Carol Lewis of the Boston Fed provides lenders and others who track HMDA (Home Mortgage Disclosure Act) with an overview of changes to the Regulation that takes effect in 2003. She reviews the Regulation's expanding coverage, additional data reporting requirements, and definition changes.Home Mortgage Disclosure Act

Carol Lewis

English

Research Papers in Economics

13 c & b
Home
Mortgage
Disclosure
Act
by Carol Lewis
Updating
T
he Federal Reserve Board approved revisions to Regulation C 
and its Official Staff Commentary at its meeting on
January 23, 2002. Regulation C, which implements the
Home Mortgage Disclosure Act (HMDA), annually
requires certain lenders to collect, report, and disclose
data about loan originations, purchases, and refinancings
of home purchase and home improvement loans. HMDA’s
purpose is threefold. First, HMDA provides the public
with data to show whether financial institutions are serv-
ing the community’s housing needs. Second, the
Regulation helps public officials target public invest-
ments to areas where they are needed (thereby attracting
private investment); and third, it provides data about
borrowers that can be used to identify discriminatory
lending patterns or practices.  time, focus on higher cost  (sub-
prime) loans, and limit reporting
burden because fewer loans would be
subject to the reporting requirement. 
The Board has set tentative thresholds
of 3 percentage points for first lien
loans and 5 percentage points for sub-
ordinate lien loans. The Board sought
public comment by April 12, 2002 to
determine the appropriateness of these
thresholds. It will announce its deci-
sion via a press release.
Lenders will only be required to
report this information for origina-
tions of home purchase loans,
secured home improvement loans,
and refinancings. This reporting
requirement does not apply to
incomplete, withdrawn, denied, or
approved (but not accepted) applica-
tions. It also does not apply to pur-
chased loans and unsecured home
improvement loans.  
The amended Regulation will also
require lenders to identify loans
involving manufactured housing.
HMDA reporters will refer to the U.S.
Department of Housing and Urban
Development definition of manufac-
tured homes to determine whether a
loan should be reported as such. If
the lender does not reasonably know
whether the loan is for a manufac-
tured home, and cannot determine
through reasonable means, the lender
will report the property type as a one-
to-four family dwelling. The Board
believes that identifying applications
and loans for manufactured housing
will improve the integrity of HMDA
data because manufactured housing
loans are underwritten differently
from other housing loans and have
higher denial rates.
a large number of reportable loans,
but are not covered by the Regulation
because they have a significant
amount of lending in other areas.
Under the revised Regulation, the
Board added a dollar volume test of
$25 million. A nondepository lender
will be covered by Regulation C if its
prior year home purchase loan orig-
inations, including refinancing of
home purchase loans, equals or
exceeds the threshold amount, even
if those loans do not equal at least 10
percent of the institution’s loan-orig-
ination volume, measured in dollars. 
Additional Data
Reporting Requirements
The revised Regulation contains sev-
eral changes with regard to the com-
pilation of loan data. Lenders will be
required to report information per-
taining to loan pricing. This revision
is in response to the substantial
growth in subprime lending and the
increased variation in loan pricing
and its relationship to the assess-
ment of credit risk. 
The Board’s original proposal would
have required lenders to report and
disclose the annual percentage rate
(APR), as determined by Regulation
Z, Truth in Lending, for all loan
applications and originations. Under
the final rule, lenders will report the
rate spread between the APR on a
loan and the yield on Treasury secu-
rities with comparable maturity peri-
ods, for loan originations in which
the APR exceeds the applicable
Treasury yield by a percentage or
threshold specified by the Board. The
Board concluded that this approach
would adjust pricing data for
changes in market conditions over
The Board imposed several changes
to Regulation C to improve the integri-
ty and usefulness of the HMDA data
and to streamline the Regulation.
Specifically, the Board’s intent was
to improve the data in order to facil-
itate fair lending analysis and pro-
vide more accurate information
regarding the home mortgage mar-
ket and subprime lending. In its
review of the proposed amendments
