Home Mortgage Disclosure (Regulation C), 66127-66340 [2015-26607]

Agencies

• BUREAU OF CONSUMER FINANCIAL PROTECTION

[Federal Register Volume 80, Number 208 (Wednesday, October 28, 2015)]
[Rules and Regulations]
[Pages 66127-66340]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-26607]



[[Page 66127]]

Vol. 80

Wednesday,

No. 208

October 28, 2015

Part II





Bureau of Consumer Financial Protection





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12 CFR Part 1003





 Home Mortgage Disclosure (Regulation C); Final Rule

Federal Register / Vol. 80 , No. 208 / Wednesday, October 28, 2015 / 
Rules and Regulations

[[Page 66128]]


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BUREAU OF CONSUMER FINANCIAL PROTECTION

12 CFR Part 1003

[Docket No. CFPB-2014-0019]
RIN 3170-AA10


Home Mortgage Disclosure (Regulation C)

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Final rule; official interpretations.

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SUMMARY: The Bureau of Consumer Financial Protection is amending 
Regulation C to implement amendments to the Home Mortgage Disclosure 
Act made by section 1094 of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act (Dodd-Frank Act). Consistent with section 1094 
of the Dodd-Frank Act, the Bureau is adding several new reporting 
requirements and clarifying several existing requirements. The Bureau 
is also modifying the institutional and transactional coverage of 
Regulation C. The final rule also provides extensive guidance regarding 
compliance with both the existing and new requirements.

DATES: This rule is effective on January 1, 2018, except that the 
amendment to Sec.  1003.2 in amendatory instruction 3 is effective on 
January 1, 2017; the amendments to Sec.  1003.5 in amendatory 
instruction 8, the amendments to Sec.  1003.6 in amendatory instruction 
10, the amendments to appendix A to part 1003 in amendatory instruction 
12, and the amendments to supplement I to part 1003 in amendatory 
instruction 16 are effective on January 1, 2019; and the amendments to 
Sec.  1003.5 in amendatory instruction 9 are effective on January 1, 
2020. See part VI for more information.

FOR FURTHER INFORMATION CONTACT: Jaydee DiGiovanni, David Jacobs, Terry 
J. Randall, or James Wylie, Counsels; or Elena Grigera Babinecz, 
Courtney Jean, Joan Kayagil, Thomas J. Kearney, or Laura Stack, Senior 
Counsels, Office of Regulations, at (202) 435-7700.

SUPPLEMENTARY INFORMATION: 

I. Summary of the Final Rule

    Regulation C implements the Home Mortgage Disclosure Act (HMDA), 
which was amended by the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (Dodd-Frank Act). On July 24, 2014, the Bureau issued a 
proposed rule to amend Regulation C, which was published in the Federal 
Register on August 29, 2014 (the 2014 HMDA Proposal or the 
proposal).\1\ The Bureau is publishing final amendments to Regulation C 
modifying the types of institutions and transactions subject to the 
regulation, the types of data that institutions are required to 
collect, and the processes for reporting and disclosing the required 
data.
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    \1\ 79 FR 51731 (Aug. 29, 2014). See also Press Release, U.S. 
Bureau of Consumer Fin. Prot., CFPB Proposes Rule to Improve 
Information About Access to Credit in the Mortgage Market (July 24, 
2014), available at https://www.consumerfinance.gov/newsroom/cfpb-proposes-rule-to-improve-information-about-access-to-credit-in-the-mortgage-market/.
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A. Modifications to Institutional and Transactional Coverage

    The Bureau is modifying Regulation C's institutional and 
transactional coverage to better achieve HMDA's purposes in light of 
current market conditions and to reduce unnecessary burden on financial 
institutions. The Bureau is adopting uniform loan-volume thresholds for 
depository and nondepository institutions. The loan-volume thresholds 
require an institution that originated at least 25 closed-end mortgage 
loans or at least 100 open-end lines of credit in each of the two 
preceding calendar years to report HMDA data, provided that the 
institution meets all of the other criteria for institutional coverage. 
The final rule also includes a separate test to ensure that covered 
institutions that meet only the 25 closed-end mortgage loan threshold 
are not required to report their open-end lending, and that covered 
institutions that meet only the 100 open-end line of credit threshold 
are not required to report their closed-end lending.
    In addition, the final rule retains the current institutional 
coverage criteria for depository institutions, which require reporting 
by depository institutions that satisfy an asset-size threshold, have a 
branch or home office in an Metropolitan Statistical Area (MSA) on the 
preceding December 31, satisfy the current federally related test, and 
originated at least one first-lien home purchase loan or refinancing 
secured by a one- to four-unit dwelling in the previous calendar year. 
For nondepository institutions, the final rule replaces the current 
loan-volume or -amount test with the loan-volume thresholds discussed 
above, and removes the current asset-size or loan-volume threshold, but 
retains the current criterion that the institution have a branch or 
home office in an MSA on the preceding December 31.
    The Bureau also is modifying the types of transactions subject to 
Regulation C. The final rule adopts a dwelling-secured standard for all 
loans or lines of credit that are for personal, family, or household 
purposes. Thus, most consumer-purpose transactions, including closed-
end home-equity loans, home-equity lines of credit, and reverse 
mortgages, are subject to the regulation. Most commercial-purpose 
transactions (i.e., loans or lines of credit not for personal, family, 
or household purposes) are subject to the regulation only if they are 
for the purpose of home purchase, home improvement, or refinancing. The 
final rule excludes from coverage home improvement loans that are not 
secured by a dwelling (i.e., home improvement loans that are unsecured 
or that are secured by some other type of collateral) and all 
agricultural-purpose loans and lines of credit.

B. Modifications to Reportable Data Requirements

    The final rule amends several of Regulation C's currently required 
data points to clarify the requirements and make the data more useful. 
To streamline the regulation, the final rule removes appendix A; all of 
the substantive requirements contained in appendix A have been moved, 
with some modifications, to the regulation text or commentary. The 
final rule also adopts several new data points, many of which were 
added by the Dodd-Frank Act, and some of which were added pursuant to 
the Bureau's discretionary authority to carry out the purposes of HMDA. 
The final rule does not adopt some of the new or amended data points 
set forth in the 2014 HMDA Proposal, such as the proposed requirements 
to report qualified mortgage status or the initial draw on an open-end 
line of credit. The data points required to be reported under the final 
rule can be grouped into four broad categories:
     Information about applicants, borrowers, and the 
underwriting process, such as age, credit score, debt-to-income ratio, 
and automated underwriting system results.
     Information about the property securing the loan, such as 
construction method, property value, and additional information about 
manufactured and multifamily housing.
     Information about the features of the loan, such as 
additional pricing information, loan term, interest rate, introductory 
rate period, non-amortizing features, and the type of loan.
     Certain unique identifiers, such as a universal loan 
identifier, property address, loan originator identifier, and a

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legal entity identifier for the financial institution.\2\
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    \2\ All of the data points required by the final rule are 
discussed in detail below in the section-by-section analysis of 
Sec.  1003.4(a).
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    The final rule also amends the current requirements related to the 
collection of ethnicity, race, and sex of applicants and borrowers. The 
final rule requires financial institutions to report whether ethnicity, 
race, or sex information was collected on the basis of visual 
observation or surname when an application is taken in person and the 
applicant does not provide the information. For transactions where 
ethnicity and race information is provided by the applicant or 
borrower, the final rule requires financial institutions to permit 
applicants and borrowers to self-identify using disaggregated ethnic 
and racial categories. However, when race and ethnicity data is 
completed by the financial institution, the final rule retains the 
current requirements, requiring financial institutions to provide only 
aggregated ethnic or racial data.

C. Modifications to Disclosure and Reporting Requirements

    The final rule retains the current requirement that financial 
institutions submit their HMDA data to the appropriate Federal agency 
by March 1 following the calendar year for which the data are 
collected. The final rule imposes a new requirement that financial 
institutions that report large volumes of HMDA data for a calendar year 
also submit their data for the first three quarters of the following 
calendar year to the appropriate Federal agency on a quarterly basis. 
However, the final rule removes the current requirements that a 
financial institution provide to the public its disclosure statement 
and its loan/application register, modified to protect applicant and 
borrower privacy, and instead requires financial institutions to 
provide a notice to members of the public seeking these data that the 
information is available on the Bureau's Web site.

II. Background

A. HMDA and Regulation C

    For nearly 40 years, HMDA has provided the public with information 
about mortgage lending activity within communities throughout the 
nation. Public officials use the information available through HMDA to 
develop and allocate housing and community development investments, to 
respond to market failures when necessary, and to monitor whether 
financial institutions may be engaging in discriminatory lending 
practices. The data are used by the mortgage industry to inform 
business practices, and by local communities to ensure that lenders are 
serving the needs of individual neighborhoods. To maintain the data's 
usefulness, HMDA and Regulation C have been updated and expanded over 
time in response to the changing needs of homeowners and evolution in 
the mortgage market. This part II.A provides an abbreviated discussion 
of the detailed background information presented in the proposal, which 
the Bureau considered and relied on in preparing this final rule.\3\
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    \3\ See 79 FR 51731, 51734-39 (Aug. 29, 2014).
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The Statute and Current Regulation

    The Home Mortgage Disclosure Act (HMDA), 12 U.S.C. 2801 et seq., 
requires certain depository institutions and for-profit nondepository 
institutions to collect, report, and disclose data about originations 
and purchases of mortgage loans, as well as mortgage loan applications 
that do not result in originations (for example, applications that are 
denied or withdrawn). As originally adopted, HMDA identifies its 
purposes as providing the public and public officials with information 
to help determine whether financial institutions are serving the 
housing needs of the communities in which they are located, and to 
assist public officials in their determination of the distribution of 
public sector investments in a manner designed to improve the private 
investment environment.\4\ Congress later expanded HMDA to, among other 
things, require financial institutions to report racial 
characteristics, gender, and income information on applicants and 
borrowers.\5\ In light of these amendments, the Board of Governors of 
the Federal Reserve System (Board) subsequently recognized a third HMDA 
purpose of identifying possible discriminatory lending patterns and 
enforcing antidiscrimination statutes, which now appears with HMDA's 
other purposes in Regulation C.\6\
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    \4\ HMDA section 302(b), 12 U.S.C. 2801(b); see also 12 CFR 
1003.1(b)(1)(i)-(ii).
    \5\ Financial Institutions Reform, Recovery, and Enforcement Act 
of 1989, Public Law 101-73, section 1211 (``Fair lending oversight 
and enforcement'' section), 103 Stat. 183, 524-26 (1989).
    \6\ 54 FR 51356, 51357 (Dec. 15, 1989), codified at 12 CFR 
1003.1(b)(1).
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    In 2010, Congress enacted the Dodd-Frank Act, which amended HMDA 
and also transferred HMDA rulemaking authority and other functions from 
the Board to the Bureau.\7\ Among other changes, the Dodd-Frank Act 
expands the scope of information relating to mortgage applications and 
loans that must be compiled, maintained, and reported under HMDA. New 
data points include the age of loan applicants and mortgagors, 
information relating to the points and fees payable at origination, the 
difference between the annual percentage rate (APR) associated with the 
loan and a benchmark rate or rates for all loans, the term of any 
prepayment penalty, the value of real property to be pledged as 
collateral, the term of the loan and of any introductory interest rate 
for the loan, the presence of contract terms allowing non-amortizing 
payments, the origination channel, and the credit scores of applicants 
and mortgagors.\8\ The Dodd-Frank Act also authorizes the Bureau to 
require, ``as [it] may determine to be appropriate,'' a unique 
identifier that identifies the loan originator, a universal loan 
identifier, and the parcel number that corresponds to the real property 
pledged or proposed to be pledged as collateral for the mortgage 
loan.\9\ The Dodd-Frank Act also provides the Bureau with the authority 
to require ``such other information as the Bureau may require.'' \10\
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    \7\ Public Law 111-203, 124 Stat. 1376, 1980, 2035-38, 2097-101 
(2010). Also, in 2010, the Board conducted public hearings on 
potential revisions to Regulation C. The Board's hearings are 
discussed below.
    \8\ Dodd-Frank Act section 1094(3), amending HMDA section 
304(b), 12 U.S.C. 2803(b).
    \9\ Id.
    \10\ Id.
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    The Bureau's Regulation C, 12 CFR part 1003, implements HMDA. 
Regulation C currently requires depository institutions (i.e., banks, 
savings associations, and credit unions) and for-profit nondepository 
mortgage lending institutions to submit and publicly disclose certain 
HMDA data if they meet criteria set forth in the rule. Whether a 
depository institution is required to report and publicly disclose data 
depends on its asset size, the location of its home and branch offices, 
the extent to which it engages in residential mortgage lending, and the 
extent to which the institution or its loans are federally related. 
Whether a for-profit nondepository mortgage lending institution is 
required to report and publicly disclose data depends on its size, the 
location of its home and branch offices, including the extent of its 
business in MSAs, and the extent to which it engages in residential 
mortgage lending.
    Covered financial institutions are required to report originations 
and purchases of mortgage loans (home purchase and refinancing) and 
home improvement loans, as well as loan

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applications that do not result in originations. The information 
reported under Regulation C currently includes, among other items: 
application date; loan or application type, purpose, and amount; 
property location and type; race, ethnicity, sex, and annual income of 
the loan applicant; action taken on the loan application (approved, 
denied, withdrawn, etc.), and date of that action; whether the loan is 
subject to the Home Ownership and Equity Protection Act of 1994 
(HOEPA); lien status (first lien, subordinate lien, or unsecured); and 
certain loan price information.
    Depository financial institutions report HMDA data to their 
supervisory agencies, while nondepository financial institutions report 
HMDA data to the U.S. Department of Housing and Urban Development 
(HUD). Financial institutions report their data on an application-by-
application basis using a register format referred to as the loan/
application register. Institutions must make their loan/application 
registers available to the public, with certain fields redacted to 
preserve applicants' and borrowers' privacy. At present, the Federal 
Financial Institutions Examination Council (FFIEC),\11\ on behalf of 
the supervisory agencies, compiles the reported data and prepares an 
individual disclosure statement for each institution and aggregate 
reports for all covered institutions in each metropolitan area. These 
disclosure statements and reports are available to the public. On 
behalf of the agencies, the FFIEC also annually releases a loan-level 
dataset containing all reported HMDA data for the preceding calendar 
year with certain fields redacted to protect the privacy of applicants 
and borrowers.
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    \11\ The FFIEC is a formal interagency body empowered to 
prescribe uniform principles, standards, and report forms for the 
Federal examination of financial institutions by the Bureau, the 
Board, the Federal Deposit Insurance Corporation (FDIC), the 
National Credit Union Administration (NCUA), and the Office of the 
Comptroller of the Currency (OCC), and to make recommendations to 
promote uniformity in the supervision of financial institutions. In 
2006, the State Liaison Committee was added to the Council as a 
voting member.
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Overview of HMDA's Purposes and Evolution

    In the decades that followed World War II, the standard of living 
declined sharply in many U.S. cities as people migrated to the suburbs. 
A significant cause of this decline was the gradual deterioration of 
the urban housing supply. Although Congress took several steps to 
address this problem, by the 1970s it was clear that inadequate private 
investment and a lack of access to credit was contributing to an 
ongoing cycle of decline in urban neighborhoods. However, Congress 
lacked adequate data to determine the extent and severity of these 
market failures. To create transparency in the mortgage market Congress 
enacted HMDA in 1975, which the Board implemented by promulgating 
Regulation C in 1976. As originally enacted, HMDA applied to certain 
depository institutions that were located in standard metropolitan 
statistical areas, and required the disclosure of a limited amount of 
data regarding home improvement and residential mortgage loans.\12\
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    \12\ See 79 FR 51731, 51735-36 (Aug. 29, 2014).
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    HMDA substantially improved the public's ability to determine 
whether financial institutions were serving the needs of their 
communities, but during the 1980s several events occurred that 
illustrated the need to improve and expand the HMDA data. A series of 
investigative reports and studies revealed that discrimination against 
certain applicants and borrowers was common during the mortgage lending 
process. Concerns over this discrimination, coupled with the need to 
respond to the savings and loan crisis of the late 1980s, led Congress 
to amend HMDA significantly in 1988 and 1989. These amendments, among 
other things, expanded the coverage of depository and nondepository 
institutions, required transaction-level disclosure of applications and 
loans, and added new reporting requirements regarding the applicant's 
or borrower's race, gender, and income. These amendments dramatically 
improved the public's understanding of how mortgage lending decisions 
affected both communities and individual applicants and borrowers.\13\
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    \13\ See 79 FR 51731, 51736-37 (Aug. 29, 2014).
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    The mortgage market evolved and became more complex during the 
1990s, particularly with respect to the expansion of the secondary 
market and the growth of the subprime market. Faced with concerns about 
potential predatory and discriminatory practices in the subprime 
market, community groups and others began to call for new amendments to 
HMDA to provide increased visibility into market practices. The Board 
addressed some of these concerns by amending Regulation C in 2002. 
However, as delinquencies, foreclosures, and other harmful effects of 
subprime lending unfolded, it became apparent that communities 
throughout the nation lacked sufficient information to understand the 
magnitude of the risk to which they were exposed. Community groups, 
local, State, and Federal officials relied on the HMDA data to identify 
at-risk neighborhoods and to develop foreclosure relief and 
homeownership stabilization programs. However, the limited data 
provided presented several challenges for those who attempted to create 
effective and responsive relief programs. As discussed above, Congress 
added several new reporting requirements, but left the Bureau to 
determine which additional information is necessary. Many argue that 
more publicly available information is needed to help inform 
communities of lending practices that affect local economies and may 
endanger neighborhood stability. The Bureau believes that the HMDA data 
must be updated to address the informational shortcomings exposed by 
the financial crisis and to meet the needs of homeowners, potential 
homeowners, and neighborhoods throughout the nation.\14\
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    \14\ See 79 FR 51731, 51737-39 (Aug. 29, 2014).
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B. Applicant and Borrower Privacy

    In its proposal, the Bureau set forth the approach it proposed to 
take to protect applicant and borrower privacy in light of HMDA's 
purposes. It proposed the use of a balancing test to determine whether 
and how HMDA data should be modified prior to its disclosure to the 
public in order to protect applicant and borrower privacy while also 
fulfilling the disclosure purposes of the statute.\15\ For the reasons 
described below, the Bureau is adopting the balancing test described in 
the proposal. The Bureau will provide at a later date a process for the 
public to provide input on the application of the balancing test to 
determine the HMDA data to be publicly disclosed.
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    \15\ 79 FR 51731, 51742 (Aug. 29, 2014).
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    HMDA's purposes are to provide the public and public officials with 
sufficient information to enable them to determine whether institutions 
are serving the housing needs of the communities and neighborhoods in 
which they are located, to assist public officials in distributing 
public sector investments in a manner designed to improve the private 
investment environment, and to assist in identifying possible 
discriminatory lending patterns and enforcing antidiscrimination 
statutes. Today, HMDA data are the primary source of information for 
regulators, researchers, economists, industry, and advocates analyzing 
the mortgage market both for HMDA's purposes and for general market 
monitoring. Developing appropriate protections for applicant and 
borrower

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privacy in light of HMDA's purposes is a significant priority for the 
Bureau. The Bureau is mindful that privacy concerns may arise both when 
financial institutions compile and report HMDA data to their regulators 
and when the data are disclosed to the public.
Compiling and Reporting of HMDA Data
    Financial institutions collect various types of information from 
consumers in the course of processing loan applications. To promote 
HMDA's goals, HMDA and Regulation C require financial institutions to 
compile and report to regulators some of this information and other 
information obtained or generated concerning the application or loan. 
As discussed above, the Dodd-Frank Act both expanded the scope of 
information that financial institutions must compile and report and 
authorized the Bureau to require financial institutions to compile and 
report additional data. The Bureau carefully considered the potential 
risks to applicant and borrower privacy associated with compiling and 
reporting data in developing the proposal and adopting this final rule.
    Neither consumer advocate commenters nor the privacy advocate that 
submitted a comment identified concerns about applicant and borrower 
privacy associated with the compilation and reporting of data to 
regulators under the proposal. However, the Bureau received many 
comments from industry arguing that the compilation and reporting of 
certain data under the proposal created significant and unjustified 
risks to applicant and borrower privacy. These comments focused on 
concerns relating to the potential identifiability and sensitivity of 
the data to be compiled and reported. Most commenters expressed 
concerns about potential harms to applicants and borrowers if the data 
compiled and reported under the proposal were subject to unauthorized 
access. A few commenters also expressed concerns about potential legal 
liability and costs to financial institutions associated with the 
compilation and reporting of the proposed data.
    Many industry commenters argued that the proposed requirement to 
report the postal address of the property securing the covered loan or, 
in the case of an application, proposed to secure the covered loan \16\ 
would allow data users to easily link all reported data to an 
individual applicant or borrower. Some commenters also suggested that 
proposed data fields other than postal address could allow individual 
applicants and borrowers to be identified in the reported HMDA data. 
Many industry commenters asserted that some of the proposed data 
fields, if tied to an individual, would reveal sensitive information 
about the applicant or borrower.\17\
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    \16\ Proposed Sec.  1003.4(a)(9)(i).
    \17\ Some commenters suggested that the Bureau require certain 
data to be reported in ranges, rather than exact values, to mitigate 
privacy concerns. Comments received concerning particular data 
points are addressed in the applicable section-by-section analysis 
below.
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    Some industry commenters expressed general concern about government 
collection of information that may be linkable to individuals, but most 
commenters expressed specific concerns about potential harms to 
applicants and borrowers in the event of unauthorized access to the 
HMDA data maintained by the agencies. Commenters asserted that the 
proposal increased both the potential harm a breach of the HMDA data at 
the Bureau or another agency could cause affected applicants and 
borrowers as well as the risk that such a data breach would occur. Many 
comments stated that the proposed HMDA data could be used to target 
applicants and borrowers with marketing for harmful financial products 
and to commit identity theft and other fraud. Several commenters stated 
that data breaches at corporations and government agencies have become 
common and suggested that the proposed HMDA data are sufficiently 
valuable to identity thieves and others that agency systems maintaining 
the data would be subject to hacks and other attacks aiming to access 
the data. A few commenters expressed concern that the HMDA data would 
be vulnerable to unauthorized access during transmission from financial 
institutions to their regulators. Several industry commenters expressed 
particular concern with the Bureau's information security practices and 
suggested that HMDA data held by the Bureau would be at heightened risk 
of breach. A few of these commenters urged the Bureau to publish the 
details of its information security practices and procedures in order 
to address these concerns. Some industry commenters questioned the 
benefit of some of the proposed data in light of HMDA's purposes. 
Several commenters argued that, in light of the potential risks to 
applicant and borrower privacy presented by the compilation and 
reporting of the some of the proposed data, any benefits of such 
compilation and reporting were not justified.
    In addition, a few commenters expressed concern that compiling and 
reporting the proposed data would create legal risks for financial 
institutions and would impose related costs. A few comments suggested 
that a financial institution would face regulatory or legal liability 
if an agency suffered a breach that compromised the financial 
institution's HMDA data. One comment suggested that reporting the 
proposed data would expose financial institutions to liability under 
the Right to Financial Privacy Act (RFPA) \18\ and a few other 
commenters suggested that doing so would violate the Gramm-Leach-Bliley 
Act (GLBA)\19\. Several national trade associations argued that 
compiling and reporting the proposed data would require financial 
institutions to strengthen significantly their information security 
programs and would also increase costs associated with compensating 
customers in the event of a financial institution's data breach.
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    \18\ 12 U.S.C. 3401 et seq.
    \19\ 15 U.S.C. 6801 et seq.
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    The Bureau has analyzed these industry comments carefully and has 
determined that any risks to applicant and borrower privacy created by 
the compilation and reporting of the data required under the final rule 
are justified by the benefits of the data in light of HMDA's 
purposes.\20\ The Bureau takes seriously the concerns raised about the 
security of reported HMDA data maintained at the agencies. The Bureau 
has addressed or is actively addressing each of the recommendations 
made in the Government Accountability Office (GAO) report cited by some 
industry commenters as a basis for concern that the Bureau's 
information security practices are insufficient to protect HMDA 
data.\21\ The GAO report

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recognized the many steps that the Bureau has taken to ensure the 
privacy and security of the data it collects; indeed, the report's 
recommendations focused primarily on formalizing and documenting the 
privacy and information security practices the Bureau already had in 
place at the time the report was issued. The Bureau takes strong 
measures to mitigate and address any risks to the security of sensitive 
data it receives, consistent with the guidance and standards set for 
Federal information security programs,\22\ and is committed to 
protecting the privacy and information security of the HMDA data it 
receives from financial institutions. As discussed in its proposal,\23\ 
the Bureau is developing improvements to the HMDA data submission 
process, including, for example, further advancing encryption if 
necessary to protect data reported under the final rule.
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    \20\ Several industry commenters asserted that, under the 
Bureau's proposal, none of the proposed new data points would be 
made available to the public, or would be made available only in 
aggregate form, and that this was evidence of the limited value of 
the proposed data in light of HMDA's purposes. These commenters 
misunderstood the proposal. The Bureau proposed that the data 
financial institutions would disclose on their modified loan/
application registers would be limited to the currently disclosed 
data, see proposed Sec.  1003.5(c), but stated that it would apply a 
balancing test to determine whether and how the HMDA data should be 
modified prior to its public release by the agencies in their annual 
loan-level data release, see 79 FR 51731, 51742, 51816 (Aug. 29, 
2014). Based on its analysis to date, the Bureau believes that some 
of the proposed new data points may create privacy concerns 
sufficient to warrant some degree of modification, including 
redaction, before public disclosure, but it has determined that all 
of the data required to be compiled and reported under the final 
rule significantly advance HMDA's purposes.
    \21\ U.S. Gov't Accountability Office, GAO-14-758, Consumer 
Financial Protection Bureau: Some Privacy and Security Procedures 
for Data Collections Should Continue Being Enhanced (2014), 
available at https://www.gao.gov/assets/670/666000.pdf. In this 
report, the GAO examined the Bureau's authority to receive consumer 
financial information as well as steps taken to implement the 
privacy and information security protections to address risks 
associated with the receipt of such information. The report 
contained eleven recommendations directed to the Bureau.
    \22\ The Bureau's information security program is aligned with 
the requirements of the Federal Information Security Management Act 
of 2002 (FISMA). Like other Federal information security programs, 
the policies and principles that form the CFPB information security 
program are based on guidance and standards provided by the National 
Institute of Standards and Technology (NIST). The Bureau declines to 
publish details of its information security safeguards, as suggested 
by some industry commenters, because such disclosure would pose a 
significant security risk.
    \23\ 79 FR 51731, 51741 (Aug. 29, 2014).
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    The Bureau does not believe a financial institution could be held 
legally liable for the exposure of data due to a breach at a government 
agency or for reporting data to a government agency if the institution 
was legally required to provide the data to the agency and did so in 
accordance with other applicable law. The comments raising this concern 
provided no evidence or analysis concerning how such liability might be 
created. Contrary to a few commenters' suggestions, reporting data as 
required under the final rule would not create liability for a 
financial institution under the RFPA or cause the financial institution 
to violate the GLBA, as both of these laws permit financial 
institutions to disclose information as required by Federal law or 
regulation.\24\ Finally, in light of the significant amounts of highly 
sensitive, personally identifiable information concerning customers 
that financial institutions collect and maintain in the course of 
conducting their business regardless of HMDA and Regulation C, the 
Bureau does not believe the requirement to compile and report some of 
these data pursuant to the final rule will meaningfully increase 
financial institutions' information security needs or the amounts 
required for victim compensation in the event of a financial 
institution's security breach. The industry commenters that made these 
arguments offered no detail or evidence of such needs or costs. It is 
the Bureau's understanding that substantially all of the new data to be 
compiled under the final rule are either data that HMDA reporters 
compile for reasons other than HMDA or Regulation C or are calculations 
that derive from such data, and must be retained by a financial 
institution to comply with other applicable laws.
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    \24\ See 12 U.S.C. 3413(d) (providing an exception to the RFPA's 
general prohibition on disclosure to the Federal government for 
financial records or information ``required to be reported in 
accordance with any Federal statute or rule promulgated 
thereunder''); 15 U.S.C. 6802(e)(8), 12 CFR 1016.15(a)(7)(i) 
(providing an exception to GLBA's general prohibition on disclosing 
nonpublic personal information to a nonaffiliated third party absent 
notice and an opportunity to opt-out of such disclosure where the 
disclosure is ``to comply with Federal, State, or local laws, rules, 
and other applicable legal requirements.'').
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Disclosures of HMDA Data
    As discussed in part II.A above, HMDA is a disclosure statute. To 
fulfill HMDA's purposes, the types of data a financial institution is 
required to compile and report under HMDA and Regulation C have been 
expanded since the statute's enactment in 1975, and the formats in 
which HMDA data have been disclosed to the public also have evolved. At 
present, HMDA and Regulation C require data to be made available to the 
public in both aggregate and loan-level formats. First, each financial 
institution must make its ``modified'' loan/application register 
available to the public, with three fields deleted to protect applicant 
and borrower privacy.\25\ Each financial institution must also make 
available to the public a disclosure statement prepared by the FFIEC 
that shows the financial institution's HMDA data in aggregate form.\26\ 
In addition, the FFIEC makes available to the public disclosure 
statements for each financial institution \27\ as well as aggregate 
reports for each MSA and metropolitan division (MD) showing lending 
patterns by certain property and applicant characteristics.\28\ Since 
1991, on behalf of the agencies receiving HMDA data, the FFIEC also has 
released annually a loan-level dataset containing all reported HMDA 
data for the preceding calendar year (the agencies' release). To reduce 
the possibility that data users could identify particular applicants or 
borrowers in these data, the same three fields that are deleted from 
the modified loan/application register are deleted from the agencies' 
release.\29\
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    \25\ Section 1003.5(c); HMDA section 304(j)(2)(B). Section 
1003.5(c) requires that, before making its loan/application register 
available to the public, a financial institution must delete three 
fields to protect applicant and borrower privacy: Application or 
loan number, the date that the application was received, and the 
date action was taken.
    \26\ Section 1003.5(b); HMDA section 304(k).
    \27\ Section 1003.5(f); HMDA section 304(f).
    \28\ Section 1003.5(f); HMDA section 310.
    \29\ The agencies first released loan-level HMDA data in October 
1991. In announcing that the loan-level data submitted to the 
agencies on the loan/application register would be made available to 
the public, the FFIEC noted that ``[a]n unedited form of the data 
would contain information that could be used to identify individual 
loan applicants'' and that the data would be edited prior to public 
release to remove the application identification number, the date of 
application, and the date of final action. 55 FR 27886, 27888 (July 
6, 1990).
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    Changes to financial institutions' disclosure obligations under the 
final rule. The Bureau's proposal addressed both of the disclosures 
financial institutions must make to the public under current Regulation 
C. First, the Bureau proposed to allow a financial institution to meet 
its obligation to make its disclosure statement available to the public 
by making available a notice that clearly conveys that the disclosure 
statement may be obtained on the FFIEC Web site and that includes the 
FFIEC's Web site address.\30\ Second, it proposed to require that the 
modified loan/application register a financial institution must make 
available show only the data fields that currently are released on the 
modified loan/application register.\31\ The Bureau explained that the 
new data points adopted under the final rule would be disclosed in the 
agencies' release, modified as appropriate to protect applicant and 
borrower privacy.\32\ These proposals aimed to reduce burden on 
financial institutions associated with their disclosure of HMDA data 
and allow for the appropriate protection of applicant and borrower 
privacy in HMDA data disclosed by shifting much of the responsibility 
for making HMDA data available to the public to the agencies.
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    \30\ Proposed Sec.  1003.5(b)(2).
    \31\ Proposed Sec.  1003.5(c).
    \32\ 79 FR 51731, 51742-43, 51816 (Aug. 29, 2014).
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    The Bureau received several comments on the proposed provisions 
relating to financial institutions' disclosure obligations. As 
discussed below in the applicable section-by-section analysis, after 
consideration of

[[Page 66133]]

these comments and further analysis, the Bureau has decided to finalize 
proposed Sec.  1003.5(b)(2) concerning the disclosure statement with 
minor modifications. The Bureau is not finalizing Sec.  1003.5(c) 
concerning the modified loan/application register as proposed and 
instead is aligning Sec.  1003.5(c) with Sec.  1003.5(b)(2) by adopting 
a requirement that a financial institution make available to the public 
a notice that clearly conveys that the institution's modified loan/
application register may be obtained on the Bureau's Web site. Thus, 
under the final rule, the disclosure of HMDA data is shifted entirely 
to the agencies; financial institutions will no longer be required to 
provide their HMDA data directly to the public, but only a notice 
advising members of the public seeking their data of where it may be 
obtained online.
    Use of a balancing test to determine data to be publicly disclosed. 
The Dodd-Frank Act amendments to HMDA added new section 304(h)(1)(E), 
which directs the Bureau to develop regulations, in consultation with 
the other agencies, that ``modify or require modification of itemized 
information, for the purpose of protecting the privacy interests of the 
mortgage applicants or mortgagors, that is or will be available to the 
public.'' Section 304(h)(3)(B), also added by the Dodd-Frank Act, 
directs the Bureau to ``prescribe standards for any modification under 
paragraph (1)(E) to effectuate the purposes of [HMDA], in light of the 
privacy interests of mortgage applicants or mortgagors. Where necessary 
to protect the privacy interests of mortgage applicants or mortgagors, 
the Bureau shall provide for the disclosure of information . . . in 
aggregate or other reasonably modified form, in order to effectuate the 
purposes of [HMDA].'' \33\
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    \33\ Section 304(h)(3)(A) provides that a modification under 
section 304(h)(1)(E) shall apply to information concerning ``(i) 
credit score data . . . in a manner that is consistent with the 
purpose described in paragraph (1)(E); and (ii) age or any other 
category of data described in paragraph (5) or (6) of subsection 
(b), as the Bureau determines to be necessary to satisfy the purpose 
described in paragraph (1)(E), and in a manner consistent with that 
purpose.''
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    The Bureau explained in its proposal that it interprets HMDA, as 
amended by the Dodd-Frank Act, to call for the use of a balancing test 
to determine whether and how HMDA data should be modified prior to its 
disclosure to the public in order to protect applicant and borrower 
privacy while also fulfilling HMDA's public disclosure purposes.\34\ 
Using the balancing test to evaluate particular HMDA data points, 
individually and in combination, and various options for providing 
access to HMDA data, the Bureau proposed to balance the importance of 
releasing the data to accomplish HMDA's public disclosure purposes 
against the potential harm to an applicant or borrower's privacy 
interest that may result from the release of the data without 
modification. The proposal explained that modifications the Bureau may 
consider where warranted include various disclosure limitation 
techniques, such as techniques aimed at masking the precise value of 
data points,\35\ aggregation, redaction, use restrictions, and query-
based systems. HMDA's public disclosure purposes might also be 
furthered by implementing a restricted access program.\36\ The Bureau 
explained that it interpreted HMDA, as amended by the Dodd-Frank Act, 
to require that public HMDA data be modified when the release of the 
unmodified data creates risks to applicant and borrower privacy 
interests that are not justified by the benefits of such release to the 
public in light of the statutory purposes. The Bureau also sought 
comment on its view that, considering the public disclosure of HMDA 
data as a whole, applicant and borrower privacy interests arise under 
the balancing test only where the disclosure of HMDA data may both 
substantially facilitate the identification of an applicant or borrower 
in the data and disclose information about the applicant or borrower 
that is not otherwise public and may be harmful or sensitive. The 
proposal explained that the Bureau's analysis of the proposed HMDA data 
under the balancing test was ongoing and included data fields currently 
disclosed on the modified loan/application register and in the 
agencies' release. The Bureau stated that it would provide at a later 
date a process for the public to provide input on the application of 
the balancing test to determine the HMDA data to be publicly disclosed.
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    \34\ Section 1022(c)(8) of the Dodd-Frank Act provides that, 
``[i]n collecting information from any person, publicly releasing 
information held by the Bureau, or requiring covered persons to 
publicly report information, the Bureau shall take steps to ensure 
that'' certain information is not ``made public under this title.'' 
The Bureau interprets ``under this title'' to not include data made 
public pursuant to HMDA and Regulation C.
    \35\ Binning and suppression are examples of commonly-used data 
masking techniques. Binning, sometimes known as recoding or interval 
recoding, provides only a range for certain fields. Binning allows 
data to be shown clustered into ranges rather than as precise 
values.
    \36\ A restricted access program could allow ``trusted 
researchers'' access to privacy-sensitive information that is 
unavailable to the public, for research purposes.
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    The Bureau received very few comments concerning the proposed 
balancing test itself, most of which supported the balancing test. One 
industry commenter stated that the balancing test was too narrow, but 
its comment concerned the types of available information the Bureau 
should consider in analyzing the potential risks of re-identification 
and harm to applicants and borrowers presented by the public disclosure 
of HMDA data, and the types of potential harmful uses of HMDA data, 
rather than the balancing test itself.
    The Bureau received many comments from consumer advocates, 
researchers, industry, and a privacy advocate concerning the 
application of the balancing test to the current and proposed HMDA 
data. These comments concerned (i) the benefits of public disclosure of 
the data, (ii) the potential risks to applicant and borrower privacy 
created by such disclosure, and (iii) modifications and data access and 
use restrictions the Bureau might consider to protect applicant and 
borrower privacy where warranted.
    Many comments, especially from consumer advocates and researchers, 
identified the benefits of public disclosure of the current and 
proposed HMDA data. These commenters noted that public disclosure is 
the fundamental purpose of the Act and argued that public availability 
of HMDA data: Allows the public to supplement limited government 
resources to enforce fair lending and other laws and otherwise 
accomplish the goals of the Act; mitigates the impact of regulator 
capture or inattention to illegal practices and troublesome trends; and 
reduces information asymmetry between industry and the public 
concerning the residential mortgage market.
    Several comments raised concerns about potential risks to applicant 
and borrower privacy created by the disclosure of HMDA data. Similar to 
comments received concerning such potential risks associated with the 
compilation and reporting of HMDA data, these comments addressed 
sources of data that could be combined with HMDA data to identify 
applicants and borrowers in the HMDA data. Several comments also 
suggested that the Bureau consider how HMDA data may be combined with 
other available data to harm consumers. Many comments, especially from 
industry, raised concerns about a variety of specific proposed data 
points as well as potential harmful uses to which data disclosed to the 
public may be put, including fraud, identity theft, and

[[Page 66134]]

targeted marketing of harmful financial products.
    Finally, several comments concerned data access and use 
restrictions that the Bureau could consider. Some consumer advocate and 
researcher comments offered suggestions and recommendations concerning 
a restricted access program. Several industry comments expressed 
concerns about the implementation of a restricted access program, 
however, including concerns that it may create opportunities for data 
leakage and unauthorized access to the HMDA data. A privacy advocate 
commenter urged the Bureau to restrict the uses of HMDA data to certain 
defined purposes, similar to the approach taken with respect to 
consumer reports under the Fair Credit Reporting Act.\37\
---------------------------------------------------------------------------

    \37\ 15 U.S.C. 1681 et seq.
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    The Bureau has determined that its interpretation of HMDA to call 
for the use of the balancing test described above is reasonable and 
best effectuates the purposes of the statute. The Bureau interprets 
HMDA, as amended by the Dodd-Frank Act, to require that public HMDA 
data be modified when the release of the unmodified data creates risks 
to applicant and borrower privacy interests that are not justified by 
the benefits of such release to the public in light of the statutory 
purposes. In such circumstances, the need to protect the privacy 
interests of mortgage applicants or mortgagors requires that the 
itemized information be modified. Considering the public disclosure of 
HMDA data as a whole, applicant and borrower privacy interests arise 
under the balancing test only where the disclosure of HMDA data may 
both substantially facilitate the identification of an applicant or 
borrower in the data and disclose information about the applicant or 
borrower that is not otherwise public and may be harmful or sensitive. 
Thus, disclosure of an unmodified individual data point or field may 
create a risk to applicant or borrower privacy interests if such 
disclosure would either substantially facilitate the identification of 
an applicant or borrower or disclose information about an applicant or 
borrower that is not otherwise public and that may be harmful or 
sensitive. This interpretation implements HMDA sections 304(h)(1)(E) 
and 304(h)(3)(B) because it prescribes standards for requiring 
modification of itemized information, for the purpose of protecting the 
privacy interests of mortgage applicants and borrowers, that is or will 
be available to the public.
    In applying the balancing test, the Bureau will carefully consider 
all comments received concerning the benefits of disclosure of HMDA 
data, the risks to applicant and borrower privacy created by such 
disclosure, and options for data use and access restrictions. However, 
the Bureau believes that it will be most helpful in applying the 
balancing test to provide an additional process through which all 
stakeholders can provide additional comment now that the data to be 
compiled and reported are finalized. Accordingly, the Bureau intends to 
provide a process for the public to provide input on the application of 
the balancing test to determine the HMDA data to be publicly disclosed.
    The Bureau received some comments suggesting that disclosure of 
certain HMDA data could reveal confidential business information. As 
these comments do not concern applicant and borrower privacy, they are 
addressed in the appropriate section-by-section analyses below.

