so that the supervisory agency can work with the institution

to ensure that any errors are promptly corrected. Institutions are

expected to make a good faith effort to enter all data concerning

transactions completely and accurately. If an examiner finds, on

reviewing a quarterly update, that some data are incorrect or

incomplete despite such effort, the error or omission will not

constitute a violation of Regulation C. The new requirement is intended

to facilitate early detection of errors by examiners or by the

institution itself, so that errors can be corrected before the annual

report is submitted. The Board believes that updating the HMDA-LAR

within one month after the end of each quarter is an important step

toward improving the accuracy and timeliness of HMDA reports.

Institutions should keep in mind that the new Regulation C rule is

only a minimum requirement and does not supersede stricter updating

rules that a supervisory agency may impose on institutions under its

jurisdiction (such as those that the FDIC and the OCC currently have in

place).

Reporting income. The Board proposed to revise the regulation to

clarify how institutions report applicant income. Regulation C

currently provides that financial institutions shall collect data on

the ``income relied upon in processing the loan application.'' The

instructions for completing the HMDA-LAR similarly state that an

institution must enter the ``gross annual income that your institution

relied upon in making the credit decision'' (Appendix A, paragraph

V.D.5.). If no income is ``asked for or relied on'' in the credit

decision, institutions are instructed to enter ``NA'' (not applicable)

in the income field (Appendix A, paragraph V.D.5.c.).

The Board proposed that lenders should report on their HMDA-LAR the

income reported on the application, including income of coapplicants,

whether or not the lender relied on a particular source of income to

qualify the applicant for a certain amount of credit.

Most commenters opposed the proposed change. Many said that

reporting all income stated on the application, whether or not relied

on in the credit decision, would involve significant procedural and

programming modifications. Commenters believed that expanding the

income-reporting requirement would increase their burden without a

commensurate increase in data quality and accuracy. Some commenters

also suggested that income relied upon serves as a better measure of a

lender's decision-making process.

Based on the comments received and further analysis, the Board has

retained the existing rule. As under the current regulation, the income

to be reported for HMDA purposes is the income relied on by the

creditor in making the credit decision.

Currently lenders need not report income for streamlined

refinancings or other loans in which they do not ask for, or do not

rely on, income information. In addition, for privacy reasons, an

institution need not record applicants' income on the HMDA-LAR for

loans made to the institution's own employees. These rules will remain

in place.

Under Regulation B (12 CFR Part 202), creditors may not discount or

exclude from consideration the income of an applicant or the spouse of

an applicant because of a prohibited basis (such as race, color,

religion, national origin, sex, marital status, or age) or because the

income is derived from part-time employment or an annuity, pension, or

other retirement benefit. However, creditors may consider the amount

and probable continuance of any income in evaluating an applicant's

creditworthiness. This rule applies in reporting income under

Regulation C; if a lender determines that some portion of the income

reported by the applicant cannot be verified, is overstated, or is

unreliable, the lender need not report that income on the LAR.

In addition, a technical change has been made to Sec. 203.4(a)(7)

of Regulation C to reflect the instructions for completing the HMDA-

LAR, which specify that lenders must report the gross annual income

relied upon in making the credit decision.

Section 203.5--Disclosure and Reporting

Paragraph (a)--Reporting to Agency

Proposed change in reporting deadline. Statutory amendments

contained in the Housing and Community Development Act of 1992 provide

that starting with loan and application data for calendar year 1994,

the FFIEC shall make ``every effort'' to ensure that individual

lenders' public disclosure statements are available at the lenders'

offices before July 1 of the following year. Similarly, the amendments

call for the FFIEC to make both the individual disclosures and the

aggregate tables available at the central depositories before September

1.