and comments received, the Board
weighed the benefit of the regulato-
ry changes against the burden they
would impose on lenders.
In general, the amendments increase
the number of nondepository lenders
required to collect and report data,
impose additional data reporting
requirements, including reporting
pricing data on higher-cost loans,
and revise several regulatory defini-
tions. The amendments will become
effective January 1, 2004.1
Expanding Coverage
The Board expanded the Regulation’s
coverage of nondepository lenders
to provide the public with more com-
plete information on the mortgage
market. Regulation C covers two cat-
egories of financial institutions:
depository institutions and for-prof-
it nondepository lenders engaged in
mortgage lending. Under the current
Regulation, in general, a nondeposi-
tory mortgage lender is covered if,
in the preceding calendar year, its
home purchase loan originations,
including refinancings of home pur-
chase loans, equaled or exceeded 10
percent of its total loan originations
and its total assets are over $10 mil-
lion. The Board noted that there are
nondepository lenders that originate
• The revised Official Staff Commentary redefines a home
purchase loan to include a second mortgage loan that
finances all or part of the borrower’s down payment for
the first mortgage.  The first and second mortgage are
reported separately as home purchase loans.
• The Loan Application Register (LAR) will have separate
entries for loan purpose and type of property involved.
• The Board deleted the provision that permits, but does
not require, depository institutions with assets in the pre-
ceding year of $30 million or less to collect data on
applicants’ race, ethnicity, sex, and income. 
• The term metropolitan statistical area (MSA) will be
replaced with “Metropolitan Area,” a term used by the Office
of Management and Budget.
• The term “dwelling” has been further clarified in the
Official Staff Commentary to exclude transitory resi-
dences such as hotels, hospitals, and college dormitories,
whose occupants have principal residences elsewhere.  
• The revised Staff Commentary clarifies that an institution
must report a denial on the original terms requested by the
applicant when the institution makes a counteroffer and the
applicant does not accept the offer or does not respond. 
Additional Amendments
Lenders will be required to report information on loan
pricing. . . . in response to subprime lending
14 c & bThe revised Regulation will require
lenders to report certain requests for
preapprovals of home purchase
loans. A preapproval is deemed an
application (and therefore reportable)
if the lender completes a comprehen-
sive credit check and issues a written
commitment to the applicant that
extends a home purchase loan for a
designated period of time. The cov-
ered preapproval may be subject
only to a limited set of conditions as
set out in the regulation.   
Lenders will be required to report
preapproval denials as well as origi-
nations.2 The Board is including
denials in order to provide more
complete data on home financing
availability and more useful data for
fair lending analyses. Lenders have
always been required to report
preapprovals that resulted in loan
originations. The preapprovals, how-
ever, were indistinguishable from
other loan originations. The revised
Regulation will require lenders to
enter a separate code for preap-
provals resulting in originations. 
Lenders may, but are not required to,
report preapprovals that are approved
but not accepted by the applicant.
The Regulation has not changed with
regard to prequalifications: prequali-
fications are not applications under
Regulation C.
The Board is also requiring lenders
to report the HOEPA (Home Own-
ership and Equity Protection Act)
status of its loans. HOEPA provides
special disclosure protections to
consumers entering into certain
high-cost mortgage loan transac-
tions. While such information can
be obtained from lenders during
bank examinations, the Board felt
that such data could be obtained
more efficiently from the HMDA
Loan Application Register (LAR).
This amendment will also ensure
that HOEPA status can be obtained
from nondepository lenders that are
not subject to regular examinations.
This is important because nonde-
pository lenders extended 57 per-
cent of the dollar volume of loan
originations reported under HMDA
for year 2000.3
The Board revised Appendices A and
B to conform collection of ethnicity
and race data under Regulation C to
Office of Management and Budget
(OMB) guidance. The OMB recom-
mended that the question of
Hispanic ethnicity be posed sepa-