III. Summary of the Rulemaking Process

    This final rule is the product of several years of research and 
analysis. In 2010, when the Board had rulemaking authority over HMDA, 
the Board conducted a series of public hearings that elicited feedback 
on improvements to Regulation C. After the rulemaking authority for 
HMDA was transferred to the Bureau, the Bureau conducted additional 
outreach by soliciting feedback in Federal Register notices, by meeting 
with community groups, financial institutions, trade associations, and 
other Federal agencies, and by convening a Small Business Review Panel. 
To prepare this final rule, the Bureau considered, among other things, 
the comments presented to the Board during its public hearings, 
feedback provided to the Bureau prior to the issuance of its proposal, 
including information provided during the Small Business Review Panel, 
interagency consultations, and feedback provided in response to the 
proposed rule.

A. Pre-Proposal Outreach

    In 2010, the Board convened public hearings on potential revisions 
to Regulation C (the Board's 2010 Hearings).\38\ The Board began the 
reassessment of HMDA in the aftermath of the financial crisis, as 
Congress was considering the legislation that later became the Dodd-
Frank Act. Participants addressed whether the Board should require 
reporting from additional types of institutions, whether certain types 
of institutions should be exempt from reporting, and whether any other 
changes should be made to the rules for determining which types of 
institutions must report data. For example, representatives from 
Federal agencies, lenders, and consumer advocates urged the Board to 
adopt a consistent minimum loan threshold across all types of 
institutions, including banks, savings associations, credit unions, and 
nondepository institutions.\39\ In particular, industry representatives 
noted the limited value derived from data reported by lower-volume 
depository institutions.\40\ Industry and community advocate 
representatives also asserted that loan volume, rather than asset size, 
should trigger reporting, particularly for nondepository lenders 
because they tend to have a different capital structure than banks, 
savings associations, and credit unions.\41\ Participants also urged 
the Board to expand coverage of nondepository institutions.\42\ In 
addition, participants commented that the coverage scheme for 
nondepository institutions was too complex and should be 
simplified.\43\
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    \38\ See 75 FR 35030 (June 21, 2010).
    \39\ Transcript of Fed. Reserve Board Public Hearing on 
Potential Revisions to the Home Mortgage Disclosure Act, Washington 
DC (Sept. 24, 2010) [hereinafter Washington Hearing], (remarks of 
Faith Schwartz, Senior Advisory, HOPE Now Alliance) (``I think 
everyone should have the burden of reporting that has any meaningful 
originations out there. * * *''), https://www.federalreserve.gov/communitydev/files/full_transcript_board_20100924.pdf ; id. (remarks 
of Josh Silver, Vice President of Research and Policy, National 
Community Reinvestment Coalition) (``[I]n terms of your threshold, 
it is very confusing because you have depository institutions that 
have different thresholds and nondepository institutions . . . I 
suggested just make it the same for everybody. If you make more than 
[50 reportable loans under HMDA], you disclose.. . . So that's a 
threshold I would propose across the board for nondepository 
institutions and depository institutions.'').
    \40\ See, e.g., Transcript of Fed. Reserve Board Public Hearing 
on Potential Revisions to the Home Mortgage Disclosure Act, Atlanta, 
Georgia (July 15, 2010) [hereinafter Atlanta Hearing], https://www.federalreserve.gov/communitydev/files/full_transcript_atlanta_20100715.pdf.
    \41\ See, e.g., id. (remarks of Faith Anderson, Vice President 
and General Counsel, American Airlines Federal Credit Union) (``[A]n 
exemption from HMDA reporting should be based on the volume of 
mortgage loans that are given. Exemptions should not be based on the 
asset size of a financial institution.'').
    \42\ See, e.g., Transcript of Fed. Reserve Board Public Hearing 
on Potential Revisions to the Home Mortgage Disclosure Act, San 
Francisco, California (Aug. 5, 2010) [hereinafter San Francisco 
Hearing], https://www.federalreserve.gov/communitydev/files/full_transcript_sf_20100805.pdf; Washington Hearing, supra note 39; 
Atlanta Hearing, supra note 40.
    \43\ See, e.g., Washington Hearing, supra note 39.
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    The Board solicited feedback on ways to improve the quality and 
usefulness of HMDA data, including whether any data elements should be 
added, modified, or deleted. Participants provided

[[Page 66135]]

suggestions about ways to improve the utility of HMDA data. 
Participants discussed modifications to the data fields currently 
collected in Regulation C that may clarify reporting requirements and 
improve the usefulness of HMDA data. For example, participants urged 
the Board to augment the information collected concerning multifamily 
properties\44\ and manufactured housing \45\ and to expand the 
reporting of rate spread to all originations.\46\ Participants also 
urged the Board to clarify specific reporting requirements, such as how 
to report modular homes \47\ and conditional approvals.\48\ 
Participants discussed the reluctance of applicants to provide 
demographic information, such as race and ethnicity, and the challenges 
financial institutions face in collecting the information.\49\
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    \44\ See, e.g., San Francisco Hearing, supra note 42; Washington 
Hearing, supra note 39.
    \45\ See, e.g., id.
    \46\ See, e.g., Atlanta Hearing, supra note 40; Transcript of 
Fed. Reserve Board Public Hearing on Potential Revisions to the Home 
Mortgage Disclosure Act, Chicago, Illinois (Sept. 16, 2010) 
[hereinafter Chicago Hearing], https://www.federalreserve.gov/communitydev/files/full_transcript_chicago_20100916.pdf; id. 
(remarks of Professor Jim Campen, University of Massachusetts).
    \47\ See, e.g., Atlanta Hearing, supra note 40.
    \48\ See, e.g., Washington Hearing, supra note 39.
    \49\ See, e.g., Atlanta Hearing, supra note 40; San Francisco 
Hearing, supra note 42; Chicago Hearing, supra note 46.
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    In addition, participants commented on data fields that could be 
added to the data collected under HMDA to improve its utility. For 
example, participants suggested collecting information regarding points 
and fees, including prepayment penalties,\50\ information concerning 
the relationship of the loan amount to the value of the property 
securing the loan,\51\ and information concerning whether an 
application was submitted through a mortgage broker.\52\
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    \50\ See, e.g., San Francisco Hearing, supra note 42; Chicago 
Hearing, supra note 46.
    \51\ See, e.g., Atlanta Hearing, supra note 40; San Francisco 
Hearing, supra note 42; Chicago Hearing, supra note 46; Washington 
Hearing, supra note 39.
    \52\ See, e.g., Chicago Hearing, supra note 46.
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    In developing the proposal to amend Regulation C, the Bureau, 
through outreach and meetings with stakeholders, built on the feedback 
received during the Board's 2010 HMDA hearings. The Bureau conducted 
meetings in-person and through conference calls. In addition, the 
Bureau solicited feedback through correspondence and Federal Register 
notices.\53\
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    \53\ 76 FR 31222 (May 31, 2011); 76 FR 43570 (Jul. 21, 2011); 76 
FR 75825 (Dec. 5, 2011); 76 FR 78465 (Dec. 19, 2011).
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    In 2011, the Bureau issued a proposed rule seeking feedback on 
regulations inherited from other agencies (2011 Streamlining 
Proposal).\54\ While the Bureau sought general feedback on 
opportunities to streamline inherited regulations, the Bureau also 
solicited specific feedback on whether a small number of refinancings 
should not trigger Regulation C coverage.\55\ The Bureau received 
comments from consumer advocates, fair housing advocates, financial 
institutions, State bank supervisory organizations, and national 
industry trade associations. Comments addressed issues ranging from 
reporting thresholds and data reporting exemptions to clarifying 
certain definitions and reporting issues.\56\
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    \54\ 76 FR 75825 (Dec. 5, 2011).
    \55\ The Bureau noted in the 2011 Streamlining Proposal that a 
depository institution that did not ordinarily originate home 
purchase loans, but that occasionally refinanced a home purchase 
loan to accommodate a customer, would be required to report under 
Regulation C. 76 FR 75825, 75828 (Dec. 5, 2011).
    \56\ The Bureau's 2014 HMDA proposal provides a more detailed 
description of the comments received. See 79 FR 51731, 51744 (Aug. 
29, 2014).
---------------------------------------------------------------------------

    On December 19, 2011, the Bureau published an interim final rule 
establishing Regulation C in 12 CFR part 1003, implementing the 
assumption of HMDA authority from the Board (the Bureau's 2011 
Regulation C Restatement).\57\ The Bureau's 2011 Regulation C 
Restatement substantially duplicated the Board's Regulation C and made 
only non-substantive, technical, formatting, and stylistic changes. As 
part of the Bureau's 2011 Regulation C Restatement, the Bureau 
solicited comment on any outdated, unduly burdensome, or unnecessary 
technical issues and provisions.\58\ Commenters generally suggested 
aligning Regulation C definitions with other regulations, providing a 
tolerance for enforcement actions based on low error rates, and 
establishing a loan-volume threshold. Commenters also raised other 
issues, some of which the Bureau discussed in the proposal and which 
are also discussed in the section-by-section analysis below.
---------------------------------------------------------------------------

    \57\ 76 FR 78465 (Dec. 19, 2011).
    \58\ Id.
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    The Bureau met with a few groups to better understand existing and 
emerging data standards and whether Regulation C could be aligned with 
those standards. The Bureau met with staff from Mortgage Industry 
Standards Maintenance Organization (MISMO) \59\ and the GSEs \60\ 
regarding the MISMO dataset and the ULDD \61\, respectively. The Bureau 
also met with community, regional, and national banks to understand 
their HMDA compliance processes and obtain feedback on areas for 
improvement, and with consumer and fair housing advocates as well as 
industry trade associations to understand their concerns with the HMDA 
data and Regulation C.
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    \59\ MISMO is the federally registered service mark of the 
Mortgage Industry Standards Maintenance Organization, a wholly-owned 
subsidiary of the Mortgage Bankers Association.
    \60\ Government-sponsored enterprises, specifically Federal 
National Mortgage Association (Fannie Mae) and Federal Home Loan 
Mortgage Corporation (Freddie Mac).
    \61\ The Uniform Loan Delivery Dataset is a common set of data 
elements required by Fannie Mae and Freddie Mac.
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B. Small Business Review Panel

    In February 2014, the Bureau convened a Small Business Review Panel 
(Panel) with the Chief Counsel for Advocacy of the Small Business 
Administration (SBA) and the Administrator of the Office of Information 
and Regulatory Affairs with the Office of Management and Budget 
(OMB).\62\ As part of this process, the Bureau prepared an outline of 
the proposals then under consideration and the alternatives considered 
(Small Business Review Panel Outline), which the Bureau posted on its 
Web site for review by the small financial institutions participating 
in the panel process, as well as the general public.\63\
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    \62\ The Small Business Regulatory Enforcement Fairness Act of 
1996 (SBREFA), as amended by section 1100G(a) of the Dodd-Frank Act, 
requires the Bureau to convene a Small Business Review Panel before 
proposing a rule that may have significant economic impact on a 
substantial number of small entities. See Public Law 104-121, tit. 
II, 110 Stat. 847, 857 (1996) as amended by Public Law 110-28, and 
Public Law 111-203, section 1100G (2010).
    \63\ Press Release, CFPB Takes Steps to Improve Information 
About Access to Credit in the Mortgage Market (Feb. 7, 2014), https://www.consumerfinance.gov/newsroom/cfpb-takes-steps-to-improve-information-about-access-to-credit-in-the-mortgage-market/. The 
Bureau also gathered feedback on the Small Business Review Panel 
Outline from other stakeholders and members of the public, and from 
the Bureau's Consumer Advisory Board and Community Bank Advisory 
Council.
---------------------------------------------------------------------------

    Prior to formally convening, the Panel participated in 
teleconferences with small groups of the small entity representatives 
to introduce the materials and to obtain feedback. The Panel conducted 
a full-day outreach meeting with the small entity representatives in 
March 2014 in Washington, DC. The Panel gathered information from the 
small entity representatives and made findings and recommendations 
regarding the potential compliance costs and other impacts of the 
proposed rule on those entities. Those findings and

[[Page 66136]]

recommendations are set forth in the Panel's report (Small Business 
Review Panel Report), which will be made part of the administrative 
record in this rulemaking.\64\ The Bureau carefully considered the 
findings and recommendations in preparing the proposal and this final 
rule.
---------------------------------------------------------------------------

    \64\ See Final Report of the Small Business Review Panel on the 
CFPB's Proposals Under Consideration for the Home Mortgage 
Disclosure Act (HMDA) Rulemaking (April 24, 2014), https://files.consumerfinance.gov/f/201407_cfpb_report_hmda_sbrefa.pdf.
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C. The Bureau's Proposal

    In July 2014, the Bureau published on its Web site for public 
comment a proposed rule regarding Regulation C to implement section 
1094 of the Dodd-Frank Act, which amended HMDA to improve the utility 
of the HMDA data and revise Federal agency rulemaking and enforcement 
authorities. The proposal was published in the Federal Register in 
August 2014.\65\ The Bureau proposed modifications to the institutional 
coverage and transactional coverage in light of market conditions, to 
reduce burden on financial institutions, and to address gaps in the 
HMDA data regarding certain segments of the housing market. The 
proposed modification to institutional coverage would have simplified 
the coverage criteria for depository and nondepository institutions 
with a uniform threshold of 25 loans. Under the proposal, depository 
and nondepository institutions that originated 25 covered loans, 
excluding open-end lines of credit, in the previous calendar year would 
be required to report HMDA data so long as all the other reporting 
criteria were met. The proposed modification to transactional coverage 
would have expanded the types of transactions subject to Regulation C. 
Under the proposal, financial institutions would be required to report 
all closed-end loans, open-end lines of credit, and reverse mortgages 
secured by dwellings, which would have relieved financial institutions 
from the requirement to ascertain an applicant's intended purpose for a 
dwelling-secured loan to determine if the loan was reportable under 
HMDA.
---------------------------------------------------------------------------

    \65\ 79 FR 51731 (Aug. 29, 2014). See part II.A for a discussion 
of section 1094 of the Dodd-Frank Act.
---------------------------------------------------------------------------

    The Bureau also proposed modifications to reportable data 
requirements. First, the Bureau proposed to align many HMDA data 
requirements with the MISMO data standards for residential mortgages. 
Second, the Bureau proposed to modify existing data points already 
established under Regulation C as well as add new data points to the 
reporting requirements. Some of these data points were specifically 
identified by the Dodd-Frank Act and others were proposed pursuant to 
the Bureau's discretionary rulemaking authority to carry out the 
purposes of HMDA by addressing data gaps. The following four categories 
of new or modified data points were proposed by the Bureau:
     Information about applicants, borrowers, and the 
underwriting process, such as age, credit score, debt-to-income ratio, 
reasons for denial if the application was denied, the application 
channel, and automated underwriting system results.
     Information about the property securing the loan, such as 
construction method, property value, lien priority, the number of 
individual dwelling units in the property, and additional information 
about manufactured and multifamily housing.
     Information about the features of the loan, such as 
additional pricing information, loan term, interest rate, introductory 
rate period, non-amortizing features, and the type of loan.
     Certain unique identifiers, such as a universal loan 
identifier, property address, loan originator identifier, and a legal 
entity identifier for the financial institution.
    In addition, the Bureau proposed modifications to the disclosure 
and reporting requirements and clarifications to the regulation. Under 
the proposal, financial institutions that report large volumes of HMDA 
data would be required to submit their data to the appropriate agency 
on a quarterly basis rather than an annual basis. The Bureau noted its 
belief that quarterly reporting would reduce reporting errors and 
improve the quality of HMDA data, allow regulators to use the data in a 
more timely and effective manner, and could facilitate an earlier 
release of annual HMDA data to the public. The Bureau also proposed to 
allow HMDA reporters to make their disclosure statements available by 
referring members of the public that request a disclosure statement to 
a publicly available Web site, which would facilitate public access to 
the HMDA data and minimize the burden on HMDA reporters.
    The Bureau also proposed clarifications to Regulation C to address 
issues that are unclear or confusing. These proposed clarifications 
included guidance on types of residential structures that are 
considered dwellings; the treatment of manufactured and modular homes 
and multiple properties; preapproval programs and temporary financing; 
how to report a transaction that involved multiple financial 
institutions; reporting the action taken on an application; and 
reporting the type of purchaser for a covered loan.

D. Feedback Provided to the Bureau

    The Bureau received approximately 400 comments on the HMDA proposal 
during the comment period from, among others, consumer advocacy groups; 
national, State, and regional industry trade associations; banks, 
community banks, credit unions, software providers, housing counselors; 
Federal agencies, including the Office of Advocacy of the Small 
Business Administration (SBA); and individual consumers and academics. 
In addition, the Bureau also considered other information, including ex 
parte communications.\66\ Materials on the record are publicly 
available at https://www.regulations.gov. This information is discussed 
below in the section-by-section analysis and subsequent parts of the 
notice, as applicable. The Bureau considered the comments and ex parte 
communications, modified the proposal in certain respects, and adopts 
the final rule as described below in the section-by-section analysis.
---------------------------------------------------------------------------

    \66\ CFPB Bulletin 11-3, CFPB Policy on Ex Parte Presentations 
in Rulemaking Proceedings (2011), available at https://files.consumerfinance.gov/f/2011/08/Bulletin_20110819_ExPartePresentationsRulemakingProceedings.pdf.
---------------------------------------------------------------------------

IV. Legal Authority

    The Bureau is issuing this final rule pursuant to its authority 
under the Dodd-Frank Act and HMDA. Section 1061 of the Dodd-Frank Act 
transferred to the Bureau the ``consumer financial protection 
functions'' previously vested in certain other Federal agencies, 
including the Board.\67\ The term ``consumer financial protection 
function'' is defined to include ``all authority to prescribe rules or 
issue orders or guidelines pursuant to any Federal consumer financial 
law, including performing appropriate functions to promulgate and 
review such rules, orders, and guidelines.'' \68\ Section 1022(b)(1) of 
the Dodd-Frank Act authorizes the Bureau's Director to prescribe rules 
``as may be necessary or appropriate to enable the Bureau to administer 
and carry out the purposes and objectives of the Federal consumer 
financial laws, and to prevent evasions thereof.'' \69\ Both HMDA and 
title X of the Dodd-Frank Act are Federal

[[Page 66137]]

consumer financial laws.\70\ Accordingly, the Bureau has authority to 
issue regulations to administer HMDA.
---------------------------------------------------------------------------

    \67\ 12 U.S.C. 5581. Section 1094 of the Dodd-Frank Act also 
replaced the term ``Board'' with ``Bureau'' in most places in HMDA. 
12 U.S.C. 2803 et seq.
    \68\ 12 U.S.C. 5581(a)(1)(A).
    \69\ 12 U.S.C. 5512(b)(1).
    \70\ Dodd-Frank Act section 1002(14), 12 U.S.C. 5481(14) 
(defining ``Federal consumer financial law'' to include the 
``enumerated consumer laws'' and the provisions of title X of the 
Dodd-Frank Act); Dodd-Frank Act section 1002(12), 12 U.S.C. 5481(12) 
(defining ``enumerated consumer laws'' to include HMDA).
---------------------------------------------------------------------------

    HMDA section 305(a) broadly authorizes the Bureau to prescribe such 
regulations as may be necessary to carry out HMDA's purposes.\71\ These 
regulations can include ``classifications, differentiations, or other 
provisions, and may provide for such adjustments and exceptions for any 
class of transactions, as in the judgment of the Bureau are necessary 
and proper to effectuate the purposes of [HMDA], and prevent 
circumvention or evasion thereof, or to facilitate compliance 
therewith.'' \72\
---------------------------------------------------------------------------

    \71\ 12 U.S.C. 2804(a).
    \72\ Id.
---------------------------------------------------------------------------

    A number of HMDA provisions specify that covered institutions must 
compile and make their HMDA data publicly available ``in accordance 
with regulations of the Bureau'' and ``in such formats as the Bureau 
may require.'' \73\ HMDA section 304(j)(1) authorizes the Bureau to 
issue regulations to define the loan application register information 
that HMDA reporters must make available to the public upon request and 
to specify the form required for such disclosures.\74\ HMDA section 
304(j)(2)(B) provides that ``[t]he Bureau shall require, by regulation, 
such deletions as the Bureau may determine to be appropriate to 
protect--(i) any privacy interest of any applicant . . .; and (ii) a 
depository institution from liability under any Federal or State 
privacy law.'' \75\ HMDA section 304(j)(7) also directs the Bureau to 
make every effort in prescribing regulations under the subsection to 
minimize the costs incurred by a depository institution in complying 
with the subsection and regulations.\76\
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    \73\ See, e.g., HMDA section 304(a)(1), (j)(2)(A), (j)(3), 
(m)(2), 12 U.S.C. 2803(a)(1), (j)(2)(A), (j)(3), (m)(2); see also 
HMDA section 304(b)(6)(I), 12 U.S.C. 2803(b)(6)(I) (requiring 
covered institutions to use ``such form as the Bureau may 
prescribe'' in reporting credit scores of mortgage applicants and 
mortgagors). HMDA section 304(k)(1) also requires depository 
institutions covered by HMDA to make disclosure statements available 
``[i]n accordance with procedures established by the Bureau pursuant 
to this section.'' 12 U.S.C. 2803(k)(1).
    \74\ 12 U.S.C. 2803(j)(1).
    \75\ 12 U.S.C. 2803(j)(2)(B).
    \76\ 12 U.S.C. 2803(j)(7).
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    HMDA section 304(e) directs the Bureau to prescribe a standard 
format for HMDA disclosures required under HMDA section 304.\77\ As 
amended by the Dodd-Frank Act, HMDA section 304(h)(1) requires HMDA 
data to be submitted to the Bureau or to the appropriate agency for the 
reporting financial institution ``in accordance with rules prescribed 
by the Bureau.'' \78\ HMDA section 304(h)(1) also directs the Bureau, 
in consultation with other appropriate agencies, to develop regulations 
after notice and comment that:
---------------------------------------------------------------------------

    \77\ 12 U.S.C. 2803(e).
    \78\ 12 U.S.C. 2803(h)(1); see also HMDA section 304(n), 12 
U.S.C. 2803(n) (discussing submission to the Bureau or the 
appropriate agency ``in accordance with regulations prescribed by 
the Bureau''). For purposes of HMDA section 304(h), HMDA section 
304(h)(2) defines the appropriate agencies for different categories 
of financial institutions. The agencies are the Federal banking 
agencies, the FDIC, the NCUA, and the Secretary of HUD. 12 U.S.C. 
2803(h)(2).
---------------------------------------------------------------------------

    (A) Prescribe the format for such disclosures, the method for 
submission of the data to the appropriate agency, and the procedures 
for disclosing the information to the public;
    (B) require the collection of data required to be disclosed under 
[HMDA section 304(b)] with respect to loans sold by each institution 
reporting under this title;
    (C) require disclosure of the class of the purchaser of such loans;
    (D) permit any reporting institution to submit in writing to the 
Bureau or to the appropriate agency such additional data or 
explanations as it deems relevant to the decision to originate or 
purchase mortgage loans; and
    (E) modify or require modification of itemized information, for the 
purpose of protecting the privacy interests of the mortgage applicants 
or mortgagors, that is or will be available to the public.\79\
---------------------------------------------------------------------------

    \79\ 12 U.S.C. 2803(h)(1). The Dodd-Frank Act also added new 
HMDA section 304(h)(3), which directs the Bureau to prescribe 
standards for any modification pursuant to HMDA section 
304(h)(1)(E), to effectuate HMDA's purposes, in light of the privacy 
interests of mortgage applicants or mortgagors. 12 U.S.C. 
2803(h)(1)(E), 2803(h)(3).

HMDA also authorizes the Bureau to issue regulations relating to the 
timing of HMDA disclosures.\80\
---------------------------------------------------------------------------

    \80\ HMDA section 304(l)(2)(A), 12 U.S.C. 2803(l)(2)(A) (setting 
maximum disclosure periods except as provided under other HMDA 
subsections and regulations prescribed by the Bureau); HMDA section 
304(n), 12 U.S.C. 2803(n).
---------------------------------------------------------------------------

    As amended by the Dodd-Frank Act, HMDA section 304 requires 
itemization of specified categories of information and ``such other 
information as the Bureau may require.'' \81\ Specifically, HMDA 
section 304(b)(5)(D) requires reporting of ``such other information as 
the Bureau may require'' for mortgage loans, and section 304(b)(6)(J) 
requires reporting of ``such other information as the Bureau may 
require'' for mortgage loans and applications. HMDA section 304 also 
identifies certain data points that are to be included in the 
itemization ``as the Bureau may determine to be appropriate.'' \82\ It 
provides that age and other categories of data shall be modified prior 
to release ``as the Bureau determines to be necessary'' to satisfy the 
statutory purpose of protecting the privacy interests of the mortgage 
applicants or mortgagors.\83\
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    \81\ HMDA section 304(b)(5)(D), (b)(6)(J), 12 U.S.C. 
2803(b)(5)(D), (b)(6)(J).
    \82\ HMDA section 304(b)(6)(F), (G), (H), 12 U.S.C. 
2803(b)(6)(F), (G), (H).
    \83\ HMDA section 304(h)(3)(A)(ii), 12 U.S.C. 2803(h)(3)(A)(ii).
---------------------------------------------------------------------------

    The Dodd-Frank Act amendments to HMDA also authorize the Bureau's 
Director to develop or assist in the improvement of methods of matching 
addresses and census tracts to facilitate HMDA compliance by depository 
institutions in as economical a manner as possible.\84\ The Bureau, in 
consultation with the Secretary of HUD, may also exempt for-profit 
mortgage-lending institutions that are comparable within their 
respective industries to a bank, savings association, or credit union 
that has total assets of $10,000,000 or less.\85\
---------------------------------------------------------------------------

    \84\ HMDA section 307(a), 12 U.S.C. 2806(a) (authorizing the 
Bureau's Director to utilize, contract with, act through, or 
compensate any person or agency to carry out this subsection).
    \85\ HMDA section 309(a), 12 U.S.C. 2808(a).
---------------------------------------------------------------------------

    In preparing this final rule, the Bureau has considered the changes 
below in light of its legal authority under HMDA and the Dodd-Frank 
Act. The Bureau has determined that each of the changes addressed below 
is consistent with the purposes of HMDA and is authorized by one or 
more of the sources of statutory authority identified in this part.

V. Section-by-Section Analysis

Section 1003.1 Authority, Purpose, and Scope

1(c) Scope
    As summarized in part I, the Bureau proposed to revise the 
provisions of Regulation C that determine which financial institutions 
and transactions are covered by the regulation. The Bureau also 
proposed to reorganize the regulation to reduce burden. The Bureau 
proposed to revise Sec.  1003.1(c) and its accompanying commentary to 
reflect both the proposed substantive changes to Regulation C's 
institutional and transactional coverage and the proposed 
reorganization of the regulation. The Bureau did not receive any 
comments addressing proposed Sec.  1003.1(c).\86\ As

[[Page 66138]]

discussed in the section-by-section analyses of Sec.  1003.2(d), (e), 
(g), and (o) and of Sec.  1003.3, the final rule in some cases revises 
the Bureau's proposed changes to institutional and transactional 
coverage. However, none of those changes affect the technical revisions 
that the Bureau proposed for Sec.  1003.1(c). The Bureau thus is 
finalizing Sec.  1003.1(c) largely as proposed, with several non-
substantive revisions for clarity.
---------------------------------------------------------------------------

    \86\ The Bureau received a large number of comments about the 
proposed revisions to Regulation C's transactional and institutional 
coverage. Those comments are addressed in the section-by-section 
analyses of Sec.  1003.2(d), (e), (g), (o) and of Sec.  
1003.3(c)(10).
---------------------------------------------------------------------------

Section 1003.2 Definitions

    Section 1003.2 of Regulation C sets forth definitions that are used 
in the regulation. As discussed below, the Bureau proposed both 
substantive revisions to several definitions and technical revisions to 
Sec.  1003.2 to enumerate the terms defined therein. The Bureau 
addresses comments concerning its proposed substantive revisions below. 
The Bureau received no comments opposing its proposal to enumerate the 
terms in Sec.  1003.2, and the final rule sets forth enumerations for 
all such terms. The Bureau believes that this technical revision will 
facilitate compliance with Regulation C by making defined terms easier 
to locate and cross-reference in the regulation, commentary, and the 
procedures published by the Bureau.
2(a) Act
    Section 1003.2 of Regulation C sets forth a definition for the term 
``act.'' The Bureau is adopting a technical amendment to add a 
paragraph designation for this definition. No substantive change is 
intended.
2(b) Application
2(b)(1) In General
    Section 1003.2 currently defines an application as an oral or 
written request for a home purchase loan, a home improvement loan, or a 
refinancing that is made in accordance with the procedures used by a 
financial institution for the type of credit requested. The Bureau 
proposed to make technical corrections and minor wording changes to 
conform the definition of application to the proposed changes in 
transactional coverage. In addition, the Bureau proposed to make 
technical and minor wording changes to the applicable commentary. For 
the reasons discussed below, the Bureau is adopting Sec.  1003.2(b)(1) 
and the associated commentary as proposed.
    Commenters generally addressed aspects of the definition of 
application that differ from other regulations or challenges in 
applying the definition in multifamily and commercial lending. The 
Bureau received several comments urging that the Regulation C 
definition of application should be aligned with the definition used in 
Regulation Z Sec.  1026.2(a)(3)(ii) to simplify compliance across 
regulations. As the Bureau noted in the proposed rule, the Bureau did 
not propose to align the definitions because they serve different 
purposes.\87\ The definition of application in Regulation Z Sec.  
1026.2(a)(3)(ii) establishes a clear rule for triggering when 
disclosures must be provided. In contrast, the definition for 
Regulation C is closely related to Regulation B and serves HMDA's fair 
lending purposes by requiring information about the disposition of 
credit requests received by financial institutions that do not lead to 
originations.\88\ Therefore it is important for the Regulation C 
definition of application to be based on the procedures used by the 
financial institution for the type of credit requested rather than the 
defined elements of the definition in Regulation Z Sec.  
1026.2(a)(3)(ii) under which creditors may be sequencing and 
structuring their information collection processes in various different 
ways.\89\
---------------------------------------------------------------------------

    \87\ 79 FR 51731, 51746 (Aug. 29, 2014).
    \88\ 12 CFR 1003.2, comment Application-1; 12 CFR 1002.2(f).
    \89\ 78 FR 79730, 79767 (Dec. 31, 2013).
---------------------------------------------------------------------------

    Some comments argued that the definition of application would be 
difficult to comply with for multifamily loans, which generally involve 
a more fluid application process. They also argued that the Bureau 
should exclude ``pitch book requests'' from the definition of 
application. Pitch book requests are preliminary investment packages 
related to multifamily residential structures requesting specific loans 
terms. The Bureau has considered the comments but believes that changes 
to the proposed definition of application related to multifamily loans 
are not warranted. Because the definition of application in Regulation 
C is closely related to the Regulation B definition of application and 
Regulation B applies to business credit, including multifamily 
lending,\90\ the Bureau believes that the flexible definition of 
application as proposed and the commentary in Regulation B and 
Regulation C provide adequate guidance for multifamily lending. The 
Bureau is also concerned that an exception for pitch book requests may 
be difficult to adopt because financial institutions may have different 
definitions of pitch book request or procedures for handlings them. The 
Bureau is not adopting an exclusion specific to pitch book requests, 
and believes that the existing commentary regarding the definition of 
application and prequalifications is appropriate.\91\ Whether pitch 
book requests would be considered applications under Regulation C would 
depend on how the specific financial institution treated such requests 
under its application process for covered loans secured by multifamily 
residential structures under the definition of application in 
Regulation C. As discussed below, the Bureau is also excluding covered 
loans secured by multifamily dwellings from the definition of a 
preapproval program, which may address some of the commenters' 
concerns. After considering the comments, the Bureau is finalizing 
Sec.  1003.2(b)(1) and comments 2(b)-1 and 2(b)-2 as proposed.
---------------------------------------------------------------------------

    \90\ 12 CFR 1002.2(j), comment 2(j)-1.
    \91\ See existing comment Application-2, final comment 2(b)-2.
---------------------------------------------------------------------------

2(b)(2) Preapproval Programs
    Regulation C incorporates certain requests under preapproval 
programs into the definition of application under Sec.  1003.2. Such 
programs are only covered if they involve a comprehensive analysis of 
the creditworthiness of the applicant and include a written commitment 
for up to a specific amount, subject only to certain limited 
conditions. The Bureau proposed to make technical and clarifying 
wording changes to the definition of a preapproval program under Sec.  
1003.2(b)(2) and the applicable commentary to add language adapted from 
additional FAQs regarding preapproval programs that had been provided 
by the FFIEC.\92\ For the reasons discussed below, the Bureau is 
finalizing Sec.  1003.2(b)(2) with modifications to exclude certain 
types of covered loans from the definition.
---------------------------------------------------------------------------

    \92\ 79 FR 51731, 51747 (Aug. 29, 2014).
---------------------------------------------------------------------------

    Several commenters addressed the Bureau's proposed definition of 
preapproval programs. Some commenters questioned the value of 
preapproval reporting or argued that preapproval reporting discourages 
financial institutions from offering preapproval programs. However, the 
Bureau is not excluding preapproval requests from Regulation C in this 
final rule because this information is valuable for fair lending 
purposes, as it provides visibility into how applicants are treated in 
an early stage of the lending

[[Page 66139]]

process.\93\ The statute requires lenders to report action taken on 
applications,\94\ and the Bureau believes that requests for preapproval 
as defined in the proposal and final rule represent credit 
applications. The Bureau does not believe that Regulation C's coverage 
of preapproval programs has discouraged offering of preapproval 
programs, and it concludes that any discouragement would be justified 
by the benefits of reporting. The reporting requirement is limited only 
to preapproval programs that meet certain conditions. Additionally, the 
Bureau is finalizing changes to comment 2(b)-3 that specify that 
programs described as preapproval programs that do not meet the 
definition in Sec.  1003.2(b)(2) are not preapproval programs for 
purposes of HMDA reporting.
---------------------------------------------------------------------------

    \93\ 67 FR 7222, 7224 (Feb. 15, 2002); 79 FR 51731, 51747 (Aug. 
29, 2014).
    \94\ HMDA section 303(4).
---------------------------------------------------------------------------

    Some commenters requested clarification about occasional 
preapprovals and some argued for a broader and more flexible definition 
of preapproval programs. The Bureau is not adopting a broader or more 
flexible definition of preapproval programs because it believes that 
limiting the scope of the definition allows for comparison of similar 
programs across institutions, where a broader definition could expand 
reportable transactions, lead to new compliance issues, and make 
preapproval data less comparable across institutions. The Bureau 
continues to believe that a financial institution that does not have a 
preapproval program and only occasionally considers preapproval 
requests on an ad hoc basis need not report those transactions and 
believes that proposed comment 2(b)-3 addresses the commenters' 
concerns. It provides, in part, that a financial institution need not 
treat ad hoc requests as part of a preapproval program for purposes of 
Regulation C. The Bureau is therefore finalizing comment 2(b)-3 as 
proposed.
    After considering the comments and conducting additional analysis, 
the Bureau is finalizing Sec.  1003.2(b)(2) generally as proposed, with 
minor revisions to exclude home purchase loans that will be open-end 
lines of credit, reverse mortgages, or secured by multifamily 
dwellings. Some loans secured by multifamily dwellings have been 
previously reported in HMDA under preapproval programs. The definition 
of a home purchase loan could include these types of loans. The 
definition of preapproval programs in current Regulation C and adopted 
by the final rule is primarily focused on programs associated with 
closed-end home purchase loans for one- to four-unit dwellings. The 
Bureau believes it is appropriate to categorically exclude loans 
secured by multifamily dwellings, open-end lines of credit, and reverse 
mortgages from the definition of preapproval programs in order to 
facilitate consistent reporting and analysis of preapprovals by 
limiting the definition to closed-end home purchase loans for one- to 
four-unit dwellings.
2(c) Branch Office
    Section 1003.2 currently provides a definition of branch office, 
which includes separate definitions for branches of (1) banks, savings 
associations, and credit unions and (2) for-profit mortgage-lending 
institutions (other than banks, savings associations, and credit 
unions). The Bureau proposed technical and nonsubstantive modifications 
to the definition of branch office. The Bureau received no comments on 
proposed Sec.  1003.2(c) or proposed comments 2(c)-2 and -3. The Bureau 
is adopting Sec.  1003.2(c) and comments 2(c)-2 and -3, renumbered as 
comment 2(c)(1)-2 and comment 2(c)(2)-1, with technical modifications. 
The Bureau is also republishing comment (Branch Office)-1, renumbered 
as comment 2(c)(1)-1.
2(d) Closed-End Mortgage Loan
    Under existing Regulation C, financial institutions must report 
information about applications for, and originations of, closed-end 
loans made for one of three purposes: Home improvement, home purchase, 
or refinancing.\95\ Closed-end home purchase loans and refinancings 
must be reported if they are dwelling-secured.\96\ Closed-end home 
improvement loans must be reported whether or not they are dwelling-
secured.
---------------------------------------------------------------------------

    \95\ Reverse mortgages currently are subject to these same 
criteria for reporting; thus, a closed-end reverse mortgage 
currently must be reported if it is for one of Regulation C's three 
purposes.
    \96\ Regulation C defines ``dwelling'' broadly to include 
single-family homes, rental properties, multifamily residential 
structures (e.g., apartment buildings), manufactured homes, and 
vacation homes. See the section-by-section analysis of Sec.  
1003.2(f) and related commentary.
---------------------------------------------------------------------------

    As discussed in the section-by-section analysis of Sec.  1003.2(e) 
(``covered loan''), the Bureau proposed to adjust Regulation C's 
transactional coverage to require financial institutions to report all 
dwelling-secured loans (and applications), instead of reporting only 
those loans and applications for the purpose of home improvement, home 
purchase, or refinancing.\97\ To facilitate this shift in transactional 
coverage, the Bureau proposed to define the term ``closed-end mortgage 
loan'' in Regulation C. Proposed Sec.  1003.2(d) provided that a 
closed-end mortgage loan was a dwelling-secured debt obligation that 
was not an open-end line of credit under Sec.  1003.2(o), a reverse 
mortgage under Sec.  1003.2(q), or an excluded transaction under Sec.  
1003.3(c). The Bureau did not propose commentary to accompany proposed 
Sec.  1003.2(d) but solicited feedback about whether commentary would 
be helpful.
---------------------------------------------------------------------------

    \97\ As discussed in the section-by-section analysis of Sec.  
1003.2(o) and (q), the proposal applied the same dwelling-secured 
test to open-end lines of credit and reverse mortgages, the two 
other categories of ``covered loans'' in proposed Sec.  1003.2(e).
---------------------------------------------------------------------------