To facilitate earlier availability, the Board proposed to make

February 1 the deadline for HMDA-LAR submission by lenders to their

regulatory agencies, instead of March 1. Many commenters expressed

objections to this proposal and stated that a February 1 deadline would

be extremely difficult or impossible to meet. Commenters pointed out

the difficulties already present in the current March 1 deadline, given

the time required for institutions with large branch networks to

collect the data in a central location at year-end and review and

compile the data prior to submission to their regulator. Other

commenters mentioned the many other reports that are already due at the

end of January, making it difficult to meet a February 1 deadline for

HMDA.

Some commenters questioned whether an earlier deadline was

necessary to meet the agencies' earlier timetables given the other

changes that the Board was proposing to make (such as the requirements

that data be maintained on a current basis and submitted to the

agencies in an automated, edited format). Some suggested that this

proposed change could result in less accurate data because there would

be less time to audit the data and correct any errors.

Based on the comments received and further analysis, the Board has

decided not to change the reporting deadline from the current March 1

date. With the expectation of further efficiencies in the agencies'

internal processing schedules, the Board believes that adoption of the

other amendments will assist in meeting the earlier timetables for

release of data without the proposed change in deadline.

Reporting in machine-readable format. The Board proposed to require

that all institutions report HMDA data in machine-readable form and

that they edit the data before submission, either using agency-supplied

HMDA software or using the same edits in private vendors' software. The

proposed change was intended to help lenders ensure submission of

accurate data. The Board also requested comment on whether requiring

machine-readable data submission from all institutions would create a

hardship for some, and if so, whether supervisory agencies should have

discretion to grant waivers on a case-by-case basis.

A significant proportion of lending institutions still report HMDA

data in paper form. For example, among institutions reporting to the

OCC, 24 percent report in paper form; for institutions reporting to the

FDIC, the National Credit Union Administration, and the Board, the

figures are 27 percent, 47 percent, and 20 percent, respectively. Some

commenters (especially smaller institutions with few transactions to

report) stated that it would be burdensome for them to report in

automated form. Many others indicated that they would have no

difficulty in doing so.

The Board believes that reporting in machine-readable form should

not be overly burdensome for most institutions, considering the

availability of personal-computer software at no cost from most of the

supervisory agencies and the existence of private vendors that sell

software for preparing reports or that offer report-preparation

services. The Board has therefore adopted the requirement for machine-

readable reporting, but is making the requirement applicable to

calendar year 1996 data. This delay in effective date will enable

institutions to minimize expenses by allowing them to make changes to

procedures over a reasonable period of time.

The Board recognizes that for institutions that have only a few

lines of data to report, changing over from paper to machine-readable

reporting could be expensive on a per-transaction basis. Even if the

cost of computer hardware and software and related costs, such as for

training, are modest, the costs may outweigh the benefits for a very

small amount of data. Accordingly, institutions with 25 or fewer line

entries to report will continue to be permitted to submit their data in

paper form. (For the 1995 data collection year, the existing rule

remains in place; lenders reporting more than 100 line entries are

expected to submit data in machine-readable form.)

The Board decided against the granting of waivers from the machine-

readable reporting requirement on the grounds that a waiver procedure

would likely be cumbersome for both agencies and institutions and that

institutions might not know on a timely enough basis whether they had

to report in machine-readable form.

Paragraph (e)--Notice of Availability

The Board has adopted the technical change to Sec. 203.5(e)

concerning the suggested language for the lenders' notice of

availability. As discussed in the proposal, amendments contained in the

Housing and Community Development Act of 1992 and incorporated into

Regulation C (58 FR 13403, March 11, 1993) require lending institutions

to make their loan/application registers available to the public (after

deleting certain data fields).

Appendix A--Form and Instructions for Completion of HMDA-LAR

II. Required Format and Reporting Procedures

Paragraph A

As discussed above, the revised regulation requires that HMDA-

covered institutions, except those whose HMDA-LARs contain 25 or fewer

line entries, submit data in machine-readable form effective with the

data due on March 1, 1997.

Paragraph E

A new paragraph II. E. reflects the requirement that the HMDA-LAR

be updated within 30 days after the end of the calendar quarter,

beginning in calendar year 1996. See the discussion under

Sec. 203.4(a), above.

