Frequently Asked Questions

Question

What are the revisions to Regulation C in the collection of “applicant information”?

Answer

Under the current provisions of Regulation C, ethnicity is not collected as a data field separate from race. Under the revised Regulation C, ethnicity and race are collected as separate data fields. To collect ethnicity information in accordance with OMB standards, lenders are now required to ask whether applicants are Hispanic or Latino or do not fall within this category. Lenders must request the information on ethnicity, race and sex for applications made in person, by mail, by telephone and over the Internet.

Question

How does OMB define the race categories and the corresponding LAR codes?

Answer

Code 1 – “American Indian or Alaska Native.” A person having origins in any of the original peoples of North and South America (including Central America) and who maintains tribal affiliation or community attachment.

Code 2 – “Asian.” A person having origins in any of the original peoples of the Far East, Southeast Asia, or the Indian subcontinent. These countries include, for example, Cambodia, China, India, Japan, Korea, Malaysia, Pakistan, the Philippine Islands, Thailand and Vietnam.

Code 3 – “Black or African American.” A person having origins in any of the black racial groups of Africa.

Code 4 – “Native Hawaiian or Other Pacific Islander.” A person having origins in any of the original peoples of Hawaii, Guam, Samoa or other Pacific Islands.

Code 5 – “White.” A person having origins in any of the original peoples of Europe, the Middle East or North Africa.

Code 6 - “Information not provided by applicant in mail, Internet, or telephone application.” Use this code if the applicant does not provide his or her ethnicity in an application taken by mail or telephone or over the Internet.

Code 7 - “Not applicable.” Use this code only when the applicant or co-applicant is not a natural person or when applicant or co-applicant information is unavailable because the loan has been purchased by your institution.

Code 8 – “No co-applicant.” Use this code if there are no co-applicants or co-borrowers in the co-applicant column.

Question

What should I do if an applicant asks what is meant by ethnicity or the difference between ethnicity and race?

Answer

A lender is not prohibited from explaining to an applicant the difference in ethnicity and race or explaining the different ethnic and race categories. After such an explanation, the applicant should provide the information to the best of his/her knowledge.

Question

Are banks required to report home equity lines of credit as home improvement or home purchase loans, depending on the purpose of the credit line?

Answer

Reporting home equity lines of credit remains optional under the revised rules. If a lender opts to report home equity lines of credit, it reports only the amount of the line intended for home improvement or home purchase purposes, at the time of the application.

Question

What are the primary differences between prequalifications and preapprovals?

Answer

In general, preapprovals involve a more rigorous underwriting. Once a request for preapproval has been underwritten through this established process, a formal written commitment is issued for a specified loan amount for a specified time period, subject to only a few limitations. Preapprovals may be subject only to the following set of conditions:

• Identification of a property,
• Verification that the applicant’s financial situation has not changed since the request was approved, and
• Other conditions unrelated to creditworthiness. The conditions are typically included in traditional commitments, such as satisfactory completion of a home inspection or proof of a termite inspection.

Prequalifications involve less underwriting. Typically, they involve only debt-to-income calculations to ascertain the maximum amount for which an applicant may qualify. The lender does not provide any commitment to extend credit.

Question

How should lenders, who have an established preapproval program, report requests where the written commitment contains additional conditions other than the three outlined in Regulation C? For example, situations where the borrower must pay off a credit card before the lender will extend credit. Are these requests still considered preapprovals? (added 08/16/2004)

Answer

If the lender has established a preapproval program involving commitments that are normally limited to those conditions outlined in the regulation and a request is underwritten through this program, then it should be treated as a preapproval request even when additional conditions must be met by the borrower.

Lenders must first determine whether or not they have an established preapproval program. An established preapproval program reviews requests and after a comprehensive analysis of creditworthiness, provides written commitments to applicants subject to only the following three conditions :

• Identification of a suitable property;
• No material change has occurred in the applicant’s financial condition or creditworthiness; and
• Limited conditions, not financial or credit related, that a lender ordinarily attaches to a traditional home mortgage transaction such as inspections and certifications.

An example of an established program is a mortgage company’s practice of issuing written commitments after these requests have been evaluated using Fannie Mae or Freddie Mac automated underwriting. Typically, these commitments are limited to the three conditions discussed above.

Once it is determined that a lender has a preapproval program, all requests that are reviewed through the program, even those resulting in commitments with additional conditions, must be reported as "Code 1 – Preapproval Requested" in the preapproval field. In this manner, all requests that are underwritten through these processes will be captured and can be analyzed for fair lending .

Question

If an institution establishes a preapproval program, must it report denials of preapproval requests?

Answer

Lenders must report denials of preapproval requests. A lender may, but is not required to, report preapproval requests that are approved but not accepted by the applicant. As always, lenders must report preapproval requests that become traditional applications.

Question

Does a preapproval program have to be in writing to be covered under Regulation C? (added 08/16/2004)

Answer

No, a written program is not necessary. Rather, lenders should focus on whether or not an established program exists where the institution’s practice involves reviewing these requests using comprehensive underwriting guidelines and providing written commitments limited to the three conditions outlined in the regulation. Preapproval requests that are handled as an accommodation, on an occasional basis, or infrequently do not constitute a program.

