District Circular Letters

December 27, 2000

BANKING SUPERVISION AND REGULATION:
COMMENT REQUESTED-
REVISIONS TO REGULATION C
and
AMENDMENTS TO REGULATION Z

To State Member Banks, Bank
Holding Companies, U.S. Branches and
Agencies of Foreign Banks, and Others Concerned
in the Twelfth Federal Reserve District

Proposed Revisions to Regulation C, which Implements the Home Mortgage Disclosure Act (HMDA) (R-1001) PDF file 45 KB

HMDA requires depository and certain for-profit, nondepository institutions to collect, report, and disclose data about applications for, and original purchases and subsequent history of, home mortgage and home improvement loans. This data includes 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. Some goals of HMDA includes helping to determine whether financial institutions are serving the housing needs of their communities, and assisting in fair lending enforcement.

In evaluating potential changes to the HMDA reporting requirements, the Board considered whether the changes would improve the quality and utility of the resulting data. The Board took into account changes in the home mortgage market, including growth in areas such as home equity lines of credit and subprime lending. The objective of the proposed changes is to enhance the public's and the agencies' understanding of the home mortgage market generally, and the subprime market in particular, as well as to further fair lending analysis. At the same time, the Board has attempted to minimize the increase in the data collection and reporting burden by limiting proposed changes to those likely to have significant benefit.

The proposed changes to Regulation C would yield the following benefits:

• Expand coverage of nondepository lenders by adding a dollar-volume threshold of $50 million to the current loan-percentage test
• Simplify the definitions of "refinancing" and "home improvement loan" to generate more consistent and accurate data
• Require lenders to report home-equity lines of credit (such reporting is currently optional)
• Require lenders to report certain applications for credit received through preapproval programs
• Require lenders to report the annual percentage rate of the loan, whether the loan is subject to HOEPA, and whether the loan involves a manufactured home

The Board also proposes a number of clarifying and technical changes, in addition to reorganizing Regulation C to make it easier to use.

The Board's proposal incorporates suggestions received in response to an Advance Notice of Proposed Rulemaking published in 1998, as well as from discussions with a wide range of interested parties, including industry and consumer representatives and officials of financial regulatory and fair lending enforcement agencies. Other suggestions were presented at hearings held in Charlotte, Boston, Chicago, and San Francisco last summer on possible changes in the enforcement of the HOEPA.

Comment is requested by March 9, 2001.

Board Proposes Amending Provisions of Regulation Z (Truth in Lending) that Implement the Home Ownership and Equity Protection Act (HOEPA) (R-1090) (PDF-96KB off-site)

Comment is requested by March 9, 2001.

The amendments would broaden the scope of loans subject to HOEPA's protections by adjusting the price triggers that determine coverage under the act. The rate-based trigger would be lowered by two percentage points and the fee-based trigger would be revised to include optional insurance premiums and similar credit protection products paid at closing.

Certain acts and practices in connection with home-secured loans would be prohibited, including a rule to restrict creditors from engaging in repeated refinancings of their own HOEPA loans over a short time period when the transactions are not in the borrower's interest. HOEPA's prohibition against extending credit without regard to a consumer's repayment ability would be strengthened by requiring creditors generally to document and verify income for HOEPA-covered loans. HOEPA disclosures would include the total amount of money borrowed.

HOEPA was enacted in response to anecdotal evidence of predatory lending practices in the home-equity lending market. HOEPA imposes additional disclosure requirements by creditors at least three business days before the loan is closed. It also imposes substantive limitations, such as restrictions on short-term balloon notes, on certain home-equity loans with rates and fees above a certain percentage or amount.

The term "predatory lending" encompasses a variety of practices. Often homeowners in certain communities-particularly, the elderly and minorities-are targeted with offers of high-cost, home-secured credit. The loans carry high up-front fees and may be based on the homeowners' equity in their homes, not their ability to make the scheduled payments. When homeowners have problems repaying the debt, they are often encouraged to refinance the loan. Frequently this leads to another high-fee loan that provides little or no economic benefit to the borrower. HOEPA authorizes the Board to expand HOEPA's coverage and prohibit certain acts and practices in connection with mortgage lending generally.

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Additional Information

For additional information about the above matters, please contact our Banking Supervision and Regulation Department, at (415) 974-2967.

FEDERAL RESERVE BANK OF SAN FRANCISCO