III. Submission of HMDA-LAR and Public Release of Data

Paragraphs B and C

Requirement to Report Total HMDA-LAR Entries on Transmittal Sheet

Regulation C requires that a transmittal sheet accompany an

institution's HMDA-LAR data submission, containing general information

such as the name, address, and identifying numbers of the institution.

The Board proposed to amend the regulation to require financial

institutions to report on the transmittal sheet the total number of

line entries included in the data submission, and to send a transmittal

sheet with the initial and any subsequent submissions of data, rather

than only with the initial submission. An institution will sometimes

send HMDA data to its supervisory agency in more than one submission

when revisions to the initial submission are necessary, for example, or

because transactions were found to have been inadvertently omitted. The

proposed changes were intended to reduce the likelihood of any data

being lost during the collection process.

The Board has adopted the changes as proposed. The final amendment

clarifies that the number to be reported on the transmittal sheet is

the total number of line entries contained in the accompanying

submission. If the submission is not the first submission of data by an

institution, the number to be reported is the line-entry count for that

particular submission, not a cumulative number for all submissions to

date. For submissions that include line entries representing revisions

or deletions of previously submitted entries, the number to be reported

is the total of line entries in that submission (including revisions,

deletions, entries being resubmitted without change, and entries being

submitted for the first time).

Paragraph G Posters

The Board has adopted suggested language for the notice of

availability that lenders post in their home and branch offices in

metropolitan areas, to correspond to the technical change made to

Sec. 203.5(e). The final sentence has been revised to mirror more

accurately the requirements of Sec. 203.5(b) and (c), indicating that

the data need only be available in one branch office in each MSA.

The poster language is optional. Lenders may continue to use their

existing posters without violating the regulation. When they next

reprint their poster supplies, they should use language similar to that

suggested here.

V. Instructions for Completion of Loan/Application Register

A. Application or Loan Information

5. Explanation of Purpose Codes

Code 2: Home improvement. The HMDA-LAR instructions have been

revised to reflect the Board's amendments to the definition of home

improvement loans in Sec. 203.2(f), as discussed above. Paragraphs a.

and c. under Code 2 have been revised for consistency with this change

to the regulation.

Code 3: Refinancings. The regulation requires lenders to report

refinancings, which are defined as loans that satisfy an existing

obligation and replace it with a new obligation undertaken by the same

borrower. The Board sought comment on the exclusion of certain

refinancings based on the ``predominant purpose'' test. Under this

test, a refinancing is reported only if the amount outstanding on the

loan being refinanced, plus the amount of any new money for home

purchase or home improvement purposes, equals more than 50 percent of

the total new loan amount. Many commenters suggested that this 50

percent test could be abolished without making the data collected any

less useful and that this would greatly ease compliance, thereby

promoting greater accuracy in reporting. The Board agrees, and has

revised paragraph c. under Code 3; refinancings may be reported

regardless of the purpose of, or the amount outstanding on, the

original loan and regardless of the amount of new money (if any) that

is for home purchase or home improvement purposes. However, if an

institution knows that the purpose of the original loan was not home

purchase or home improvement, the refinancing need not be reported.

Many commenters noted that to ensure that the collection of data

under HMDA is related to the housing credit needs of communities (as

specified in the act), reportable refinancings should be limited to

those secured by a dwelling. In keeping with the revisions to paragraph

c. under Code 3, the Board has revised paragraph a. under Code 3 to

state that only refinancings of loans secured by a lien on residential

dwellings are to be reported. Therefore, refinancings of unsecured home

improvement loans will no longer be reported under HMDA.

While these changes in the reporting of refinancings may result in

some net increase in the number of refinancings reported, the Board

believes that the greater ease in determining whether a given

transaction is to be reported outweighs any additional reporting

burden.