    The proposal to remove Regulation C's current purpose-based 
reporting approach for closed-end mortgage loans in some cases 
broadened, and in some cases limited, the closed-end loans that would 
be reported under the regulation. For example, the proposal provided 
for reporting of all closed-end home-equity loans and all closed-end, 
dwelling-secured commercial-purpose loans. At the same time, the 
proposal eliminated the requirement to report home improvement loans 
not secured by a dwelling.
    As discussed in the section-by-section analysis of Sec.  1003.2(e), 
the Bureau is finalizing the proposed shift to dwelling-secured 
transactional coverage for consumer-purpose transactions and is 
retaining Regulation C's traditional purpose test for commercial-
purpose transactions. The Bureau believes that the shift serves HMDA's 
purposes, will improve HMDA data, and will simplify transactional 
reporting requirements. Accordingly, the Bureau is finalizing Sec.  
1003.2(d) largely as proposed, but with technical revisions for 
clarity, to define the universe of closed-end mortgage loans that must 
be reported under Regulation C unless otherwise excluded under Sec.  
1003.3(c). The Bureau also is finalizing commentary to Sec.  1003.2(d) 
to address questions that commenters raised about the scope of the 
closed-end mortgage loan definition.
    Relatively few commenters specifically addressed the benefits and 
burdens of reporting all dwelling-secured, consumer-purpose, closed-end 
mortgage loans.\98\ Consumer advocacy

[[Page 66140]]

group commenters supported the proposal to cover all such loans, and 
industry stakeholders expressed mixed views. A number of consumer 
advocacy group commenters also requested that the Bureau clarify in the 
final rule whether particular categories of transactions are included 
under the closed-end mortgage loan definition.
---------------------------------------------------------------------------

    \98\ As discussed in the section-by-section analysis of Sec.  
1003.2(e), nearly all commenters addressed in some fashion the 
Bureau's proposal to shift Regulation C's transactional coverage 
test from a purpose-based test to a collateral-based test. However, 
most commenters focused either on the benefits and burdens of the 
shift overall, or on the specific benefits and burdens of reporting 
all open-end lines of credit, all reverse mortgages, or all 
dwelling-secured, commercial-purpose mortgage loans and lines of 
credit. Those comments are addressed in the section-by-section 
analyses of Sec.  1003.2(e), (o), (q), and Sec.  1003.3(c)(10), 
respectively. The section-by-section analysis of Sec.  1003.2(d) 
focuses on the comments that specifically addressed the proposal to 
cover all consumer-purpose, closed-end home-equity loans.
---------------------------------------------------------------------------

Coverage of Dwelling-Secured, Consumer-Purpose, Closed-End Mortgage 
Loans
    A large number of consumer advocacy group and community development 
commenters supported having information about all closed-end home-
equity loans. They stated that having information about all such loans 
would be valuable in assessing whether neighborhoods that the consumer 
groups serve, especially those that are low- and moderate-income, are 
receiving the full range of credit that they need and would be 
appropriate to ensure an adequate understanding of the mortgage market.
    A small group of industry commenters supported the proposed shift 
to dwelling-secured coverage to the extent that it meant reporting all 
dwelling-secured, closed-end, consumer-purpose loans. Some of these 
commenters argued that reporting all such loans would be less 
burdensome than discerning whether each loan was for a reportable 
purpose.\99\ Others asserted that dwelling-secured coverage would 
eliminate the possibility that exists under current Regulation C of 
erroneously gathering race, gender, and ethnicity data for consumer-
purpose loans that later are determined not to be reportable. One 
industry commenter supported dwelling-secured coverage only for closed-
end, consumer-purpose loans secured by one- to four-unit dwellings, 
arguing that these transactions are the most common, are similar in 
their underwriting and in their risks to consumers, and have hit the 
economy hardest when they default en masse. Other industry commenters 
agreed that the shift to dwelling-secured coverage for closed-end, 
consumer-purpose loans was appropriate and would serve HMDA's purposes, 
would simplify reporting, would improve data for HMDA users, and would 
better align Regulation C's coverage with Regulations X and Z.\100\
---------------------------------------------------------------------------

    \99\ One commenter provided a specific example. The commenter 
stated that, when a borrower owns a home outright but takes out a 
dwelling-secured debt consolidation loan, the loan is recorded as a 
refinancing in the lender's loan origination system and on the GSE's 
standard loan application form. However, the loan currently is not 
reported under Regulation C because it does not meet the purpose-
based test. Therefore, an employee later must remove the transaction 
manually from the institution's HMDA report. If all dwelling-
secured, consumer-purpose, closed-end loans were covered, the 
transaction would be reported and the extra, manual step of removing 
the transaction would be unnecessary.
    \100\ Regulation X implements the Real Estate Settlement 
Procedures Act (RESPA), 12 U.S.C. 2601 et seq. Regulation Z 
implements the Truth in Lending Act (TILA), 15 U.S.C. 1601 et seq.
---------------------------------------------------------------------------

    As discussed in the section-by-section analysis of Sec.  1003.2(e), 
a majority of industry commenters opposed the proposed shift to 
dwelling-secured coverage, and some of those commenters specifically 
objected to reporting data about all closed-end home-equity loans. Some 
argued that the Bureau should maintain current coverage; a few argued 
that closed-end home-equity loans should be excluded from coverage 
altogether. The commenters argued that funds obtained through home-
equity loans could be used for any purpose. If a transaction's funds 
were not used for home purchase, home improvement, or refinancing 
purposes, commenters asserted, then having data about that transaction 
would not serve HMDA's purpose of ensuring that financial institutions 
are meeting the housing needs of their communities. One commenter 
argued that concerns about home-equity lending's role in the financial 
crisis no longer justified covering all home-equity loans, because the 
Bureau's ability-to-repay and qualified mortgage rules have addressed 
any issues with such lending.\101\ A few commenters also objected that 
such reporting would increase loan volume or argued that compiling data 
about all closed-end home-equity loans would be onerous, would require 
costly systems upgrades, or would distort HMDA data because loans would 
be reported even if their funds were not used for housing-related 
purposes.
---------------------------------------------------------------------------

    \101\ See the Bureau's Ability-to-Repay and Qualified Mortgage 
Standards rule (2013 ATR Final Rule), 78 FR 6408 (Jan. 30, 2013).
---------------------------------------------------------------------------

    As discussed in the proposal, the Bureau believes that covering all 
dwelling-secured, consumer-purpose, closed-end mortgage loans will 
provide useful data that will serve HMDA's purposes by providing 
additional information about closed-end home-equity loans, which 
research indicates were a significant factor leading up to the 
financial crisis,\102\ and which impeded some borrowers' ability to 
receive assistance through foreclosure relief programs during and after 
the crisis.\103\ The Bureau also believes, as some industry commenters 
observed, that covering all such transactions will simplify the 
regulation and ease compliance burden. The Bureau thus is adopting 
proposed Sec.  1003.2(d) largely as proposed, but with several 
revisions for clarity, as discussed below.
---------------------------------------------------------------------------

    \102\ See 79 FR 51731, 51747-48 (Aug. 29, 2014) (citing Atif 
Mian & Amir Sufi, House Prices, Home Equity-Based Borrowing, and the 
U.S. Household Leverage Crisis, 101 Am. Econ. Rev. 2132, 2154 (Aug. 
2011) and Donghoon Lee et al., Fed. Reserve Bank of New York, Staff 
Report No. 569, A New Look at Second Liens, at 11 (Aug. 2012)).
    \103\ See id. (citing Vicki Been et al., Furman Ctr. for Real 
Estate & Urban Policy, Essay: Sticky Seconds--The Problems Second 
Liens Pose to the Resolution of Distressed Mortgages, at 13-18 (Aug. 
2012)).
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Clarifications to the Closed-End Mortgage Loan Definition
    General. The Bureau is making two clarifying changes to Sec.  
1003.2(d) and is adding comment 2(d)-1 to provide general guidance 
about the definition of closed-end mortgage loan. First, proposed Sec.  
1003.2(d) provided that a closed-end mortgage loan was a dwelling-
secured debt obligation that was not an open-end line of credit under 
Sec.  1003.2(o), a reverse mortgage under Sec.  1003.2(q), or an 
excluded transaction under Sec.  1003.3(c). To align with lending 
practices, to streamline the definitions of closed-end mortgage loan 
and open-end line of credit, and to streamline the reverse mortgage 
flag in final Sec.  1003.4(a)(36), the final rule eliminates the mutual 
exclusivity between closed-end mortgage loans and reverse 
mortgages.\104\ Second, the final rule eliminates the proposed language 
that provided that an excluded transaction under Sec.  1003.3(c) was 
not a closed-end mortgage loan. The Bureau is making this change to 
avoid circularity with final Sec.  1003.3(c), which incorporates for 
clarity the defined terms ``closed-end mortgage loan'' and ``open-end 
line of credit'' into the descriptions of excluded transactions. Final 
Sec.  1003.2(d) thus provides that a closed-end mortgage loan is a 
dwelling-secured extension of credit that is not an open-end line of 
credit under Sec.  1003.2(o). Comment 2(d)-1 provides an example of a 
loan that is not a closed-end mortgage loan because it is not dwelling-
secured.
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    \104\ As discussed in the section-by-section analysis of Sec.  
1003.2(q), under the final rule a reverse mortgage thus may be 
either a closed-end mortgage loan or an open-end line of credit, as 
appropriate.
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    Extension of credit and loan modifications. As proposed, Sec.  
1003.2(d)

[[Page 66141]]

generally provided that a closed-end mortgage loan was a dwelling-
secured ``debt obligation.'' Many consumer advocacy group commenters 
asked the Bureau to clarify the scope of transactions covered under the 
term ``debt obligation.'' In particular, a large number of consumer 
advocacy group commenters asked the Bureau to require reporting of all 
loan modifications.\105\ The commenters argued that financial 
institutions' performance in modifying loans is and will continue to be 
a major factor in determining whether they are meeting local housing 
needs, particularly the needs of communities that have been devastated 
by the mortgage crisis. The commenters also argued that financial 
institutions' loan modification performance will be a major factor in 
determining whether they are complying with fair housing and fair 
lending laws. Specifically, commenters cited several studies showing 
that, since the mortgage crisis, borrowers of color, or borrowers who 
live in communities of color or in low-to-moderate income communities, 
have received less favorable loss mitigation outcomes than white 
borrowers. Commenters stated that many millions of loan modifications 
have been made since the mortgage crisis, and millions more will be 
made in the coming years. Commenters argued that the need for data 
about loan modifications is compelling given the volume of 
transactions, the identified fair lending concerns, and the lack of 
other publicly available data about them.
---------------------------------------------------------------------------

    \105\ These comments related to loan workout modifications. 
Several commenters also addressed coverage of loan consolidation, 
extension, and modification agreements. Those comments are discussed 
separately, below.
---------------------------------------------------------------------------

    As several of these commenters noted, however, loan modifications 
currently are not reported because they are not ``originations'' under 
existing Regulation C. Indeed, since its adoption, Regulation C has 
required reporting only of applications, originations, and purchases, 
and the proposal did not seek to change this. While there is a need for 
publicly available data about loan modifications, the final rule does 
not require reporting of loan modifications. Covering all loan 
modifications would be a complex undertaking and would constitute a 
major revision of Regulation C. However, the Bureau has no information 
about the burdens to financial institutions of reporting loan 
modifications under Regulation C, and the Bureau neither has proposed, 
nor has received feedback about, how existing data points would need to 
be modified, or whether additional data points would be required, to 
accommodate reporting of loan modifications.
    After considering the comments, the Bureau is adopting Sec.  
1003.2(d) to provide that a ``closed-end mortgage loan'' is a dwelling-
secured ``extension of credit'' that is not an open-end line of credit 
under Sec.  1003.2(o). Comment 2(d)-2 provides guidance about 
``extension of credit.'' First, comment 2(d)-2 provides an example of a 
transaction that is not a closed-end mortgage loan because no credit is 
extended. Comment 2(d)-2 also explains that, for purposes of Regulation 
C, an ``extension of credit'' refers to the granting of credit pursuant 
to a new debt obligation. If a transaction modifies, renews, extends, 
or amends the terms of an existing debt obligation without satisfying 
and replacing the original debt obligation with a new debt obligation, 
the transaction generally is not an extension of credit under 
Regulation C.
    The Bureau understands that it is interpreting the phrase 
``extension of credit'' differently in Sec.  1003.2(d) than in 
Regulation B, 12 CFR part 1002, which implements the Equal Credit 
Opportunity Act (ECOA).\106\ Regulation B defines ``extension of 
credit'' under Sec.  1002.2(q) to include the granting of credit in any 
form, including the renewal of credit and the continuance of existing 
credit in some circumstances. As discussed above, the Bureau generally 
is interpreting the phrase ``extension of credit'' in Sec.  1003.2(d) 
to refer at this time only to the granting of credit pursuant to a new 
debt obligation. The Bureau may in the future revisit whether it is 
appropriate to require loan modifications to be reported under 
Regulation C.
---------------------------------------------------------------------------

    \106\ 15 U.S.C. 1691 et seq.
---------------------------------------------------------------------------

    Exceptions to ``extension of credit'' rule. As discussed below, 
comments 2(d)-2.i and .ii provide two narrow exceptions to the general 
rule that an ``extension of credit'' under the final rule occurs only 
when a new debt obligation is created. One exception addresses 
assumptions, which Regulation C historically has covered. The second 
addresses transactions completed pursuant to New York consolidation, 
extension, and modification agreements (New York CEMAs). As discussed 
below, the Bureau believes that both assumptions and transactions 
completed pursuant to New York CEMAs represent situations where a new 
debt obligation is created in substance, if not in form, and that the 
benefits of requiring such transactions to be reported justify the 
burdens.
    Assumptions. The final rule adds new comment 2(d)-2.i to address 
Regulation C's coverage of assumptions. Under existing comment 1(c)-9, 
assumptions are reportable transactions. Existing comment 1(c)-9 
provides that assumptions occur when an institution enters into a 
written agreement accepting a new borrower as the obligor on an 
existing obligation. Existing comment 1(c)-9 also provides that 
assumptions are reportable as home purchase loans. The Bureau proposed 
to move existing comment 1(c)-9 to the commentary to the definition of 
home purchase loan, and the Bureau is finalizing that comment, with 
certain modifications, as comment 2(j)-5. See the section-by-section 
analysis of Sec.  1003.2(j).
    Consistent with the final rule's continued coverage of assumptions, 
the Bureau is adding comment 2(d)-2.i to the definition of closed-end 
mortgage loan to clarify that an assumption is an ``extension of 
credit'' under Regulation C even though the new borrower assumes an 
existing debt obligation. When the Board first clarified Regulation C's 
application to assumptions, it stated that, when an institution 
expressly agrees in writing with a new party to accept that party as 
the obligor on an existing home purchase loan, the transaction should 
be treated as a new home purchase loan.\107\ The Bureau agrees and 
final comment 2(d)-2.i thus provides that assumptions are considered 
``extensions of credit'' even if the new borrower assumes an existing 
debt obligation.
---------------------------------------------------------------------------

    \107\ See 53 FR 31683, 31685 (Aug. 19, 1988).
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    Comment 2(d)-2.i also addresses successor-in-interest transactions. 
A successor-in-interest transaction is a transaction in which an 
individual first succeeds the prior owner as the property owner and 
afterward seeks to take on the debt secured by the property. One 
industry association recommended that the Bureau exclude successor-in-
interest transactions from Regulation C's definition of assumption. The 
comment noted that the Bureau recently published interpretive guidance 
under Regulation Z stating that successor-in-interest transactions are 
not assumptions under that regulation because the successor already 
owns the property when the debt is assumed.\108\ The comment argued 
that successor-in-interest transactions should be treated the same 
under Regulations C and Z.
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    \108\ See 79 FR 41631 (July 17, 2014).

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[[Page 66142]]

    The Bureau is clarifying in comment 2(d)-2.i that successor-in-
interest transactions are assumptions under Regulation C. The Bureau's 
interpretive guidance providing that successor-in-interest transactions 
are not assumptions under Regulation Z relies on Regulation Z's 
existing definition of assumption in Sec.  1026.2(a)(24), which 
provides that the new transaction must be a residential mortgage 
transaction, i.e., a transaction to finance the acquisition or initial 
construction of the dwelling being financed. Successor-in-interest 
transactions do not fit Regulation Z's definition because no dwelling 
is being acquired or constructed.\109\ In contrast, Regulation C's 
definition of assumption requires only that a new borrower be accepted 
as the obligor on an existing obligation. Successor-in-interest 
transactions fit Regulation C's definition.\110\
---------------------------------------------------------------------------

    \109\ See id. at 41633 (``Although [successor-in-interest] 
transactions are commonly referred to as assumptions, they are not 
assumptions under Sec.  1026.20(b) because the transaction is not a 
residential mortgage transaction as to the successor.'')
    \110\ Consistent with Regulation Z's interpretive guidance, 
however, final comment 2(j)-5 provides that successor-in-interest 
transactions are not home purchase loans under Sec.  1003.2(j).
---------------------------------------------------------------------------

    Moreover, when the Bureau issued its Regulation Z interpretive 
guidance, it was concerned that subjecting successor-in-interest 
transactions to an ability-to-repay analysis could decrease the 
frequency of such transactions, which could harm successors inheriting 
homes after, for example, a family member's death. The Bureau does not 
believe that similar concerns apply to requiring such transactions to 
be reported under Regulation C. On the contrary, the Bureau believes 
that collecting information about successor-in-interest transactions 
under Regulation C will help to monitor for discrimination in such 
transactions. Comment 2(d)-2.i thus specifies that successor-in-
interest transactions are assumptions under Regulation C. Like 
assumptions generally, successor-in-interest transactions represent an 
exception to the general rule that an ``extension of credit'' requires 
a new debt obligation. As noted, the Bureau believes that assumptions, 
including successor-in-interest transactions, represent new debt 
obligations in substance, if not in form, and should be reported as 
such.
Consolidation, Extension, and Modification Agreements
    Several consumer advocacy group commenters stated that it was 
unclear whether the proposal covered transactions completed pursuant to 
modification, extension, and consolidation agreements (MECAs) or 
consolidation, extension, and modification agreements (CEMAs). They 
asked the Bureau to specify that MECAs/CEMAs are reportable 
transactions. As noted below, Regulation C's commentary at one time 
specified that MECAs/CEMAs were not reportable as refinancings, and 
this guidance currently exists in an FFIEC FAQ. Some uncertainty has 
remained, however, about the reportability of MECAs/CEMAs used for home 
purchase or home improvement purposes. For the reasons discussed below, 
the final rule clarifies that CEMAs completed pursuant to section 255 
of the New York Tax Law are covered loans. Other MECA/CEMA transactions 
are not covered loans under the final rule.
    New York CEMAs are loans secured by dwellings located in New York 
State. They generally are used in place of traditional refinancings, 
either to amend a transaction's interest rate or loan term, or to 
permit a borrower to take cash out. However, unlike in traditional 
refinancings, the existing debt obligation is not ``satisfied and 
replaced.'' Instead, the existing obligation is consolidated into a new 
loan, either by the same or a different lender, and either with or 
without new funds being added to the existing loan balance. Under New 
York State law, if no new money is added during the transaction, there 
is no ``new'' mortgage, and the borrower avoids paying the mortgage 
recording taxes that would have been imposed if a traditional 
refinancing had been used and the original obligation had been 
satisfied and replaced. If new money is part of the consolidated loan, 
the borrower pays mortgage recording taxes only on the new money.\111\ 
While generally used in place of traditional refinancings, New York 
CEMAs also can be used for home purchases (i.e., to complete an 
assumption), where the seller and buyer agree that the buyer will 
assume the seller's outstanding principal balance, and that balance is 
consolidated with a new loan to the borrower for the remainder of the 
purchase price.
---------------------------------------------------------------------------

    \111\ See N.Y. Tax Law Sec.  255 (Consol. 2015).
---------------------------------------------------------------------------

    A number of consumer advocacy group commenters stated that the 
Bureau should include MECAs/CEMAs, particularly New York CEMAs, as 
reportable transactions under the dwelling-secured coverage scheme. 
These commenters stated that New York CEMAs very often are used in lieu 
of traditional refinance loans, especially for larger-dollar, 
multifamily apartment building loans, which are central to maintaining 
the stock of private affordable housing complexes. The commenters 
argued that, without New York CEMA data, it is difficult or impossible 
to know where and how much credit banks are extending for such 
residential buildings, and whether the credit is extended on equitable 
terms. The commenters noted that CEMAs optionally are reported under 
the Community Reinvestment Act (CRA) but that CRA reporting provides 
less data to the public or to policymakers than if the transactions 
were HMDA-reportable.
    These commenters also stated that HMDA reporters historically have 
experienced confusion about whether to report MECAs/CEMAs. Under 
Regulation C's traditional loan-purpose coverage scheme, the Board 
declined to extend coverage to MECAs/CEMAs, because the Board found 
that the transactions did not meet the definition of a refinancing 
(because the existing debt obligation was not satisfied and replaced). 
The Board determined that maintaining a bright-line ``satisfies and 
replaces'' rule for refinancings was preferable to revising the 
definition to a ``functional equivalent'' test that would cover MECAs/
CEMAs but that also would introduce uncertainty about whether other 
types of transactions should be reported as refinancings.\112\ Because 
the Board's guidance concerning MECAs/CEMAs was limited to 
refinancings, however, it appears that at least some financial 
institutions have reported MECAs/CEMAs as home improvement loans when 
the transactions involved new money for home improvement purposes, or 
as home purchase loans when the transactions were the functional 
equivalent of traditional assumptions.
---------------------------------------------------------------------------

    \112\ See 59 FR 63698, 63702 (Dec. 9, 1994); 65 FR 78656 (Dec. 
15, 2000); 67 FR 7222, 7227 (Feb. 15, 2002). In 1995, the Board 
adopted commentary to clarify that MECAs/CEMAs were not reportable 
as refinancings. 60 FR 63393 (Dec. 11, 1995). This commentary later 
was dropped from Regulation C inadvertently, but it was retained in 
an FFIEC FAQ.
---------------------------------------------------------------------------

    The various consumer advocacy group commenters that addressed 
MECAs/CEMAs asserted that the proposal did not resolve the uncertainty 
that has existed about whether to report these transactions. Proposed 
Sec.  1003.2(d) provided that all closed-end, dwelling-secured ``debt 
obligations'' were reportable transactions, and ``debt obligations'' 
arguably would include MECAs/CEMAs. At the same time, however, the 
proposal retained Regulation C's existing definition of 
``refinancing,'' which arguably would continue to exclude MECAs/CEMAs 
from coverage or would make it unclear

[[Page 66143]]

how such transactions should be reported.
    The Bureau concludes that having data about New York CEMAs, in 
particular, will improve HMDA data. These transactions are used 
regularly in New York in place of traditional refinancings and 
sometimes in place of traditional home purchase loans. New York CEMAs 
are used not only for multifamily dwellings, but also for single-family 
transactions in high-cost areas like New York City. While it is 
difficult to identify precisely how often New York CEMAs are used, 
industry professionals familiar with the New York CEMA market believe 
that the transactions are used on a daily basis in New York State and 
represent a significant percentage of the refinancings that occur in 
the State. Requiring reporting of New York CEMAs will improve HMDA data 
and also will resolve lingering confusion about how Regulation C 
applies to them. Finally, the change is consistent with the shift to 
dwelling-secured coverage for most transactions.\113\
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    \113\ The Bureau understands that MECAs/CEMAs may be used in 
States other than New York. However, based on the comments received 
and the Bureau's own research, it appears that CEMAs are 
particularly common in New York State. As noted elsewhere in this 
section-by-section analysis, the Bureau understands that, by 
requiring reporting of New York CEMAs, it is departing from the 
Board's historical guidance on this topic. The Bureau believes that 
such a departure is warranted based on the apparent frequency with 
which such transactions are used. Like the Board, however, the 
Bureau believes that the benefits of modifying the overall 
``satisfies and replaces'' standard for refinancings to capture 
MECAs/CEMAs do not justify the burdens of such a change. Therefore, 
the Bureau is incorporating New York CEMAs into the final rule by 
referencing the specific provision of the New York Tax Code that 
permits them. If the Bureau becomes aware of CEMAs/MECAs being 
completed in significant numbers in other States, the Bureau may 
evaluate whether it would be practicable to require them to be 
reported in a similar manner.
---------------------------------------------------------------------------

    Like assumptions, New York CEMAs represent an exception to the 
general rule that an ``extension of credit'' requires a new debt 
obligation. However, the Bureau believes that New York CEMAs represent 
new debt obligations in substance, if not in form, and should be 
reported as such. The Bureau acknowledges that, by requiring reporting 
of New York CEMAs, it is departing from the Board's historical guidance 
that such transactions need not be reported. The Bureau believes that 
the benefits of this departure justify the burdens both for the reasons 
discussed above and because the Bureau is defining the scope of 
transactions to be reported narrowly to encompass only those 
transactions that fall within the scope of New York Tax Law section 
255.\114\ The Bureau believes that limiting the scope of reportable 
MECAs/CEMAs to those covered by New York Tax Law section 255 will 
permit New York CEMAs to be reported while avoiding the confusion that, 
as the Board worried, could result from departing from a bright-line 
``satisfies and replaces'' rule for the definition of refinancings 
generally.
---------------------------------------------------------------------------

    \114\ Under the final rule, MECAs/CEMAs completed in States 
other than New York are not reported, regardless of whether they are 
used for home purchase, home improvement, or refinancing purposes, 
and regardless of whether new money is extended as part of the 
transaction.
---------------------------------------------------------------------------

    After considering the comments received, the Bureau is adopting new 
comment 2(d)-2.ii, specifying that a transaction completed pursuant to 
a New York CEMA and classified as a supplemental mortgage under N.Y. 
Tax Law Sec.  255, such that the borrower owed reduced or no mortgage 
recording taxes, is an extension of credit under Sec.  1003.2(d). To 
avoid any implication that other types of loan modifications or 
extensions must be reported, the commentary language is narrowly 
tailored to require reporting only of transactions completed pursuant 
to this specific provision of New York law. See the section-by-section 
analysis of Sec.  1003.2(i), (j), and (p) for details about whether a 
New York CEMA is a home improvement loan, a home purchase loan, or a 
refinancing.
2(e) Covered Loan
    HMDA requires financial institutions to collect and report 
information about ``mortgage loans,'' which HMDA section 303(2) defines 
as loans secured by residential real property or home improvement 
loans. When the Board adopted Regulation C, it implemented this 
requirement by mandating that financial institutions report information 
about applications and closed-end loans made for one of three purposes: 
Home improvement, home purchase, or refinancing.\115\ As noted, under 
existing Regulation C, closed-end home purchase loans and refinancings 
must be reported if they are dwelling-secured, and closed-end home 
improvement loans must be reported whether or not they are dwelling-
secured.\116\ For transactions that meet one of the three purposes, 
reporting of closed-end loans is mandatory and reporting of home-equity 
lines of credit is optional.\117\ Under existing Regulation C, reverse 
mortgages are subject to these same criteria for reporting: A closed-
end reverse mortgage must be reported if it is for one of the three 
purposes; a reverse mortgage that is an open-end line of credit is 
optionally reported.
---------------------------------------------------------------------------

    \115\ 41 FR 23931, 23932 (June 14, 1976).
    \116\ See the section-by-section analysis of Sec.  1003.2(d), 
(f), (i).
    \117\ Specifically, under existing Sec.  1003.4(c)(3), financial 
institutions optionally may report home-equity lines of credit made 
in whole or in part for the purpose of home improvement or home 
purchase.
---------------------------------------------------------------------------

    To simplify Regulation C's transactional coverage test and to 
expand the types of transactions reported, the Bureau proposed to 
require financial institutions to report applications for, and 
originations and purchases of, all dwelling-secured loans and lines of 
credit. The Bureau also proposed to add the defined term ``covered 
loan'' in Sec.  1003.2(e). The term referred to all transactions 
reportable under the proposed dwelling-secured coverage scheme: Closed-
end mortgage loans under proposed Sec.  1003.2(d), open-end lines of 
credit under proposed Sec.  1003.2(o), and reverse mortgages under 
proposed Sec.  1003.2(q). The term provided a shorthand phrase that 
HMDA reporters and data users could use to refer to any transaction 
reportable under Regulation C. For the reasons discussed below, the 
Bureau is finalizing in Sec.  1003.2(e) the defined term ``covered 
loan'' and the shift to dwelling-secured coverage largely as proposed 
for consumer-purpose loans and lines of credit. The Bureau is retaining 
Regulation C's existing purpose-based test for commercial-purpose loans 
and lines of credit.
    Only a few commenters specifically addressed the Bureau's proposal 
to add the defined term ``covered loan'' to Regulation C to refer to 
all covered transactions, and the commenters generally favored the 
proposal. They believed that having a standard shorthand for all 
covered transactions would facilitate compliance. The Bureau is 
finalizing Sec.  1003.2(e) ``covered loan'' to define the universe of 
transactions covered under Regulation C.
    A large number of commenters addressed the proposed shift from 
purpose-based to collateral-based transactional coverage, with consumer 
advocacy group commenters supporting the shift and industry commenters 
expressing mixed views.\118\ Some consumer advocacy groups stated that 
having information about all loans secured by residential property 
would

[[Page 66144]]

improve the usefulness and quality of HMDA data. Others stated that 
having data about all such loans would be valuable in assessing whether 
financial institutions are providing the neighborhoods that the 
consumer advocacy groups serve with the full range of credit the 
neighborhoods need. One consumer advocacy commenter asserted that 
financial institutions should report any transaction that could result 
in a borrower losing his or her home. Another stated that removing the 
subjectivity from determining whether to report a loan would ease 
burden for financial institutions, and that having information about 
more loans would improve HMDA's usefulness. The commenter noted that 
consumer mortgage lending products evolve rapidly, and there is no 
principled reason to require reporting of some but not others.
---------------------------------------------------------------------------

    \118\ This section-by-section analysis provides a high-level 
discussion of comments concerning the proposed shift to dwelling-
secured coverage. See the section-by-section analyses of Sec.  
1003.2(d), (i), (o), (q) and of Sec.  1003.3(c)(10) for specific 
comments concerning closed-end mortgage loans, home improvement 
loans, open-end lines of credit, reverse mortgages, and commercial-
purpose transactions, respectively.
---------------------------------------------------------------------------

    Industry commenters and a group of State regulators expressed mixed 
views about the proposed shift to dwelling-secured coverage. A small 
number of industry commenters supported the proposal unconditionally 
because they believed that it would ease burden. These commenters, who 
generally were smaller financial institutions and compliance 
consultants, stated that deciding which loans meet the current purpose 
test is confusing. They stated that a simplified transactional coverage 
test would stop the erroneous over-reporting of loans that has occurred 
despite financial institutions' best efforts,\119\ and that the 
benefits of a streamlined test justified the burdens of more reporting. 
One industry commenter appreciated the fact that HMDA would provide a 
more comprehensive view of mortgage transactions across the country. A 
group of State regulators supported dwelling-secured coverage for 
consumer-purpose transactions only.
---------------------------------------------------------------------------

    \119\ These commenters seemed to be concerned about erroneously 
classifying consumer-purpose transactions as HMDA-reportable and, in 
turn, unnecessarily collecting race, sex, and ethnicity data from 
applicants and borrowers.
---------------------------------------------------------------------------

    The majority of industry commenters that addressed transactional 
coverage opposed the proposed shift to dwelling-secured coverage, 
supported it only for consumer-purpose transactions or for closed-end 
mortgage loans, or supported it only to the extent that it would 
eliminate reporting of home improvement loans not secured by a 
dwelling. Numerous industry commenters generally objected to the 
overall compliance burdens and costs of reporting additional 
transactions, particularly in light of the Bureau's proposal 
simultaneously to expand the data reported about each transaction and 
to lower (for some institutions) the institutional coverage 
threshold.\120\ One government agency commenter expressed concern that 
the revisions to transactional coverage would burden small financial 
institutions and urged the Bureau not to adopt the proposed changes. 
Some industry commenters generally asserted that their reportable 
transaction volume would increase significantly,\121\ that they would 
not be able to comply without hiring additional staff, and that 
compliance costs would be passed to consumers. Others generally argued 
that the Bureau should keep Regulation C's existing purpose-based 
coverage because it serves HMDA's purposes better than a collateral-
based scheme. Most industry commenters that opposed the proposed shift, 
however, specifically objected to the burdens of reporting all home-
equity lines of credit and all dwelling-secured commercial-purpose 
loans and lines of credit.
---------------------------------------------------------------------------

    \120\ A number of commenters argued that, in light of the 
Bureau's proposal to expand transactional coverage, the Bureau 
should modify its institutional coverage threshold proposal. Those 
comments are discussed in the section-by-section analysis of Sec.  
1003.2(g).
    \121\ Many commenters discussed the overall increase in 
reporting from a shift to dwelling-secured coverage. Others 
estimated only the increase from particular categories of 
transactions, such as home-equity lines of credit or commercial-
purpose transactions. Those estimates are discussed in the section-
by-section analyses of Sec.  1003.2(o) and of Sec.  1003.3(c)(10).
---------------------------------------------------------------------------

    As explained in the section-by-section analyses of Sec.  1003.2(d) 
and (o), the Bureau is finalizing the shift to dwelling-secured 
coverage for closed- and open-end consumer-purpose transactions, with 
some modifications to ease burden for open-end reporting. After 
considering the comments received, and as discussed fully in the 
section-by-section analyses of those sections, the Bureau believes that 
the benefits of expanded reporting justify the burdens. As discussed in 
the section-by-section of Sec.  1003.3(c)(10), however, the Bureau is 
maintaining Regulation C's existing purpose-based coverage test for 
commercial-purpose transactions.
2(f) Dwelling
    The Bureau proposed to revise the definition of dwelling in Sec.  
1003.2 by moving the geographic location requirement currently in the 
definition of dwelling to Sec.  1003.1(c), to add additional examples 
of dwellings to the definition and commentary, and to revise the 
commentary to exclude certain structures from the definition of 
dwelling. A few commenters supported the proposed changes to the 
definition of dwelling, while others argued that certain types of 
structures should be included or excluded from the definition. For the 
reasons discussed below, the Bureau is finalizing Sec.  1003.2(f) with 
minor technical revisions to the definition and with additional 
revisions to the commentary discussed in detail below. The definition 
is revised to clarify that multifamily residential structures include 
complexes and manufactured home communities.
    Some commenters argued that second homes and investment properties 
should no longer be covered by Regulation C and that only primary 
residences should be reported because second homes and investment 
properties do not relate to housing needs in the same way that primary 
residences do. HMDA section 303(2) defines a mortgage loan, in part, as 
one secured by ``residential real property'' and HMDA section 304(b)(2) 
requires collection of information regarding ``mortgagors who did not, 
at the time of execution of the mortgage, intend to reside in the 
property securing the mortgage loan.'' The Bureau believes that second 
homes as well as investment properties are within the scope of 
information required by HMDA and should continue to be covered by 
Regulation C. The Bureau is therefore finalizing comment 2(f)-1 
generally as proposed, with certain material from proposed comment 
2(f)-1 incorporated into comment 2(f)-2 as discussed below.
    Some commenters argued that all multifamily properties should be 
excluded from Regulation C. The Bureau believes that multifamily 
residential structures should continue to be included within Regulation 
C because they provide for housing needs and because, as the Bureau 
noted in the proposal, HMDA data highlight the importance of 
multifamily lending to the recovering housing finance market and to 
consumers.\122\
---------------------------------------------------------------------------

    \122\ 79 FR 51731, 51800 (Aug. 29, 2014); San Francisco Hearing, 
supra note 42.
---------------------------------------------------------------------------

    Many commenters addressed multifamily loan reporting in more 
specific ways. Some commenters supported the proposal's coverage of 
manufactured home community loans and other aspects related to 
multifamily lending. Others requested guidance on reporting multifamily 
transactions. Some commenters argued that certain types of multifamily 
lending should be excluded from Regulation C. The Bureau is adopting 
new comment 2(f)-2 dealing specifically with multifamily residential 
structures and communities,

[[Page 66145]]

which incorporates certain material from proposed comment 2(f)-1 and 
additional material in response to comments. The Bureau believes that 
providing a specific comment relating to multifamily residential 
structures will facilitate compliance by providing guidance on when 
loans related to multifamily dwellings would be considered loans 
secured by a dwelling for purposes of Regulation C. The comment 
provides that a manufactured home community is a dwelling for purposes 
of Regulation C regardless of whether any individual manufactured homes 
also secure the loan. The comment also provides examples of loans 
related to certain multifamily structures that would nevertheless not 
be secured by a dwelling for purposes of Regulation C, and would 
therefore not be reportable, such as loans secured only by an 
assignment of rents or dues or only by common areas and not individual 
dwelling units.
    The Bureau is adopting new comment 2(f)-3 relating to exclusions 
from the definition of dwelling (incorporating material from proposed 
comment 2(f)-2) and clarifying that recreational vehicle parks are 
excluded from the definition of dwelling for purposes of Regulation C. 
Several commenters agreed with the proposed exclusions for recreational 
vehicles, houseboats, mobile homes constructed prior to June 15, 1976 
(pre-1976 mobile homes),\123\ and other types of structures.
---------------------------------------------------------------------------

    \123\ The HUD standards for manufactured homes do not cover 
mobile homes constructed before June 15, 1976. 24 CFR 3282.8(a). 79 
FR 51731, 51749 (Aug. 29, 2014).
---------------------------------------------------------------------------

    Regarding the exclusion of recreational vehicles, the Bureau agrees 
with the commenters that supported the proposed clarification that 
recreational vehicles are not dwellings for purposes of Regulation C, 
regardless of whether they are used as residences. As noted in the 
proposal, the Bureau believes that making this exclusion explicit will 
provide more clarity on what structures qualify as dwellings and reduce 
burden on financial institutions. The Bureau also believes it will 
improve the consistency of reported HMDA data. Clarifying that 
recreational vehicle parks are excluded from the definition of dwelling 
for purposes of Regulation C is consistent with the exclusion of 
recreational vehicles. The Bureau believes that, as discussed above, 
while manufactured home communities should be included in the 
definition of dwelling for purposes of Regulation C, including 
recreational vehicle parks would not be appropriate given that they are 
not frequently intended as long-term housing.
    Some commenters stated that the proposed exclusion of pre-1976 
mobile homes would create compliance problems because the financial 
institution could mistakenly collect race, ethnicity, and sex 
information before knowing whether the home was a manufactured home and 
therefore violate Regulation B. The Bureau believes that this concern 
is unlikely to result in ECOA violations because Regulation B would 
still require collection of demographic information on some pre-1976 
mobile home lending.\124\ Other commenters argued that pre-1976 mobile 
home lending should be reported under Regulation C because of consumer 
protection and housing needs concerns related to this type of housing. 
The Bureau does not believe this concern justifies the additional 
burden of requiring financial institutions to report these loans and 
identify them distinctly from manufactured home loans, especially given 
that the amount of lending secured by this type of collateral will 
continue to decrease as time passes. Therefore, the Bureau is 
finalizing the exclusion of pre-1976 mobile homes as part of comment 
2(f)-3. Clarifying that recreational vehicle parks are excluded from 
the definition of dwelling for purposes of Regulation C is consistent 
with the exclusion of recreational vehicles.\125\ The Bureau believes 
that, as discussed above, while manufactured home communities should be 
included in the definition of dwelling for purposes of Regulation C, 
including recreational vehicle parks would not be appropriate given 
that they are not frequently intended as long term housing.
---------------------------------------------------------------------------

    \124\ 12 CFR 1002.13(a)(2).
    \125\ As discussed in the proposal, the final rule's definition 
of dwelling would differ from Regulation Z's definition of dwelling 
with respect to some recreational vehicles, because Regulation Z 
treats recreational vehicles used as residences as dwellings. 12 CFR 
part 1026, comment 2(a)(19)-2. 79 FR 51731, 51749 (Aug. 29, 2014).
---------------------------------------------------------------------------