Question

What preapproval code would a lender use for applications that could never undergo an established preapproval program? For example, a lender has two separate processes for secondary market and portfolio loans. Applications for secondary market loans routinely are processed through an established preapproval program, but applications for non-conforming loans that will remain in a lender’s portfolio will never be evaluated through the established preapproval program? (added 08/16/2004)

Answer

Even though the lender has an established preapproval program, in this case, certain types of applications, such as non-conforming loans, are never evaluated under the established preapproval program. For applications for non-conforming loans, this lender should report "Code 3 – Not Applicable." For applications for preapproval for secondary market loans, this lender should report "Code 1 – Preapproval Requested."

Question

If a borrower’s loan is renewed at maturity for an additional term, is the loan reported as a refinancing?

Answer

No. The preamble to the amended regulation makes it clear that modifications, extensions and consolidations (MECAs) are not considered refinancings under the regulation. These types of transactions are excluded from the definition of refinancing because they do not involve the extinguishment of an existing debt and creation of a new debt.

Question

In order for a transaction to be considered a refinancing, must both the original and new loans be secured by liens on the same dwelling? (added 08/16/2004)

Answer

No, as long as both transactions are secured by a lien on a dwelling, it does not have to be secured by the same dwelling.

Question

Would a loan, where the only security is a guaranty agreement secured by a lien on a dwelling, be considered a refinancing? (added 08/16/2004)

Answer

No, in order to be considered a refinancing, the actual credit obligation must be secured by a lien on a dwelling. For purposes of the regulation, the note is considered the credit obligation.

Question

Are recreational vehicles such as boats or campers considered dwellings for purposes of HMDA?

Answer

The Official Staff Commentary to Regulation C specifically excludes from the definition of a dwelling, recreational vehicles such as boats and campers.

Question

Why was a separate category for manufactured housing added to the “property type” field?

Answer

Prior to the Regulation C revisions, a loan to purchase manufactured housing was considered a one- to four-family residential loan and was not reported separately. Since these loans are underwritten differently from other types of housing loans and tend to have higher denial rates, the Board believes that segregating these applications and loans will be beneficial in enforcing the fair-lending laws and regulations and improving the public’s ability to understand the home mortgage market.

Question

How should an institution report a home purchase transaction that involves a first-mortgage loan and a second-mortgage loan which finances part or all of the borrower’s down payment?

Answer

Each loan is reported separately as a home purchase loan. The Board believes that reporting these two loans separately more accurately reflects a lender’s home purchase lending, as both loans are made for the purpose of home purchase. The following example illustrates how an institution would report these transactions:

A borrower is buying a new home for $100,000. A lender makes a first mortgage loan for $80,000. The borrower has a down payment of $10,000. To avoid private mortgage insurance, the lender makes a second mortgage loan for the remaining $10,000 needed to purchase the home.

The lender would report these transactions in the following manner:

• The first mortgage loan would be reported as a home purchase in the amount of $80,000 and would reflect a first-lien status.
• The second mortgage loan would be reported as a home purchase in the amount of $10,000 and would reflect a subordinate-lien status.

Question

If a refinancing involves a cashout for home improvement, what loan purpose should be reported?

Answer

The Official Staff Commentary to Regulation C addresses multipurpose loans. It states that if a loan is a home improvement loan as well as a refinancing, an institution reports the loan as a home improvement loan. However, if a loan involves both home purchase funding and some additional funds for home improvement purposes, the loan should be reported as a home purchase loan.

Question

Are property improvements such as the construction of a garage, landscaping, or installation of a swimming pool considered home improvements?

Answer

Yes, property improvements to the real property on which the dwelling is located are considered home improvements.

Question

If a bank has a branch in a micropolitan statistical area and meets all of the other coverage requirements, is the bank now a covered institution for HMDA reporting purposes?

Answer

For coverage purposes, if an institution has offices in a micropolitan statistical area only, it is not subject to HMDA reporting. Assuming that all of the other reporting criteria are met, the bank must have a branch in a metropolitan statistical area to be subject to HMDA reporting requirements.

Question

Are loans secured by double-wide mobile homes or modular homes, that require some sight assembly, considered a manufactured housing loan?

Answer

The definition of manufactured housing refers to the federal building code for factory-built housing established by HUD. The HUD code requires generally, that housing be essentially ready for occupancy upon leaving the factory and being transported to a building site. Modular homes that meet the HUD code are considered manufactured housing because they are ready for occupancy upon leaving the factory. Similarly, double-wide mobile homes would also be considered manufactured housing. Other factory-built homes, such as panelized or pre-cut homes, generally do not meet the HUD code because they require a significant amount of construction on site before they are ready for occupancy, and therefore, would not be considered manufactured housing.

Question

Why was Regulation C revised to require the collection of pricing data?