In its proposed rule the Board sought comment on whether to require

the reporting of certain types of loan modifications (sometimes called

modification, extension, and consolidation agreements or ``MECAs''),

which are technically not ``refinancings'' but which can be their

functional equivalent. Some commenters suggested that lenders ought to

be allowed to report modifications that are truly the functional

equivalent of refinancings. The Board believes, however, that the

advantages of a bright-line test for determining whether a transaction

is to be reported outweigh the benefits of the additional data on

modifications. Accordingly, the final rule limits reporting of

refinancings to those that result in the satisfaction of an existing

obligation and its replacement by a new obligation undertaken by the

same borrower.

The Board has made a technical change to the language in paragraph

a. Previously, paragraph a. stated that refinancings would not be

reported if, under the loan agreement, a lender was ``unconditionally

obligated to renew or refinance the obligation,'' or was ``obligated to

renew or refinance the obligation subject to conditions within the

borrower's control.'' As the renewal of an existing obligation does not

involve the satisfaction of that obligation, the Board has deleted this

language to avoid confusion.

8. Loan Amount

Paragraphs b, c, and d. Paragraphs b., c., and d. have been revised

for consistency with the changes, discussed above, regarding home

improvement loans and refinancings.

Paragraph f. Paragraph f. has been revised to make clear that a

counteroffer not accepted by the applicant is to be reported as a

denial, consistent with new paragraphs B.2.a. and c., discussed below.

B. Action Taken

2. Explanation of Codes

As was proposed, the final rule clarifies in new paragraphs a. and

c. (existing paragraphs a. and c. have been redesignated) that

counteroffers are to be reported as loan denials if the applicant does

not accept the counteroffer, not as applications withdrawn or approved

but not accepted. Commenters generally supported the Board's

interpretation. Some commenters stated that this clarification was

necessary to conform the treatment of counteroffers in Regulation C

with the treatment of counteroffers in Regulation B (12 CFR Part 202,

Equal Credit Opportunity).

Other commenters were concerned that classifying unaccepted

counteroffers as denials would not reflect an institution's offer of

credit, although in a different amount or on different terms from those

applied for. Some suggested that unaccepted counteroffers should be

reported as applications approved but not accepted or as withdrawn.

However, under Regulation C an application that is approved but not

accepted is one that the lender has approved in the amount and on the

terms applied for, not in a different amount or on different terms as

in the case of a counteroffer. A withdrawn application is one that the

applicant has withdrawn unilaterally and before the lender has

communicated its decision to the applicant. The Board believes that

neither of these categories is appropriate for reporting an unaccepted

counteroffer for HMDA purposes.

C. Property Location

5. Outside-MSA

Under Regulation C, for loans on property located outside the

metropolitan areas in which an institution has a home or branch office

(or outside any MSA), the institution has the option to enter on the

HMDA-LAR information on the location of the property to which the loan

relates, or to enter ``NA.'' The Board proposed to revise this

paragraph to clarify that, if a lender chooses to enter data in the

property-location fields of the HMDA-LAR for these loans, the data must

accurately reflect the location of the property in question. The Board

has adopted the proposal in final form, with additional clarification

on how the location data are to be entered.

Under the CRA proposal recently issued for comment (59 FR 51323,

October 7, 1994), certain depository institutions would have to report

property location for all their HMDA loan transactions, whether or not

the property to which the loan relates is located in an MSA in which

the institution has a home or branch office. Final action is still

pending on that proposal; the public comment period closed on November

21.

D. Applicant Information--Race or National Origin, Sex, and Income

5. Income

The Board is making a technical change in paragraph c., which

states that if income is not asked for or relied on in a credit

decision, the creditor should enter ``NA'' for income on the HMDA-LAR.

The Board has deleted the parenthetical reference to ``no income

verification'' loans as possibly inaccurate; the Board intends to

provide guidance on types of loans that would qualify under this

paragraph in the staff commentary to Regulation C.

III. Other Matters

In addition to seeking comment on the proposed amendments, the

Board solicited comment on other matters related to HMDA reporting:

home equity lines, prequalification programs, and the collection of

racial or ethnic information. These are discussed below.