    The Bureau proposed a special rule for mixed-use properties that 
contained five or more individual dwelling units. The Bureau proposed 
that such a property always be considered to have a primary residential 
use and therefore report a covered loan secured by it. A few commenters 
supported the proposal to report all residential structures with five 
or more individual dwelling units, but most commenters who addressed 
mixed-use property argued that this was overbroad and that the current 
primary use rules should apply to multifamily residential structures as 
well. The Bureau is revising comment 2(f)-3 relating to mixed-use 
properties and finalizing it as comment 2(f)-4 by removing the sentence 
requiring that financial institutions always treat residential 
structures with five or more individual dwelling units as having a 
primary residential purpose. Requiring financial institutions to report 
mixed-use multifamily properties in all circumstances would result in 
reporting of multifamily properties with relatively small housing 
components and large commercial components. Data users could not 
differentiate between those properties and multifamily properties with 
larger housing components, which would decrease the data's usefulness. 
Thus retaining the existing discretion for financial institutions to 
determine the primary use for multifamily properties is appropriate.
    The Bureau is adopting new comment 2(f)-5 relating to properties 
with medical and service components. Some commenters requested guidance 
on when properties such as retirement homes, assisted living, and 
nursing homes should be reported under Regulation C. Other commenters 
requested exclusions for all properties that provide any service or 
medical care component. The Bureau does not believe it is appropriate 
to exclude all such properties. Information about loans secured by 
properties that provide long-term housing and that are not transitory 
or primarily medical in nature provides valuable information on how 
financial institutions are serving the housing needs of their 
communities. The comment provides that properties that provide long-
term housing with related services are reportable under Regulation C, 
while properties that provide medical care are not, consistent with the 
exclusion of hospitals in comment 2(f)-3. The comment also clarifies 
that such properties are reportable when they combine long-term housing 
and related services with a medical care component. The comment will 
facilitate compliance by expanding on earlier guidance provided by the 
Board.\126\ Section 1003.2(f) is being adopted to implement, in part, 
the definition of ``mortgage loan'' in HMDA section 303(2). That term 
would be implemented through other terms in Regulation C as well, 
including the definitions of ``closed-end mortgage loan'' and ``covered 
loan.'' In combination with other relevant provisions in Regulation C, 
the Bureau

[[Page 66146]]

believes that the proposed definition of ``dwelling'' is a reasonable 
interpretation of the definition in that provision. Section 1003.2(f) 
is also adopted pursuant to the Bureau's authority under section 305(a) 
of HMDA. Pursuant to section 305(a) of HMDA, the Bureau believes that 
this proposed definition is necessary and proper to effectuate the 
purposes of HMDA. The definition will serve HMDA's purpose of providing 
information to help determine whether financial institutions are 
serving the housing needs of their communities by providing information 
about various types of housing that are financed by financial 
institutions. The definition will facilitate compliance with HMDA 
requirements by providing clarity regarding what transactions must be 
reported for purposes of Regulation C.
---------------------------------------------------------------------------

    \126\ 60 FR 63393, 63395 (Dec. 11, 1995). Fed. Reserve Bank of 
St. Louis, CRA/HMDA Reporter, Census 2000 and CRA/HMDA Data 
Collection, (Sept. 2000), available at https://www.ffiec.gov/hmda/pdf/00news.pdf.
---------------------------------------------------------------------------

2(g) Financial Institution
    Regulation C requires institutions that meet the definition of 
financial institution to collect and report HMDA data. HMDA and current 
Regulation C establish different coverage criteria for depository 
institutions (banks, savings associations, and credit unions) than for 
nondepository institutions (for-profit mortgage-lending institutions 
other than banks, savings associations, or credit unions).\127\ Under 
the current definition, depository institutions that originate one 
first-lien home purchase loan or refinancing secured by a one- to four-
unit dwelling and that meet other criteria for ``financial 
institution'' must collect and report HMDA data, while certain 
nondepository institutions that originate many more mortgage loans 
annually do not have to collect and report HMDA data.
---------------------------------------------------------------------------

    \127\ HMDA sections 303(3) and 309(a); Regulation C Sec.  1003.2 
(definition of financial institution).
---------------------------------------------------------------------------

    The Bureau proposed to adjust Regulation C's institutional coverage 
to adopt a uniform loan-volume threshold of 25 loans applicable to all 
financial institutions. Under the proposal, depository institutions and 
nondepository institutions that meet all of the other criteria for a 
``financial institution'' would be required to report HMDA data if they 
originated at least 25 covered loans, excluding open-end lines of 
credit, in the preceding calendar year.
    For the reasons discussed below, the Bureau is finalizing changes 
to Regulation C's institutional coverage and adopting uniform loan-
volume thresholds for depository and nondepository institutions. The 
loan-volume thresholds require an institution that originated at least 
25 closed-end mortgage loans or at least 100 open-end lines of credit 
in each of the two preceding calendar years to report HMDA data, 
provided that the institution meets all of the other criteria for 
institutional coverage.
    The final rule's changes to institutional coverage will provide 
several important benefits. First, the coverage test will improve the 
availability of data concerning the practices of nondepository 
institutions. The expanded coverage of nondepository institutions will 
ensure more equal visibility into the practices of nondepository 
institutions and depository institutions. With expanded HMDA data about 
nondepository lending, the public and public officials will be better 
able to protect consumers because historically, some riskier lending 
practices, such as those that led to the financial crisis, have emerged 
from the nondepository market sector.\128\
---------------------------------------------------------------------------

    \128\ See the section-by-section analysis of Sec.  1003.2(g)(ii) 
below for complete discussion.
---------------------------------------------------------------------------

    Second, a significant number of lower-volume depository 
institutions will no longer be required to report HMDA data under the 
revised coverage test, which will eliminate those institutions' 
compliance costs. At the same time, the coverage test will preserve 
sufficient data for analyzing mortgage lending at the national, local, 
and institutional levels.
    Third, the coverage test, by considering both an institution's 
closed-end and open-end origination volumes, will support the goal of 
increasing visibility into open-end dwelling-secured lending. This 
change to institutional coverage, along with the change to 
transactional coverage discussed in the section-by-section analysis of 
Sec.  1003.2(o), will improve the public and public officials' ability 
to understand whether, and how, financial institutions are using open-
end lines of credit to serve the housing needs of their communities. 
Incorporating open-end lending into the institutional coverage test 
will not require financial institutions that originate a small number 
of closed-end mortgage loans or open-end lines of credit to report 
those loans. As discussed below in the section-by-section analysis of 
Sec.  1003.3(c)(11) and (12), the final rule also includes 
transactional thresholds. The transactional thresholds ensure that 
financial institutions that meet only the 25 closed-end mortgage loan 
threshold are not required to report their open-end lending, and that 
financial institutions that meet only the 100 open-end line of credit 
threshold are not required to report their closed-end lending.
    Finally, by considering two years of lending for coverage, the 
final rule will provide stability in reporting obligations for 
institutions. Accordingly, a financial institution that does not meet 
the loan-volume thresholds established in the final rule and that has 
an unexpected and unusually high loan-origination volume in one year 
will not be required to report HMDA data unless it maintains that level 
of lending for two consecutive years. The specific changes to the 
definition of financial institution applicable to nondepository 
institutions and depository institutions are discussed below 
separately.
    The Bureau also proposed technical modifications to the commentary 
to the definition of financial institution. The Bureau received no 
comments on the proposed comments 2(g)-1 or -3 through -6, and is 
finalizing the commentary as proposed and with technical modifications 
to conform to definition of financial institution included in the final 
rule. The Bureau is also renumbering proposed comments 2(g)-3 through -
6 as comments 2(g)-4 through -7. The Bureau is also adopting new 
comment 2(g)-3 to address how to determine whether an institution 
satisfies the definition of financial institution after a merger or 
acquisition.
    For ease of publication, the Bureau is reserving comment 2(g)-2, 
which sets forth the asset-size adjustment for depository financial 
institutions for each calendar year. The Bureau updates comment 2(g)-2 
annually to make the adjustments to the level of the asset-size 
exemption for depository financial institutions required by HMDA 
section 309(b). The reserved comment will be replaced when the asset-
size adjustment for the 2018 calendar year is published.
2(g)(1) Depository Financial Institutions
    HMDA extends reporting responsibilities to depository institutions 
(banks, savings associations, and credit unions) that satisfy certain 
location, asset-size, and federally related requirements.\129\ 
Regulation C implements HMDA's coverage criteria in the definition of 
financial institution in Sec.  1003.2. Under the current definition of 
financial institution in Sec.  1003.2, a bank, savings association, or 
credit union meets the definition of financial institution if it 
satisfies all of the following criteria: (1) On the preceding December 
31, it had assets of at least $44 million; \130\ (2) on the preceding 
December 31, it had a home or branch office in a Metropolitan 
Statistical Area (MSA); (3) during the previous calendar

[[Page 66147]]

year, it originated at least one home purchase loan or refinancing of a 
home purchase loan secured by a first-lien on a one- to four-unit 
dwelling; and (4) the institution is federally insured or regulated, or 
the mortgage loan referred to in item (3) was insured, guaranteed, or 
supplemented by a Federal agency or intended for sale to the Federal 
National Mortgage Association or the Federal Home Loan Mortgage 
Corporation.\131\
---------------------------------------------------------------------------

    \129\ 12 U.S.C. 2802(3).
    \130\ Comment Financial institution-2 to Sec.  1003.2.
    \131\ Section 1003.2(financial institution)(1).
---------------------------------------------------------------------------

    Proposed Sec.  1003.2(g)(1) modified the definition of financial 
institution by defining a new term, depository financial institution, 
and adding a loan-volume threshold to the coverage criteria for 
depository institutions. The proposed loan-volume threshold would 
require reporting only by depository institutions that met the current 
criteria in Sec.  1003.2 and that originated at least 25 covered loans, 
excluding open-end lines of credit, in the preceding calendar year.
    The Bureau received a large number of comments on proposed Sec.  
1003.2(g)(1). Industry commenters generally supported eliminating the 
requirement to report from low-volume depository institutions, but 
urged the Bureau to exclude more institutions from the requirement to 
report HMDA data. Consumer advocate commenters generally opposed 
decreasing Regulation C's depository institution coverage.
    The Bureau is adopting Sec.  1003.2(g)(1), which defines depository 
financial institution, to include banks, savings associations, and 
credit unions, that meet the current criteria to be considered a 
financial institution,\132\ and originated at least 25 closed-end 
mortgage loans or 100 open-end lines of credit in each of the two 
preceding calendar years. The Bureau is finalizing the proposed 
exclusion of depository institutions that originate fewer than 25 
closed-end mortgage loans. In addition, the final rule also requires 
lenders that meet the other criteria and that originate at least 100 
open-end lines of credit to report HMDA data, even if those 
institutions did not originate at least 25 closed-end mortgage loans. 
The final rule includes a two-year look-back period for the loan-volume 
threshold. Each of these aspects of the final rule is discussed below 
separately.
---------------------------------------------------------------------------

    \132\ Under Sec.  1003.2, a bank, savings association, or credit 
union meets the definition of financial institution if it satisfies 
all of the following criteria: (1) On the preceding December 31, it 
had assets in excess of the asset threshold established and 
published annually by the Bureau for coverage by the Act; (2) on the 
preceding December 31, it had a home or branch office in a MSA; (3) 
during the previous calendar year, it originated at least one home 
purchase loan or refinancing of a home purchase loan secured by a 
first-lien on a one- to four-unit dwelling; and (4) the institution 
is federally insured or regulated, or the mortgage loan referred to 
in item (3) was insured, guaranteed, or supplemented by a Federal 
agency or intended for sale to the Federal National Mortgage 
Association or the Federal Home Loan Mortgage Corporation.
---------------------------------------------------------------------------

Loan-Volume Threshold for Closed-End Mortgage Loans
    The Bureau received many comments on proposed Sec.  1003.2(g)(1). 
Industry commenters generally supported adopting a loan-volume 
threshold that would eliminate reporting by low-volume depository 
institutions,\133\ but urged the Bureau to adopt a much higher loan-
volume threshold that would exempt more depository institutions from 
reporting. Industry commenters stated that low-volume depository 
institutions lack resources and sophistication and that their data have 
limited value. Industry commenters argued that a higher loan-volume 
threshold would not impact the availability of data for analysis at the 
national level or the ability to analyze lending at an institutional 
level. The commenters also advocated a consistent approach between the 
loan-volume threshold in Regulation C and the small creditor and small 
servicer definitions in the Bureau's title XIV Rules.\134\
---------------------------------------------------------------------------

    \133\ Participants in the Board's 2010 Hearings also urged the 
Board to eliminate reporting by lower-volume depository 
institutions. See, e.g., Atlanta Hearing, supra note 40, (remarks of 
Phil Greer, Senior Vice President of Loan Administration, State 
Employees Credit Union) (noting that the burden of reporting only 
one loan would be low, but that the data reported would not provide 
``meaningful information'').
    \134\ 12 CFR 1026.35(b)(2)(iii)(B) (describing small creditor 
thresholds); 12 CFR 1026.41(e)(4) (defining small servicer).
---------------------------------------------------------------------------

    On the other hand, several community advocate commenters expressed 
strong opposition to decreasing Regulation C's coverage of depository 
institutions. Most noted that the depository institutions that would be 
excluded are currently reporting, and therefore are accustomed to 
reporting. Many also highlighted the importance of the data reported by 
the depository institutions that would be excluded at the community 
level, especially in rural and underserved areas or to low- and 
moderate-income (LMI) individuals and minorities. Commenters provided 
examples of reports and programs that rely on HMDA data at the census 
tract level.
    Other community advocate commenters expressed support for the 
proposed loan-volume threshold, but noted concerns about the loss of 
data that may result if the Bureau adopted a loan-volume threshold 
greater than 25 loans. They highlighted concerns about the loss of data 
on particular types of transactions, such as applications submitted by 
African Americans, loans related to multifamily properties, and loans 
related to manufactured housing.
    The Bureau believes that Regulation C's institutional coverage 
criteria should balance the burden on financial institutions with the 
value of the data reported. Depository institutions that are currently 
reporting should not bear the burden of reporting under Regulation C if 
their data are of limited value in the HMDA data set. At the same time, 
Regulation C's institutional coverage criteria should not impair HMDA's 
ability to achieve its purposes.
    Higher closed-end mortgage loan-volume thresholds, as suggested by 
industry, might not significantly impact the value of HMDA data for 
analysis at the national level. For example, it is possible to maintain 
reporting of a significant percentage of the national mortgage market 
with a closed-end mortgage loan-volume threshold higher than 25 loans 
annually. In addition, it may also be true that data reported by some 
institutions that satisfy the proposed 25-loan-volume threshold may not 
be as useful for statistical analysis as data reported by institutions 
with much higher loan volumes.
    However, the higher closed-end mortgage loan-volume thresholds 
suggested by industry commenters would have a material negative impact 
on the availability of data about patterns and trends at the local 
level. Data about local communities is essential to achieve HMDA's 
three purposes, which are to provide the public and public officials 
with sufficient information: (1) To determine whether institutions are 
meeting their obligations to serve the housing needs of the communities 
in which they are located; (2) to identify communities in need of 
targeted public and private investment; and (3) to assist in 
identifying discriminatory lending patterns and enforcing 
antidiscrimination statutes.\135\ Public officials, community 
advocates, and researchers rely on HMDA data to analyze access to 
credit at the neighborhood level and to target programs to assist 
underserved communities and consumers.
---------------------------------------------------------------------------

    \135\ Section 1003.1(b).
---------------------------------------------------------------------------

    Local and State officials have used HMDA data to identify and 
target relief to localities impacted by high-cost lending or 
discrimination. For example, policy makers in Lowell, Massachusetts 
identified a need for homebuyer counseling and education in Lowell, 
based on HMDA data, which showed a high percentage of high-cost loans

[[Page 66148]]

compared to surrounding communities.\136\ Similarly, in 2008 the City 
of Albuquerque used HMDA data to characterize neighborhoods as 
``stable,'' ``prone to gentrification,'' or ``prone to disinvestment'' 
for purposes of determining the most effective use of housing 
grants.\137\ As another example, Antioch, California, monitors HMDA 
data, reviews it when selecting financial institutions for contracts 
and participation in local programs, and supports home purchase 
programs targeted to households purchasing homes in census tracts with 
low origination rates.\138\ In addition, the City of Flint Michigan, in 
collaboration with the Center for Community Progress, used HMDA data to 
identify neighborhoods in Flint to target for a blight eradication 
program.\139\ Similarly, HMDA data helped bring to light discriminatory 
lending patterns in Chicago neighborhoods, resulting in a large 
discriminatory lending settlement.\140\ Researchers and consumer 
advocates also analyze HMDA data at the census tract level to identify 
patterns of discrimination at the national level.\141\
---------------------------------------------------------------------------

    \136\ See City of Lawrence, Massachusetts, HUD Consolidated Plan 
2010-2015, at 68 (2010), available at https://www.cityoflawrence.com/Data/Sites/1/documents/cd/Lawrence_Consolidated_Plan_Final.pdf.
    \137\ See City of Albuquerque, Five Year Consolidated Plan and 
Workforce Housing Plan, at 100 (2008), available at https://www.cabq.gov/family/documents/ConsolidatedWorkforceHousingPlan20082012final.pdf.
    \138\ See City of Antioch, California, Fiscal Year 2012-2013 
Action Plan, at 29 (2012), available at https://www.ci.antioch.ca.us/CitySvcs/CDBGdocs/Action%20Plan%20FY12-13.pdf.
    \139\ Luke Telander, Flint's Framework for the Future, Ctr. for 
Cmty. Progress, Cmty. Progress Blog (July 1, 2014), https://www.communityprogress.net/blog/flints-framework-future.
    \140\ See, e.g., Yana Kunichoff, Lisa Madigan Credits Reporter 
with Initiating Largest Discriminatory Lending Settlements in U.S. 
History, Chicago Muckrakers Blog (June 14, 2013, 2:53 p.m.), https://www.chicagonow.com/chicago-muckrakers/2013/06/lisa-madigan-credits-reporter-with-initiating-largest-discriminatory-lending-settlements-in-u-s-history/ (``During our ongoing litigation . . . the Chicago 
Reporter study looking at the HMDA data for the City of Chicago came 
out. . . . It was such a startling statistic that I said . . . we 
have to investigate, we have to find out if this is true. . . . We 
did an analysis of that data that substantiated what the Reporter 
had already found. . . . [W]e ultimately resolved those two 
lawsuits. They are the largest fair-lending settlements in our 
nation's history.'').
    \141\ See, e.g., California Reinvestment Coalition, et al, 
Paying More for the American Dream VI: Racial Disparities in FHA/VA 
Lending (2012), available at https://www.woodstockinst.org/sites/default/files/attachments/payingmoreVI_multistate_july2012_0.pdf; 
Samantha Friedman & Gregory D. Squires, Does the Community 
Reinvestment Act Help Minorities Access Traditionally Inaccessible 
Neighborhoods?, 52 Social Problems 209 (2005).
---------------------------------------------------------------------------

    Any loan-volume threshold will affect individual markets 
differently, depending on the extent to which individual markets are 
served by smaller creditors and the market share of those creditors. 
The Bureau believes that a 25-closed-end mortgage loan-volume threshold 
would impact the robustness of the data that would remain available 
only in a relatively small number of markets. For example, only about 
45 census tracts would lose over 20 percent of currently reported data 
if a 25 closed-end mortgage loan-volume threshold is used to trigger 
reporting.\142\ In contrast, the higher closed-end mortgage loan-volume 
thresholds requested by industry commenters would have a negative 
impact on data about more communities and consumers. For example, at a 
closed-end mortgage loan-volume threshold set at 100, the number of 
census tracts that would lose 20 percent of reported data would 
increase from about 45 tracts to about 385 tracts, almost eight times 
more than the number with a threshold set at 25 closed-end mortgage 
loans.\143\ The number of affected lower-middle income tracts would 
increase from about 20 tracts to about 145 tracts, an increase of over 
six times over the number at the 25-loan level.\144\ The Bureau 
believes that the loss of data in communities at closed-end mortgage 
loan-volume thresholds higher than 25 would substantially impede the 
public's and public officials' ability to understand access to credit 
in their communities.
---------------------------------------------------------------------------

    \142\ As discussed in part VII below, the Bureau derived these 
estimates using 2013 HMDA data.
    \143\ Id.
    \144\ As discussed in part VII below, the Bureau prepared these 
estimates using 2013 HMDA data and 2012 Community Reinvestment Act 
data.
---------------------------------------------------------------------------

    In addition, the Bureau does not believe that it should set the 
closed-end mortgage loan-volume threshold at the levels in the small 
creditor and small servicer definitions in the Bureau's title XIV 
rules.\145\ While the Bureau's title XIV rules and Regulation C may 
apply to some of the same institutions and transactions, Regulation C 
and the Bureau's title XIV rules have different objectives. HMDA aims 
to provide specific data to the public and public officials. For 
example, HMDA aims to provide sufficient information to the public and 
public officials to identify whether the housing needs of their 
communities are being served by the existing financial institutions. In 
contrast, the title XIV rule thresholds are designed to balance 
consumer protection and compliance burden in the context of very 
specific lending practices. As discussed above, an institutional 
coverage threshold at the levels of the small creditor and small 
servicer thresholds, which include thresholds of 2,000 and 5,000 loans, 
respectively,\146\ would undermine both the utility of HMDA data for 
analysis at the local level and the benefits that HMDA provides to 
communities.
---------------------------------------------------------------------------

    \145\ 12 CFR 1026.35(b)(2)(iii)(B) (describing small creditor 
thresholds); 12 CFR 1026.41(e)(4) (defining small servicer).
    \146\ Id. The Bureau recently increased the small creditor 
threshold to 2,000 applicable loans annually. See 80 FR 59943 (Oct. 
2, 2015).
---------------------------------------------------------------------------

    Finally, the Bureau believes that eliminating the requirement to 
report by institutions that originated fewer than 25 closed-end 
mortgage loans annually would meaningfully reduce burden. As discussed 
in part VII below, the proposed loan-volume threshold would relieve 
about 22 percent of depository institutions that are currently 
reporting of the obligation to report HMDA data on closed-end mortgage 
loans.
    For the reasons discussed above, the Bureau is adopting a loan-
volume threshold for depository institutions that will require 
reporting by depository institutions that originate at least 25 closed-
end mortgage loans annually and meet the other applicable criteria in 
Sec.  1003.2(g)(1).
    The Bureau, as discussed below in part VI, believes that the 25 
closed-end loan-volume threshold for depository institutions should go 
into effect on January 1, 2017, one year earlier than the effective 
date for most of the remaining rule. To effectuate this earlier 
effective date, the Bureau is amending the definition of ``financial 
institution'' in Sec.  1003.2.
Loan-Volume Threshold for Open-End Lines of Credit
    The loan-volume threshold provided in proposed Sec.  
1003.2(g)(1)(v) excluded open-end lines of credit from the loans that 
would count toward the threshold.\147\ The Bureau solicited feedback on 
what types of loans should count toward the proposed loan-volume 
threshold and, in particular, whether open-end lines of credit should 
count toward the proposed loan-volume threshold. The final rule 
incorporates an institution's origination of open-end lines of credit 
into HMDA's institutional coverage criteria. Under the final rule, a 
financial institution will be required to

[[Page 66149]]

report HMDA data on open-end lines of credit if it meets the other 
applicable criteria and originated at least 100 open-end lines of 
credit in each of the two preceding calendar years.\148\
---------------------------------------------------------------------------

    \147\ Under the proposed loan-volume threshold, the definition 
of open-end line of credit did not include open-end reverse 
mortgages. As a result, neither open-end nor closed-end reverse 
mortgages were excluded from the proposed loan-volume threshold. The 
definitions of closed-end mortgage loan and open-end line of credit 
included in the final rule include closed-end and open-end reverse 
mortgages, respectively, as discussed in the section-by-section 
analysis of Sec.  1003.2(d) and (o).
    \148\ Under the final rule, all open-end transactions, whether 
traditional, reverse, or a combination of the two, count toward the 
open-end loan-volume threshold.
---------------------------------------------------------------------------

    Relatively few commenters provided feedback on this issue. Some 
industry commenters stated that they supported the proposed exclusion 
of open-end lines of credit from the loans that count toward the loan-
volume threshold. These commenters also suggested excluding other types 
of loans from the loans that count toward the threshold, including 
commercial loans, home-equity loans, and reverse mortgages. On the 
other hand, some industry commenters and a community advocate commenter 
stated that open-end lines of credit should count toward the loan-
volume threshold. They explained that this would prevent institutions 
from steering consumers to open-end lines of credit to avoid being 
required to report HMDA data.
    The Bureau is not finalizing the proposed exclusion of open-end 
lines of credit from Regulation C's institutional coverage criteria for 
the reasons discussed below. As noted above, the Bureau believes that 
Regulation C's institutional coverage criteria should balance the 
burden on financial institutions with the value of the data reported. 
Depository institutions that are currently reporting should not bear 
the burden of reporting under Regulation C if their data are of limited 
value in the HMDA data set. At the same time, Regulation C's 
institutional coverage criteria should support HMDA's purposes. The 
Bureau has determined that the exclusion of open-end lines of credit 
from Regulation C's institutional coverage criteria would not 
appropriately balance those considerations.
    As discussed in the section-by-section analysis of Sec.  1003.2(o), 
the Bureau is finalizing the proposed expansion of the transactions 
reported in HMDA to include dwelling-secured, consumer-purpose open-end 
lines of credit, unless an exclusion applies.\149\ Data about such 
transactions are not currently publicly available and, as discussed in 
the section-by-analysis of Sec.  1003.2(o), the Bureau believes that 
having data about them will improve the understanding of how financial 
institutions are serving the housing needs of their communities and 
assist in the distribution of public sector investments. Like closed-
end home-equity loans and refinancings, both of which are subject to 
broad coverage under the final rule, dwelling-secured credit lines may 
be used for home purchase, home improvement, and other purposes. 
Regardless of how they are used, they liquefy equity that borrowers 
have built up in their homes, which often are their most important 
assets. Borrowers who take out dwelling-secured credit lines increase 
their risk of losing their homes to foreclosure when property values 
decline, and in fact, the expansion of open-end line of credit 
originations in the mid-2000s contributed to the foreclosure crises 
that many communities experienced in the late 2000s.\150\ Had open-end 
line of credit data been reported in HMDA, the public and public 
officials could have had a much earlier warning and a better 
understanding of potential risks, and public and private mortgage 
relief programs could have better assisted distressed borrowers in the 
aftermath of the crisis. As discussed in the section-by-section 
analysis of Sec.  1003.2(o), dwelling-secured open-end lending is again 
on the rise now that the mortgage market has begun to recover from the 
crisis. The Bureau believes that it is important to improve visibility 
into this key segment of the mortgage market for all of the reasons 
discussed here and in the section-by-section analysis of Sec.  
1003.2(o).
---------------------------------------------------------------------------

    \149\ Under the final rule, dwelling-secured, commercial-purpose 
open-end lines of credit will be covered loans only if they are for 
home purchase, home improvement, or refinancing purposes. See the 
section-by-section analysis of Sec.  1003.3(c)(10).
    \150\ See 79 FR 51731, 51757 (Aug. 29, 2014).
---------------------------------------------------------------------------

    By excluding open-end lines of credit from the loan-volume 
threshold, the proposed coverage test would not support that goal. 
Under the proposed institutional coverage test, institutions that 
originate large numbers of open-end lines of credit, but fewer than 25 
closed-end mortgage loans, would not be required to report HMDA data on 
any of their loans. The proposed test may, therefore, exclude 
institutions with significant open-end lending, whose data may provide 
valuable insights into the open-end dwelling-secured market. The 
proposed test may also create an incentive for institutions to change 
their business practices to avoid reporting open-end data (e.g., by 
transferring all open-end lending to a separate subsidiary). This 
result would undermine the goals articulated in the section-by-section 
analysis of Sec.  1003.2(o) to increase visibility into open-end 
dwelling-secured lending.
    In addition to possibly excluding high volume open-end lenders, the 
proposed test may also burden some institutions with low open-end 
origination volumes with the requirement to report data concerning 
their open-end lending. The proposed institutional coverage test would 
require institutions with sufficient closed-end--but very little open-
end--mortgage lending to incur costs to begin open-end reporting. As 
discussed in the section-by-section analysis of Sec.  1003.2(o) below, 
commencing reporting of open-end lines of credit, unlike continuing to 
report closed-end mortgage loans, represents a new, and in some cases 
significant, compliance burden. The proposal would have imposed these 
costs on small institutions with limited open-end lending, where the 
benefits of reporting the data do not justify the costs of reporting.
    In light of these considerations and those discussed in the 
section-by-section analysis of Sec.  1003.2(o), the Bureau concludes 
that only institutions that originate at least 100 open-end lines of 
credit in each of the two preceding calendar years should report HMDA 
data concerning open-end lines of credit. Accordingly, the Bureau is 
adopting a separate, open-end loan-volume threshold to determine 
whether an institution satisfies the definition of financial 
institution. The Bureau is also adopting transactional coverage 
thresholds, discussed below in the section-by-section analysis of Sec.  
1003.3(c)(11) and (12). The institutional and transactional coverage 
thresholds are designed to operate in tandem. Under these thresholds, a 
financial institution will report closed-end mortgage loans only if it 
satisfies the closed-end mortgage threshold and will report open-end 
lines of credit only if it satisfies the separate open-end line credit 
threshold.
    The Bureau believes that adopting a 100-open-end line of credit 
threshold will avoid imposing the burden of establishing open-end 
reporting on many small institutions with low open-end lending volumes. 
Specifically, the Bureau estimates that almost 3,400 predominately 
smaller-sized institutions, that would have been required to begin 
open-end reporting under the proposal will not be required to report 
open-end data under the final rule.\151\ At the same time, the final 
rule

[[Page 66150]]

will improve the availability of data concerning open-end dwelling-
secured lending by collecting data from a sufficient array of 
institutions and about a sufficient array of transactions. The Bureau 
estimates that nearly 90 percent of all open-end line of credit 
originations will be reported under the final rule.\152\ This change to 
institutional coverage, along with the finalization of mandatory 
reporting of all consumer-purpose open-end lines of credit, will 
improve the public and public officials' ability to monitor and 
understand all sources of dwelling-secured lending and the risks posed 
to consumers and communities by those loans.
---------------------------------------------------------------------------

    \151\ As the Bureau discussed in the proposal, due to the lack 
of available data concerning open-end lending, the Bureau has faced 
challenges in analyzing the impact on HMDA's institutional and 
transactional coverage of including open-end lines of credit. See 79 
FR 51731, 51754 (Aug. 29, 2014). Although it solicited information 
that would assist it in making these estimates, see id., commenters 
did not provide responsive data. After careful analysis, the Bureau 
has developed rough estimates of home-equity line of credit 
origination volumes by institutions using 2013 HMDA data, 2013 
Reports of Condition and Income (Call Report) data, and the Bureau's 
Consumer Credit Panel data. Given the scarcity of certain underlying 
data, these estimates rely on a number of assumptions. Nonetheless, 
for the reasons given above, including supporting increased 
visibility into the open-end line of credit market and reducing 
compliance burden for many institutions, the Bureau believes HMDA's 
purposes are best effectuated by adopting an open-end line of credit 
threshold. Part VII below discusses these estimates in more detail.
    \152\ See part VII.
---------------------------------------------------------------------------

    For those reasons, the Bureau is modifying Regulation C's 
definition of depository financial institution by adopting an open-end 
loan-volume threshold. Under the revised definition, an institution 
satisfies the definition of a depository financial institution if it 
meets the other applicable criteria and either originated at least 25 
closed-end mortgage loans or 100 open-end lines of credit in each of 
the two preceding calendar years.
Two-Year Look-Back Period
    The proposed loan-volume threshold provided in proposed Sec.  
1003.2(g)(1)(v) considered only a financial institution's lending 
activity during the previous calendar year. The Bureau solicited 
feedback on whether to structure the loan-volume threshold over a 
multiyear period to provide greater certainty about the reporting 
requirements. Many industry commenters, including small entity 
representatives, urged the Bureau to include a multiyear look-back 
period in the loan-volume threshold.
    The Bureau believes that a two-year look-back period is advisable 
to eliminate uncertainty surrounding reporting responsibilities. Under 
the final rule, a financial institution that does not meet the loan-
volume thresholds established in the final rule and that experiences an 
unusual and unexpected high origination-volume in one year will not be 
required to begin HMDA reporting unless and until the higher 
origination-volume continues for a second year in a row. A first-time 
HMDA reporter must undertake significant one-time costs that include 
operational changes, such as staff training, information technology 
changes, and document retention policies. Therefore, the Bureau 
believes that it is appropriate to develop a two-year look-back period 
for HMDA reporting to provide more stability around reporting 
responsibilities. Regulations that implement the Community Reinvestment 
Act provide similar look-back periods to determine coverage.\153\
---------------------------------------------------------------------------

    \153\ See, e.g., 12 CFR 345.12(u)(1).
---------------------------------------------------------------------------

    Therefore, the Bureau is finalizing the loan-volume threshold 
included in Sec.  1003.2(g)(1)(v) and (2)(ii) with modifications to 
include a two-year look-back period. Sections 1003.2(g)(1)(v) and 
(2)(ii) provide that, assuming the other criteria are satisfied, an 
institution qualifies as a depository financial institution or a 
nondepository financial institution if the institution meets the 
applicable loan-volume threshold in each of the two preceding calendar 
years.
Multifamily-Only Depository Institutions
    Under Regulation C, loans related to multifamily dwellings 
(multifamily mortgage loans) do not factor into the coverage criteria 
applicable to depository institutions. A depository institution that 
does not originate at least one home purchase loan or refinancing of a 
home purchase loan, secured by a first lien on a one- to four-unit 
dwelling in the preceding calendar year is not required to report HMDA 
data.\154\ The Bureau did not propose to eliminate the current loan 
activity test included in the coverage criteria for depository 
institutions. The proposal also did not solicit feedback on this aspect 
of the current coverage criteria or on other aspects of depository 
institutions' current coverage criteria.
---------------------------------------------------------------------------

    \154\ See 12 CFR 1003.2 (definition of financial institution). 
When HMDA was enacted, the term ``federally related mortgage loan'' 
was defined in the Real Estate Settlement Procedures Act (RESPA) to 
include a loan secured by real property secured by a first lien on a 
one- to four-family dwelling and that meets other federally related 
tests. See Public Law 93-533, section 3164, 88 Stat. 1724 (1974).
---------------------------------------------------------------------------

    Many community advocate commenters nonetheless urged the Bureau to 
expand depository institution coverage to require reporting by 
depository institutions that originate multifamily mortgage loans, but 
do not originate first-lien one- to four-unit home purchase loans or 
refinancings, and that meet the other coverage criteria. They argued 
that the current formulation makes it more difficult to understand 
availability of credit for multifamily dwellings. No industry 
commenters addressed this issue.
    The Bureau is not adopting the commenters' suggestion at this time. 
The Bureau recognizes that this prong of HMDA's depository institution 
coverage test may exclude certain depository institutions and their 
loans from HMDA data. However, the Bureau estimates that this provision 
excludes a very small number of depository institutions and loans, 
fewer than 20 institutions and about 200 covered loans under the final 
rule.\155\
---------------------------------------------------------------------------

    \155\ The Bureau developed this estimate using 2013 Call Report 
data.
---------------------------------------------------------------------------

    The Bureau adopts Sec.  1003.2(g)(1) pursuant to its authority 
under section 305(a) of HMDA to provide for such adjustments and 
exceptions for any class of transactions that the Bureau judges are 
necessary and proper to effectuate the purposes of HMDA. Pursuant to 
section 305(a) of HMDA, for the reasons given above, the Bureau finds 
that this proposed exception is necessary and proper to effectuate the 
purposes of HMDA. By reducing burden on financial institutions and 
establishing a consistent loan-volume test applicable to all financial 
institutions, the Bureau finds that the proposed provision will 
facilitate compliance with HMDA's requirements.
2(g)(2) Nondepository Financial Institutions
    HMDA extends reporting responsibilities to certain nondepository 
institutions, defined as any person engaged for profit in the business 
of mortgage lending other than a bank, savings association, or credit 
union.\156\ HMDA section 309(a) also authorizes the Bureau to adopt an 
exemption for covered nondepository institutions that are comparable 
within their respective industries to banks, savings associations, and 
credit unions with $10 million or less in assets in the previous fiscal 
year.\157\
---------------------------------------------------------------------------

    \156\ See generally HMDA sections 303(5) (defining ``other 
lending institutions''), 303(3)(B) (including other lending 
institutions in the definition of depository institution), and 
304(a) (requiring depository institutions to collect, report, and 
disclose certain data if the institution has a home or branch office 
located in an MSA), 12 U.S.C. 2802(5), 2802(3), 2803(a).
    \157\ See HMDA section 309(a), 12 U.S.C. 2808(a).
---------------------------------------------------------------------------

    Under the current definition of financial institution in Sec.  
1003.2, a nondepository institution is a financial institution if it 
meets three criteria. First, the institution satisfies the following 
loan-volume or amount test: In the preceding calendar year, the

[[Page 66151]]

institution originated home purchase loans, including refinancings of 
home purchase loans, that equaled either at least 10 percent of its 
loan-origination volume, measured in dollars, or at least $25 
million.\158\ Second, on the preceding December 31, the institution had 
a home or branch office in an MSA.\159\ Third, the institution meets 
one of the following two criteria: (a) On the preceding December 31, 
the institution had total assets of more than $10 million, counting the 
assets of any parent corporation; or (b) in the preceding calendar 
year, the institution originated at least 100 home purchase loans, 
including refinancings of home purchase loans.\160\
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    \158\ The Board adopted the 10 percent loan-volume test in 1989 
to implement the 1989 FIRREA amendments, which extended HMDA's 
reporting requirements to institutions ``engaged for profit in the 
business of mortgage lending.'' See 54 FR 51356, 51358-59 (Dec. 15, 
1989). In 2002, the Board modified the test and added the $25 
million loan-volume test to require reporting by additional 
nondepository institutions. See 67 FR 7222, 7224 (Feb. 15, 2002).
    \159\ Under Sec.  1003.2 (definition of branch office), a 
nondepository institution has a branch office in an MSA if it 
originated, received applications for, or purchased five or more 
covered loans in that MSA in the preceding calendar year.
    \160\ In 1989, the $10 million asset test, derived from section 
309, applied to both depository and nondepository institutions. See 
54 FR 51356, 51359 (Dec. 15, 1989). Because the 1989 amendments 
failed to cover as many nondepository institutions as Congress had 
intended, in 1991, Congress amended the asset test in HMDA section 
309 to apply only to depository institutions, and it granted the 
Board discretion to exempt comparable nondepository institutions. 
See Public Law 102-242, section 224 (1991). Pursuant to that 
authority, the Board added the 100 loan-volume test for 
nondepository institutions in 1992. See 57 FR 56963, 56964-65 (Dec. 
2, 1992).
---------------------------------------------------------------------------