Answer

Regulation C was revised to require lenders to report loan-pricing data, specifically rate spread information and HOEPA status. These changes were made to make the HMDA data more meaningful. Since the passage of HMDA, it has become apparent to the public and regulatory agencies that discrimination in lending can occur in the pricing of loans, as well as in the granting of credit. In addition, many variations in pricing occur; these make the comparison of pricing between lenders difficult. High-priced loans also carry with them the potential for predatory and unfair and deceptive lending practices. To address these issues, HMDA was amended to require collection of pricing data through the rate spread and reporting of HOEPA status.

Question

What is HOEPA? Does the requirement in Regulation C to report HOEPA status impose any new obligations on my institution?

Answer

HOEPA stands for the Home Ownership and Equity Protection Act or Section 32 of Regulation Z, which establishes certain prohibitions and disclosure requirements for “high-cost mortgages.” The amendments to Regulation C do not implement changes to HOEPA. Lenders should already have in place procedures for monitoring and complying with the provisions of HOEPA. Under the amendments to Regulation C, lenders are required only to report whether a loan is subject to the requirements of HOEPA.

Question

Why is a lender required to report both a loan’s HOEPA status and the rate spread?

Answer

The reporting of HOEPA status is an important element in screening lenders who engage in high-price lending. HOEPA loans are a distinct subset of higher-priced loans that entail special legal obligations. HOEPA coverage is based on a two-part test. A loan is covered by HOEPA if the APR exceeds a certain rate or if the total points and fees exceed a certain amount. The rate-spread test is based on a lower rate trigger and does not include a points and fees test.

Question

Will the H.15 Treasury securities yields be used to calculate the rate spread?

Answer

No. The Board will use the H.15 to develop and update the yield table on the FFIEC web site. The update to the table will be performed within 24 hours following the Board's posting of the relevant H.15 release. Lenders must use the table and not the H.15 itself. However, for HOEPA, lenders must use the H.15.

Question

What is the Rate Spread Calculator (RSC) and how does it work?

Answer

The Rate Spread Calculator is a tool that allows the user to calculate rate spreads based on the lender’s annual percentage rate and comparable Treasury yields.

Question

For purposes of calculating the rate spread, what is the “lock-in date” when a rate lock agreement is not signed or included in the file, for example – on a home equity loan?

Answer

When loans are sold into the secondary market, in most cases, there will be a rate sheet and lock agreement in the file. However, lock agreements are not routine for loans that are retained in-house; these transactions include such loans as ARM, balloon or home equity loans. In these cases, lenders will consider the lock-in date as the date the rate was set for the final time before closing.

Question

Our institution uses a third-party vendor for customer information tracking purposes. How will we comply with the requirement to report the rate spread and HOEPA status?

Answer

For the rate spread calculations, third-party vendors can develop their own process to calculate the rate spread. The vendor must use the Board’s table “Treasury Securities of Comparable Maturity under Regulation C” on the FFIEC web site. The vendor can also use the FFIEC web site to obtain the formula and incorporate it into its software product(s). The Rate Spread Calculator on the FFIEC web site is a tool that can be used to perform the calculations.

With respect to HOEPA, the answer is somewhat different. Based on revisions to the Truth in Lending Act that became effective in October 2002, the lender should currently be performing the HOEPA calculations for purposes of Regulation Z. In cases where the HOEPA status must be reported under Regulation C, the lender and software vendor should work together to determine a cost-effective manner to report this data.

Question

If a lender chooses to include home equity lines of credit (HELOC) in its HMDA-LAR, how would the lender report rate spread for these transactions?

Answer

The APR for this type of transaction is simply the interest rate and does not reflect the fees that may be charged on the loan. In addition, the term of the loan is difficult to determine given separate draw and repayment periods. The lender would report the rate spread as "NA".

Question

Why were transition rules developed?

Answer

Transition rules were developed to provide lenders with flexibility and guidance for collecting HMDA reportable data for applications received before Jan. 1, 2004, but not acted upon until after Jan. 1, 2004. In developing these rules, the Federal Reserve Board staff weighed the burden and benefit of applying the new rules to applications received before Jan. 1, 2004. It was determined that the benefit of data that meet revised definitions is not sufficient to warrant the burden of lenders to begin applying all of the revised definitions before Jan. 1, 2004, or to “look back” or take some retrospective measure to determine if data should be reported. The transition rules provide flexibility for the data elements that are collected early in the application process in 2003, but must be reported according to the rules that take effect in 2004. The amendment contains conversion tables for applicant information, which help lenders determine how to report this data during the transition period.

Question

How are loan participation interests that are sold to more than one entity reported on the LAR?

Answer

An institution that originates a loan and then sells it to more than one entity reports the “type of purchaser” based on the entity purchasing the greatest interest, if any. If an institution retains a majority interest, it does not report the sale.

Question

How are loans that are “swapped” for mortgage-backed securities reported on the HMDA-LAR?

Answer

Loans “swapped” for mortgage-backed securities are to be treated as sales; the purchaser to be coded is the type of entity receiving the loans that are swapped.