Home Equity Lines

The Board solicited comment on ways in which Regulation C might be

changed to better address problems of accuracy of the HMDA data.

Specifically, the Board asked whether allowing or requiring all home-

equity credit lines to be reported--rather than only the portion of a

line the borrower intended to use for home improvement or home

purchase--would simplify reporting and therefore bring about greater

consistency.

A number of commenters suggested that the Board should allow the

entire amount of the home-equity credit line to be reported under HMDA,

regardless of the amount earmarked for home improvement or home

purchase purposes. They believed that such a change would simplify the

reporting process. However, other commenters questioned whether

allowing the entire credit line to be reported is consistent with the

stated purpose of the act--to determine whether financial institutions

are meeting their obligations to serve the housing needs of their

communities. Based on the comments and further analysis, the Board is

leaving unchanged the reporting rules for home-equity credit lines.

Prequalification Programs

The Board requested comment on the treatment of prequalifications

under HMDA. In particular, for denials of prequalification requests

that are covered by HMDA, questions have been raised about the

reporting of the loan amount, loan type, and property location data

fields on the HMDA-LAR. Although ``NA'' is an acceptable entry for

property location (for example, if the prospective homebuyer has not

requested financing for a specific property), for loan amount the

regulation currently does not provide any acceptable code if the

prospective homebuyer has not requested a particular amount of credit.

Based on the comments and upon further analysis, the Board has

determined that for 1994 and 1995 data collection, institutions need

not report prequalification requests on the HMDA-LAR. The Board expects

to address issues related to prequalification requests in the staff

commentaries for Regulations B and C.

Collection of Racial or Ethnic Information

Regulation C provides that applicants for mortgage and home

improvement loans be requested, but not required, to provide

information about their race or national origin, gender, and income. If

this information is not provided when the application is taken in

person, the loan officer is required to enter the information on the

basis of visual observation or surname. The purpose is to gather data

that may help supervisory agencies determine whether a lending

institution is complying with the fair lending laws.

The categories in Regulation C for data collection on race/national

origin of applicants include the category of ``other.'' The categories

used by the Office of Management and Budget (OMB) for government

statistical purposes do not provide that option. Comment was solicited

on whether the Board should consider deleting the ``other'' category.

Commenters generally believed that the ``other'' category serves a

useful purpose. Several commenters expressed the view that providing

this option helps ensure the integrity of the existing categories.

These commenters stated that the HMDA data are more useful and accurate

when persons who believe they do not fit into a specific category are

not forced into one. Commenters also noted that use of this category

should not affect HMDA data analysis significantly, because only 45,000

applicants out of 10 million records (less than half of one percent)

utilized this option in 1992. The Board has retained the ``other''

category for the present. OMB is currently exploring changes that may

be adopted for use in the decennial census for the year 2000, and is

expected to announce changes in categories in the next several years.

The Board will reexamine this matter at that time.

IV. Regulatory Flexibility Analysis

The proposed amendments to Regulation C that the Board published

for comment in June 1994 were intended to improve the quality of HMDA

data and make the data available to the public earlier. Many commenters

supported the objectives of the proposal but thought that some of the

proposed changes were unnecessarily burdensome. In many cases,

commenters suggested alternatives that they believed would help achieve

the objectives of the proposed amendments at a lower cost. The revised

amendments have been responsive to the advice in the public comments.

The revised amendments should disrupt current practices much less and

therefore have lower compliance costs than the changes originally

proposed. At the same time, the revised amendments would achieve the

original objective of more accurate and timely HMDA data.

V. Paperwork Reduction Act

In accordance with section 3507 of the Paperwork Reduction Act of

1980 (44 U.S.C. 35; 5 CFR 1320.13) these revisions have been reviewed

under the authority delegated to the Federal Reserve Board by the

Office of Management and Budget, after consideration of the comments

received during the comment period. Where appropriate, steps were taken

to minimize any increase in burden.