    The Bureau proposed to modify the coverage criteria for 
nondepository institutions by replacing the current loan-volume or 
amount test with the same loan-volume threshold that the Bureau 
proposed for depository institutions. Proposed Sec.  1003.2(g)(2) 
defined a new term, nondepository financial institution, and provided 
that an institution that is not a bank, saving association, or credit 
union is required to report HMDA data if it had a home or branch office 
in an MSA on the preceding December 31 and it originated at least 25 
covered loans, excluding open-end lines of credit, in the preceding 
calendar year. For the reasons discussed below, the Bureau is adopting 
Sec.  1003.2(g)(2), which revises the coverage criteria applicable to 
nondepository institutions. Under the final rule, a nondepository 
institution is a nondepository financial institution and required to 
report HMDA data if it has a home or a branch office in an MSA and if 
it originated at least 25 closed-end mortgage loans in each of the two 
preceding calendar years or 100 open-end lines of credit in each of the 
two preceding calendar years.
Loan-Volume Threshold
    Most of the industry comments on this issue opposed the proposed 
expansion of nondepository institution coverage. These commenters 
explained that the proposed expansion would add only a small amount of 
additional data. Commenters also raised concerns about the burden on 
the nondepository institutions that would be newly covered. Some 
commenters suggested excluding more nondepository institutions from 
HMDA's institutional coverage, rather than expanding coverage of 
nondepository institutions, by adopting a loan-volume threshold higher 
than 100 closed-end mortgage loans annually, such as one set at 
origination of 250 closed-end mortgage loans annually. On the other 
hand, several consumer advocate commenters and a few industry 
commenters expressed support for the proposed expansion of 
nondepository institution coverage, arguing that nondepository 
institutions, like depository institutions, should be held accountable 
for their lending practices.
    The Bureau believes, as stated in the proposal, that it is 
important to increase visibility into nondepository institutions' 
practices due to their history of riskier lending practices, including 
their role in the financial crisis, and the lack of available data 
about lower-volume nondepository institutions' mortgage lending 
practices. Therefore, the Bureau is adopting Sec.  1003.2(g)(2), which 
requires reporting if the institution meets the location test and 
originated at least 25 closed-end mortgage loans in each of the two 
preceding calendar years or 100 open-end lines of credit in each of the 
two preceding calendar years. The Bureau estimates that the final rule 
will require HMDA reporting by as much as 40 percent more nondepository 
institutions than are currently reporting.\161\
---------------------------------------------------------------------------

    \161\ As discussed in part VII below, the Bureau developed this 
estimate using 2012 HMDA data and NMSLR data.
---------------------------------------------------------------------------

    The expansion of nondepository institution reporting will address 
the longstanding need for additional monitoring of the mortgage lending 
practices of nondepository institutions. During the years leading up to 
the financial crisis, many stakeholders called for increased monitoring 
of nondepository institution activity in the mortgage market. Concerns 
about nondepository institution involvement in the subprime market 
motivated the Board to expand nondepository institution coverage in 
2002.\162\ In 2007, the GAO also identified risks associated with the 
lending practices of nondepository institutions, which were not subject 
to regular Federal examination at the time.\163\ GAO found that 21 of 
the 25 largest originators of subprime and Alt-A loans in 2006 were 
nondepository institutions and that those 21 nondepository institutions 
had originated over 80 percent in dollar volume of the subprime and 
Alt-A loans originated in 2006.\164\ GAO concluded that nondepository 
institutions ``may tend to originate lower-quality loans.'' \165\ In 
2009, GAO found that nondepository institutions that reported HMDA data 
had a higher incidence of potential fair lending problems than 
depository institutions that reported HMDA data.\166\ GAO also 
suggested that the loan products and marketing practices of those 
nondepository institutions may have presented greater risks for 
applicants and borrowers.\167\
---------------------------------------------------------------------------

    \162\ See 65 FR 78656, 78657 (Dec. 15, 2000) (proposing changes 
to coverage of nondepository institutions); 67 FR 7222, 7224-25 
(Feb. 15, 2002) (finalizing changes to coverage of nondepository 
institutions).
    \163\ See U.S. Gov't Accountability Office, GAO-08-78R, Briefing 
to the House of Representatives Committee on Fin. Services, 
Information on Recent Default and Foreclosure Trends for Home 
Mortgages and Associated Economic and Market Dev., at 54 (2007), 
available at https://www.gao.gov/assets/100/95215.pdf.
    \164\ Id.
    \165\ Id.
    \166\ See U.S. Gov't Accountability Office, GAO-09-704, Fair 
Lending: Data Limitations and the Fragmented U.S. Financial 
Regulatory Structure Challenge Federal Oversight and Enforcement 
Efforts at 28-29 (2009) (``[I]ndependent lenders and nonbank 
subsidiaries of holding companies are more likely than depository 
institutions to engage in mortgage pricing discrimination.''), 
available at https://www.gao.gov/new.items/d09704.pdf.
    \167\ Id. at 29-30. See also GAO-08-78R at 54.
---------------------------------------------------------------------------

    In the aftermath of the financial crisis, Congress also expressed 
concerns about the lending practices of nondepository institutions 
generally and called for greater oversight of those institutions.\168\ 
In the Dodd-Frank Act, Congress granted Federal supervisory authority 
to the Bureau over a broad range of mortgage-related nondepository

[[Page 66152]]

institutions because it was concerned about nondepository institutions' 
practices generally and believed that the lack of Federal supervision 
of those institutions had contributed to the financial crisis.\169\ In 
addition, officials that participated in the Financial Crisis Inquiry 
Commission hearings in 2010 noted that practices that originated in the 
nondepository institution mortgage sector, such as lax underwriting 
standards and loan products with potential payment shock, created 
competitive pressures on depository institutions to follow the same 
practices, which may have contributed to the broader financial 
crisis.\170\ During the Board's 2010 Hearings, community advocates and 
Federal agencies specifically urged expansion of HMDA's institutional 
coverage to include lower-volume nondepository institutions. They 
stated that Regulation C's existing institutional coverage framework 
prevented them from effectively monitoring the practices of 
nondepository institutions.\171\
---------------------------------------------------------------------------

    \168\ See, e.g., House Consideration of HR 4173, 155 Cong. Rec. 
H14430 (daily ed. Dec. 9, 2009) (statement of Cong. Ellison), ``One 
of the most important causes of the financial crisis, as I 
mentioned, is the utter failure of consumer protection. The most 
abusive and predatory lenders were not federally regulated, were not 
regulated at all in some cases, while regulation was overly lax for 
banks and other institutions that were covered.''); U.S. Gov't 
Accountability Office, GAO-09-704, Fair Lending: Data Limitations 
and the Fragmented U.S. Financial Regulatory Structure Challenge 
Federal Oversight and Enforcement Efforts at 28-29 (2009), available 
at https://www.gao.gov/new.items/d09704.pdf.
    \169\ See Dodd-Frank Act section 1024.
    \170\ See Official Transcript of First Public Hearing of the 
Financial Crisis Inquiry Commission at 97-98 (Jan. 10, 2010), 
(remarks of Sheila C. Bair, Chairman, Federal Deposit Insurance 
Corporation, and Mary L. Schapiro, Chairman, U.S. Securities and 
Exchange Commission), available at https://fcic-static.law.stanford.edu/cdn_media/fcic-testimony/2010-0114-Transcript.pdf.
    \171\ See, e.g., San Francisco Hearing, supra note 42; 
Washington Hearing, supra note 39 (remarks of Faith Schwartz, Senior 
Advisor, HOPE NOW Alliance) (urging reporting by all institutions 
that have ``any meaningful originations''); id. (remarks of Allison 
Brown, Acting Assistant Director, Division of Financial Practices, 
Federal Trade Commission) (urging expanded reporting by 
nondepository institutions ``to ensure that all nondepository 
institutions that made significant numbers of mortgage decisions 
report these essential data, providing the government and the public 
an accurate, timely picture of mortgage lending activity''); id. 
(remarks of Michael Bylsma, Director for Community and Consumer Law, 
Office of the Comptroller of the Currency) (urging the Board to 
``review whether its rule-making authority'' would permit it to 
expand HMDA coverage to additional institutions); Atlanta Hearing, 
supra note 40.
---------------------------------------------------------------------------

    Despite these calls for increased monitoring of nondepository 
institutions, currently there are less publicly available data about 
nondepository institutions' mortgage lending practices than about those 
of depository institutions. Currently, under Regulation C, lower-volume 
depository institutions may be required to report even if they 
originated only one mortgage loan in the preceding calendar year, but 
lower-volume nondepository institutions may not be required to report 
unless they originated 100 applicable loans in the preceding calendar 
year.\172\ In addition, outside of HMDA, there are less publicly 
available data about nondepository institutions than about depository 
institutions. Depository institutions, even those that do not report 
HMDA data, report detailed financial information at the bank level to 
the Federal Deposit Insurance Corporation (FDIC) or to the National 
Credit Union Association (NCUA), much of which is publicly 
available.\173\ Nondepository institutions, on the other hand, report 
some data to the Nationwide Mortgage Licensing System and Registry 
(NMLSR), but detailed financial information and data on mortgage 
applications and originations are not publicly available.\174\
---------------------------------------------------------------------------

    \172\ Banks, savings associations, and credit unions are 
required to report if they originate at least one home purchase or 
refinancing of a home purchase loan secured by a first lien on a 
one- to four-family dwelling and if they meet the other criteria in 
the definition of financial institution. See Section 1003.2 
(definition of financial institution).
    \173\ Every national bank, State member bank, and insured 
nonmember bank is required by its primary Federal regulator to file 
consolidated Reports of Condition and Income, also known as Call 
Report data, for each quarter as of the close of business on the 
last day of each calendar quarter (the report date). The specific 
reporting requirements depend upon the size of the bank and whether 
it has any foreign offices. See, e.g., FDIC, Call and Thrift 
Financial Reports, https://www2.fdic.gov/call_tfr_rpts/. Credit 
unions are also required to report Call Report data to NCUA. See, 
e.g., NCUA, 53000 Call Report Quarterly Data, https://www.ncua.gov/DataApps/QCallRptData/Pages/default.aspx.
    \174\ NMLSR is a national registry of nondepository 
institutions. Nondepository institutions report information about 
mortgage loan originators, mortgage loan originations, the number 
and dollar amount of loans brokered, and HOEPA originations.
---------------------------------------------------------------------------

    The final rule addresses this information gap by including the same 
loan-volume threshold for nondepository institutions as for depository 
institutions. The expanded coverage of nondepository institutions will 
provide more data to the public and public officials for analyzing 
whether lower-volume nondepository institutions are serving the housing 
needs of their communities. In addition, with the expanded coverage, 
the public and public officials will be better able to understand 
access to and sources of credit in particular communities, such as a 
higher concentration of risky loan products in a given community, and 
to identify the emergence of new loan products or underwriting 
practices. In addition, the final rule will provide more data to help 
the public and public officials in understanding whether a lower-volume 
nondepository institution's practices pose potential fair lending 
risks.
    The final rule also considers origination of open-end lines of 
credit in the institutional coverage test for nondepository 
institutions. The Bureau believes that this revision is necessary to 
achieve greater visibility into all extensions of credit secured by a 
dwelling, as discussed above in the section-by-section analysis of 
Sec.  1003.2(g)(1). In addition, for the reasons discussed above in the 
section-by-section analysis of Sec.  1003.2(g)(1), the final rule also 
incorporates a two-year look-back period for nondepository institution 
coverage.
Asset-Size or Loan-Volume Threshold
    The current coverage criteria for nondepository institutions 
include an asset-size or loan-volume threshold.\175\ This test is 
satisfied both by institutions that meet a certain asset-size threshold 
and by those with smaller asset sizes that have a higher loan-
volume.\176\ The Bureau proposed to eliminate the asset-size or loan-
volume threshold for nondepository institutions currently included in 
Regulation C because, for the reasons discussed above, the Bureau 
believes it is important to increase visibility into the practices of 
nondepository institutions. A few industry commenters objected to the 
proposal's elimination of the asset-size portion of the asset-size or 
loan-volume threshold for nondepository institutions. The Bureau 
believes that the current asset-size or loan-volume threshold is no 
longer necessary, because the Bureau is adopting the 25 closed-end 
mortgage loan-volume threshold and 100 open-end line of credit 
threshold discussed in this section. Under the final rule, 
nondepository institutions will be required to report if they 
originated 25 closed-end mortgage loans or 100 open-end lines of credit 
in each of the two preceding calendar years. An institution's asset-
size will no longer trigger reporting (i.e., nondepository institutions 
with assets greater than $10 million that originated fewer than 25 
closed-end mortgage loans or fewer than 100 open-end lines of credit in 
each of the two preceding calendar years will not be required to report 
HMDA data). In addition, at this time and in light of the coverage 
criteria being finalized, the Bureau does not believe the asset-size 
exemption is necessary. The Bureau believes that it is appropriate to 
exercise its discretion under HMDA section 309(a) to eliminate the 
exemption of certain nondepository institutions based on their asset-
size.\177\
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    \175\ Section 1003.2 (financial institution) (2).
    \176\ Section 1003.2 (financial institution) (2)(B)(iii).
    \177\ The Bureau consulted with HUD as part of the interagency 
consultation process for this rulemaking.

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[[Page 66153]]

Loan-Amount or Loan-Volume Threshold
    No commenters discussed the proposed new implementation of HMDA 
sections 303(3)(B) and 303(5), which require persons other than banks, 
savings associations, and credit unions that are ``engaged for profit 
in the business of mortgage lending'' to report HMDA data. As the 
Bureau stated in the proposal, the Bureau interprets these provisions, 
as the Board also did, to evince the intent to exclude from coverage 
institutions that make a relatively small volume of mortgage 
loans.\178\ In light of more recent activities of nondepository 
institutions discussed above, the Bureau believes that Regulation C's 
current coverage test for nondepository institutions inappropriately 
excludes certain persons that are engaged for profit in the business of 
mortgage lending. The Bureau estimates that financial institutions that 
reported 25 loans in HMDA for the 2012 calendar year originated an 
average of approximately $5,359,000 in covered loans annually. Given 
this level of mortgage activity, and consistent with the policy reasons 
discussed above, the Bureau interprets ``engaged for profit in the 
business of mortgage lending'' to include nondepository institutions 
that originated at least 25 closed-end mortgage loans or 100 open-end 
lines of credit in each of the two preceding calendar years. Due to the 
questions raised about potential risks posed to applicants and 
borrowers by nondepository institutions and the lack of other publicly 
available data sources about nondepository institutions, the Bureau 
believes that requiring additional nondepository institutions to report 
HMDA data will better effectuate HMDA's purposes.
---------------------------------------------------------------------------

    \178\ See 54 FR 51356, 51358-59 (Dec. 15, 1989).
---------------------------------------------------------------------------

2(h) Home-Equity Line of Credit
    Regulation C currently defines ``home-equity line of credit'' as an 
open-end credit plan secured by a dwelling as defined in Regulation Z 
(Truth in Lending), 12 CFR part 1026. The Bureau did not propose to 
change this definition. Existing Sec.  1003.4(c)(3), in turn, provides 
that financial institutions optionally may report home-equity lines of 
credit made in whole or in part for home improvement or home purchase 
purposes. As discussed in the section-by-section analysis of Sec.  
1003.2(e) and (o), the Bureau proposed to expand Regulation C's 
transactional coverage to require reporting of all home-equity lines of 
credit.
    As part of the shift to dwelling-secured coverage, the Bureau 
proposed a separate definition for ``open-end lines of credit'' in 
Sec.  1003.2(o), to reflect the proposed coverage of both consumer- and 
commercial-purpose lines of credit. As proposed, Sec.  1003.2(o) 
generally defined an open-end line of credit as a dwelling-secured 
transaction that was an open-end credit plan under Regulation Z Sec.  
1026.2(a)(20), but without regard to whether the transaction: (1) Was 
for personal, family, or household purposes; (2) was extended by a 
creditor; or (3) was extended to a consumer. In other words, the 
proposal defined ``open-end line of credit'' broadly to include any 
dwelling-secured open-end credit transaction, whether for consumer or 
commercial purposes, and regardless of who was extending or receiving 
the credit. In general, then, the proposed definition of open-end line 
of credit included all transactions covered by the existing definition 
of home-equity line of credit in Sec.  1003.2. For the reasons 
discussed below, the final rule removes the term ``home-equity line of 
credit'' from the regulation, reserves Sec.  1003.2(h), and retains the 
term ``open-end line of credit.''
    As discussed in the section-by-section analysis of Sec.  1003.2(o), 
the Bureau received a large number of comments about its proposal to 
require reporting of all dwelling-secured open-end lines of credit, and 
those comments are addressed in that section. One commenter 
specifically addressed the Bureau's proposal to define both ``home-
equity line of credit'' and ``open-end line of credit.'' The commenter 
supported adding a definition for ``open-end line of credit'' but 
believed that distinguishing between open-end lines of credit and home-
equity lines of credit was confusing. The commenter suggested that the 
Bureau streamline the types of covered transactions into dwelling-
secured closed-end mortgage loans, dwelling-secured open-end lines of 
credit, and reverse mortgages (whether closed- or open-end).
    As discussed in the section-by-section analysis of Sec.  1003.2(o), 
the final rule adopts the proposed definition of open-end line of 
credit largely as proposed. For simplicity, the final rule removes the 
defined term ``home-equity line of credit'' and retains the defined 
term ``open-end line of credit'' to refer to all open-end credit 
transactions covered by the regulation.
    The final rule requires financial institutions to report whether a 
transaction is an open-end line of credit (Sec.  1003.4(a)(37)), a 
commercial- or business-purpose transaction (Sec.  1003.4(a)(38)), or a 
reverse mortgage (Sec.  1003.4(a)(36)). Using this information, it will 
be possible to determine whether a given open-end line of credit 
primarily is for consumer purposes (i.e., a home-equity line of credit) 
or primarily is for commercial or business purposes, and also whether 
it is a reverse mortgage. The Bureau thus believes that it is 
unnecessary to retain the defined term ``home-equity line of credit.''
2(i) Home Improvement Loan
    Proposed Sec.  1003.2(i) provided that a home improvement loan was 
any covered loan made for the purpose, in whole or in part, of 
repairing, rehabilitating, remodeling, or improving a dwelling, or the 
real property on which the dwelling is located. Pursuant to the 
Bureau's authority under HMDA section 305(a), the proposal revised 
Sec.  1003.2(i) and its accompanying commentary to conform to the 
proposal to remove non-dwelling-secured home improvement loans from 
coverage, and to clarify when to report dwelling-secured home 
improvement loans. For the reasons discussed below, the Bureau is 
finalizing Sec.  1003.2(i) largely as proposed, with certain technical 
revisions to the regulation text,\179\ and with revisions to the 
commentary to streamline it and to add examples or details requested by 
commenters.
---------------------------------------------------------------------------

    \179\ For example, the final rule replaces the term ``covered 
loan'' in Sec.  1003.2(i) with the terms ``closed-end mortgage 
loan'' and ``open-end line of credit.'' This change reflects the 
fact that, under final Sec. Sec.  1003.2(e) and 1003.3(c)(10), 
business- or commercial-purpose transactions are covered loans only 
if they are for the purpose of home purchase, home improvement, or 
refinancing. Retaining the term ``covered loan'' in the definition 
of home improvement loan would cause circularity in the definition 
of commercial-purpose transactions.
---------------------------------------------------------------------------

    The Bureau received numerous comments from consumer advocacy 
groups, financial institutions, trade associations, and other industry 
participants concerning proposed Sec.  1003.2(i). Most of the comments 
focused on the proposal to exclude non-dwelling-secured home 
improvement loans from reporting, with nearly all industry participants 
supporting the proposal and consumer advocacy groups generally opposing 
it. A few commenters requested that the Bureau clarify certain aspects 
of the commentary to the home improvement loan definition.
Non-Dwelling-Secured Home Improvement Lending
    Consumer advocacy groups uniformly stated that the Bureau should 
maintain reporting of home improvement lending, because such lending 
has been particularly important to low- and

[[Page 66154]]

moderate-income borrowers and borrowers of color as a way to finance 
home repairs. Most of these commenters did not specifically distinguish 
between dwelling-secured and non-dwelling-secured home improvement 
lending or specify how they use non-dwelling-secured home improvement 
lending data, in particular, to achieve HMDA's purposes.
    One financial institution urged the Bureau to retain reporting of 
non-dwelling-secured home improvement lending, at least on an optional 
basis. This commenter stated that non-dwelling-secured home improvement 
lending can be critical in revitalizing low-to-moderate income 
communities, including in rural areas, and for financing manufactured 
home improvements. The commenter expressed concern that financial 
institutions might stop offering non-dwelling-secured home improvement 
loans if they were no longer HMDA-reportable. The commenter believed 
that borrowers would be steered toward home-equity lines of credit, 
which might be unavailable to low- and moderate-income borrowers with 
inadequate home equity. The commenter argued that optional reporting 
would relieve burden for institutions that choose not to report, while 
allowing institutions that do report to receive credit for serving the 
housing needs of their communities.
    All other industry commenters that addressed proposed Sec.  
1003.2(i) supported excluding non-dwelling-secured home improvement 
loans from coverage.\180\ Many of these commenters stated that 
reporting such loans is burdensome and costly because it is difficult 
to determine whether the loan will be used for a housing-related 
purpose, because reporting errors occur frequently, and because 
examiners have not treated non-dwelling-secured home improvement 
lending consistently. Other commenters noted that the value of non-
dwelling-secured home improvement loan data is limited. Interest rates 
and terms can vary dramatically depending on the loan and non-dwelling 
collateral used, and consumers now often use home-equity lines of 
credit. One commenter stated that the burdens of reporting can outweigh 
the benefits of making the loans, because non-dwelling-secured home 
improvement loan amounts tend to be small.
---------------------------------------------------------------------------

    \180\ Various commenters recommended eliminating the home 
improvement purpose category for all loans. Those comments are 
addressed in the section-by-section analysis of Sec.  1003.4(a)(3).
---------------------------------------------------------------------------

    The Bureau is finalizing Sec.  1003.2(i) as proposed, without a 
requirement to report non-dwelling-secured home improvement loans. At 
this time, the Bureau does not believe that the benefits of requiring 
reporting of such loans justify the burdens. For example, many consumer 
advocacy group commenters urged the Bureau to retain reporting of all 
home improvement loans because such loans are important to low-to-
moderate income communities. These commenters, however, did not state 
that they or others have used HMDA data about non-dwelling-secured home 
improvement loans to further HMDA's purposes. Moreover, as discussed in 
the proposal, non-dwelling-secured home improvement loans may have been 
common when HMDA was enacted. However, such loans now comprise only a 
small fraction of transactions reported,\181\ and borrowers have other 
non-dwelling-secured credit options, such as credit cards, to fund home 
improvement projects.\182\ Data about credit card usage for home 
improvement purposes, however, is not reported under HMDA. Without such 
data, it is not clear that HMDA users can evaluate fairly the non-
dwelling-secured home improvement loan data that is reported.
---------------------------------------------------------------------------

    \181\ See 79 FR 51731, 51755 (Aug. 29, 2014) (noting that non-
dwelling-secured home improvement loans comprised only approximately 
1.8 percent of all HMDA records in 2012).
    \182\ See id. at 51755, 51765-66 (Aug. 29, 2014) (citing Arthur 
Kennickell & Martha Starr-McCluer, Bd. of Governors of the Fed. 
Reserve Sys., 80 Fed. Reserve Bulletin 861, Changes in Family 
Finances from 1989 to 1992: Evidence from the Survey of Consumer 
Finances, at 874-75 (Oct. 1994), available at https://www.federalreserve.gov/econresdata/scf/files/1992_bull1094.pdf; 
Arthur Kennickell & Janice Shack-Marquez, Bd. of Governors of the 
Fed. Reserve Sys., 78 Fed. Reserve Bulletin 1, Changes in Family 
Finances from 1983 to 1989: Evidence from the Survey of Consumer 
Finances, at 13 (Jan. 1992), available at https://www.federalreserve.gov/econresdata/scf/files/bull0192.pdf; and David 
Evans & Richard Schnakebsee, Paying With Plastic, Massachusetts 
Institute of Technology Press 98-100 (1991)).
---------------------------------------------------------------------------

    On the other hand, the burdens of reporting such transactions 
appear to be significant. As discussed in the proposal, these loans are 
processed, underwritten, and originated through different loan 
origination systems than are used for dwelling-secured lending.\183\ As 
noted above, many industry commenters confirmed and elaborated on the 
burdens of reporting non-dwelling-secured home improvement loans 
discussed in the Bureau's proposal.
---------------------------------------------------------------------------

    \183\ See id. at 51755 (Aug. 29, 2014) (citing Chicago Hearing, 
supra note 46 and Atlanta Hearing, supra note 40).
---------------------------------------------------------------------------

    On balance, the Bureau concluded that the compliance burden that 
will be eliminated by streamlining the regulation to require reporting 
only of dwelling-secured loans justifies the relatively small data loss 
that will accompany the change. The Bureau considered, as one commenter 
suggested, maintaining optional reporting of non-dwelling-secured home 
improvement loans. However, one of the proposal's goals was to simplify 
Regulation C's transactional coverage. Maintaining optional reporting 
of non-dwelling-secured home improvement loans would inhibit the 
Bureau's ability to reduce regulatory complexity by focusing on 
dwelling-secured lending for an apparently small benefit.\184\ Thus, 
the final rule requires financial institutions to report only dwelling-
secured loans. Unsecured home improvement loans and home improvement 
loans secured by collateral other than a dwelling (e.g., a vehicle or 
savings account), are not reportable.
---------------------------------------------------------------------------

    \184\ The Bureau acknowledges that removing non-dwelling-secured 
home improvement lending will affect some institutions' reported 
transaction volumes, which in turn will affect CRA reporting. The 
Bureau will work with other regulators during the Regulation C 
implementation period to address these issues.
---------------------------------------------------------------------------

    One commenter objected that the Bureau's proposal to eliminate 
reporting of non-dwelling-secured home improvement loans did not 
address the fact that the HMDA statute still requires reporting of home 
improvement loans. The Bureau believes, however, that requiring 
financial institutions to report dwelling-secured home improvement 
loans satisfies the statutory requirement. As the proposal noted, HMDA 
does not expressly define ``home improvement loan.'' Although non-
dwelling-secured home improvement loans traditionally have been 
reported, the Bureau believes that it is reasonable to interpret HMDA 
section 303(2) to include only loans that are secured by liens on 
dwellings, as that interpretation aligns with common definitions of the 
term mortgage loan, and such loans will include home improvement 
loans.\185\
---------------------------------------------------------------------------

    \185\ See 79 FR 51731, 51755-56 (Aug. 29, 2014).
---------------------------------------------------------------------------

    The Bureau also is eliminating reporting of non-dwelling-secured 
home improvement loans pursuant to its authority under section 305(a) 
of HMDA, as the Bureau believes that this adjustment and exception is 
necessary and proper to effectuate HMDA's purposes and to facilitate 
compliance. Specifically, the Bureau believes that non-dwelling-secured 
home improvement loan data may distort the overall quality of the HMDA 
dataset for the reasons described above. The Bureau believes that 
eliminating reporting of non-dwelling-secured home improvement loans 
will improve the

[[Page 66155]]

quality of HMDA data, which will provide citizens and public officials 
of the United States with sufficient information to enable them to 
determine whether financial institutions are meeting the housing needs 
of their communities and to assist public officials in determining how 
to distribute public sector investments in a manner designed to improve 
the private investment environment. The Bureau further believes that 
eliminating these loans will facilitate compliance by removing a 
significant reporting burden.
Home Improvement Loan Definition
    A few commenters asked the Bureau to clarify certain aspects of 
home improvement loan reporting as addressed in the commentary. The 
final rule adopts the commentary generally as proposed, but with 
several revisions and additions to address commenters' questions, as 
well as certain other modifications for clarity, as discussed below.
    Proposed comment 2(i)-1, which provided general guidance about home 
improvement loans, is adopted as proposed, but with several non-
substantive revisions for clarity and with an additional example of a 
transaction that meets the home improvement loan definition. Consistent 
with the final rule's requirement under Sec.  1003.2(d) to report loans 
completed pursuant to a New York CEMA, final comment 2(i)-1 explains 
that, where all or a portion of the funds from a CEMA transaction will 
be used for home improvement purposes, the loan is a home improvement 
loan under Sec.  1003.2(i). One commenter asked whether loans that are 
not ``classified'' by an institution as home improvement loans 
nonetheless should be reported as home improvement loans if the 
supporting documents show that they were for home improvement purposes. 
The classification test in existing Regulation C applies only to non-
dwelling-secured home improvement loans. As discussed, the final rule 
eliminates such loans from coverage. Under the final rule, there no 
longer is any requirement that a loan be ``classified'' by a financial 
institution as a home improvement loan to be a home improvement loan 
under Sec.  1003.2(i).
    The Bureau did not propose to revise existing comment Home 
improvement loan-3. The final rule adopts this comment as comment 2(i)-
3 with minor revisions to reflect the fact that the final rule requires 
reporting of both closed- and open-end transactions.
    Proposed comment 2(i)-4 concerning mixed-use properties is adopted 
largely as proposed. The comment is revised for clarity and to 
eliminate the statement that a home improvement loan for a mixed-use 
property is reported as such only if the property itself is primarily 
residential in nature. Under Sec.  1003.2(e) and (f), a transaction is 
a covered loan and subject to Regulation C only if it is secured by a 
dwelling, which by definition is property that is primarily residential 
in nature. Thus, financial institutions need not separately consider 
whether a dwelling primarily is residential in nature when determining 
whether a loan is a home improvement loan under Sec.  1003.2(i).
    The proposal would have removed existing comment Home improvement 
loan-5, which discusses how to report a home improvement loan that also 
is a home purchase loan or a refinancing, because the proposal 
consolidated all such reporting instructions in Sec.  1003.4. The final 
rule retains existing comment Home improvement loan-5 and adopts it as 
comment 2(i)-5 to explain that a transaction with multiple purposes may 
meet multiple loan-type definitions. The comment provides an example to 
illustrate that a transaction that meets the definition of a home 
improvement loan under Sec.  1003.2(i) may also meet the definition of 
a refinancing under Sec.  1003.2(p). Comment 2(i)-5 also specifies that 
instructions for reporting a multiple-purpose covered loan are in the 
commentary to Sec.  1003.4(a)(3).
    A few commenters asked the Bureau to clarify further how a 
financial institution determines whether a loan is a home improvement 
loan. For example, one commenter asked whether a cash-out refinance 
also is a home improvement loan if the borrower states that some of the 
cash may be used for home improvement. Another asked whether a loan is 
a home improvement loan when a consumer states that a loan is for home 
improvement purposes but it is in fact for purchasing a household item. 
This commenter also requested that ``small-dollar'' home improvement 
loans be exempt from reporting.
    In response to these comments, the final rule includes comment 
2(i)-6, which provides that a financial institution relies on the 
borrower's stated purpose for the loan when the application is received 
or the credit decision is made, and need not confirm that the borrower 
actually uses any of the funds for home improvement purposes. If the 
borrower does not state that any of the funds will be used for home 
improvement purposes, or does not state any purpose for the funds, the 
loan is not a home improvement loan. Section 1003.4(a)(3) and related 
commentary provide instructions about how to report such loans. See the 
section-by-section analysis of Sec.  1003.4(a)(3). The final rule does 
not specifically exempt small-dollar home improvement loans, because 
the Bureau believes that information about such loans is valuable, but 
the final rule retains in Sec.  1003.3(c)(7) the current exclusion from 
coverage for transactions for less than $500.
2(j) Home Purchase Loan
    Regulation C currently provides that a home purchase loan is a loan 
secured by and made for the purpose of purchasing a dwelling. Proposed 
Sec.  1003.2(j) revised the definition to provide that a home purchase 
loan is a ``covered loan'' extended for the purpose of purchasing a 
dwelling. The proposal also revised the commentary to proposed Sec.  
1003.2(j) in several ways, primarily to conform the commentary to the 
proposal's overall shift to covering only dwelling-secured 
transactions. Only a handful of commenters addressed proposed Sec.  
1003.2(j) or its accompanying commentary, and none of them specifically 
commented on the proposed regulation text. The Bureau is finalizing 
Sec.  1003.2(j) largely as proposed, with technical revisions for 
clarity.\186\ The Bureau is finalizing the commentary to Sec.  
1003.2(j) with revisions to address questions that commenters raised 
regarding assumptions, to clarify how Regulation C applies to multiple-
purpose transactions, and to remove certain comments as unnecessary.
---------------------------------------------------------------------------

    \186\ Specifically, the final rule replaces the term ``covered 
loan'' in Sec.  1003.2(j) with the terms ``closed-end mortgage 
loan'' and ``open-end line of credit.'' This change reflects the 
fact that, under final Sec. Sec.  1003.2(e) and 1003.3(c)(10), 
business- or commercial-purpose transactions are covered loans only 
if they are for the purpose of home purchase, home improvement, or 
refinancing. Retaining the term ``covered loan'' in the definition 
of home purchase loan would cause circularity in the definition of 
commercial-purpose transactions.
---------------------------------------------------------------------------

    First, the Bureau is not adopting proposed comment 2(j)-1 in the 
final rule. Proposed comment 2(j)-1 provided general guidance about the 
definition of home purchase loan, including an illustrative example 
stating that a home purchase loan includes a closed-end mortgage loan 
but does not include a home purchase completed through an installment 
contract. No commenters addressed proposed comment 2(j)-1. The final 
rule incorporates the terms ``closed-end mortgage loan'' and ``open-end 
credit plan'' in Sec.  1003.2(j). Thus, there is no need to restate in 
commentary that a closed-end mortgage loan used to purchase a dwelling 
is a home purchase loan. The Bureau is finalizing the illustrative 
example discussing installment contracts in commentary to Sec.  
1003.2(d), which

[[Page 66156]]

provides guidance about the term closed-end mortgage loan. See the 
section-by-section analysis of Sec.  1003.2(d).
    The proposal renumbered as proposed comment 2(j)-2 existing comment 
Home purchase loan-1, which provides that a home purchase loan includes 
a loan secured by one dwelling and used to purchase another dwelling. 
Two industry commenters stated that ``home purchase loan'' should not 
include these loan types and recommended that they be defined instead 
as ``home-equity loans.'' The commenters stated that, under Regulation 
Z, a loan is not a home purchase loan (i.e., a ``residential mortgage 
transaction'' under Regulation Z Sec.  1026.2(a)(24)) unless its funds 
are used to purchase the property securing the dwelling. The commenters 
stated that industry stakeholders generally view loans secured by one 
dwelling but used to purchase a different dwelling as home-equity 
loans, not as purchase loans.
    Revising Sec.  1003.2(j) in the way that commenters suggested would 
better align Regulations C and Z. In general, regulatory consistency is 
desirable; however, HMDA's purposes are different from Regulation Z's 
purposes. To understand how financial institutions are meeting the 
housing needs of their communities, it is important to understand the 
total volume of loans made to purchase dwellings, even if those loans 
are secured by dwellings other than the ones being purchased. The 
suggested revision also would require adding a new defined term, home-
equity loan, to Regulation C. This term necessarily would lump together 
loans secured by one dwelling, but used to purchase, improve, or 
refinance loans on other dwellings; reporting the loans in this way 
would obscure the valuable information described above. Thus, the 
Bureau is finalizing proposed comment 2(j)-2 largely as proposed, with 
certain non-substantive revisions for clarity, and renumbered as 
comment 2(j)-1.
    The Bureau received no comments addressing proposed comment 2(j)-3, 
which made only minor revisions to existing comment Home purchase loan-
2 addressing whether a transaction to purchase a mixed-use property is 
a home purchase loan. However, the final rule eliminates this comment 
as unnecessary. As proposed, the comment stated that a transaction to 
purchase a mixed-use property is a home purchase loan if the property 
primarily is used for residential purposes, and it provided guidance 
about how to determine the primary use of the property. Under the final 
rule, a transaction is not covered by Regulation C unless it is secured 
by a dwelling, which is defined under Sec.  1003.2(f) to include only 
mixed-use properties that primarily are used for residential purposes. 
Because financial institutions will have determined under Sec.  
1003.2(f) whether a mixed-used property is a dwelling, there is no need 
to reevaluate that decision when determining whether a transaction is a 
home purchase loan.
    Consistent with the proposal's consolidation of excluded 
transactions into Sec.  1003.3(c), the proposal moved existing comment 
Home purchase loan-3, which discusses agricultural-purpose loans, to 
proposed comment 3(c)(9)-1. No commenters addressed this 
reorganization, and the Bureau is finalizing proposed comment 3(c)(9)-
1, with revisions, as discussed in the section-by-section analysis of 
Sec.  1003.3(c)(9).
    The proposal did not propose to revise existing comments Home 
purchase loan-4, -5, or -6, and the Bureau received no comments 
addressing them. These comments are adopted in the final rule as 
comments 2(j)-2 through -4, respectively, with minor revisions for 
clarity.
    As discussed in the section-by-section analysis of Sec.  1003.1(c) 
regarding Regulation C's scope, the proposal reorganized the commentary 
to Sec.  1003.1(c). Consistent with that reorganization, the proposal 
incorporated a revised version of existing comment 1(c)-9, which 
discusses coverage of assumptions, as comment 2(j)-7 to the definition 
of home purchase loan. One industry commenter addressed this comment. 
The commenter argued that proposed comment 2(j)-7 should specify, 
consistent with Regulation Z, that a successor-in-interest transaction 
is not an assumption.
    The final rule adopts proposed comment 2(j)-7 as comment 2(j)-5, 
with revisions to address the comment received, and with other 
clarifying revisions, as follows. First, comment 2(j)-5 states that an 
assumption is a home purchase loan only if the transaction is to 
finance the new borrower's acquisition of the property (and not, e.g., 
if the borrower has succeeded in interest to ownership).\187\ Also, 
consistent with Sec.  1003.2(d) and comment 2(d)-2.ii, which provide 
that transactions documented pursuant to New York consolidation, 
extension and modification agreements are extensions of credit, comment 
2(j)-5 clarifies that a transaction in which borrower B finances the 
purchase of borrower A's dwelling by assuming borrower A's existing 
debt obligation is a home purchase loan even if the transaction is 
documented pursuant to a New York consolidation, extension, and 
modification agreement.
---------------------------------------------------------------------------

    \187\ However, as discussion in the section-by-section analysis 
of Sec.  1003.2(d), the final rule provides that successor-in-
interest transactions are assumptions for purposes of Regulation C.
---------------------------------------------------------------------------

    The Bureau proposed to remove existing comment Home purchase loan-
7, which described how to report multiple-purpose home-purchase loans, 
because the proposal consolidated all such reporting instructions in 
Sec.  1003.4. The final rule retains as comment 2(j)-6 a variation of 
existing comment Home purchase loan-7 to explain that a transaction 
with multiple purposes may meet multiple loan-type definitions. The 
comment provides an illustrative example and specifies that 
instructions for reporting a multiple-purpose loan are in the 
commentary to Sec.  1003.4(a)(3).
    Two commenters requested additional guidance about the definition 
of home purchase loan. One commenter stated that additional guidance is 
necessary because there are several ways to transfer property ownership 
to third parties, not all of which are called a ``purchase.'' The 
commenter did not specify the other methods it was referencing. As 
discussed, comment 2(j)-5 provides guidance about two additional 
methods of title transfer. The Bureau can address additional scenarios 
in the future, if necessary. Another commenter requested guidance about 
whether a loan to one sibling to purchase half of another sibling's 
home, which the other sibling owns outright, is a reportable home 
purchase loan or a refinancing when the loan is secured by the portion 
of the home being purchased. Based on the details provided, such a 
transaction is reportable, because it is a dwelling-secured loan and is 
not excluded under Sec.  1003.3(c). Because it is for the purpose of 
purchasing a dwelling, and it does not satisfy and replace an existing, 
dwelling-secured debt obligation, it is a home purchase loan but it is 
not a refinancing. See the section-by-section analysis of Sec.  
1003.2(p).
2(k) Loan/Application Register
    Regulation C requires financial institutions to collect and record 
reportable data in a format prescribed by the regulation. The Bureau 
proposed to refer to this format as the ``loan application register'' 
to improve the readability of the regulation and proposed to define it 
as a register in the format prescribed in appendix A. The Bureau did 
not receive any comments on this proposed definition. As

