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Compliance Corner: Second Quarter 2003

HMDA Reporting: Will Your Financial Institution Get It Right in 2003 and 2004?

by Eddie L. Valentine, Supervising Examiner

The Home Mortgage Disclosure Act (HMDA) requires most mortgage lenders located in metropolitan areas to collect data about their housing-related lending activity. Annually, lenders must file reports with their federal supervisory agencies and make disclosures available to the public. The Federal Reserve Board's Regulation C implements HMDA.1

In January 2002, after a comprehensive review of the regulation, the Federal Reserve Board approved amendments to Regulation C.2 The approved regulatory changes are intended to improve the quality, consistency, and usefulness of HMDA data.

The new rules were originally intended to become effective on January 1, 2003. However, the Board received a considerable number of letters from financial institutions and major trade associations indicating that the 2003 effective date did not allow adequate time to prepare computer systems and provide training on the new reporting requirements. After considering the feedback, the Board agreed to delay the effective date of the vast majority of the new requirements until January 1, 2004. Despite the delay of the effective date for most changes, the Federal Reserve Board did immediately adopt two amendments to Regulation C, which became effective on January 1, 2003.

Amendment effective January 1, 2003 for data collected in 2003
Effective January 1, 2003, lenders are required to request information about race, national origin, and sex for applications taken entirely by telephone.

This amendment was adopted immediately to reduce the risk of further increases in the rate of missing data on race, national origin, and sex. However, unlike face-to-face applications, a lender is not required to identify the race, national origin, or sex of a caller who declines to provide that information.

Amendment effective January 1, 2003 for data reported March 1, 2004
HMDA data collected in 2003 and reported March 1, 2004 must include 2000 census data.

Throughout the decade of the 1990s, changes occurred in metropolitan populations and other characteristics for given census tracts, rendering the 1990 census data obsolete. The Federal Reserve Board determined that use of the 2000 census tracts and demographics would produce substantially more accurate and useful HMDA disclosure statements and aggregate reports. In addition, the updated information will enhance evaluations under the Community Reinvestment Act and fair lending examinations by more accurately identifying demographic data and lending patterns.

Amendments effective January 1, 2004 for data reported March 1, 2005
HMDA data collections in 2004 will be subject to several changes, including disclosure of pricing data on higher cost loans, expansion of the number of non-depository institutions subject to reporting, and revisions to certain definitions to provide for more uniformity of reporting. Specific amendment mandates are as follows.

  • Sets thresholds for determining the loans for which financial institutions must report pricing data. Institutions will be required to report the rate spread (between the annual percentage rate on the loan and the yield on comparable Treasury securities) if the spread equals or exceeds three percentage points for first-lien loans and five percentage points for subordinate-lien loans.
  • Requires lenders to identify loans subject to the Home Ownership and Equity Protection Act (HOEPA).
  • Conforms the categories for reporting race and ethnicity to government-wide standards established by the Office of Management and Budget. Consistent with those standards, applicants are allowed to record more than one race, and lenders must use the revised race and ethnicity categories when they ask applicants for monitoring information.
  • Requires lenders to report denials of applications for credit received through certain pre-approval programs and identify originated loans initiated through pre-approval programs.
  • Requires lenders to ask for applicants' ethnicity (a new category), race (with expanded codes), and sex for all applications, including telephone applications.
  • Permits, but does not require, lenders to report requests for pre-approval that were approved but that were not pursued by the applicants.
  • Expands non-depository lender coverage to include non-depository lenders originating more than $25 million of mortgage loans annually. The final rule retains the existing 10 percent of total loan volume test.
  • Modifies the definitions of "refinancing" and "home improvement loan" to generate more consistent, accurate, and useful data.
  • Requires lenders to report whether the loan or application involves a manufactured home.
  • Requires lenders to report the lien status of applications and originated loans.

Conclusion
The information contained in this article is designed to provide guidance and information on the new reporting requirements of the Home Mortgage Disclosure Act as implemented by the Federal Reserve Board's Regulation C. It is projected that the publication A Guide to HMDA Reporting: Getting It Right will be revised by year-end 2003 to incorporate the changes that will become effective January 1, 2004.3 Furthermore, a web-based application similar to A Guide to CRA Data Collection and Reporting is in the development stage.4

The Federal Reserve Bank of Philadelphia is planning to conduct workshops on the changes to Regulation C during the third quarter of 2003. Information regarding these workshops will be mailed to financial institutions in the near future. If you have any questions regarding the amendments to HMDA and the Board's Regulation C, please contact Eddie L. Valentine, Supervising Examiner at (215) 574-3436 or Connie Wallgren, Consumer Compliance/CRA Examinations Unit Manager at (215) 574-6217.

HMDA Reporting Transition Rules
On March 3, 2003, the Board of Governors published proposed transition rules for HMDA reporting of applications received before January 1, 2004 on which final action is or would be taken on or after January 1, 2004. The press release and proposal are available on the Board of Governors website External Link.

The Board is reviewing comments received on the proposal and will issue transition rules shortly.

The views expressed in this article are those of the author and are not necessarily those of this Reserve Bank or the Federal Reserve System.