The amended regulation revises the transmittal sheet for the HMDA-

LAR by requiring a record count to be included; the Board believes that

the paperwork expansion associated with this requirement is de minimis.

The amended regulation requires lenders to file submission in machine-

readable format, with an exception for institutions whose reports

contain 25 or fewer line entries. The burden associated with machine-

readable reporting is likely to be minimal, particularly given the

lead-time provided for mandatory compliance. The one-time costs for

machine-readable reporting will be offset by savings in the ongoing

costs of reporting.

The amended regulation requires quarterly updating of the HMDA-LAR.

Many institutions already maintain their data on an ongoing basis,

rather than entering all data at year-end. Overall, this change does

not represent an increase in paperwork burden.

The amended requirements for reporting refinancings and home

improvement loans will likely mean that a higher volume of transactions

will be reported. Lenders will find compliance easier, however, as they

will have less difficulty in determining whether particular

refinancings or home improvement loans are covered by HMDA, offsetting

any marginal increase in the cost of reporting additional transactions.

Thus, no increased burden should result. The remaining amendments

clarify existing rules, make minor technical changes, or make changes

that are optional for institutions, and do not represent an increase in

paperwork burden.

Based on its analysis of the impact of the amended regulation, the

Board believes that there is no net change in the Board's current

estimate of paperwork burden associated with Regulation C. The public

reporting burden for collection of the HMDA data is estimated to vary

from 10 to 10,000 hours per response, with an average of 200 hours per

response. This includes the time to gather and maintain the data needed

and to review instructions and complete the information collection.

List of Subjects in 12 CFR Part 203

Banks, banking, Consumer protection, Federal Reserve System, Home

mortgage disclosure, Mortgages, Reporting and recordkeeping

requirements.

For the reasons set forth in the preamble, the Board amends 12 CFR

Part 203 as set forth below:

PART 203--HOME MORTGAGE DISCLOSURE (REGULATION C)

1. The authority citation for Part 203 continues to read as

follows:

Authority: 12 U.S.C. 2801-2810.

2. Section 203.2 is amended by republishing paragraph (e)

introductory text, and by revising paragraph (e)(1) introductory text,

and paragraphs (e)(2) and (f) to read as follows:

Sec. 203.2 Definitions.

* * * * *

(e) Financial institution means:

(1) A bank, savings association, or credit union that originated in

the preceding calendar year a home purchase loan (other than temporary

financing such as a construction loan), including a refinancing of a

home purchase loan, secured by a first lien on a one- to four-family

dwelling if:

* * * * *

(2) A for-profit mortgage lending institution (other than a bank,

savings association, or credit union) whose home purchase loan

originations (including refinancings of home purchase loans) equaled or

exceeded ten percent of its loan origination volume, measured in

dollars, in the preceding calendar year.

(f) Home improvement loan means any loan that:

(1) Is for the purpose, in whole or in part, of repairing,

rehabilitating, remodeling, or improving a dwelling or the real

property on which it is located; and

(2) Is classified by the financial institution as a home

improvement loan.

* * * * *

3. Section 203.4 is amended by revising the second sentence of the

introductory text in paragraph (a), and paragraph (a)(7), to read as

follows:

Sec. 203.4 Compilation of loan data.

(a) Data format and itemization. * * * These transactions shall be

recorded, within thirty calendar days after the end of each calendar

quarter in which final action is taken (such as origination or purchase

of a loan, or denial or withdrawal of an application), on a register in

the format prescribed in Appendix A of this part and shall include the

following items:

* * * * *

(7) The race or national origin and sex of the applicant or

borrower, and the gross annual income relied upon in processing the

application.

* * * * *

4. Section 203.5 is amended by revising paragraph (a), and by

revising paragraph (e), to read as follows:

Sec. 203.5 Disclosure and reporting.

(a) Reporting to agency. By March 1 following the calendar year for

which the loan data are compiled, a financial institution shall send

its complete loan application register to the agency office specified

in Appendix A of this part, and shall retain a copy for its records for

a period of not less than three years.