[[Page 66157]]

explained in part I.B above, in order to streamline the regulation, the 
final rule removes appendix A. Therefore, the Bureau is revising 
proposed Sec.  1003.2(k) to remove references to appendix A and 
defining loan/application register to mean both the record of 
information required to be collected pursuant to Sec.  1003.4 and the 
record submitted annually or quarterly, as applicable, pursuant to 
Sec.  1003.5(a). In addition, the Bureau is adding ``/'' to maintain 
consistency with the term as currently used and to clarify that the 
data recorded represents applications as well as loan originations. 
Accordingly, the Bureau is adopting Sec.  1003.2(k) with revisions.
2(l) Manufactured Home
    The Bureau proposed to make technical corrections and minor wording 
changes to the definition of manufactured home. Commenters generally 
supported aligning the definition of manufactured home with the HUD 
standards and clarifying that other factory-built homes and 
recreational vehicles are excluded. Other comments related to coverage 
and reporting of manufactured homes and similar residential structures 
are discussed in the section-by-section analysis of Sec.  1003.2(f) and 
Sec.  1003.4(a)(5). The Bureau is finalizing Sec.  1003.2(l) generally 
as proposed, with minor revisions. The definition is revised to clarify 
that, for purposes of the construction method reporting requirement 
under Sec.  1003.4(a)(5), a manufactured home community should be 
reported as manufactured home. The Bureau received no specific feedback 
on proposed comments 2(l)-1 and -2, which are adopted as proposed.
2(m) Metropolitan Statistical Area (MSA) and Metropolitan Division (MD)
    Section 1003.2 of Regulation C sets forth a definition for the 
terms ``metropolitan statistical area or MSA'' and ``Metropolitan 
Division or MD.'' The Bureau is adopting a technical amendment to this 
definition and its commentary. No substantive change is intended.
2(n) Multifamily Dwelling
    The Bureau proposed to add a new definition of multifamily dwelling 
as Sec.  1003.2(n). Commenters supported the Bureau's proposal to 
define a multifamily dwelling as one that includes five or more 
individual dwelling units. A few commenters also supported the 
inclusion of manufactured home parks, as discussed in the 
proposal.\188\ Some commenters requested clarification on the reporting 
requirements for multifamily dwellings. Other comments related to 
multifamily residential structures are addressed in the section-by-
section analysis of Sec.  1003.2(f). The Bureau is finalizing Sec.  
1003.2(n) as proposed. In response to the requests for clarification, 
the Bureau is also adding two comments related to the definition of 
multifamily dwelling. Comment 2(n)-1 clarifies how the definition 
interacts with the definition of dwelling and its reference to 
multifamily residential structures. Comment 2(n)-2 clarifies the 
special reporting requirements applicable to multifamily dwellings.
---------------------------------------------------------------------------

    \188\ 79 FR 51731, 51749 (Aug. 29, 2014); Fed. Fin. Insts. 
Examination Council, CRA/HMDA Reporter, Changes Coming to HMDA Edit 
Reports in 2010 (Dec. 2010), available at https://www.ffiec.gov/hmda/pdf/10news.pdf.
---------------------------------------------------------------------------

2(o) Open-End Line of Credit
    HMDA section 303(2) defines ``mortgage loan'' as a residential real 
property-secured loan or a home improvement loan but does not 
specifically address coverage of open-end lines of credit secured by 
dwellings. Regulation C also currently does not define the term ``open-
end line of credit.'' However, as discussed in the section-by-section 
analysis of Sec.  1003.2(h), Regulation C currently defines the term 
``home-equity line of credit'' as an open-end credit plan secured by a 
dwelling as defined in Regulation Z. Under existing Regulation C Sec.  
1003.4(c)(3), financial institutions may, but are not required to, 
report home-equity lines of credit made in whole or in part for home 
purchase or home improvement purposes.\189\ Commercial-purpose lines of 
credit secured by a dwelling fall outside of Regulation Z's definition 
of open-end credit plan and thus are not optionally reported as home-
equity lines of credit under existing Regulation C.
---------------------------------------------------------------------------

    \189\ Under existing Regulation C Sec.  1003.4(a)(7) and comment 
4(a)(7)-3, if a financial institution opts to report home-equity 
lines of credit, it reports only the portion of the line intended 
for home improvement or home purchase.
---------------------------------------------------------------------------

    In 2000, in response to the increasing importance of open-end 
lending in the housing market, the Board proposed to revise Regulation 
C to require mandatory reporting of all home-equity lines of 
credit.\190\ The Board's proposal was based on research showing that 
about 70 percent of all home-equity lines of credit were being used at 
least in part for home improvement purposes. The Board believed that 
requiring reporting of all home-equity lines of credit would provide 
more complete information about the home improvement market, one of 
HMDA's original purposes.\191\ The Board's 2002 final rule concluded 
that, while collecting data on home-equity lines of credit would give a 
more complete picture of the home mortgage market, the benefits of 
mandatory reporting relative to other proposed changes (such as 
collecting information about higher-priced loans) did not justify the 
increased burden.\192\ The Board thus decided to retain optional 
reporting.
---------------------------------------------------------------------------

    \190\ Home-equity lines of credit were rare in the 1970s and 
early 1980s when Regulation C was first implemented. Regulation C 
first addressed home-equity lines of credit in 1988, when it 
permitted financial institutions to report home-equity lines of 
credit that were home improvement loans. See 53 FR 31683, 31685 
(Aug. 19, 1988).
    \191\ See 65 FR 78656, 78659-60 (Dec. 15, 2000).
    \192\ See 67 FR 7222, 7225 (Feb. 15, 2002).
---------------------------------------------------------------------------

    Open-end mortgage lending continued to increase in the years 
following the Board's 2002 final rule, and the Board continued to 
receive feedback urging such lending to be reported in HMDA.\193\ The 
Bureau received similar feedback after it assumed rulemaking authority 
for HMDA from the Board in 2011.\194\ The feedback suggested that home-
equity lines of credit have become increasingly important to the 
housing market and that requiring such lending to be reported under 
Regulation C would help to understand how financial institutions are 
meeting the housing needs of communities. The Bureau thus proposed to 
require financial institutions to report all home-equity lines of 
credit, as well as all commercial-purpose lines of credit secured by a 
dwelling.
---------------------------------------------------------------------------

    \193\ See, e.g., Donghoon Lee et al., Fed. Reserve Bank of New 
York, Staff Report No. 569, A New Look at Second Liens, at 11 (Aug. 
2012) (approximately $20 billion in home-equity lines of credit were 
originated in the fourth quarter of 1999; by the fourth quarter of 
2005, approximately $125 billion in HELOCs were originated). See 
generally, e.g., Atlanta Hearing, supra note 40; San Francisco 
Hearing, supra note 42; Chicago Hearing, supra note 46; Washington 
Hearing, supra note 39.
    \194\ See, e.g., National Community Reinvestment Coalition et 
al., Creating Comprehensive HMDA and Loan Performance Databases: 
White Paper Submitted to the Consumer Financial Protection Bureau at 
15 (Feb. 15, 2013), available at https://www.empirejustice.org/assets/pdf/policy-advocacy/consumer-organizations-urge.pdf.
---------------------------------------------------------------------------

    Specifically, the Bureau proposed new Sec.  1003.2(o) to define the 
term ``open-end line of credit,'' which included any dwelling-secured 
open-end credit plan, as described under Regulation Z Sec.  
1026.2(a)(20), even if the credit was issued by someone other than a 
creditor (as defined in Regulation Z Sec.  1026.2(a)(17)), to someone 
other than a consumer (as defined in Regulation Z Sec.  1026.2(a)(11)) 
and for business rather than consumer purposes (as defined in

[[Page 66158]]

Regulation Z Sec.  1026.2(a)(12)). Together with proposed Sec.  
1003.2(e), which provided that all open-end lines of credit were 
``covered loans,'' proposed Sec.  1003.2(o) provided that financial 
institutions must report: (1) all consumer-purpose home-equity lines of 
credit, which currently are optionally reported, and (2) all dwelling-
secured commercial-purpose lines of credit, which currently are not 
reported. In short, the proposal provided for reporting of all 
dwelling-secured open-end lines of credit.\195\
---------------------------------------------------------------------------

    \195\ 79 FR 51731, 51757-59 (Aug. 29, 2014).
---------------------------------------------------------------------------

    As discussed below and in the section-by-section analyses of Sec.  
1003.2(e) and (g) and of Sec.  1003.3(c)(10) and (12), the Bureau is 
finalizing mandatory reporting of open-end lines of credit, but with 
certain modifications from the proposal to: (1) Limit the number of 
institutions that will report; (2) limit the number of transactions 
that will be reported; (3) clarify certain reporting requirements for 
open-end lines of credit; and (4) clarify the definition of ``open-end 
line of credit.'' As discussed below, the Bureau believes that 
finalizing mandatory reporting of open-end lines of credit will provide 
information critical to HMDA's purposes. The Bureau understands that, 
notwithstanding the modifications described above, financial 
institutions may incur significant costs as a result of open-end line 
of credit reporting. However, the Bureau believes that the benefits of 
reporting justify the burdens.
    The Bureau received a large number of comments about proposed Sec.  
1003.2(o). The vast majority of the comments discussed whether 
reporting of dwelling-secured open-end lines of credit should be 
mandatory and, if so, the scope of transactions that should be 
reported. A few commenters raised specific questions about the proposed 
definition of open-end line of credit. Consumer advocacy group 
commenters and researchers favored mandatory reporting, while the 
majority of industry commenters strongly opposed it. Among industry 
commenters that addressed mandatory reporting, most objected to 
reporting any open-end lines of credit. Some, however, specifically 
objected to mandatory reporting of commercial-purpose lines of credit. 
For organizational purposes, the Bureau addresses in this section-by-
section analysis comments about: (1) Open-end line of credit coverage 
generally; (2) consumer-purpose line of credit coverage specifically; 
and (3) the definition of ``open-end line of credit'' in proposed Sec.  
1003.2(o).\196\ Comments specific to commercial-purpose lines of credit 
are addressed in the section-by-section analysis of Sec.  1003.3(c)(10) 
concerning commercial-purpose transactions.
---------------------------------------------------------------------------

    \196\ Many commenters used the common phrase ``home-equity lines 
of credit'' or ``HELOC'' to discuss all open-end mortgage lending. 
For simplicity and to align with the final rule's deletion of the 
defined term ``home-equity line of credit'' from Regulation C (see 
the section-by-section analysis of Sec.  1003.2(h)), the Bureau 
hereinafter refers to covered (i.e., dwelling-secured) open-end 
transactions simply as consumer- or commercial-purpose ``open-end 
lines of credit.''
---------------------------------------------------------------------------

    Consumer advocacy group commenters and researchers favored 
mandatory reporting of all consumer-purpose open-end lines of credit. A 
large number of these commenters stated that data about open-end lines 
of credit would be valuable in assessing whether neighborhoods are 
receiving the full range of credit that they need on nondiscriminatory 
terms. The commenters stated that open-end lines of credit are much 
more widely used today than when HMDA was enacted, that problematic 
practices were associated with these products during the 2000s, that 
defaults on open-end credit lines contributed significantly to the 
foreclosure crises in many neighborhoods, and that open-end credit 
lines are important sources of home improvement financing, particularly 
in minority and immigrant communities. The commenters stated that fully 
understanding the mortgage market, including problems relating to 
overextension of credit in minority and immigrant neighborhoods, 
requires more detailed information about such transactions. They stated 
that information about home-equity products, for example, is important 
for understanding the total amount of debt and, in turn, default risk 
on a property.
    A few consumer advocacy group commenters noted that open-end lines 
of credit, especially when fully drawn at account opening, can be 
interchangeable with closed-end products such as closed-end, 
subordinate-lien loans and cash-out refinancings. All such products 
provide borrowers with cash to do something, borrowers face the same 
risks of discrimination, and borrowers put their homes on the line in 
exchange for the funds. Commenters argued that requiring reporting of 
all dwelling-secured closed-end mortgage loans while continuing 
optional reporting of open-end lines of credit only would encourage 
more open-end lending, which in turn would decrease visibility into 
home-secured lending. Finally, one commenter noted that there is a lack 
of other publicly available information about dwelling-secured open-end 
lines of credit.
    A minority of industry commenters either supported (or stated that 
they did not oppose) reporting consumer-purpose open-end lines of 
credit.\197\ A few of these commenters argued that eliminating optional 
open-end line of credit reporting for consumer-purpose credit lines 
would reduce confusion and compliance costs by streamlining reporting 
obligations, or would improve data for HMDA users. Some industry 
commenters believed that data about consumer-purpose open-end lines of 
credit would serve HMDA's purposes. For example, one industry commenter 
acknowledged that, even though reporting open-end lines of credit would 
be burdensome, the data reported would provide additional information 
for fair lending use.
---------------------------------------------------------------------------

    \197\ Industry commenters unanimously opposed reporting 
dwelling-secured commercial-purpose open-end lines of credit. The 
Bureau addresses those comments in the section-by-section analysis 
of Sec.  1003.3(c)(10).
---------------------------------------------------------------------------

    A large number of industry commenters objected to mandatory 
reporting of consumer-purpose open-end lines of credit; a few of these 
commenters suggested that only credit lines for home purchase, home 
improvement or refinancing should be reported. Commenters generally 
asserted that mandatory reporting would impose significant burdens for 
little benefit. Some argued that the burdens are what have kept most 
financial institutions from voluntarily reporting home-equity line of 
credit data under current Regulation C. Financial institutions of 
various types and sizes objected to mandatory reporting, but smaller- 
or medium-sized banks and their industry associations, and credit 
unions and their industry associations, generally expressed the 
greatest concerns, with some stating that open-end coverage was their 
primary concern with the proposal.
    A primary concern among many financial institutions and industry 
associations, and particularly among many credit unions and credit 
union associations, was the operational costs and burdens of collecting 
and reporting data about open-end lines of credit. The most commonly 
cited operational difficulty was that financial institutions treat 
open-end lines of credit more like consumer loans than mortgage loans. 
Thus, financial institutions frequently originate and maintain data 
about open-end lines of credit on different computer systems than 
traditional mortgages, or use different software vendors. Commenters 
asserted that upgrading, replacing, or programming their systems

[[Page 66159]]

to enable open-end reporting would be difficult, expensive, and time-
consuming. For example, financial institutions could use their mortgage 
loan origination systems for open-end reporting, but those systems are 
more expensive than the consumer systems typically used for credit 
lines. Commenters noted that, if financial institutions decided to keep 
separate systems for open- and closed-end credit, they would incur 
costs from programming and adding data fields in multiple systems, as 
well as from compiling and aggregating the data. For some (smaller) 
institutions, aggregating the data would mean manually entering data 
from two different systems.
    Some commenters similarly observed that financial institutions use 
different departments, staff, and processes to originate open-end lines 
of credit and traditional mortgages. Commenters argued that open-end 
reporting would require financial institutions to incur costs to change 
their operations. For example, consumer lending staff either would need 
to be trained on HMDA reporting, or credit line originations would need 
to be moved from the consumer- to the mortgage-lending divisions of 
financial institutions. Some commenters also argued that reporting 
open-end lines of credit would require institutions to spend even more 
time and money on quality control and pre-submission auditing and would 
increase the risk of errors.
    A number of commenters perceived other types of operational 
burdens. For example, a few commenters emphasized that the reporting 
burden would be particularly great because it would be entirely new 
even for most current HMDA reporters, so infrastructure would need to 
be built from the ground up. A few commenters similarly worried that 
some institutions that focus on open-end lending would become HMDA 
reporters for the first time and would incur significant start-up 
expenses to begin reporting. Finally, some commenters noted that 
aligning open-end lending with the MISMO data standards would be 
burdensome.
    Many industry commenters argued that reporting all open-end line of 
credit applications and originations would increase institutions' 
ongoing HMDA reporting costs because their volume of reportable 
transactions would increase significantly. Some commenters asserted 
that the proposal underestimated the increase. Only a handful of 
commenters specifically estimated how many additional applications and 
originations they would be required to report. Estimated increases 
ranged from 20 percent to 200 percent per institution, or from hundreds 
to thousands of transactions, depending on the institution's size and 
volume of open-end mortgage lending. Many commenters, particularly 
smaller institutions, stated that they would need to hire additional 
staff, or that they would need to allocate more money to technology and 
staff, to handle the volume increase. A few commenters estimated that 
collecting data about all dwelling-secured open-end lines of credit 
would double or triple their ongoing compliance costs.
    Several commenters also argued that reporting open-end lines of 
credit would be burdensome because gathering and accurately reporting 
information about credit lines would be difficult. For example, several 
industry associations stated that fewer data are gathered from 
consumers for small-dollar, open-end credit lines than for traditional 
mortgages, so lenders would need to create systems and procedures to 
collect the data. One commenter further noted that lines of credit are 
consumer loan products with different offerings by different 
institutions and are less standardized than traditional mortgages. 
Another commenter pointed out that open-end lines of credit are exempt 
from other regulations because they are different than closed-end 
loans. Some commenters stated that it would be burdensome to determine 
whether, and if so how, data points apply to open-end lines of credit. 
These commenters asserted that reporting open-end lines of credit thus 
could increase reporting errors. A few of these commenters were 
particularly concerned about the Bureau's proposal to require 
information about the first draw on a home-equity line of credit.
    Many commenters argued that, in addition to being burdensome, 
reporting open-end lines of credit would have few benefits. First, many 
commenters asserted that mandatory reporting would exceed HMDA's 
mission and that the data reported would not serve HMDA's purposes. 
They argued that the data would not show whether financial institutions 
were meeting the housing needs of their communities because open-end 
lines of credit often are used for personal, non-housing-related, 
purposes (e.g., vacations, education, and bill consolidation). Some 
commenters argued that data about credit lines used for non-housing-
related purposes would produce misleading information about mortgage 
markets and that reporting should be limited, at most, to credit lines 
for home purchase, home improvement, or refinancing purposes. Others 
asserted that, even if a consumer intended to use a line of credit for 
a housing-related purpose, such as home improvement, financial 
institutions could not know at account opening whether the borrower 
ever actually drew on the account or, if so, whether the funds were 
used for housing or other purposes. The commenters thus asserted that 
the data reported would not be useful.
    Some commenters argued that data about open-end lines of credit 
would not serve HMDA's fair lending purpose, because borrowers taking 
out open-end credit lines borrow against the equity in their homes and 
are not fully assessed as new borrowers. A few commenters asserted that 
it was inappropriate for the Bureau to require open-end reporting for 
market monitoring and research purposes or to address safety and 
soundness concerns. One commenter argued that open-end lines of credit 
are less risky for consumers than closed-end loans, because they often 
are smaller, with smaller payments that are easier to make. Another 
argued that the change was not required by the Dodd-Frank Act.
    Many commenters also argued that mandating reporting of open-end 
lines of credit would be of little benefit, because certain current and 
proposed data points (e.g., results from automated underwriting 
systems, some pricing data, and whether a transaction has non-
amortizing features) would not apply to open-end credit. In addition, 
many commenters stated that mixing data about open-end, ``consumer-
purpose'' transactions with traditional, closed-end mortgage loans will 
skew HMDA data and impair its integrity for HMDA users. Finally, a few 
commenters noted that the Board previously had considered and rejected 
mandatory reporting of open-end lines of credit; these commenters 
asserted that the Board had found that open-end reporting would not 
serve HMDA's purposes.
    A few smaller financial institutions, credit unions, and credit 
union leagues predicted that they or other small institutions could be 
forced to stop offering open-end lines of credit. Others argued that 
adding open-end line of credit reporting would strain the limited 
resources of smaller banks and credit unions already struggling with 
burdensome compliance requirements, would inhibit such institutions 
from serving their customers, would increase costs to consumers and 
credit union members, or could force such institutions to exit the 
market for home-equity lines of credit, thereby reducing consumers' 
low-cost credit options.
    Commenters suggested various alternatives to mandatory reporting of 
open-end lines of credit. Some urged the

[[Page 66160]]

Bureau to maintain optional reporting, while others asserted that open-
end lines of credit should be excluded from reporting altogether. Some 
argued that smaller- or medium-sized banks and credit unions should be 
exempt from reporting, because small institutions did not cause the 
financial crisis and reporting would burden them unfairly. As noted, a 
few commenters urged the Bureau to require reporting only of open-end 
lines of credit for home purchase, home improvement, or refinancing 
purposes.
    The Bureau has considered the comments concerning mandatory 
reporting of open-end lines of credit, and the Bureau is finalizing 
Sec.  1003.2(o) largely as proposed, but without covering certain 
commercial-purpose lines of credit.\198\ The Bureau is finalizing 
separate open-end line of credit coverage thresholds under Sec.  
1003.2(g) and Sec.  1003.3(c)(12) to ensure that only financial 
institutions with a minimum level of open-end line of credit 
originations will be required to report.\199\ The Bureau acknowledges 
that, even with these modifications, many financial institutions may 
incur significant costs to report their open-end lines of credit, and 
that one-time costs may be particularly large. However, the Bureau 
believes that the benefits of mandatory reporting justify those costs.
---------------------------------------------------------------------------

    \198\ See the section-by-section analysis of Sec.  
1003.3(c)(10).
    \199\ See the section-by-section analyses of Sec.  
1003.2(g)(1)(v)(B) and (2)(ii)(B) and of Sec.  1003.3(c)(12).
---------------------------------------------------------------------------

    As discussed in the proposal, the Bureau believes that including 
dwelling-secured lines of credit within the scope of Regulation C is a 
reasonable interpretation of HMDA section 303(2), which defines 
``mortgage loan'' as a loan secured by residential real property or a 
home improvement loan. The Bureau interprets ``mortgage loan'' to 
include dwelling-secured lines of credit, as they are secured by 
residential real property and they may be used for home improvement 
purposes.\200\ Moreover, pursuant to section 305(a) of HMDA, the Bureau 
believes that requiring reporting of all dwelling-secured, consumer-
purpose open-end lines of credit is necessary and proper to effectuate 
the purposes of HMDA and to prevent circumvention of evasion 
thereof.\201\ HMDA and Regulation C are designed to provide citizens 
and public officials sufficient information about mortgage lending to 
ensure that financial institutions are serving the housing needs of 
their communities, to assist public officials in distributing public 
sector investments, and to identify possible discriminatory lending 
patterns. The Bureau believes that collecting information about all 
dwelling-secured, consumer-purpose open-end lines of credit serves 
these purposes.\202\
---------------------------------------------------------------------------

    \200\ See 79 FR 51731, 51758-59 (Aug. 29, 2014).
    \201\ See id. at 51759.
    \202\ Contrary to some commenters' assertions, the Board did not 
find that open-end reporting would not serve HMDA's purposes; 
rather, the Board in 2002 determined that the burdens of open-end 
reporting did not justify the benefits at that time.
---------------------------------------------------------------------------

    First, financial institutions will know, and the data will show, 
when an open-end line of credit is being taken out for the purpose of 
purchasing a home. This data alone will serve HMDA's purposes by 
providing information about how often, on what terms, and to which 
borrowers' institutions are originating open-end lines of credit to 
finance home purchases. Although many commenters argued that dwelling-
secured lines of credit are used for purposes unrelated to housing, in 
the years leading up to the financial crisis, they often were made and 
fully drawn more or less simultaneously with first-lien home-purchase 
loans (i.e., as piggybacks), essentially creating high loan-to-value 
ratio home-purchase transactions that were not visible in the HMDA 
dataset.\203\ Some evidence suggests that piggyback lending may be on 
the rise again now that the market has begun to recover from the 
crisis.\204\
---------------------------------------------------------------------------

    \203\ See, e.g., Donghoon Lee et al., Fed. Reserve Bank of New 
York, Staff Report No. 569, A New Look at Second Liens, at 11 (Aug. 
2012) (estimating that, prior to the crisis, as many as 45 percent 
of purchasers in coastal and bubble areas used a piggyback loan to 
subsidize the down payment on a first mortgage, hoping to eliminate 
the need for mortgage insurance).
    \204\ See, e.g., Joe Light and AnnaMaria Andriotis, Borrowers 
Tap Their Homes at a Hot Clip, Wall St. J., May 29, 2014), available 
at https://www.wsj.com/articles/borrowers-tap-their-homes-at-a-hot-clip-1401407763 (discussing the recent increase in home-equity line 
of credit lending and noting that some lenders have begun to bring 
back piggyback loans, which ``nearly vanished'' during the mortgage 
crisis).
---------------------------------------------------------------------------

    Second, the data will help to understand how often, on what terms, 
and to which borrowers institutions are originating open-end lines of 
credit for home improvement purposes. It is true, as many commenters 
argued, that funds from lines of credit may be used for many purposes, 
and that lenders cannot track how funds ultimately are used. However, 
the same is true of funds obtained through cash-out refinancings, which 
currently are reported under Regulation C, and through closed-end home-
equity loans and reverse mortgages, some of which are reportable today 
and all of which will be reportable under the final rule (unless an 
exception applies).\205\ Funds from all of these products may be used 
for personal purposes, but they may also be used for home improvement 
(and home purchase) purposes. Citizens and public officials long have 
analyzed data about such products to understand how financial 
institutions are satisfying borrowers' needs for home improvement 
lending.\206\
---------------------------------------------------------------------------

    \205\ As discussed in the section-by-section analysis of Sec.  
1003.2(q), commenters raised some of the same concerns about reverse 
mortgages. The final rule requires reporting of all reverse 
mortgages for the reasons discussed in the section-by-section 
analysis of Sec.  1003.2(q).
    \206\ For example, financial institutions currently report 
closed-end home-equity loans when borrowers indicate that some or 
all of the funds will be used for home improvement purposes. 
Financial institutions, however, do not track what portion (if any) 
of the funds ultimately are used for that purpose. No data reporting 
regime can provide perfect information; the information that is 
reported nevertheless assists in serving HMDA's purposes.
---------------------------------------------------------------------------

    The Bureau believes that financial institutions serve the housing 
needs of their communities not only by providing fair and adequate 
financing to purchase and improve homes, but also by ensuring that 
neither individual borrowers nor particular communities are excessively 
overleveraged through open-end home-equity borrowing. The Bureau thus 
declines to limit reporting of open-end mortgage lending to 
transactions for home purchase, home improvement, or refinancing 
purposes, as some commenters suggested. Open-end home-equity lending, 
regardless of how the funds are used, liquefies equity that borrowers 
have built up in their homes, which often are their most important 
assets. Borrowers who take out dwelling-secured credit lines increase 
their risk of losing their homes to foreclosure when property values 
decline.
    Indeed, as discussed in the proposal, open-end line of credit 
originations expanded significantly during the mid-2000s, particularly 
in areas with high home-price appreciation, and research indicates that 
speculative real estate investors used open-end lines of credit to 
purchase non-owner-occupied investment properties, which correlated 
with higher first mortgage defaults and home-price depreciation.\207\ 
In short, overleverage due to open-end mortgage lending and defaults on 
dwelling-secured open-end lines of credit contributed to the 
foreclosure crises that many communities experienced in the late 2000s. 
Communities' housing needs would have been better served if these 
crises could have been avoided (or remedied more quickly).\208\ Had 
open-

[[Page 66161]]

end line of credit data been reported in HMDA, the public and public 
officials could have had a much earlier warning of potential risks. The 
Bureau believes that obtaining data about open-end mortgage lending 
remains critical, with open-end lending on the rise once again as home 
prices have begun to recover from the financial crisis.\209\
---------------------------------------------------------------------------

    \207\ See 79 FR 51731, 51757 (Aug. 29, 2014).
    \208\ As noted in the proposal, many public and private mortgage 
relief programs encountered unique difficulties assisting distressed 
borrowers who had obtained subordinate-lien loans, including 
dwelling-secured open-end lines of credit. See 79 FR 51731, 51757 
(Aug. 29, 2014).
    \209\ See, e.g., Press Release, Equifax, First Quarter Mortgage 
Originations Soar (June 29, 2015), https://investor.equifax.com/releasedetail.cfm?ReleaseID=919892 (stating that more than 285,700 
new accounts were originated during the first quarter of 2015, a 
year-over-year increase of 21.2 percent and the highest level since 
2008); CBA, Icon Market Analysis Finds Growing Consumer Demand for 
Home Equity Lines of Credit (Mar. 23, 2015) (home-equity line of 
credit originations have increased in each of the past 13 quarters, 
with annual growth of nearly 22 percent in both 2013 and 2014 and an 
increase of 36 percent for the first quarter of 2015 versus the 
first quarter of 2014); Joe Light and AnnaMaria Andriotis, Borrowers 
Tap Their Homes at a Hot Clip, Wall St. J., May 29, 2014), available 
at https://www.wsj.com/articles/borrowers-tap-their-homes-at-a-hot-clip-1401407763 (quoting the chief economist of Equifax Inc. that 
lenders had begun marketing more aggressively in areas where home 
prices had recovered and that originations had picked up as 
consumers had returned to home improvement projects postponed during 
the crisis).
---------------------------------------------------------------------------

    Finally, mandatory reporting of open-end lines of credit will help 
to understand whether all dwelling-secured credit is extended on 
equitable terms. It may be true, as some commenters asserted, that 
borrowers are not necessarily evaluated for open-end credit in the same 
manner as for traditional mortgage loans and that adequate home equity 
is the key consideration. Lending practices during the financial crisis 
demonstrated, however, that during prolonged periods of home-price 
appreciation, lenders became increasingly comfortable originating home-
equity products to borrowers with less and less equity to spare. The 
more leveraged the borrower, the more at risk the borrower is of losing 
his or her home. Obtaining data about open-end mortgage lending could 
show, during future housing booms, whether such risky lending practices 
are concentrated among certain borrowers or communities and permit the 
public and public officials to respond appropriately. In this and other 
ways, data about open-end lines of credit will help to assist in 
identifying possible discriminatory lending patterns.
    Certain commenters pointed out that several data points will not 
apply to open-end lines of credit. However, the Bureau believes that 
the public and public officials will receive valuable information from 
all of the data points that do apply. With applicable data points, HMDA 
users will have, for the first time, good information about which 
financial institutions are originating open-end lines of credit, how 
frequently, on what terms, and to which borrowers. HMDA users will be 
able to evaluate whether, and how, financial institutions are using 
open-end lines of credit to serve the housing needs of their 
communities. Moreover, as discussed below, the final rule adopts 
several measures to minimize the burdens to financial institutions of 
determining whether and how data points apply to open-end lines of 
credit.\210\ The final rule also requires financial institutions to 
flag whether a transaction is for closed- or open-end credit. See Sec.  
1003.4(a)(37). This flag addresses commenters' concerns about 
commingling information about closed-end mortgage loans and open-end 
lines of credit.\211\
---------------------------------------------------------------------------

    \210\ Some commenters were concerned that financial institutions 
would be required to report the portion of the open-end line of 
credit that would be used for home purchase, home improvement, or 
refinancing purposes. However, the final rule, like the proposal, 
requires financial institutions to report the total amount of the 
line at account opening. See the section-by-section analysis of 
Sec.  1003.4(a)(7).
    \211\ Indeed, commingling of information is more a of problem 
under existing Regulation C than it will be under the final rule, 
because there currently is no way for users of HMDA data to 
distinguish information about optionally reported open-end lines of 
credit from the rest of the HMDA dataset.
---------------------------------------------------------------------------

    Not only will data about open-end lines of credit help to serve 
HMDA's purposes, but the Bureau believes that expanding the scope of 
Regulation C to include dwelling-secured, consumer-purpose lines of 
credit is necessary to prevent evasion of HMDA. As discussed in the 
proposal, consumer-purpose open-end lines of credit may be 
interchangeable with consumer-purpose closed-end home-equity products, 
many of which currently are reported, and all of which will be 
reported, under final Sec.  1003.2(d) and (e). The Bureau believes 
that, if open- and closed-end consumer-purpose home-equity products are 
treated differently under the final rule, there is a heightened risk 
that financial institutions could steer borrowers to open-end products 
to avoid HMDA reporting.\212\ The Bureau believes that steering could 
be particularly attractive (and risky for borrowers) given that open-
end lines of credit are not subject to the Bureau's 2013 ATR Final Rule 
and currently are subject to less complete disclosure requirements than 
closed-end products under Regulation Z. The Bureau believes that some 
financial institutions likely would attempt to evade Regulation C if 
mandatory reporting were not adopted for open-end lines of credit. The 
Bureau thus has determined that, in addition to being a reasonable 
interpretation of the statute, requiring reporting of dwelling-secured, 
consumer-purpose open-end lines of credit also is authorized as an 
adjustment that is necessary and proper to prevent evasion of HMDA.
---------------------------------------------------------------------------

    \212\ See 79 FR 51731, 51758 (Aug. 29, 2014). The Bureau 
believes the risk of steering is highlighted by lending practices 
described during the Board's 2010 Hearings; for example, one 
individual described how a loan officer persuaded her to open a 
home-equity line of credit simultaneously with her primary mortgage, 
even though she had not inquired about or been interested in opening 
a line of credit. See id.
---------------------------------------------------------------------------

    The Bureau acknowledges that reporting open-end lines of credit 
will impose one-time and ongoing operational costs on reporting 
institutions. The proposal estimated that the one-time costs of 
modifying processes and systems and training staff to begin open-end 
line of credit reporting likely would impose significant costs on some 
institutions, and that institutions' ongoing reporting costs would 
increase as a function of their open-end lending volume.\213\ As 
discussed above, many commenters emphasized both these one-time and 
ongoing costs.\214\ The Bureau acknowledges these costs and understands 
that many institutions' reportable transaction volume many increase 
significantly.
---------------------------------------------------------------------------

    \213\ See id. at 51825-26, 51836-37 (estimating the one-time and 
ongoing costs, respectively, to low-, medium-, and high-complexity 
institutions of reporting open-end lines of credit, all dwelling-
secured home-equity loans, and reverse mortgages).
    \214\ Certain commenters argued that the proposal underestimated 
the costs of reporting open-end lines of credit. Those comments are 
addressed in part VII, along with the methodology the Bureau has 
used to estimate the costs of open-end reporting, and the challenges 
the Bureau has faced in developing its estimates.
---------------------------------------------------------------------------

    As discussed in the proposal, in the section-by-section analysis of 
Sec.  1003.2(g), and in part VII below, the Bureau has faced challenges 
developing accurate estimates of the likely impact on institutional and 
transactional coverage of mandatory reporting of open-end lines of 
credit due to the lack of available data concerning open-end lending. 
These challenges affect the Bureau's ability to develop reliable one-
time and ongoing cost estimates, as well, because such costs are a 
function of both the number of institutions reporting open-end data and 
the number of transactions each of those institutions reports.\215\ 
After careful analysis, the

[[Page 66162]]

Bureau has developed estimates of open-end line of credit origination 
volumes by institutions and, as discussed in part VII, has used those 
estimates to estimate both the overall one-time and overall ongoing 
costs to institutions of open-end reporting.\216\ The Bureau expects 
that both one-time and ongoing costs will be larger for more complex 
financial institutions that have higher open-end lending volume and 
that will need to integrate separate business lines, data platforms, 
and systems, to begin reporting open-end lending. Precisely because no 
good source of publicly available data exists concerning dwelling-
secured open-end lines of credit, it is difficult to predict the 
accuracy of the Bureau's cost estimates, but the Bureau believes that 
they are reasonably reliable and acknowledges that, for many lenders, 
the costs of open-end reporting may be significant. As discussed 
further below, the final rule revises the proposal in several ways to 
reduce open-end reporting costs for certain financial 
institutions.\217\
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    \215\ The Bureau solicited information that would assist it in 
making these estimates and in determining whether the estimates 
provided in the proposal were accurate, but commenters generally did 
not provide responsive data. See 79 FR 51731, 51754 (Aug. 29, 2014). 
Some commenters argued, based on their particular institution's 
lending volume, that the Bureau underestimated the number of open-
end lines of credit that institutions would be required to report. 
As discussed in part VII, the proposal's and the final rule's 
estimates of transaction volumes are averages. Thus, they may be low 
for some financial institutions and high for others. Moreover, some 
industry commenters did not distinguish between consumer- and 
commercial-purpose credit lines. As discussed in the section-by-
section analysis of Sec.  1003.3(c)(10), the final rule requires 
financial institutions to report only a subset of commercial-purpose 
lines of credit. Thus, it is possible that some commenters 
overestimated the number of open-end transactions that they would 
report under the final rule. Based on available information, 
including the feedback provided by commenters, the Bureau cannot 
definitively conclude whether the proposal significantly 
underestimated reportable open-end line of credit volume as a 
general matter.
    \216\ As noted in part VII, with currently available sources, 
the Bureau can reliably estimate: (1) Total open-end line of credit 
originations in the market and (2) subordinate-lien open-end line of 
credit originations by credit union. Both of these estimates are 
under- and over-inclusive of the open-end transactions that are 
reportable under the final rule. Neither includes applications that 
do not result in originations, which will be reported, and both 
include commercial-purpose lines of credit, many of which will be 
excluded under final Sec.  1003.3(c)(10). For banks and thrifts, the 
Bureau's estimates of open-end line of credit originations have been 
extrapolated from several data sources using simplified assumptions 
and may not accurately reflect open-end lending by such 
institutions.
    \217\ The Bureau does not believe that open-end reporters will 
incur burden from aligning with MISMO. As discussed in part VII, the 
Bureau did not propose to require, and the final rule does not 
require, any financial institution to use or become familiar with 
the MISMO data standards. Rather, the rule merely recognizes that 
many financial institutions are already using the MISMO data 
standards for collecting and transmitting mortgage data and uses 
similar definitions for certain data points to reduce burden for 
those institutions.
---------------------------------------------------------------------------

    A few commenters argued that reporting open-end lines of credit 
will be difficult because financial institutions collect less 
information from consumers when originating open-end products than when 
originating traditional, closed-end mortgage loans. In part, this may 
be because open-end lines of credit are not subject to the Bureau's 
2013 ATR Final Rule. However, the Bureau believes that this lack of 
substantive regulation only strengthens the need for open-end line of 
credit reporting in HMDA so that the public and policymakers have 
sufficient data about the dwelling-secured open-end credit market to 
understand whether lenders offering open-end products are serving the 
housing needs of their communities.
Methods To Reduce the Burden of Open-End Line of Credit Reporting
    The Bureau is finalizing mandatory reporting of dwelling-secured 
consumer-purpose open-end lines of credit because of the many benefits 
discussed above. The Bureau is adopting several measures to address 
commenters' concerns about the burdens of implementing open-end 
reporting and their concerns about ongoing open-end reporting costs.
    Institutional coverage threshold. As discussed in the section-by-
section analysis of Sec.  1003.2(g), the Bureau is finalizing a 
separate, open-end institutional coverage threshold to determine 
whether an institution is a HMDA reporter. As discussed in that 
section, the Bureau concluded that its proposed institutional coverage 
test achieved appropriate market coverage of closed-end mortgage 
lending. However, in light of the costs associated with open-end 
reporting, the Bureau was concerned that finalizing the proposed 
institutional coverage test would have required institutions with 
sufficient closed-end--but very little open-end--mortgage lending to 
incur costs to begin open-end reporting. The Bureau thus is adopting an 
institutional coverage test that covers a financial institution only if 
(in addition to meeting the other criteria under Sec.  1003.2(g)) it 
originated either (1) 25 or more closed-end mortgage loans or (2) 100 
or more open-end lines of credit in each of the two preceding calendar 
years. As discussed in the section-by-section analysis of Sec.  
1003.2(g), the Bureau believes that the 25 closed-end and 100 open-end 
loan-volume origination tests appropriately balance the benefits and 
burdens of covering institutions based on their closed- and open-end 
mortgage lending, respectively. Specifically, as discussed further in 
the section-by-section analysis of Sec.  1003.2(g) and in part VII, the 
Bureau estimates that adopting a 100-open-end line of credit threshold 
will avoid imposing the burden of establishing open-end reporting on 
approximately 3,000 predominantly smaller-sized institutions with low 
open-end lending compared to the proposal, while still requiring 
reporting of a significant majority of dwelling-secured, open-end line 
of credit originations. As discussed in those sections, the Bureau also 
believes that all institutions that will be required to report open-end 
line of credit data are current HMDA reporters.
    Transactional coverage threshold. The final rule also adds in Sec.  
1003.3(c)(12) a transactional coverage threshold for open-end mortgage 
lending. The transactional coverage threshold is designed to work in 
tandem with the open-end institutional coverage threshold in Sec.  
1003.2(g). Specifically, Sec.  1003.3(c)(12) provides that a financial 
institution that originated fewer than 100 open-end lines of credit in 
each of the preceding two calendar years is not required to report data 
about its open-end lines of credit, even if the financial institution 
otherwise is a financial institution under Sec.  1003.2(g) because of 
its closed-end lending (i.e., even if the institution will be reporting 
data about closed-end mortgage loans).\218\
---------------------------------------------------------------------------

