The Federal Reserve Board Amends Regulation to Require Reporting of Loan

Pricing Data

In January 2002, the Federal Reserve Board announced changes in Regulation C, the regulation that implements the Home Mortgage Disclosure Act (HMDA). The approved regulatory changes have been crafted to provide more consistent and comprehensive information about mortgage lending activity. One key change includes a reporting requirement for certain types of loan pricing data. These changes affect the way that loans are reported, as well as the availability of data on fair housing practices.

Background on HMDA and Reporting for Regulation C
Enacted by Congress in 1975, HMDA requires lending institutions to report public loan data. HMDA has three main purposes:

• To provide government officials and the public with data that will help show whether lenders are serving the housing needs of the neighborhoods and communities in which they are located;
• To help public officials target public investment in ways that promote private investment where it is most needed; and
• To provide data that can assist in identifying possible discriminatory lending practices.

In the past, Congress found that some financial institutions failed in their responsibilities to provide adequate home financing to qualified applicants on reasonable terms and conditions. The implementation of HMDA allows the public to determine possible discriminatory lending patterns and assists in enforcing anti-discriminatory statutes.

The HMDA regulations apply to certain financial institutions including banks, savings associations, credit unions, and other mortgage lending institutions. It requires the collection, reporting, and disclosure of data about organizations and purchases of loans secured by residential real property and of home improvement loans. Lenders must also report data about applications that did not result in originations.

The Federal Reserve Board, through Regulation C, implements HMDA by setting rules for lender compliance. The regulation requires that lenders report data on:

• Each application or loan, including the application date, the action taken and the date of that action, the loan type and purpose, and, if the loan is sold, the type of purchaser.
• Each applicant or borrower, including ethnicity, race, sex, and income.
• Each property, including location and occupancy status.

Taken together, this data clearly depicts how well home mortgage lenders are serving their communities and who really receives home loans.

Lenders report this information to their supervisory agencies on an application-by-application basis. Using the loan data submitted by these financial institutions, the Federal Financial Institutions Examination Council (FFIEC) creates aggregate and disclosure reports for each metropolitan area. These reports are available to the public.

Amending Regulation C

HMDA has been somewhat successful in rooting out discriminatory lending patterns and in encouraging partnerships with lenders as a means of promoting community reinvestment. Yet over time, the home mortgage market has changed in ways that limit the usefulness of HMDA data. In particular, there has been an explosion of subprime loans in recent years, and original HMDA requirements were not designed to capture information on subprime and predatory lending practices. To help strengthen the HMDA data, the Federal Reserve has reviewed its HMDA regulations and proposed several related changes to Regulation C.

The most noteworthy and controversial of these changes are two amendments designed to track subprime mortgage lending activity. The first is a requirement that lenders designate on their HMDA reports which of the loans they originate are high cost loans, subject to the provision of the Home Ownership Equity Protection Act (HOEPA). Second, lenders are now required to gather information about the pricing of some loans. These changes, among others, are designed to collect additional data that will improve regulators’ understanding of mortgage markets.

Public Comments

Throughout the regulation review and approval process, the Federal Reserve Board solicited comments from the public on the proposed amendments. Comments from community groups, civil rights groups, and law enforcement agencies generally supported the loan price reporting. Many groups claim that the additional data may assist them in their efforts to enforce fair lending laws and provide better and more consistent information about the mortgage market in general. In fact, state, local, and tribal officials generally urged the Board to require lenders to report pricing information on all loans. John Taylor, President and CEO of the National Community Reinvestment Coalition (NCRC), stated in a June 2002 press release that the NCRC, “…applauds the Federal Reserve Board for increasing the breadth of data that will help us monitor fair lending performance more closely and fight discriminatory lending practices.” The Lawyers’ Committee for Civil Rights under Law Executive Director Barbara R. Arnwine stated in a June 2002 memorandum that "By collecting price data on all loans and requiring lending institutions to ask for race and gender for telephone applications, the Federal Reserve will enhance the fair lending and community reinvestment power of the data – a change that will significantly improve the lending opportunities for communities of color throughout our country."

Still, most lenders opposed the reporting of loan pricing data due to the additional reporting burden and the potential public misinterpretation of the resulting data. In a published comment on the proposed amendments, the Mortgage Bankers Association wrote, "Our strongest objection...relates to the proposed reporting of Annual Percentage Rates (APRs).…The collection and reporting of this raw pricing data will generate a severely distorted view of our institutions' lending practices.…The complicated combination of factors that go into determining APR, along with the interplay of APR with the numerous other terms that affect pricing in any given loan transaction, are simply too numerous and can never meaningfully be captured under HMDA's reporting system….APR information will only lead to unfair characterizations of mortgage lending activity."

Final Results

The Federal Reserve collected and reviewed all comments, then finalized the regulations and their implementation. Compliance with the HMDA amendments relating to thresholds and lien status becomes mandatory on January 1, 2004. The amendment requiring lenders to ask telephone applicants for monitoring information is effective for applications taken on and after January 1, 2003. Also effective January 1, 2003 are requirements for financial institutions to use 2000 Census data for all HMDA reportable loans. Taken together, the new HMDA Regulations will provide an avenue for additional data collection to present a picture of how home mortgage lenders are serving their communities. The regulatory changes will assist in better understanding today’s mortgage markets and will help promote fair lending enforcement for the future.