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March 2002

Federal Reserve Board Makes Changes to Regulation C

Washington, DC__ In January 2002, the Federal Reserve Board finished its latest outline of changes to Regulation C, which ensures the Home Mortgage Disclosure Act (HMDA). This Act requires depository institutions and for-profit- nondepository institutions to collect, report, and disclose data on home purchase mortgages and home improvement loans, among other items.

Changes to Regulation C revise original definitions that were intended to further promote "fair" lending activity. Additionally, these latest revisions are designed to better track subprime mortgage activity, in hopes of further curbing certain "predatory" lending practices that were publically noted in 2001.

The FRB addressed its attention to the nationwide increase in subprime loans and preapprovals. Consequently, the Board focused on changes that would correct certain imbalances, yet minimize the reporting burden on operations falling under the HMDA requirement. By limiting its focus on adding usefulness to HMDA data, the Board feels it was successful in striking a balance.

For all practical purposes, these latest adjustments expand the number of nondepository institutions subject to HMDA's reporting requirements.

January 2002

Feds Amend Regulation C,
Add'l Lenders Subject to HMDA

The changes, in brief:

• Lenders will report the spread between the annual percentage rate (APR) and the yield on the comparable Treasury security for originated loans with APRs that exceed the yield on the security by a certain threshold. Seeks comment on thresholds of 3 percentage points for first-lien loans and 5 percentage points for subordinate-lien loans.
  Comment on these thresholds.


• Lenders will identify loans subject to the Home Ownership and Equity Protection Act (HOEPA).


• Ethnicity and race reporting will now conform to the Office of Management and Budget (OMB) Standard. Note: OMB Standard allows applicants to record more than one race.


• Covers more nondepository lenders by adding a dollar-volume threshold of $25 million to the current loan-percentage test.


• Modifies current definitions of "refinancing" and "home improvement loan" for better use of this data in a report.


• Lenders will report denials of applications for credit received through certain preapproval programs.


• Lenders will identify originated loans initiated through preapproval programs.


• Lenders will report whether the loan involves a manufactured home.


• Permits, but does not require, lenders to report requests for preapproval that the lender approves but that applicants do not pursue.


• Adopts a number of clarifying and technical changes reorganizing Regulation C, making it easier to use.


• Seeks comment on requiring lenders to ask telephone applicants their race, ethnicity, and sex. Note: lenders already ask these questions for in-person, mail and internet applications.


• Seeks comment on requiring lenders to report lien status for applications and originated loans.

This article has been paraphrased for brevity
from the FRB Press Release of January 23, 2002