    \218\ For balance, the Bureau is adopting a parallel 
transactional coverage threshold for closed-end mortgage loans in 
Sec.  1003.3(c)(11). Under Sec.  1003.3(c)(11), a financial 
institution that originated fewer than 25 closed-end mortgage loans 
in each of the preceding two calendar years is not required to 
report data about its closed-end mortgage loans, even if the 
financial institution otherwise is a financial institution under 
Sec.  1003.2(g) because of its open-end mortgage lending (i.e., even 
if the institution will be reporting data about open-end lines of 
credit).
---------------------------------------------------------------------------

    Effective date. The Bureau is mindful that most financial 
institutions have never reported open-end mortgage lending data, that 
collecting and reporting such data for the first time will be time-
consuming and complex, and that implementation costs may be sensitive 
to the time permitted to complete the required changes. The Bureau thus 
is providing financial institutions approximately two years to complete 
the changes necessary to begin collecting the data required under the 
final rule, including data about open-end lines of credit. As noted in 
part VI, financial institutions will report the data required under the 
final rule for actions taken on covered loans on or after January 1, 
2018.
    Other efforts to mitigate burden. Some of the anticipated burdens 
of reporting open-end lines of credit also likely will be mitigated by 
the operational

[[Page 66163]]

enhancements and modifications that the Bureau is exploring for HMDA 
reporting generally. For example, as discussed elsewhere in the final 
rule, the Bureau is improving the edit and submission process, which 
should reduce reporting burden for all covered loans. While these 
improvements will not reduce the costs that financial institutions will 
incur to adapt their systems and processes to report open-end lines of 
credit, they should reduce ongoing costs to institutions by reducing 
the amount of time financial institutions may spend submitting and 
editing this data.
    Clarifying which data points apply to open-end lines of credit, and 
how they apply, also will alleviate compliance burden. For example, 
commenters expressed concern about reporting information about initial 
draws under open-end lines of credit. As discussed in the section-by-
section analysis of Sec.  1003.4(a)(39), the Bureau is not finalizing 
that data point, in part in response to commenters' concerns. The final 
rule also provides that several other data points do not apply to open-
end lines of credit.\219\ Finally, the final rule provides guidance 
about how several data points apply to open-end lines of credit.\220\
---------------------------------------------------------------------------

    \219\ See Sec.  1003.4(a)(4) (preapproval request); Sec.  
1003.4(a)(18) (origination charges); Sec.  1003.4(a)(19) (discount 
points); and Sec.  1003.4(a)(20) (lender credits).
    \220\ See Sec.  1003.4(a)(7)(ii) and comment 4(a)(7)-6 (loan 
amount); comments 4(a)(12)-3 and -4 (rate spread); Sec.  
1003.4(a)(17) (total points and fees); comment 4(a)(25)-4 
(amortization term); and comment 4(a)(26)-1 (introductory rate).
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Open-End Line of Credit Definition
    The Bureau is adopting a few technical revisions to streamline 
Sec.  1003.2(o) and to align it with revisions made elsewhere in the 
final rule. Proposed Sec.  1003.2(o) provided that an open-end line of 
credit was a dwelling-secured transaction that was neither a closed-end 
mortgage loan under proposed Sec.  1003.2(d) nor a reverse mortgage 
under proposed Sec.  1003.2(q). To align with lending practices, to 
streamline the definitions of closed-end mortgage loan and open-end 
line of credit, and to streamline Sec.  1003.4(a)(36) (which requires 
financial institutions to identify reverse mortgages), the final rule 
eliminates the mutual exclusivity between open-end lines of credit and 
reverse mortgages. Final Sec.  1003.2(o) thus provides that an open-end 
line of credit is an extension of credit that (1) is secured by a lien 
on a dwelling; and (2) is an open-end credit plan as defined in 
Regulation Z, 12 CFR 1026.2(a)(20), but without regard to whether the 
credit is consumer credit, as defined in Sec.  1026.2(a)(12), is 
extended by a creditor, as defined in Sec.  1026.2(a)(17), or is 
extended to a consumer, as defined in Sec.  1026.2(a)(11).
    Consistent with Sec.  1003.2(d), final Sec.  1003.2(o) provides 
that an open-end line of credit is a dwelling-secured ``extension of 
credit.'' New comment 2(o)-2 clarifies the meaning of the term 
``extension of credit'' for open-end transactions for purposes of Sec.  
1003.2(o). It states that financial institutions may cross-reference 
the guidance concerning ``extension of credit'' under Sec.  1003.2(d) 
and comment 2(d)-2, and it provides an example of an open-end 
transaction that is not an extension of credit and thus not covered 
under the final rule. It further clarifies that, for purposes of Sec.  
1003.2(o), each draw on an open-end line of credit is not an extension 
of credit. Thus, financial institutions report covered open-end lines 
of credit only once, at account opening.
2(p) Refinancing
    Prior to the proposal, the Bureau received feedback that Regulation 
C's definition of refinancing was confusing. To address those concerns, 
the Bureau proposed Sec.  1003.2(p) and related commentary. Proposed 
Sec.  1003.2(p) streamlined the existing definition of refinancing by 
moving the portion of the definition that addresses institutional 
coverage to proposed Sec.  1003.2(g), the definition of ``financial 
institution.'' For the reasons discussed below, the Bureau is adopting 
Sec.  1003.2(p) largely as proposed, and is adopting revised commentary 
to Sec.  1003.2(p) to provide additional guidance about the types of 
transactions that are refinancings under Regulation C.\221\
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    \221\ Prior to the proposal and in public comments on the 
proposal, the Bureau received feedback that agricultural-purpose 
refinancings should be excluded from Regulation C's coverage. The 
final rule clarifies that all agricultural-purpose transactions, 
whether for home purchase, home improvement, refinancing, or some 
other purpose, are excluded transactions. See the section-by-section 
analysis of Sec.  1003.3(c)(9).
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    The Bureau received a number of comments on proposed Sec.  
1003.2(p) and its accompanying commentary from financial institutions, 
industry trade associations, and other industry participants. The 
comments generally supported the Bureau's proposed revisions, but 
several commenters suggested different definitions or additional 
clarifications.
    The Bureau received only a few comments addressing proposed Sec.  
1003.2(p)'s regulation text, all from industry participants. One 
commenter specifically supported the Bureau's proposal to move the 
``coverage prong'' of Sec.  1003.2(p) to the definition of financial 
institution in Sec.  1003.2(g) and stated that the move would reduce 
confusion. Another commenter suggested that the Bureau could reduce 
compliance costs by aligning the definition of refinancing in proposed 
Sec.  1003.2(p) with Regulation Z Sec.  1026.37(a)(9), so that a 
refinancing is any transaction that is not a home purchase loan and 
that satisfies and replaces an existing obligation secured by the same 
property. For the reasons set forth in the section-by-section analysis 
of Sec.  1003.4(a)(3), the final rule does not include this 
modification.
    The Bureau is finalizing comment 2(p)-1 generally as proposed, but 
with several non-substantive revisions for clarity. In addition, final 
comment 2(p)-1 is modified to provide that a refinancing occurs only 
when the original debt obligation has been satisfied and replaced by a 
new debt obligation, based on the parties' contract and applicable law. 
This is consistent with the definition of refinancing in Regulation Z 
Sec.  1026.20(a) and comment 20(a)-1. The comment further specifies 
that satisfaction of the original lien, as distinct from the debt 
obligation, is irrelevant in determining whether a refinancing has 
occurred. A few commenters requested that the Bureau provide additional 
guidance concerning loan modifications and renewals, stating that 
examiners provide inconsistent guidance about whether to report renewal 
transactions when there is no new note. Accordingly, final comment 
2(p)-1 specifies that a new debt obligation that renews or modifies the 
terms of, but does not satisfy and replace, an existing debt obligation 
is not a refinancing under Sec.  1003.2(p).\222\
---------------------------------------------------------------------------

    \222\ To further address uncertainty about the types of 
transactions that are reportable under Regulation C, the final rule 
also clarifies in the commentary to Sec.  1003.2(d) (definition of 
closed-end mortgage loan) and (o) (definition of open-end line of 
credit) that loan modifications and renewals are not ``extensions of 
credit'' under Regulation C and thus are not reportable transactions 
under the final rule. See the section-by-section analysis of Sec.  
1003.2(d) and (o).
---------------------------------------------------------------------------

    As discussed in the section-by-section analysis of Sec.  1003.2(d), 
the final rule considers a transaction completed pursuant to a New York 
State consolidation, extension, and modification agreement and 
classified as a supplemental mortgage under N.Y. Tax Law Sec.  255 such 
that the borrower owes reduced or no mortgage recording taxes to be an 
``extension of credit'' and therefore reportable. The final rule adds 
new comment 2(p)-2 to provide that a transaction is considered a 
refinancing under Sec.  1003.2(p) where: (1) The

[[Page 66164]]

transaction is completed pursuant to a New York State consolidation, 
extension, and modification agreement and is classified as a 
supplemental mortgage under N.Y. Tax Law Sec.  255 such that the 
borrower owes reduced or no mortgage recording taxes, and (2) but for 
the agreement the transaction would have met the definition of a 
refinancing under Sec.  1003.2(p).
    The Bureau received one comment addressing proposed comment 2(p)-2. 
The comment requested that the Bureau eliminate from the definition of 
refinancing the requirement that both the existing and the new debt 
obligations be dwelling-secured, because it is burdensome to confirm 
whether the new transaction pays off an existing mortgage. This 
requirement, however, is consistent with Regulation Z's definition of 
refinancing. The Bureau notes that, under the final rule, whether a 
consumer-purpose transaction meets this test (or, for that matter, 
whether such a transaction otherwise is a refinancing) no longer 
determines whether the transaction is a covered loan.\223\ Thus, for 
consumer-purpose transactions, when a financial institution originates 
a dwelling-secured debt obligation that satisfies and replaces an 
existing debt obligation, the financial institution no longer needs to 
determine whether the existing debt obligation was dwelling-secured to 
know that the transaction is HMDA-reportable. The financial institution 
will, however, need to determine whether the existing debt obligation 
was dwelling-secured to determine whether to report the transaction as 
a refinancing or an ``other purpose'' transaction. See Sec.  
1003.4(a)(3).
---------------------------------------------------------------------------

    \223\ As discussed in the section-by-section analysis of Sec.  
1003.3(c)(10), Regulation C's existing purpose-based coverage test 
applies to business- or commercial-purpose transactions under the 
final rule.
---------------------------------------------------------------------------

    The Bureau is finalizing proposed comment 2(p)-3 generally as 
proposed, with minor modifications for clarity, and renumbered as 
comment 2(p)-4. The Bureau received a few comments addressing proposed 
comment 2(p)-3. One financial institution specifically supported the 
proposed commentary, but another asked for additional guidance for 
situations, such as a divorce, where only one of the original borrowers 
is obligated on the new loan. As proposed, comment 2(p)-3 addressed 
this scenario. It specified that, if one debt obligation to two 
borrowers was satisfied and replaced by a new debt obligation to either 
one of the original borrowers, then the new obligation was a 
refinancing, assuming the other requirements of proposed Sec.  
1003.2(p) were met. Proposed comment 2(p)-3 also specified that, if two 
spouses were divorcing, and a debt obligation of only one spouse was 
satisfied and replaced by a new debt obligation of only the other 
spouse, then the transaction was not a refinancing under proposed Sec.  
1002.3(p). Final comment 2(p)-4 retains these examples but revises and 
expands them for clarity.
    Several commenters asked whether two or more new loans that are 
originated to satisfy and replace one existing loan are refinancings. 
The final rule adopts new comment 2(p)-5 to clarify that each of the 
two new obligations is a refinancing if, taken together, they satisfy 
and replace the existing obligation. Comment 2(p)-5 also specifies that 
the same rule applies when one new loan satisfies and replaces two or 
more existing debt obligations.
    The final rule adds new comment 2(p)-6 to clarify that a 
transaction that meets the definition of a refinancing may also be used 
for other purposes. The comment provides an illustrative example and 
specifies that instructions for reporting a multiple-purpose covered 
loan are in the commentary to Sec.  1003.4(a)(3).
2(q) Reverse Mortgage
    Proposed Sec.  1003.2(q) added a ``reverse mortgage'' definition to 
Regulation C. Regulation C currently requires financial institutions to 
report a reverse mortgage if it otherwise is reportable as a home 
purchase loan, a home improvement loan, or a refinancing. The current 
regulation, however, does not define ``reverse mortgage'' or require 
financial institutions to identify which applications or loans are for 
reverse mortgages. The proposed definition generally provided that a 
reverse mortgage is a reverse mortgage transaction as defined under 
Regulation Z Sec.  1026.33(a). Taken together with proposed Sec.  
1003.2(e) (definition of ``covered loan''), proposed Sec.  1003.2(q) 
effectively provided that all reverse mortgage transactions, regardless 
of their purpose, were covered loans and HMDA-reportable.
    The Bureau received a number of comments about proposed Sec.  
1003.2(q) and coverage of reverse mortgages. While consumer advocacy 
group commenters generally supported the proposal, industry 
participants that discussed proposed Sec.  1003.2(q) generally opposed 
expanding coverage of reverse mortgages. For the reasons discussed 
below, the Bureau is finalizing Sec.  1003.2(q) substantially as 
proposed, with minor technical revisions.
    A number of consumer advocacy groups supported the Bureau's 
proposed reverse mortgage definition. They stated that having data 
about all reverse mortgages would be valuable in assessing whether the 
neighborhoods that they serve are receiving the full range of credit 
that the neighborhoods need and would be appropriate to ensure an 
adequate understanding of the mortgage market. These commenters stated 
that publicly available data about all reverse mortgages will be 
essential in the coming years as the country's population ages and 
older consumers, many of whom are cash-poor but own their homes 
outright, may increasingly use home equity for living expenses and 
other purposes. The commenters noted that reverse mortgages often are 
not reported under current Regulation C because they often are not for 
the purpose of home purchase, home improvement, or refinancing.
    The commenters further noted that Regulation C's reverse mortgage 
data lack information about open-end, reverse mortgage transactions. 
Having data about ``other purpose'' reverse mortgages, as well as open-
end reverse mortgages, will help to determine how the housing needs of 
seniors are being met. This is particularly true because poorly 
structured or higher-priced reverse mortgages can result in financial 
hardship to seniors. The commenters also noted the general importance 
of having data about housing-related transactions to older consumers, 
who may be particularly vulnerable to predatory or discriminatory 
lending practices. Several of these commenters urged the Bureau to 
adopt a flag to identify reverse mortgages. One industry commenter 
generally supported proposed Sec.  1003.2(q). The commenter agreed that 
the proposed definition of reverse mortgage was appropriate because it 
aligned with Regulation Z.
    A number of industry commenters, including trade associations, 
several financial institutions, and a compliance professional, 
disagreed with the Bureau's proposal to require reporting of all 
reverse mortgages. Some of these commenters asserted that Regulation C 
should not apply to reverse mortgages at all, or that reverse mortgages 
are outside the scope of HMDA. Others argued that the Bureau should 
maintain current coverage of reverse mortgages and require them to be 
reported only if they are for home purchase, home improvement, or 
refinancing. The commenters generally argued that reporting all reverse 
mortgages would create new costs for financial

[[Page 66165]]

institutions and that the burdens did not justify the benefits.
    Regarding burden, commenters stated that reverse mortgage lenders 
already are exiting the market because of regulatory demands and 
uncertainties with reverse mortgages, and that requiring reporting of 
all reverse mortgages under HMDA would continue that trend. A few 
commenters argued that data for reverse mortgages is kept on separate 
systems from traditional mortgage loans and that it would be costly and 
time-consuming to upgrade systems for reporting. Some commenters stated 
that the burden would be particularly great for reverse mortgage 
lenders that make fewer than 100 mortgages in a year.
    These commenters argued that the benefits of reporting all reverse 
mortgages would be small. They stated that financial institutions 
already report the necessary data about reverse mortgages (i.e., data 
about closed-end reverse mortgages for home purchase, home improvement, 
or refinancing). They stated that HMDA does not require data about 
other types of reverse mortgages, which are used for purposes unrelated 
to housing finance. They also stated that many of HMDA's data points 
(e.g., points and fees and debt-to-income ratio) do not apply, or apply 
differently, to reverse mortgages than to traditional mortgages. The 
commenters asserted that the data reported thus would have large gaps 
and would not clarify whether financial institutions are meeting the 
housing needs of their communities. Some commenters noted that the 
reverse mortgage market currently is small and that many financial 
institutions do not offer reverse mortgages, so the value of the data 
reported would be low.
    Some commenters stated that comparing reverse mortgage data with 
data for traditional mortgage loans or lines of credit would lead only 
to inaccurate conclusions about reverse mortgage originations because, 
for example, reverse mortgages are underwritten and priced differently 
than other mortgages and are for different purposes. Other commenters 
noted that the Bureau has exempted reverse mortgages from other 
rulemakings, such as the 2013 ATR Final Rule and the Bureau's 
Integrated Mortgage Disclosures rule (2013 TILA-RESPA Final Rule),\224\ 
given their differences from traditional mortgages. Finally, one 
commenter noted that there would be no harm in the Bureau delaying 
reverse mortgage reporting until after the Bureau has reviewed and 
considered other reverse mortgage rulemakings.
---------------------------------------------------------------------------

    \224\ 78 FR 79730 (Dec. 31, 2013).
---------------------------------------------------------------------------

    The Bureau is finalizing Sec.  1003.2(q) generally as proposed, 
with minor technical revisions. The Bureau acknowledges that requiring 
reporting of data on additional transactions will impose burden on 
financial institutions, but the Bureau believes that the benefits of 
reporting justify the burdens. As discussed in the proposal and in 
comments from consumer advocacy groups, the reverse mortgage market 
currently may be small, but it may become increasingly important as the 
country's population ages.\225\ While reverse mortgages may provide 
important benefits to homeowners, they also pose several risks to 
borrowers, including that they may be confusing, may have high costs 
and fees, and may result in elderly borrowers or their heirs or non-
borrowing spouses losing their homes to foreclosure.\226\ As discussed 
in the proposal, communities have faced risks due to reverse mortgage 
lending, particularly communities with sizable populations of borrowers 
eligible for reverse mortgages programs,\227\ and many State officials 
have focused on harmful practices associated with reverse mortgage 
lending.\228\
---------------------------------------------------------------------------

    \225\ See 79 FR 51731, 51759 (Aug. 29, 2014) (citing Lisa 
Prevost, Retiring on the House: Reverse Mortgages for Baby Boomers, 
N.Y. Times, Feb. 13, 2014, at RE5, available at https://www.nytimes.com/2014/02/16/realestate/reverse-mortgages-for-baby-boomers.html?_r=0). See also Nora Caley, Aging In Place, With A 
Loan: The State of the Reverse Mortgage Industry, Mortgage Orb, Vol. 
2, Issue 17 (May 8, 2013), https://www.mortgageorb.com/e107_plugins/content/content.php?content.13765.
    \226\ See 79 FR 51731, 51759 (Aug. 29, 2014) (citing Consumer 
Fin. Prot. Bureau, Report to Congress on Reverse Mortgages 110-145 
(June 28, 2012)), https://files.consumerfinance.gov/a/assets/documents/201206_cfpb_Reverse_Mortgage_Report.pdf).
    \227\ See id. (citing Susan Taylor Martin, Complexities of 
Reverse Mortgages Snag Homeowners, Tampa Bay Times, May 30, 2014; 
Kevin Burbach & Sharon Schmickle, As State Ages, Minnesota Braces 
for Problems With Risky Reverse-Mortgages, MinnPost (April 5, 2013), 
https://www.minnpost.com/business/2013/04/state-ages-minnesota-braces-problems-risky-reverse-mortgages; and HUD Presentation, Nat'l 
Reverse Mortgage Lenders Ass'n Eastern Regional Meeting (Mar. 26, 
2012) (noting that 8.1 and 9.4 percent of active Home Equity 
Conversion Mortgage loans were in default in July 2011 and February 
2012, respectively).
    \228\ See id. at 51759-60 (citing Press Release, Illinois 
Attorney General, Madigan Sues Two Reverse Mortgage Brokers For 
Using Deceptive Marketing to Target Seniors (Feb. 8, 2010), https://www.illinoisattorneygeneral.gov/pressroom/2010_02/20100208.html; 
Press Release, Washington State Office of the Attorney General, 
Ferguson Files Complaint Against Bellevue Insurance Agent and His 
Company for Targeting Elderly Widows (July 29, 2013), https://www.atg.wa.gov/news/news-releases/ferguson-files-complaint-against-bellevue-insurance-agent-and-his-company.
---------------------------------------------------------------------------

    Information on all reverse mortgages, regardless of purpose, would 
help communities understand the risks posed to local housing markets, 
thereby providing the citizens and public officials of the United 
States with sufficient information to enable them to determine whether 
financial institutions are filling their obligations to serve the 
housing needs of the communities and neighborhoods in which they are 
located. Furthermore, private institutions and nonprofit organizations, 
as well as local, State, and Federal programs, traditionally have 
facilitated or engaged in reverse mortgage lending. However, the 
proprietary market for reverse mortgages has substantially declined in 
recent years. Thus, requiring improved information regarding all 
reverse mortgages would assist public officials in their determination 
of the distribution of public sector investments in a manner designed 
to improve the private investment environment.
    Indeed, it is particularly important to obtain better information 
about the reverse mortgage market because it serves older consumers, a 
traditionally vulnerable population. State officials provided feedback 
during the Board's 2010 Hearings that expanding the transactional 
coverage of Regulation C to include all reverse mortgages would assist 
in the identification of discriminatory and other potentially harmful 
practices against this protected class.\229\ In this regard, the Bureau 
notes that requiring reporting of all reverse mortgages dovetails with 
the Dodd-Frank Act's requirement to report age for all covered loans. 
The Bureau believes that the currently small size of the market, and 
the fact that the Bureau may address reverse mortgages in future, 
substantive rulemakings, further support the decision to require 
reverse mortgage reporting as soon as possible. The flow of information 
to the public and policymakers will better position them to identify 
housing needs and market developments as they occur.
---------------------------------------------------------------------------

    \229\ See id. at 51760 (citing New York State Banking Department 
comment letter, Board of Governors of the Fed. Reserve System docket 
no. OP-1388, p. 5, submitted Aug. 6, 2010; San Francisco Hearing, 
Remarks of Preston DuFauchard, Commissioner of the California 
Department of Corporations).
---------------------------------------------------------------------------

    The Bureau acknowledges that, as commenters observed, reverse 
mortgages are underwritten and priced differently than other mortgages, 
some data points apply differently to reverse mortgages, and some do 
not apply at all. However, this is just as true for the reverse 
mortgages that currently are reported (and that most commenters agree 
should be reported) as for the reverse mortgages that will be added 
under the final rule. Where possible, the

[[Page 66166]]

Bureau has provided additional guidance to instruct financial 
institutions how particular data points apply to reverse mortgages. 
Finally, the Bureau is adopting a flag to ensure that data reported for 
reverse mortgages will not be commingled unknowingly with data reported 
for other covered loans. See the section-by-section analysis of Sec.  
1003.4(a)(36).
    The final rule modifies proposed Sec.  1003.2(q) to specify that a 
reverse mortgage is a reverse mortgage transaction as defined in 
Regulation Z, 12 CFR 1026.33(a), but without regard to whether the 
security interest is created in a principal dwelling. Thus, under 
Regulation C, a transaction that otherwise meets the definition of a 
reverse mortgage must be reported even if the security interest is 
taken in, for example, the borrower's second residence.
    Section 1003.2(q) also contains one revision to align the 
definition with other changes being adopted in the final rule. As 
discussed in the section-by-section analysis of Sec.  1003.2(d) and 
(o), the proposal provided that closed-end mortgage loans and open-end 
lines of credit were mutually exclusive of reverse mortgages, and thus 
a covered loan under proposed Sec.  1003.2(e) was a closed-end mortgage 
loan, an open-end line of credit, or a reverse mortgage that was not 
otherwise excluded under proposed Sec.  1003.3(c). The final rule 
eliminates the mutual exclusivity between: (1) Closed-end mortgage 
loans and open-end lines of credit and (2) reverse mortgages. Thus, the 
final rule both eliminates reverse mortgages as a category of covered 
loans under Sec.  1003.2(e) and eliminates the cross-reference to Sec.  
1003.2(e) from the reverse mortgage definition.
    Final Sec.  1003.2(q) is adopted pursuant to the Bureau's authority 
under section 305(a) of HMDA. For the reasons given above, the Bureau 
believes that including reverse mortgages within the scope of the 
regulation is a reasonable interpretation of HMDA section 303(2), which 
defines ``mortgage loan'' to mean a loan which is secured by 
residential real property or a home improvement loan. The Bureau 
interprets that term to include reverse mortgages, as those 
transactions are secured by residential real property, and they may be 
used for home improvement. In addition, pursuant to its authority under 
section 305(a) of HMDA, the Bureau believes that this proposed 
adjustment is necessary and proper to effectuate the purposes of HMDA, 
to prevent circumvention or evasion thereof, and to facilitate 
compliance therewith. For the reasons given above, by requiring all 
financial institutions to report information regarding reverse 
mortgages, this proposed modification would ensure that the citizens 
and public officials of the United States are provided with sufficient 
information to enable them to determine whether depository institutions 
are filling their obligations to serve the housing needs of the 
communities and neighborhoods in which they are located. Furthermore, 
as reverse mortgages are a common method of obtaining credit, this 
proposed modification would assist in identifying possible 
discriminatory lending patterns and enforcing antidiscrimination 
statutes.

Section 1003.3 Exempt Institutions and Excluded Transactions

3(c) Excluded Transactions
    Regulation C currently excludes several categories of transactions 
from coverage, but the exclusions are scattered throughout the 
regulation text, appendix A, and commentary. To streamline the 
regulation, the Bureau proposed to consolidate all existing exclusions 
in new Sec.  1003.3(c). The Bureau also proposed guidance concerning 
two categories of excluded transactions: Loans secured by liens on 
unimproved land and temporary financing.
    The Bureau received no comments opposing, and one comment 
supporting, the consolidation of excluded transactions into Sec.  
1003.3(c) and is finalizing the reorganization as proposed. The Bureau 
received a number of comments addressing specific categories of 
excluded transactions and suggesting additional categories of 
transactions that should be excluded. For the reasons discussed below, 
the Bureau is finalizing Sec.  1003.3 to clarify that certain 
categories of transactions, including all agricultural-purpose 
transactions and commercial-purpose transactions not for home purchase, 
home improvement, or refinancing purposes, are excluded from reporting. 
The final rule also revises Sec.  1003.3 and its accompanying 
commentary for clarity and to address questions raised by commenters.
Suggested Exclusions Not Adopted
    A few commenters suggested specifically excluding loans made by 
financial institutions to their employees. The commenters stated that 
it is and will continue to be difficult to report such loans and that, 
because such loans typically are offered on better terms than loans to 
non-employees, their inclusion in HMDA data will skew the dataset and 
will serve no purpose for fair lending testing. The final rule does not 
specifically exclude loans made to financial institutions' employees. 
It is not clear why such loans are more difficult to report than other 
loans, and commenters did not provide any details to explain the 
difficulty. Loans to employees may be made on more favorable terms than 
other loans, but the Bureau doubts that employee loans are originated 
in sufficient quantities to skew the overall HMDA data. Finally, as 
always, HMDA data are used only as the first step in conducting a fair 
lending analysis. Examiners conducting fair lending examinations will 
be able to identify by looking at loan files when differences in loan 
pricing, for example, are attributable to an applicant's or borrower's 
status as a financial institution's employee.
    Commenters suggested excluding a number of other types of 
transactions from coverage. The section-by-section analysis of Sec.  
1003.2(f) (definition of dwelling) discusses coverage of transactions 
secured by other than a single-family, primary residence; the section-
by-section analysis of Sec.  1003.3(c)(10) discusses coverage of loans 
made to trusts; and the section-by-section analysis of Sec.  1003.4(a) 
(reporting of purchases) discusses coverage of repurchased loans.
3(c)(1)
    Proposed Sec.  1003.3(c)(1) and comment 3(c)(1)-1 retained 
Regulation C's existing exclusion for loans originated or purchased by 
a financial institution acting in a fiduciary capacity, which currently 
is located in Sec.  1003.4(d)(1). The Bureau received no comments 
concerning proposed Sec.  1003.3(c)(1) or comment 3(c)(1)-1 and 
finalizes them as proposed, with several technical revisions for 
clarity.
3(c)(2)
    Proposed Sec.  1003.3(c)(2) retained Regulation C's existing 
exclusion for loans secured by liens on unimproved land, which 
currently is located in Sec.  1003.4(d)(2). The Bureau proposed new 
comment 3(c)(2)-1 to clarify that the exclusion: (1) Aligns with the 
exclusion from RESPA coverage of loans secured by vacant land under 
Regulation X Sec.  1024.5(b)(4), and (2) does not apply if the 
financial institution ``knows or reasonably believes'' that within two 
years after the loan closes, a dwelling will be constructed or placed 
on the land using the loan proceeds. For the reasons discussed below, 
the Bureau is finalizing Sec.  1003.3(c)(2) as proposed but is 
finalizing comment 3(c)(2)-1 with certain changes in response to 
comments received.

[[Page 66167]]

    The Bureau received a number of comments from financial 
institutions, trade associations, and other industry participants about 
proposed comment 3(c)(2)-1. Commenters agreed that loans secured by 
unimproved land should be excluded, but they stated that the proposed 
comment was inappropriate and that the Bureau either should remove it 
entirely or should clarify it. A few commenters stated that aligning 
with Regulation X was unnecessary and advocated a simple rule that 
would exclude all loans secured only by land when made. Other 
commenters stated that, if retained, the exemption should be based on 
the financial institution's actual knowledge, rather than on a ``knows 
or reasonably believes'' standard that would require lenders to 
speculate about whether a dwelling would be constructed. Commenters 
argued that examiners later could second-guess such speculative 
decisions. Some commenters stated that, as written, the proposed 
comment would make almost all consumer lot loans reportable, because 
they generally are built on within two years.
    The Bureau believes that providing guidance about the types of 
transactions covered by the exclusion for loans secured by liens on 
unimproved land is preferable to eliminating the proposed comment, and 
that aligning with Regulation X helps to achieve regulatory 
consistency. Moreover, where a loan's funds will be used to construct a 
dwelling in the immediate future, having information about that loan 
serves HMDA's purposes of understanding how financial institutions are 
meeting the housing needs of their communities. On the other hand, the 
Bureau acknowledges that the Regulation X standard does not provide 
sufficient specificity for purposes of HMDA reporting, because it does 
not state how and when a financial institution must know that a 
dwelling will be constructed on the land.
    The final rule adopts comment 3(c)(2)-1 without the cross-reference 
to Regulation X but with a statement, consistent with the spirit of 
Regulation X, that a loan is secured by a lien on unimproved land if 
the loan is secured by vacant or unimproved property at the time that 
is originated, unless the financial institution knows, based on 
information that it receives from the applicant or borrower at the time 
the application is received or the credit decision is made, that the 
loan's proceeds will be used within two years after closing or account 
opening to construct a dwelling on the land or to purchase a dwelling 
to be placed on the land. If the applicant or borrower does not provide 
the financial institution this information at the time the application 
is received or the credit decision is made, then the exclusion applies. 
Financial institutions should note that, even if a loan is not exempt 
under Sec.  1003.3(c)(2), it may be exempt under another Sec.  
1003.3(c) exclusion, such as the temporary financing exclusion under 
Sec.  1003.3(c)(3).
3(c)(3)
    Proposed Sec.  1003.3(c)(3) retained Regulation C's existing 
exclusion for temporary financing, which currently is located in Sec.  
1003.4(d)(3). Comments 3(c)(3)-1 and -2 were proposed to clarify the 
scope of the exclusion. For the reasons discussed below, the Bureau is 
adopting Sec.  1003.3(c)(3) as proposed but is finalizing the 
commentary to Sec.  1003.3(c)(3) with revisions to address questions 
and concerns that commenters raised.
    Consumer advocacy group commenters generally argued that 
construction loans should not be excluded as temporary financing. 
Financial institutions, trade associations, and other industry 
participants generally argued that temporary financing should be 
excluded from coverage. Several of these commenters argued that all 
construction loans should be excluded as temporary financing. Most such 
commenters agreed that guidance about the scope of the temporary 
financing exclusion would be helpful, but many found the guidance in 
proposed comments 3(c)(3)-1 and -2 confusing or objected that it relied 
on a subjective standard. Commenters suggested several methods to 
clarify the proposed guidance.
    Regarding proposed comment 3(c)(3)-1, which provided general 
guidance about the temporary financing exclusion, a few commenters 
objected to the cross-reference to Regulation X. They stated that the 
Regulation X standard is unclear and ambiguous and that cross-
referencing it would create confusion about which construction loans 
qualify for Regulation C's exclusion. Some construction loans would be 
reported (e.g., construction loans involving title transfer) and others 
would not (e.g., construction-only loans). Similarly, one commenter 
suggested that long-term construction loans should be excluded 
regardless of whether they were made to ``bona fide builders.'' Another 
commenter argued that all construction loans should be exempt, except 
for construction loans with one-time closings, where the construction 
loan automatically rolls into permanent financing after a predetermined 
time. On the other hand, at least one commenter stated that aligning 
with Regulation X was helpful. Still others suggested that Regulation C 
should align with Regulation Z and that the Bureau either should adopt 
a bright-line test (similar to Regulation Z's) to define any loan with 
a term shorter than a prescribed period of time (e.g., one or two 
years) as temporary financing, or should adopt a bright-line test to 
exclude all short-term construction loans. One commenter requested that 
the Bureau specifically define the term ``bridge loan,'' which is 
listed as an example of temporary financing in both existing Sec.  
1003.4(d)(3) and proposed comment 3(c)(3)-1.
    Several commenters also argued that proposed comment 3(c)(3)-2 was 
confusing. Comment 3(c)(3)-2 explained that loans designed to convert 
to (i.e., rather than designed to be replaced by) permanent financing 
were not temporary financing and thus were reportable. Consistent with 
Regulation X, the comment provided that loans issued with a commitment 
for permanent financing, with or without conditions, were considered 
loans that would ``convert'' to permanent financing and thus were not 
excluded transactions. Some commenters urged the Bureau to remove this 
statement or to clarify further the difference between a loan 
``replaced by'' permanent financing and a loan ``converted'' to 
permanent financing. One commenter observed that a loan issued with a 
commitment for permanent financing could encompass a situation covered 
under proposed comment 3(c)(3)-1's first sentence (i.e., a loan 
designed to be replaced by permanent financing at a later time). The 
commenter argued that such transactions would be excluded as temporary 
financing under proposed comment 3(c)(3)-1 but would lose the exemption 
under proposed comment 3(c)(3)-2. Other commenters questioned the 
meaning of the term ``designed'' and asked the Bureau to clarify 
whether construction-only loans that eventually are refinanced into 
longer-term financing must be reported. Some commenters stated that 
proposed comment 3(c)(3)-1's first sentence provided clear and 
sufficient guidance and that proposed comment 3(c)(3)-2 should be 
removed altogether.
    The Bureau is finalizing the commentary to Sec.  1003.3(c)(3) with 
revisions to address the foregoing concerns. Final comment 3(c)(3)-1 
provides that temporary financing is excluded from coverage and 
provides that a loan or line of credit is temporary financing if it is 
designed to be replaced by permanent financing at a later time. The 
comment provides several

[[Page 66168]]

illustrative examples designed to clarify whether a loan or line of 
credit is designed to be replaced by permanent financing. The final 
rule does not provide for reporting of all construction loans, as some 
consumer advocacy group commenters recommended. The Bureau believes 
that the benefits of requiring all construction loans to be reported do 
not justify the burdens given that the permanent financing that 
replaces such loans will be reported.
    The Bureau believes that comment 3(c)(3)-1 achieves HMDA's purposes 
while providing better guidance to financial institutions than existing 
Regulation C. Specifically, the comments should help to ensure that 
transactions involving temporary financing are not reported more than 
once; instead, such transactions will be captured by the separate 
reporting of the longer-term financing, if it otherwise is covered by 
Regulation C. At the same time, the comments will help to ensure 
reporting of short-term transactions that function as permanent 
financing (e.g., a loan with a nine-month term to enable an investor to 
purchase a home, renovate, and re-sell it before the term 
expires).\230\
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    \230\ The final rule thus is consistent with the existing FFIEC 
FAQ concerning temporary financing, which acknowledges that 
temporary financing is exempt and states that ``financing is 
temporary if it is designed to be replaced by permanent financing of 
a much longer term. A loan is not temporary financing merely because 
its term is short. For example, a lender may make a loan with a 1-
year term to enable an investor to purchase a home, renovate it, and 
re-sell it before the term expires. Such a loan must be reported as 
a home purchase loan.'' See Fed. Fin. Insts. Examination Council, 
Regulatory & Interpretive FAQ's, Temporary Financing, https://www.ffiec.gov/hmda/faqreg.htm#TemporaryFinancing.
---------------------------------------------------------------------------

    After considering the comments received, the Bureau believes that 
neither aligning with Regulation X or Z, nor creating a new, bright-
line rule centered around a loan's term, would serve HMDA's purposes as 
well as the guidance provided in final comment 3(c)(3)-1. Regulation Z 
generally excludes loans with terms of less than one year from, for 
example, the regulation's ability-to-repay rules. Conducting a full 
ability-to-repay analysis may not be critical for such short-term 
financing. However, it is important for HMDA purposes to know how often 
and under what circumstances such financing is granted, for example, to 
investors to purchase property and then to sell it for occupancy before 
the term expires. Similarly, the Bureau believes that it is important 
for HMDA purposes to ensure that construction loans are not double-
counted when they are replaced by permanent financing. Thus, the Bureau 
has not aligned with Regulation X's guidance concerning construction 
loans, which would have required, for example, some longer-term 
construction loans to be reported.
    Two commenters requested that the Bureau clarify whether a loan's 
purpose is ``construction'' or ``home improvement'' when improvements 
to an existing dwelling are so extensive that they fundamentally change 
the nature of the dwelling. The commenters suggested that, if a loan's 
purpose was ``construction,'' then the loan would be excluded from 
coverage, whereas if its purpose was ``home improvement,'' it would be 
included. Under the final rule, the temporary financing exclusion 
depends on whether the loan is or is not designed to be replaced by 
longer-term financing at a later time. Thus, for example, if a 
financial institution originates a short-term loan to a borrower to add 
a second floor to a dwelling or to complete extensive renovations, the 
loan is temporary financing if it is designed to be replaced by longer-
term financing at a later time (e.g., financing completed through a 
separate closing that will pay off the short-term loan). If the loan 
is, for example, a traditional home-equity loan that is not designed to 
be replaced by longer-term financing, or if it is a construction-to-
permanent loan that automatically will convert to permanent financing 
without a separate closing, then it is not temporary financing and is 
not excluded under Sec.  1003.3(c).
3(c)(4)
    Proposed Sec.  1003.3(c)(4) and comment 3(c)(4)-1 retained 
Regulation C's existing exclusion for the purchase of an interest in a 
pool of loans, which currently is located in Sec.  1003.4(d)(4). The 
Bureau received no comments concerning proposed Sec.  1003.3(c)(4) or 
comment 3(c)(4)-1 and finalizes them as proposed, with technical 
revisions for clarity.
3(c)(5)
    Proposed Sec.  1003.3(c)(5) retained Regulation C's existing 
exclusion for the purchase solely of the right to service loans, which 
currently is located in Sec.  1003.4(d)(5). The Bureau received no 
comments concerning proposed Sec.  1003.3(c)(5) and finalizes it as 
proposed, with technical revisions for clarity.
3(c)(6)
    Proposed Sec.  1003.3(c)(6) and comment 3(c)(6)-1 retained 
Regulation C's existing exclusion for loans acquired as part of a 
merger or acquisition, or as part of the acquisition of all of the 
assets and liabilities of a branch office, which currently is located 
in Sec.  1003.4(d)(6) and comment 4(d)-1. The Bureau received no 
comments concerning proposed Sec.  1003.3(c)(6) or comment 3(c)(6)-1 
and finalizes them generally as proposed, with technical revisions for 
clarity.
3(c)(7)
    Proposed Sec.  1003.3(c)(7) retained Regulation C's existing 
exclusion for loans and applications for less than $500, which 
currently is located in paragraph I.A.7 of appendix A. The Bureau 
received no comments concerning proposed Sec.  1003.3(c)(7) and 
finalizes it as proposed, with technical revisions for clarity.
3(c)(8)
    Proposed Sec.  1003.3(c)(8) retained Regulation C's existing 
exclusion for the purchase of a partial interest in a loan, which 
currently is located in comment 1(c)-8. The Bureau received no comments 
concerning proposed Sec.  1003.3(c)(8) and finalizes it generally as 
proposed, with technical revisions for clarity.
3(c)(9)
    As proposed, Sec.  1003.3(c)(9) stated that a loan used primarily 
for agricultural purposes was an excluded transaction. Proposed comment 
3(c)(9)-1, in turn, retained the existing exclusion of home purchase 
loans secured by property primarily for agricultural purposes, which 
currently is located in comment Home purchase loan-3. For the reasons 
discussed below, the Bureau is adopting Sec.  1003.3(c)(9) with 
technical revisions for clarity and is adopting comment 3(c)(9)-1 with 
revisions to clarify that all agricultural-purpose loans are excluded 
transactions.
    The Bureau received a number of comments from financial 
institutions, industry associations, and other industry participants 
about proposed Sec.  1003.3(c)(9) and comment 3(c)(9)-1. Some 
commenters stated that the proposed regulation text appeared to exclude 
all agricultural loans, while the commentary appeared to exclude only 
home-purchase agricultural loans. These commenters stated that all 
agricultural loans should be excluded, because they are not comparable 
to other loans reported under HMDA, and reporting them does not serve 
HMDA's purposes. Other commenters noted that proposed comment 3(c)(9)-1 
retained a cross-reference to Regulation X Sec.  1024.5(b)(1), which 
had exempted loans on property of 25 acres or more from coverage, even 
though that provision since had been removed from Regulation X. A few 
of these commenters argued that the