rately from the question of race. The
15 c & b
Board believes that it is important to
have uniform standards throughout
the federal government. Under the
new system, the ethnicity and race
questions posed for self-identifica-
tion will be separate. For ethnicity,
the data will show whether the
applicant is Hispanic, Latino, or nei-
ther. In addition, there will be five
racial categories: American Indian
or Alaska native; Asian; Black or
African American; Native Hawaiian
or other Pacific Islander; and White.
The applicant will no longer have
the option of checking off “other”
but will be able to select more than
one category.   
Definition Changes
Refinancings will continue to be
reported under Regulation C, but the
Board has tightened the definition.
A refinancing is a transaction in
which a new obligation satisfies and
replaces an existing obligation by
the same borrower. The present
Regulation requires a lender to
report refinancings of home pur-
chase and home improvement loans
and allows lenders to choose from
four scenarios in deciding which
refinancings to report. To promote
more consistent data reporting
among HMDA reporters, the Board
has narrowed the definition of a
reportable refinancing to those
transactions in which both the exist-
ing and the new loan are secured by
a lien on a dwelling. The definition
will not include refinancings of
unsecured debt.  
The Board has also amended the
definition of a home improvement
loan.  Under the current Regulation,
reportable home improvement loans
are defined as loans made in whole
or in part for home improvement
purposes and that are classified by
the lender as home improvement
loans. The amended Regulation
removes the classification require-
ment for dwelling-secured home
improvement loans. Dwelling-
secured home improvement loans
will be reported regardless of how
the lender classifies the loan. The
Board indicated that for dwelling-
secured loans, it is not unduly bur-
densome for lenders to ascertain the
intended purpose of the loan
because of the documentation and
the interaction already involved
between the lender and applicant in
a secured transaction. The lender
may rely solely on the applicant’s
statements to determine the purpose
of the loan. 
The Board, however, maintained the
classification test for unsecured home
improvement loans, recognizing the
greater burden of determining the
purpose for an unsecured loan. Lenders
will not have to determine the pur-
pose of every loan and can depend
on their own classification systems:
if the lender chooses not to classify
the loans as home improvement
loans, then they are not reportable.
This review of the changes to
Regulation C is by no means all-
inclusive. Readers should refer to the
amended Regulation and the Official
Staff Commentary for a more in-
depth review of the changes to the
Regulation.  (The web address is:
www.federalreserve.gov/regulations/
regref.htm#c.) There may be further
changes to the Regulation in the
near future as well. When the Board
announced changes to Regulation C
in February 2002, it also requested
public comment on three proposed
changes to the Regulation. The first,
as mentioned above, pertains to the
appropriate threshold for collecting
pricing data on higher cost (subprime)
loans. The second proposal would
require lenders to ask telephone appli-
cants for their race, ethnicity, and sex.
The final proposal would require
lenders to report lien status for appli-
cations and originated loans. The
comment period for these proposals
ended on April 12, 2002 and the
Board will issue a press release when
it has decided whether to implement
these changes. Readers who have
questions regarding Regulation C or
other Federal Reserve regulations are
encouraged to call the Federal Reserve
Bank of Boston consumer regulation
hotline at (617) 973-3755. 
Endnotes
1. A May 2, 2002 Board press release
noted the delay of the effective date
from January 1, 2003 to January 1,
2004. It also informed of an interim
amendment mandating the use of
2000 Census data in HMDA report-
ing beginning January 1, 2003.
2. Regulation C continues to require
that the financial institution collect
data regarding applications for orig-
inations and purchases of home pur-
chase loans, home improvement
loans, and refinancings. 
3. HOEPA is implemented in section
226.32 of Regulation Z.
About the Author
Carol Lewis, of the Boston Fed’s Supervision
and Regulation Department, is a contribut-
ing writer to Communities & Banking.

Updating HMDA

http://www.bostonfed.org/commdev/c&b/2002/spring/hmda.pdf

Updating HMDA

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