* * * * *

(e) Notice of availability. A financial institution shall post a

general notice about the availability of its HMDA data in the lobbies

of its home office and any physical branch offices located in an MSA.

Upon request, it shall promptly provide the location of the

institution's offices where the statement is available. At its option,

an institution may include the location in its notice.

5. Item II. of Appendix A to Part 203 is amended by revising

paragraph A. and by adding a new paragraph E., as follows:

Appendix A to Part 203--Form and Instructions for Completion of HMDA

Loan/Application Register

* * * * *

II. Required Format and Reporting Procedures

A. Institutions must submit data to their supervisory agencies

in an automated, machine-readable form. The format must conform

exactly to that of form FR HMDA-LAR, including the order of columns,

column headings, etc. Contact your federal supervisory agency for

information regarding procedures and technical specifications for

automated data submission; in some cases, agencies also make

software for automated data submission available to institutions.

The data must be edited before submission, using the edits included

in the agency-supplied software or equivalent edits in software

available from vendors or developed in-house. (Institutions that

report 25 or fewer entries on their HMDA-LAR may collect and report

the data in paper form. An institution that submits its register in

nonautomated form must send two copies that are typed or computer

printed, and must use the format of form FR HMDA-LAR (but need not

use the form itself). Each page must be numbered, and the total

number of pages must be given (for example, ``Page 1 of 3'').)

* * * * *

E. Applications and loans must be recorded on your register

within thirty calendar days after the end of the calendar quarter in

which final action (such as origination or purchase of a loan, or

denial or withdrawal of an application) is taken. The type of

purchaser for loans sold need not be included in these quarterly

updates.

* * * * *

6. Item III. of Appendix A to Part 203 is amended by revising

paragraphs B., C., and G., as follows:

* * * * *

III. Submission of HMDA-LAR and Public Release of Data

* * * * *

B. You must submit all required data to your supervisory agency

in one complete package, with the prescribed transmittal sheet. An

officer of your institution must certify to the accuracy of the

data. Any additional data submissions that become necessary (for

example, because you discover that data were omitted from the

initial submission, or because revisions are called for) also must

be accompanied by a transmittal sheet.

C. The transmittal sheet must state the total number of line

entries contained in the accompanying data submission. If the data

submission involves revisions or deletions of previously submitted

data, state the total of all line entries contained in that

submission, including both those representing revisions or deletions

of previously submitted entries, and those that are being

resubmitted unchanged or are being submitted for the first time. If

you are a depository institution, you also are asked to provide a

list of the MSAs where you have a home or branch office.

* * * * *

G. Posters. Some of the agencies provide HMDA posters that you

can use to inform the public of the availability of your HMDA data,

or you may create your own posters. If you print your own, the

following language is suggested but is not required:

Home Mortgage Disclosure Act Notice

The HMDA data about our residential mortgage lending are

available for review. The data show geographic distribution of loans

and applications; race, gender, and income of applicants and

borrowers; and information about loan approvals and denials. Inquire

at this office regarding the locations where HMDA data may be

inspected.

* * * * *

7. Item V. of Appendix A to Part 203 is amended as follows:

a. Paragraphs A.5.Code 2 a. and c., A.5. Code 3 a. and c., and A.8.

b., c., d., and f. are revised;

b. Paragraphs B.2.a., B.2.b., and B.2.c. are redesignated as

paragraphs B.2.b., B.2.d., and B.2.e., respectively;

c. New paragraphs B.2.a. and B.2.c. are added;

d. Paragraph C.5. is revised; and

e. Paragraph D.5.c. is revised.

The revisions and additions read as follows:

* * * * *

V. Instructions for Completion of Loan/Application Register

A. Application or Loan Information

* * * * *

5. Explanation of Purpose Codes

* * * * *

Code 2: Home improvement.

a. Code 2 applies to loans and applications for loans if (i) a

portion of the proceeds is to be used for repairing, rehabilitating,

remodeling, or improving a one- to four-family residential dwelling,

or the real property upon which it is located, and (ii) the loan is

classified as a home improvement loan.

