CUNA Regulatory Comment Call


March 6, 2003

HMDA Transition Rules

(Major Rule)

EXECUTIVE SUMMARY

Please feel free to fax your responses to CUNA at 202-638-7052; e-mail them to Associate General Counsel Mary Dunn at mdunn@cuna.coop and to Assistant General Counsel Jeff Bloch at jbloch@cuna.coop; or mail them to Mary and Jeff in c/o CUNA's Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, South Building, Suite 600, Washington, DC 20004-2601. You may also contact us at 800-356-9655, ext. 6732, if you would like a copy of the rule, or you may access it on the Internet at the following address:
http://www.federalreserve.gov/boarddocs/press/bcreg/2003/20030303/attachment.pdf

BACKGROUND

HMDA requires financial institutions and certain nondepository institutions to collect, report, and disclose data regarding home mortgage and home improvement loans. Data that must be reported include the type, purpose, and amount of the loan; the race or national origin, gender, and income of the loan applicant; and the location of the property. The purpose of HMDA is to help the regulators determine whether financial institutions are serving the housing needs of their communities and to assist in fair lending enforcement. The Fed's Regulation C implements HMDA.

The Fed issued final rules last year, effective as of January 1, 2004, which included the following revisions:

BRIEF DESCRIPTION OF THE PROPOSED CHANGES

In an effort to reduce lender burden, the Fed has issued proposed revisions to the Regulation C official staff commentary that would apply the new HMDA rules to loan applications received prior to January 1, 2004 in which final action is taken after that date.

The HMDA rules issued last year will require lenders to identify on the loan application register (HMDA/LAR) those applications and loans that involve manufactured housing. The proposed revisions to the official staff commentary will allow, but not require, lenders to report this information for loan applications that are received prior to January 1, 2004.

The HMDA rules also revised the definitions of "home improvement loans" and "refinancings." The requirement that the lender classify a loan as a home improvement loan will be eliminated and "refinancings" will be defined as those in which both the existing and new loans are secured by a lien on a dwelling. Under the proposed changes to the official staff commentary, lenders will not be required to use the revised definitions for applications received prior to January 1, 2004, but may do so if they wish.

The HMDA rules will require lenders to report information on requests for preapprovals that are denied, regardless of whether or not they resulted in a loan application (although lenders will not have to report preapproval requests that are approved but not accepted by the applicant). This will be a change from the current rules, which require such reporting only if the request is approved and results in an application. The proposed changes to the official staff commentary will allow, but not require, lenders to follow the current rules on preapprovals for applications received prior to January 1, 2004. For these applications, lenders may use the code "not applicable" in the preapproval field on the HMDA/LAR.

The HMDA rules issued last year changed the requirements regarding the reporting of an applicant's ethnicity and race and corresponding changes have been made to the codes that must be used on the HMDA/LAR in 2004. The official staff commentary outlines detailed coding instructions that will help lenders report on the 2004 HMDA/LAR the ethnicity and race data that was collected in 2003.

Beginning on January 1, 2004, the HMDA rules will require lenders to report new data items, including: 1) the rate spread between the loan's annual percentage rate (APR) and yield on comparable Treasury securities when the spread exceeds certain thresholds; 2) whether the loan is subject to HOEPA; and 3) the lien status of the loan. This information must be reported for all loans closed on or after January 1, 2004, even if the application is received prior to January 1st.

With regard to the rate spread between the loan APR and Treasury securities, information to help lenders calculate this spread will be available on the Fed's website (www.federalreserve.gov) on or around May 2003. Although this information will need to be reported for all loans closed on or after January 1, 2004, regardless of when the application is received, the Fed is requesting comment on whether there are less burdensome alternatives with regard to calculating this spread for those loans in which applications are received prior to January 1, 2004. The rules will require that lenders use the Treasury securities in effect as of the 15th of the month prior to when the interest rate is locked or set for the final time before the loan is consummated. Possible alternatives that the Fed may consider for applications received prior to January 1st are the date the application was received, the date the loan is consummated, or a specified date, such as January 1, 2004.

QUESTIONS TO CONSIDER REGARDING THE FED'S CHANGES TO THE REGULATION C OFFICIAL STAFF COMMENTARY

  1. Do you agree that these changes to the Regulation C official staff commentary will reduce the burden for credit unions as they prepare for compliance with the HMDA rules that were issued last year? Are there any additional changes to the official staff commentary that would further reduce this burden?













  2. With regard to the rate spread between the loan APR and the yield on comparable Treasury securities, the Fed is requesting comment on whether there are less burdensome alternatives with regard to calculating this spread for those loan in which applications are received prior to January 1, 2004. The rules will require that lenders use the Treasury securities in effect as of the 15th of the month prior to when the interest rate is locked or set for the final time before the loan is consummated. Possible alternatives are the date the application was received, the date the loan is consummated, or a specified date, such as January 1, 2004. Do you believe that an alternative is needed? If so, which alternative would you prefer?













  3. Other comments?













Eric Richard • General Counsel • (202) 508-6742 • erichard@cuna.com
Mary Mitchell Dunn • SVP & Associate General Counsel • (202) 508-6736 • mdunn@cuna.com
Jeffrey Bloch • Assistant General Counsel • (202) 508-6732 • jbloch@cuna.com
Catherine Orr • Senior Regulatory Counsel • (202) 508-6743 • corr@cuna.com