* * * * *

c. At your option, you may report data about home-equity lines

of credit--even if the credit line is not classified as a home

improvement loan. If you choose to do so, you may report a home-

equity line of credit as a home improvement loan if some portion of

the proceeds will be used for home improvement. (See Paragraph 8.

``Loan amount.'') If you report originations of home-equity lines of

credit, you must also report applications for such loans that did

not result in originations.

Code 3: Refinancings.

a. Use this code for refinancings (and applications for

refinancings) of loans secured by one- to four-family residential

dwellings. A refinancing involves the satisfaction of an existing

obligation that is replaced by a new obligation undertaken by the

same borrower. But do not report a refinancing if, under the loan

agreement, you are unconditionally obligated to refinance the

obligation, or you are obligated to refinance the obligation subject

to conditions within the borrower's control.

* * * * *

c. You may report all refinancings of loans secured by one- to

four-family residential dwellings, regardless of the purpose of or

amount outstanding on the original loan, and regardless of the

amount of new money (if any) that is for home purchase or home

improvement purposes.

* * * * *

8. Loan Amount

* * * * *

b. For home improvement loans (both originations and purchases),

you may include unpaid finance charges in the loan amount if that is

how you record such loans on your books. For a multiple purpose loan

classified by you as a home improvement loan because it involves a

home improvement purpose, enter the full amount of the loan, not

just the amount specified for home improvement.

c. For home-equity lines of credit (if you have chosen to report

them), enter as the loan amount only that portion of the line that

is for home improvement purposes. Report the loan amount for

applications that did not result in originations in the same manner.

Report only in the year the line is established.

d. For refinancings of dwelling-secured loans, indicate the

total amount of the refinancing, including the amount outstanding on

the original loan and the amount of new money (if any).

* * * * *

f. If you make a counteroffer for an amount different from the

amount initially applied for, and the counteroffer is accepted by

the applicant, report it as an origination for the amount of the

loan actually granted. If the applicant turns down the counteroffer

or fails to respond, report it as a denial for the amount initially

requested.

B. Action Taken

* * * * *

2. Explanation of Codes

a. Use code 1 for a loan that is originated, including one

resulting from a counteroffer (your offer to the applicant to make

the loan on different terms or in a different amount than initially

applied for) that the applicant accepts.

* * * * *

c. Use code 3 when an application is denied. This includes the

situation when an applicant turns down or fails to respond to your

counteroffer. Do not report as a withdrawn application or as an

application that was approved but not accepted.

* * * * *

C. Property Location

* * * * *

5. Outside-MSA

For loans on property located outside the MSAs in which you have

a home or branch office (or outside any MSA), you have two options.

Under option 1, you may enter the MSA, state, and county codes and

the census tract number. You may enter ``NA'' in the MSA or census

tract column if no code or number exists for the property. (Codes

exist for all states and counties.) If you choose option 1, the

codes and tract number must accurately identify the location for the

property in question. Under option 2, you may enter ``NA'' in all

four columns, whether or not the codes or number exist for the

property.

* * * * *

D. Applicant Information--Race or National Origin, Sex, and Income

* * * * *

5. Income

* * * * *

c. If no income information is asked for or relied on in the

credit decision, enter ``NA.''

* * * * *

8. A Loan/Application Register Transmittal Sheet is added to

Appendix A to Part 203 immediately following paragraph VI.G., to read

as follows:

* * * * *

BILLING CODE 6210-01-P

TR09DE94.000

BILLING CODE 6210-01-C

* * * * *

By order of the Board of Governors of the Federal Reserve

System, December 5, 1994.

William W. Wiles,

Secretary of the Board.

[FR Doc. 94-30271 Filed 12-8-94; 8:45 am]

BILLING CODE 6210-01-P