[[Page 66169]]

Bureau should retain an independent 25-acre test in Regulation C, while 
others stated that the 25-acre test should be removed altogether 
because smaller properties can be primarily agricultural and thus 
should be excluded from coverage, while larger properties can be 
primarily consumer-purpose and thus should be included in coverage.
    The Bureau is finalizing Sec.  1003.3(c)(9) and comment 3(c)(9)-1 
with revisions to address commenters' concerns. First, final comment 
3(c)(9)-1 clarifies that all primarily agricultural-purpose 
transactions are excluded transactions, whether they are for home 
purchase, home improvement, refinancing, or another purpose. The 
comment also clarifies that an agricultural-purpose transaction is a 
transaction that is secured by a dwelling located on real property used 
primarily for agricultural purposes or that is secured by a dwelling 
and whose funds will be used primarily for agricultural purposes. The 
final rule eliminates from the comment both the proposed cross-
reference to Regulation X and the 25-acre test. The comment instead 
provides that financial institutions may consult Regulation Z comment 
3(a)-8 for guidance about what is an agricultural purpose. Comment 
3(c)(9)-1 provides that a financial institution may use any reasonable 
standard to determine whether a transaction primarily is for an 
agricultural purpose and that a financial institution may change the 
standard used on a case-by-case basis. This flexible standard should 
provide sufficient latitude for a financial institution to justify its 
determination that a property was, or that a loan's funds were, 
intended to be used primarily for agricultural purposes.
3(c)(10)
    Unlike certain other consumer protection statutes such as TILA and 
RESPA, HMDA does not exempt business- or commercial-purpose 
transactions from coverage. Thus, Regulation C currently covers closed-
end, commercial-purpose loans made to purchase, refinance, or improve a 
dwelling. Examples of commercial-purpose loans that currently are 
reported are: (1) A loan to an entity to purchase or improve an 
apartment building (or to refinance a loan secured thereby); and (2) a 
loan to an individual to purchase or improve a single-family home to be 
used either as a professional office or as a rental property (or to 
refinance a loan secured thereby). Dwelling-secured, commercial-purpose 
lines of credit currently are not required to be reported. Regulation C 
currently does not provide a mechanism, such as a commercial-purpose 
flag, to distinguish commercial-purpose loans from other loans in the 
HMDA dataset, but it appears that commercial-purpose loans currently 
represent a small percentage of HMDA-reportable loans.\231\
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    \231\ For example, applications and originations for multifamily 
housing represented about 0.4 percent of all applications and 
originations reported for 2013. See Neil Bhutta & Daniel R. Ringo, 
Bd. of Governors of the Fed. Reserve Sys., 100 Fed. Reserve Bulletin 
6, The 2013 Home Mortgage Disclosure Act Data, at 4 (Nov. 2014).
---------------------------------------------------------------------------

    As discussed in the section-by-section analysis of Sec.  1003.2(d), 
(e) and (o), the proposal provided for dwelling-secured transactional 
coverage and for mandatory reporting of open-end lines of credit. Under 
the proposal, financial institutions would have reported applications 
for, and originations of, all dwelling-secured, commercial-purpose 
closed-end mortgage loans and open-end lines of credit. For example, a 
financial institution would have reported all closed-end mortgage loans 
or open-end lines of credit to a business or sole proprietor secured by 
a lien on the business owner's dwelling, even if only out of an 
abundance of caution (i.e., in addition to other collateral such as a 
storefront, inventory, or equipment) and regardless of how the funds 
would be used (e.g., to purchase the storefront, inventory, or 
equipment). A financial institution also would have been required to 
report any transaction secured by a multifamily dwelling, such as an 
apartment building, even if the loan or line of credit was for non-
housing-related business expansion. The proposal thus would have 
expanded Regulation C's coverage of commercial-purpose transactions. 
For the reasons discussed below, the Bureau is maintaining Regulation 
C's existing purpose-based transactional coverage scheme for 
commercial-purpose transactions.
    A large number of comments addressed the proposal's coverage of 
dwelling-secured commercial-purpose transactions. Consumer advocacy 
groups favored covering all such transactions, while a significant 
number of industry commenters, a government agency commenter, and a 
group of State regulators, urged the Bureau to exclude some or all of 
these transactions.
    Numerous consumer advocacy groups generally asserted that having 
information about dwelling-secured commercial transactions would help 
them to understand whether neighborhoods are receiving the full range 
of credit they need. Some consumer advocacy groups specifically urged 
the Bureau to collect data about all transactions secured by 
multifamily properties, to understand whether financial institutions 
are supporting the development of affordable rental housing. Others 
argued that dwelling-secured commercial-purpose reporting would help to 
understand the full range of liens against single-family properties. 
Some of these commenters asserted that, during the mortgage crisis, 
dwelling-secured commercial lending contributed to overleveraging and 
foreclosures in many communities, and that HMDA data about such loans 
could have warned policymakers and advocates of potential concerns.
    Some consumer advocacy group commenters specified that dwelling-
secured commercial lending is an important source of small business 
financing, particularly in minority and immigrant communities, and that 
having information about the availability and pricing of such 
transactions would help to understand those communities' economies, 
including the total amount of debt and default risk on properties and 
potential problems related to overextension of credit. A few consumer 
advocacy commenters noted that information about all dwelling-secured 
commercial lending also would provide insight into the demand for, and 
use of, credit for expansion of small businesses.\232\
---------------------------------------------------------------------------

    \232\ Some of these commenters also asserted that the Bureau 
should include in the final rule a flag to distinguish commercial- 
and consumer-purpose transactions. The Bureau is finalizing such a 
flag in Sec.  1003.4(a)(38).
---------------------------------------------------------------------------

    A significant number of industry commenters addressed the 
proposal's expanded coverage of commercial-purpose transactions, and 
they all opposed the change. Indeed, many commenters who objected to 
dwelling-secured transactional coverage cited expanded reporting of 
commercial-purpose transactions as their main concern. Industry 
commenters argued that implementing reporting of all dwelling-secured, 
commercial-purpose transactions would be burdensome, that the data 
reported would be of little value, and that requiring such reporting 
would exceed the Bureau's authority under HMDA.\233\
---------------------------------------------------------------------------

    \233\ A subset of industry commenters specifically objected to 
reporting commercial-purpose open-end lines of credit. Indeed, even 
the small group of industry commenters that did not object to 
reporting consumer-purpose lines of credit argued that commercial-
purpose lines should not be covered. Commenters' concerns about the 
burdens and benefits of reporting commercial-purpose lines of credit 
were similar to those raised about commercial-purpose transactions 
generally.
---------------------------------------------------------------------------

    Regarding burden, industry commenters stated that removing the 
purpose test for commercial-purpose

[[Page 66170]]

applications and originations would increase significantly financial 
institutions' reportable transactions. A subset of commenters 
specifically estimated the increase, which varied widely (i.e., from 10 
percent to over 900 percent) depending on institution type and the 
extent of an institution's engagement in dwelling-secured, small-
business lending. Some institutions argued that many community banks 
focus on small-business lending, so expanded commercial coverage 
particularly could burden smaller institutions. A number of commenters 
worried about ongoing costs from collecting, quality checking, and 
reporting information for such a large number of transactions, and some 
worried about incurring penalties for errors that likely would occur in 
the commercial data.\234\
---------------------------------------------------------------------------

    \234\ Some commenters argued that the Bureau's proposal to 
expand HMDA-reportable data points only compounded their concerns 
about increased volume. Others argued that any reporting burden that 
might be mitigated by aligning Regulation C's data reporting with 
MISMO standards would not apply to commercial-purpose transactions, 
because MISMO has not been widely adopted in commercial and 
multifamily financing.
---------------------------------------------------------------------------

    Industry commenters also argued that reporting all dwelling-secured 
commercial transactions would be difficult operationally. Different 
staff and systems typically handle commercial and residential mortgage 
loans, and lenders may have relied on manual processes for reporting 
and assembling data for the limited set of commercial-purpose 
transactions traditionally reported. Commenters argued that expanded 
coverage, particularly when combined with new data points, would 
require updating systems or software, implementing new policies and 
procedures, and training or hiring new staff. These would be expensive 
and time-consuming processes, with costs passed to consumers.
    Industry commenters asserted that the benefits of reporting all 
commercial-purpose transactions would not justify the burdens. A 
significant number of commenters argued that reporting data about all 
commercial-purpose transactions would not serve HMDA's purposes. Some 
industry commenters asserted that commercial-purpose transactions often 
are provided to non-natural persons. In such cases, no race, ethnicity, 
and sex data would be collected and no fair lending analysis could be 
done (except of the demographics of the dwelling's census tract). 
Commenters argued that reporting data about such transactions would not 
help to uncover discriminatory lending practices.
    Many commenters focused on what they referred to as ``abundance of 
caution'' transactions and asserted that such transactions would not 
help to determine whether financial institutions are serving community 
housing needs. Commenters argued that, in abundance of caution 
transactions, the home is added to an already adequately secured 
transaction (to over-collateralize the loan), is secondary to business 
collateral, and is an insignificant piece of the overall loan 
structure.\235\ In contrast, commenters argued, consumer-purpose loans 
typically are fully collateralized by the home. Commenters also argued 
that there is only a tangential relationship between the loan and 
housing because the loan's funds are used for business, not housing, 
purposes.\236\
---------------------------------------------------------------------------

    \235\ Commenters explained that, when lenders originate small 
business loans, they routinely rely on a business owner's dwelling 
as supplemental collateral out of an abundance of caution, even if 
other (business) collateral fully collateralizes the loan. Several 
commenters emphasized that abundance of caution transactions occur 
frequently, noting that the SBA as a matter of course requires a 
lien on the borrower's residence when guaranteeing loans. One 
commenter elaborated that the likelihood that a dwelling would be 
part of the workout of a distressed commercial loan is ``slim-to-
none.'' The commenter asserted that lenders take dwellings as 
collateral as a matter of safety and soundness, merely to ensure 
that the borrower has ``skin in the game.''
    \236\ A few commenters expressed similar concerns about loans 
subject to cross-collateralization agreements, which commonly occur 
in commercial lending and in which all of the collateral for 
multiple loans secures all of the loans. Commenters worried that 
non-dwelling-secured commercial transactions would be HMDA-
reportable merely because they were cross-collateralized by 
dwelling-secured loans.
---------------------------------------------------------------------------

    Regarding data collection, some commenters argued that the 
application, documentation, and underwriting processes are different 
for commercial- and consumer-purpose transactions, so data for many of 
the Bureau's proposed data points are not gathered in a systematic way 
for commercial-purpose transactions. Some commenters similarly asserted 
that reporting data for all dwelling-secured commercial transactions 
would be challenging because Regulation C's existing and the Bureau's 
newly proposed data points focus on consumer lending. Commenters argued 
that many data points would not apply to, or would be difficult to 
define for, commercial transactions.\237\
---------------------------------------------------------------------------

    \237\ Commonly cited examples included: application and 
application date; applicant's income; credit score; pricing data 
such as points and fees; debt-to-income ratio; combined loan-to-
value ratio; property value; and ethnicity, race, sex, and age data.
---------------------------------------------------------------------------

    Other commenters worried that even correctly reported data would be 
of little value in understanding commercial-purpose transactions. For 
example, some commenters observed that numerous data points would be 
reported ``not applicable'' for commercial-purpose transactions and 
argued that the limited number of reportable data points would not 
further HMDA's purposes or assist policymakers in preventing or 
responding to future mortgage crises. Others observed that much 
information that would be relevant to understanding the economics of 
commercial-purpose loans, such as the debt service coverage ratio, 
leasing requirements and expirations, zoning restrictions, 
environmental regulations, and cash flow, would not be reported. Some 
commenters also asserted that there would be little value in comparing 
all dwelling-secured commercial- and consumer-purpose transactions, 
because they are underwritten and priced differently (e.g., based on 
cash flow rather than income), and they have different loan terms and 
features (e.g., rate and fee structures, balloon, interest-only and 
prepayment penalty terms). Finally, some industry commenters worried 
that mixing data about all dwelling-secured, commercial-purpose 
transactions with traditional mortgage loans would distort or skew the 
HMDA dataset and impair its integrity for HMDA users.
    Numerous industry commenters argued that HMDA does not authorize 
the Bureau to require reporting of all dwelling-secured commercial-
purpose transactions. They argued that HMDA itself focuses on home 
mortgage lending and that Congress understood, but opted not to revise, 
Regulation C's current coverage when it passed the Dodd-Frank Act.\238\ 
Some commenters similarly argued that, when Congress intended to grant 
the Bureau authority to collect business lending data, it did so 
explicitly.\239\ Other commenters argued

[[Page 66171]]

that HMDA reporting of all commercial-purpose transactions would 
duplicate CRA reporting or would negatively affect CRA performance.
---------------------------------------------------------------------------

    \238\ A group of State regulators similarly argued that the 
expansion into commercial lending was outside of HMDA's scope and 
would burden financial institutions for little benefit. They argued 
that Federal and State regulators should determine whether financial 
institutions are structuring transactions to evade reporting or 
other disclosure requirements, and that regulators could assess 
evasion efforts through risk-scoping and examinations.
    \239\ For example, section 1071 of the Dodd-Frank Act amended 
ECOA to authorize the Bureau to obtain data about loans and lines of 
credit to women-owned, minority-owned, and small businesses. Some 
commenters argued that reporting commercial transactions in HMDA was 
unnecessary because data about small-business lending would be 
reported when the Bureau implements section 1071.
---------------------------------------------------------------------------

    Finally, some commenters expressed concerns that reporting all 
dwelling-secured commercial-purpose transactions could be particularly 
burdensome for smaller institutions, because small-business loans may 
represent a large portion of their lending activity. A few commenters 
asserted that some small institutions exited consumer mortgage lending 
to focus on small-business lending specifically to avoid the costs of 
complying with Dodd-Frank Act regulations and that the proposal 
unfairly would burden such institutions with HMDA reporting. Others 
expressed concern that financial institutions would stop taking small-
business borrowers' homes as collateral to avoid reporting, or would 
increase borrowers' fees to cover reporting costs, in turn decreasing 
small businesses' access to credit and harming local and national 
economies.
    Industry commenters provided a number of alternatives for coverage 
of commercial-purpose transactions. A significant number of commenters 
urged the Bureau specifically to exclude all dwelling-secured 
commercial-purpose transactions. These commenters cited the benefits 
and burdens already discussed, asserted that such an exclusion would 
reduce burden significantly, and argued that it would align coverage 
across Regulations C, X, and Z. A number of commenters urged the Bureau 
specifically to exclude transactions for multifamily housing (or 
alternatively to non-natural persons), emphasizing the differences in 
underwriting between multifamily and other lending, and asserting that 
multifamily loan data is particularly ill-suited to serving HMDA's 
purposes because multifamily loans typically are made to corporate 
borrowers rather than to consumers.\240\ A few commenters expressed 
concern about the privacy of multifamily borrowers, fearing that 
multifamily loans easily could be identified in the dataset because 
relatively few are made each year and they have unique characteristics.
---------------------------------------------------------------------------

    \240\ Commenters cited other differences, such as the lack of 
standardized underwriting criteria in multifamily lending, and heavy 
reliance on a property's income-producing capacity, on the 
borrower's cash flow, and on an evaluation of the strength of the 
overall market.
---------------------------------------------------------------------------

    Other commenters variously urged that reporting of commercial 
applications and originations should be required only for: (1) 
Multifamily transactions; (2) closed-end mortgage loans; (3) first-lien 
transactions; or (4) transactions for home purchase, home improvement, 
or refinancing.\241\ Commenters who recommended retaining Regulation 
C's home purchase, home improvement, and refinancing test for 
commercial-purpose transactions argued that: (1) The purpose test 
reasonably limits the scope of reportable commercial transactions and 
better serves HMDA's purposes; and (2) financial institutions easily 
can identify their dwelling-secured commercial- and consumer-purpose 
transactions, because they are accustomed to making a similar 
determination for coverage under Regulations X and Z.
---------------------------------------------------------------------------

    \241\ Several commenters discussed commercial- and agricultural-
purpose loans together and urged the Bureau to exclude both 
categories of loans entirely from Regulation C. For the reasons 
discussed in the section-by-section analysis of Sec.  1003.3(c)(9), 
the final rule excludes agricultural-purpose transactions from 
reporting.
---------------------------------------------------------------------------

    As discussed in the proposal, the Bureau believes that HMDA's scope 
is broad enough to cover all dwelling-secured commercial-purpose 
transactions and that collecting information about all such 
transactions would serve HMDA's purposes. HMDA section 303(2) defines 
``mortgage loan'' as a loan secured by residential real property or a 
home improvement loan. While the Board historically interpreted HMDA 
section 303(2) to refer to loans for home purchase, home improvement, 
or refinancing purposes, the Bureau believes that the definition is 
broad enough to include all dwelling-secured mortgage loans and lines 
of credit, even if their funds are used in whole or in part for 
commercial (or for other, non-housing-related) purposes.\242\
---------------------------------------------------------------------------

    \242\ As noted in the Bureau's proposal, when the Board first 
proposed to implement HMDA, it proposed to require reporting of all 
loans secured by residential real property. See 41 FR 13619, 13620 
(Mar. 31, 1976). The Board subsequently decided to adopt a narrower 
scope based on loan purpose, because the Board believed that 
focusing on loan purpose would provide more useful data. See 41 FR 
23931, 23932 (June 14, 1976).
---------------------------------------------------------------------------

    Moreover, the Bureau believes that collecting data about all such 
transactions would serve HMDA's purposes by showing not only the 
availability and condition of multifamily housing units, but also the 
full extent of leverage on single-family homes, particularly in 
communities that may rely heavily on dwelling-secured loans to finance 
small-business expenditures. The Bureau believes that financial 
institutions serve the housing needs of their communities not only by 
providing fair and adequate financing to purchase and improve homes, 
but also by ensuring that neither individual borrowers nor particular 
communities are excessively overleveraged through business-related 
home-equity borrowing, and that all such credit is extended on 
equitable terms.\243\
---------------------------------------------------------------------------

    \243\ See also 79 FR 51731, 51747-48 (Aug. 29, 2014).
---------------------------------------------------------------------------

    The Bureau nevertheless has determined at this time to require 
reporting only of applications for, and originations of, dwelling-
secured commercial-purpose loans and lines of credit for home purchase, 
home improvement, or refinancing purposes. After considering the 
comments, the Bureau concluded that it is unclear whether the benefits 
of reporting all dwelling-secured commercial-purpose transactions 
justify the burdens, particularly in light of the many other changes 
required under the final rule. While the Bureau has no data with which 
to estimate specifically how many additional transactions would have 
been reported under the proposal, it seems clear that some financial 
institutions' HMDA reports would have expanded dramatically. The Bureau 
is concerned that the impact could be greatest for smaller institutions 
that specialize in small-business lending. The Bureau considered other 
burdens, as well, including the unique burdens of collecting and 
reporting information about commercial-purpose transactions (relative 
to consumer-purpose transactions) and the burdens of addressing loans 
subject to cross-collateralization agreements. Against these burdens, 
the Bureau weighed commenters' arguments that abundance of caution 
transactions likely would pose less risk to borrowers' homes than 
consumer-purpose equity lending and that data reporting for commercial-
purpose lending could be addressed in a future Bureau rulemaking to 
implement section 1071 of the Dodd-Frank Act.
    The Bureau concluded that, at this time, maintaining purpose-based 
reporting of dwelling-secured commercial-purpose transactions 
appropriately balances reporting benefits and burdens. The final rule 
thus adds to Regulation C new Sec.  1003.3(c)(10), which provides that 
loans and lines of credit made primarily for a commercial or business 
purpose are excluded transactions unless they are for the purpose of 
home purchase under Sec.  1003.2(j), home improvement under Sec.  
1003.2(i), or refinancing under Sec.  1003.2(p).
    New comment 3(c)(10)-1 explains the general rule and clarifies that 
Sec.  1003.3(c)(10) does not exclude all dwelling-secured business- or 
commercial-purpose loans or credit lines from coverage. New comment 
3(c)(10)-2 explains how financial

[[Page 66172]]

institutions should determine whether a transaction primarily is for a 
commercial or business purpose. Specifically, comment 3(c)(10)-2 
provides that a loan or line of credit that is business, commercial, or 
organizational credit under Regulation Z Sec.  1026.3(a) and related 
commentary also is business or commercial credit under Regulation C and 
subject to special reporting under Sec.  1003.3(c)(10).\244\ Comments 
3(c)(10)-3 and -4 provide illustrative examples of business- or 
commercial-purpose loans and credit lines that are covered loans under 
the final rule, or that are excluded transactions under Sec.  
1003.3(c)(10).
---------------------------------------------------------------------------

    \244\ The commentary to Regulation Z Sec.  1026.3(a) discusses 
some transactions (such as credit card transactions) that are not 
subject to Regulation C at all, and others (such as agricultural-
purpose loans) that are excluded from Regulation C under final Sec.  
1003.3(c)(9) regardless of whether they are for home purchase, home 
improvement, or refinancing purposes. The Bureau believes that the 
burden relief achieved through regulatory alignment supports relying 
on Regulation Z's commentary to the extent applicable.
---------------------------------------------------------------------------

    The Bureau intends Sec.  1003.3(c)(10) to maintain coverage of 
commercial-purpose transactions generally at its existing level. 
Section 1003.3(c)(10) does expand coverage of dwelling-secured 
commercial-purpose lines of credit, which are not currently required to 
be reported, by requiring them to be reported if they primarily are for 
home purchase, home improvement, or refinancing purposes.\245\ For the 
reasons discussed in the section-by-section analysis of Sec.  
1003.2(o), the final rule equalizes reporting of closed-end loans and 
open-end credit lines. Section 1003.3(c)(10) thus treats all dwelling-
secured, commercial-purpose transactions the same, whether closed- or 
open-end. The Bureau believes that relatively few dwelling-secured, 
commercial-purpose open-end lines of credit are used for home purchase, 
home improvement, or refinancing purposes.\246\ The Bureau thus expects 
that reporting them will impose a relatively small burden on financial 
institutions. And, for the reasons given, the Bureau concludes that 
coverage of dwelling-secured, commercial-purpose credit lines for home 
improvement, home purchase, or refinancing purposes, as finalized in 
this rule, is necessary to further HMDA's purposes, especially because 
this is a segment of the mortgage market for which the public and 
public officials lack significant data.
---------------------------------------------------------------------------

    \245\ A few commenters specifically requested that the Bureau 
exclude from coverage dwelling-secured, agricultural-purpose lines 
of credit. The final rule excludes such transactions under Sec.  
1003.3(c)(9). See the section-by-section analysis of Sec.  
1003.3(c)(9).
    \246\ As discussed in part VII below, the Bureau has faced 
challenges estimating institutions' open-end lending volume given 
limitations in publicly available data sources. For example, it is 
difficult to estimate commercial-purpose open-end lending volume 
because available data sources do not distinguish between consumer- 
and commercial-purpose lines of credit.
---------------------------------------------------------------------------

    Section 1003.3(c)(10) also expands coverage of applications by, or 
originations to, certain trusts. For simplicity and regulatory 
consistency, final comment 3(c)(10)-2 aligns the definition of business 
or commercial credit under Regulation C with that definition under 
Regulation Z Sec.  1026.3(a). In the 2013 TILA-RESPA Final Rule, the 
Bureau revised comments 3(a)-9 and -10 to Sec.  1026.3(a) to provide 
that certain trusts made primarily for personal, family, or household 
purposes are transactions to natural persons in substance if not in 
form. Thus, transactions involving trusts as described in Regulation Z 
comment 3(a)-10 are subject to general dwelling-secured reporting under 
Regulation C.\247\ The Bureau believes that the benefits of aligning 
the Sec.  1003.3(c)(10) test with Regulation Z justify the burdens of 
reporting these transactions.\248\
---------------------------------------------------------------------------

    \247\ Section 1003.3(c)(10) sets forth rules only concerning 
coverage. When determining whether and how to report particular data 
points for covered trust transactions, financial institutions should 
rely on the guidance set forth in Sec.  1003.4 and accompanying 
commentary and instructions.
    \248\ In aligning with Regulation Z's interpretation of trusts 
for coverage purposes, the Bureau is declining to exclude trusts 
from reporting as some commenters urged. As discussed in the 2013 
TILA-RESPA Final Rule, the Bureau believes that many dwelling-
secured loans made to trusts are consumer-focused transactions in 
substance and that data about such transactions will fulfill HMDA's 
purposes of understanding how financial institutions are serving the 
housing needs of their communities, even if particular data points 
like age or credit score may not apply to all trust transactions. 
The final rule includes specific guidance about whether and how to 
report age (comment 4(a)(10)(ii)-4) or ethnicity, race, and sex 
(appendix B, instruction 7) for transactions involving trusts.
---------------------------------------------------------------------------

    Maintaining commercial reporting roughly at its existing level will 
burden financial institutions more than eliminating reporting of all 
commercial-purpose transactions, as many commenters suggested. 
Financial institutions will continue to report transactions for home 
purchase, home improvement or refinancing purposes, and they will incur 
some burden distinguishing commercial-purpose transactions subject to 
Sec.  1003.3(c)(10) from non-commercial-purpose transactions subject to 
the general dwelling-secured coverage test. Like the commercial-purpose 
test under Regulation Z Sec.  1026.3(a), the Sec.  1003.3(c)(10) test 
requires financial institutions to determine the primary purpose of the 
transaction by looking at a variety of factors (and not, for example, 
by applying a bright-line rule). In some cases, for transactions that 
have multiple purposes, this approach will require financial 
institutions to exercise their judgment about the transaction's primary 
purpose.
    The Bureau believes that the benefits of maintaining purpose-based 
reporting of commercial transactions, however, justify these burdens. 
As noted at the beginning of this section-by-section analysis, HMDA, 
unlike TILA and RESPA, does not exempt business- or commercial-purpose 
transactions from coverage. Rather, HMDA, like ECOA, as implemented by 
the Bureau's Regulation B, and the CRA, provides authority to cover 
commercial-purpose transactions. HMDA's scope reflects that HMDA has a 
somewhat broader-based, community-level focus than certain other 
consumer financial laws.
    Specifically, while HMDA endeavors to ensure that applicants and 
borrowers are not discriminated against in particular transactions, it 
also seeks to ensure that financial institutions are meeting the 
housing needs of their communities and that public-sector funds are 
distributed to improve private investments in areas where they are 
needed. HMDA's broader purposes are served by gathering data both about 
individual transactions to applicants or borrowers and, for example, 
about the available stock of multifamily rental housing in particular 
communities.\249\ The final rule achieves these goals without requiring 
institutions to report all dwelling-secured commercial-purpose 
transactions. The final rule also addresses commenters' concerns about 
commingling consumer- and commercial-purpose data by adding a 
commercial-purpose flag in Sec.  1003.4(a)(38).\250\ Finally, the final 
rule clarifies whether and how certain data points apply to commercial-
purpose transactions.\251\
---------------------------------------------------------------------------

    \249\ It is also for this reason that the final rule does not 
exclude particular categories of commercial-purpose lending, such as 
multifamily or subordinate-lien commercial lending, from coverage.
    \250\ See the section-by-section analysis of Sec.  
1003.4(a)(38).
    \251\ See, e.g., comments 4(a)(10)(iii)-7 and 4(a)(23)-5, 
specifying that a financial institution reports ``not applicable'' 
for income relied on and debt-to-income ratio when the applicant or 
co-applicant is not a natural person or when the covered loan is 
secured by a multifamily dwelling. See also Sec.  1003.2(n) and 
comment 2(n)-2, which list special reporting requirements for 
multifamily dwellings.

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[[Page 66173]]

3(c)(11)
    As discussed in the section-by-section analysis of Sec.  1003.2(g), 
the final rule provides that a financial institution is covered under 
Regulation C and must report data about covered loans if, among other 
things, the financial institution originated more than 100 open-end 
lines of credit in the preceding two years. The Bureau recognizes that 
some financial institutions may be covered financial institutions 
because they meet the open-end line of credit threshold in Sec.  
1003.2(g)(1)(v)(B) or (2)(ii)(B), but that these institutions may have 
closed-end mortgage lending volume that falls below the 25-loan 
coverage threshold in Sec.  1003.2(g)(1)(v)(A) or (2)(ii)(A). Section 
1003.3(c)(11) provides that such institutions' closed-end mortgage 
loans are excluded transactions. The Bureau does not believe that it is 
useful to burden such institutions with reporting closed-end mortgage 
data merely because their open-end lending exceeded the separate, open-
end loan-volume threshold in Sec.  1003.2(g). Comment 3(c)(11)-1 
provides an illustrative example of the rule.
3(c)(12)
    As discussed in the section-by-section analysis of Sec.  1003.2(g), 
the final rule provides that a financial institution is covered under 
Regulation C and must report data about covered loans if, among other 
things, the financial institution originated more than 25 closed-end 
mortgage loans in the preceding two years. The Bureau recognizes that 
some financial institutions may be covered financial institutions 
because they meet the closed-end mortgage loan threshold in Sec.  
1003.2(g)(1)(v)(A) or (2)(ii)(A), but that these institutions may have 
open-end line of credit volume that falls below the 100-line of credit 
coverage threshold in Sec.  1003.2(g)(1)(v)(B) or (2)(ii)(B). Section 
1003.3(c)(12) provides that such institutions' open-end lines of credit 
are excluded transactions. The Bureau does not believe that it is 
useful to burden such institutions with reporting data about open-end 
lines of credit merely because their closed-end lending exceeded the 
separate, closed-end loan-volume threshold in Sec.  1003.2(g). Comment 
3(c)(12)-1 provides an illustrative example of the rule.

Section 1003.4 Compilation of Reportable Data

4(a) Data Format and Itemization
    Section 1003.4(a) requires financial institutions to collect and 
record specific information about covered loans, applications for 
covered loans, and purchases of covered loans. As discussed in detail 
below, the Bureau proposed several changes to Sec.  1003.4(a) to 
implement the Dodd-Frank Act amendments to HMDA and to exercise its 
discretionary authority under the Dodd-Frank Act to require collection 
of certain additional information. In addition, the Bureau proposed 
modifications to Regulation C to reduce redundancy, provide greater 
clarity, and make the data more useful.
    The Bureau proposed modifications to Sec.  1003.4(a) and comments 
4(a)-1 and 4(a)-4 through -6. These revisions addressed reporting 
transactions involving more than one institution, reporting repurchased 
loans, and other technical modifications. In addition, the proposal 
solicited feedback on the number and type of data proposed to be 
collected. These issues are discussed below separately.
Reporting Transactions Involving More Than One Institution
    Currently, commentary to Sec.  1003.1(c) describes the ``broker 
rule,'' which explains a financial institution's reporting 
responsibilities when a single transaction involves more than one 
institution. Proposed comments 4(a)-4 and -5 modified and consolidated 
current comments 1(c)-2 through -7 and 4(a)-1.iii and.iv. Proposed 
comment 4(a)-4 described which financial institution reports a covered 
loan or application when more than one institution is involved in 
reviewing a single application and provided illustrative examples. 
Proposed comment 4(a)-5 discussed reporting responsibilities when a 
financial institution makes a credit decision through the actions of an 
agent. The Bureau is adopting comment 4(a)-4, renumbered as comments 
4(a)-2 and -3, with changes to address certain industry comments, 
discussed below. The Bureau received no comments on proposed comment 
4(a)-5 and is adopting it as proposed, renumbered as comment 4(a)-4.
    Two industry commenters stated that they supported proposed comment 
4(a)-4. Other industry commenters expressed concerns with proposed 
comment 4(a)-4. One industry commenter pointed out that loans 
originated as part of a State housing finance agency (HFA) program may 
not be reported under the proposed commentary because under those 
programs the State HFA, which the commenter asserted may not be 
required to report HMDA data, usually makes the credit decision. 
Another industry commenter urged the Bureau to allow more than one 
institution to report the same origination.
    The Bureau recognizes that some applications and loans will not be 
reported under proposed comment 4(a)-4, finalized as comments 4(a)-2 
and -3, if the institution making the credit decision is not a 
financial institution required to report HMDA data. However, the Bureau 
believes that it is appropriate to limit reporting responsibilities to 
the financial institution that makes the credit decision. Requiring 
that only one institution report the origination of a covered loan 
eliminates duplicate data. For example, if more than one financial 
institution reported the same origination, the total origination volume 
for a particular census tract would appear higher than the actual 
number of loans originated in that tract. On balance, the Bureau 
concludes that only the financial institution that makes the credit 
decision should report an origination.
    Other industry commenters asked for examples of how to report a 
loan or application involving more than two institutions. The Bureau 
has added an example to proposed comment 4(a)-4, finalized as comment 
4(a)-3, to illustrate financial institutions' reporting 
responsibilities when multiple institutions are involved. The example 
demonstrates that more than one financial institution will report the 
action taken on the same application if the same application is 
forwarded to multiple institutions. However, only one financial 
institution will report the loan as an origination.
    An industry commenter sought clarification about what is meant by 
application for the purposes of the proposed comment. Section 1003.2(b) 
defines application for purposes of Regulation C and, accordingly, for 
purposes of Sec.  1003.4(a) and its commentary. The Bureau is modifying 
proposed comment 4(a)-4, finalized as comments 4(a)-2 and -3, to 
clarify that Sec.  1003.4(a) requires a financial institution to report 
data on applications that it receives even if the financial institution 
received an application from another financial institution rather than 
directly from an applicant.
    In addition, a trade association asked the Bureau to clarify the 
reporting responsibilities when a credit union contracts a credit union 
service organization (CUSO) to perform loan origination services. The 
commentary to the final rule addresses these situations. Comment 4(a)-2 
explains that the institution that makes the credit decision prior to 
closing or account opening reports that decision.

[[Page 66174]]

Accordingly, if a credit union makes a credit decision prior to closing 
or account opening, then the credit union reports that decision. In 
addition, comment 4(a)-3.v addresses situations when a financial 
institution (in this case the CUSO) makes a credit decision using the 
underwriting criteria of a third party (in this case the credit union). 
In that case, if the CUSO makes a credit decision without the credit 
union's review before closing, the CUSO reports the credit decision. 
However, if the CUSO approves the application acting as the credit 
union's agent under State law, comment 4(a)-4 clarifies that the credit 
union is required to report the actions taken through its agent.
Purchased Loans
    In 2010, the FFIEC issued a publication in which it noted that 
repurchases qualify as purchases for Regulation C, and provided 
guidance on how and when to report such purchases.\252\ The Bureau 
proposed to incorporate this guidance into Regulation C by adding new 
comment 4(a)-5 to clarify that covered loans that had been originated 
by a financial institution, sold to another entity, and subsequently 
repurchased by the originating institution should be reported under 
Regulation C unless the sale, purchase, and repurchase occurred within 
the same calendar year. When the FFIEC publication was issued, data 
users could not reliably identify repurchased loans within HMDA data 
because each loan was reported with a unique application or loan 
number, even if it was a loan being repurchased. Thus loans repurchased 
and reported multiple times within the same calendar year would distort 
the annual HMDA data, because the characteristics of those loans would 
be represented multiple times within the data. For the reasons 
discussed below, the Bureau is not adopting comment 4(a)-5 as proposed 
and, instead, is revising it to require the reporting of most 
repurchases as purchased loans regardless of when the repurchase 
occurs.
---------------------------------------------------------------------------

    \252\ Fed. Fin. Insts. Examination Council, CRA/HMDA Reporter, 
Changes Coming to HMDA Edit Reports in 2010, at 5 (Dec. 2010), 
available at https://www.ffiec.gov/hmda/pdf/10news.pdf.
---------------------------------------------------------------------------

    Most commenters opposed the Bureau's proposal. Some industry 
commenters argued that repurchases should never be reported, even 
outside of the calendar year in which the loan was originated. Some 
industry commenters argued that the calendar year exception would 
negatively affect CRA ratings for some financial institutions that 
temporarily purchase CRA-eligible loans under certain lending 
arrangements. Other industry commenters argued that any reporting of 
repurchases would inflate CRA ratings by allowing the loans to appear 
in a financial institution's HMDA data more than once. However, a few 
commenters supported the Bureau's proposal and argued that repurchases 
should be considered purchases for purposes of HMDA except for when the 
repurchase occurs within the same calendar year as the loans were 
originated.
    The Bureau recognizes that the one-calendar-year reporting 
exception in the FFIEC guidance has led to inconsistent reporting of 
repurchased loans, because loans originated late in a calendar year and 
repurchased early in the succeeding calendar year are reported as loan 
purchases, while loans originated early in a calendar year and 
repurchased within the same calendar year are not reported. The Bureau 
also understands that there have been questions concerning the scope of 
the guidance and whether various scenarios constitute a repurchase or 
are addressed by the guidance.
    The Bureau has determined that repurchases of covered loans should 
be reported as loan purchases, with only a narrow exception discussed 
below. The Bureau believes that the one-calendar-year reporting 
exception, which was based on guidance originally published by the 
FFIEC, will no longer be needed in light of other elements of the final 
rule.\253\ The universal loan identifier (ULI), as adopted in Sec.  
1003.4(a)(1)(i), will enable a loan to be identified in the HMDA 
dataset through multiple HMDA reporting events and the repurchase 
reporting event could be identified and not included in an analysis or 
compilation of HMDA data focused on originated loans or annual market 
volume. Repurchases after the origination and sale of a covered loan to 
a secondary market investor still effect a transfer of legal title to 
the covered loan, which then could be held in portfolio by the 
originating institution or sold to another secondary market investor 
later. Information about these transfers should be reflected in HMDA as 
purchases, just as the original purchase is, so that the information 
may be included in the HMDA dataset to further the purposes of HMDA, 
and so that the ULI may be used effectively to monitor covered loans 
through their lifecycle.
---------------------------------------------------------------------------

    \253\ Id.
---------------------------------------------------------------------------

    In addition, if repurchase data are not included, there could be 
gaps in the history of a covered loan. The Dodd-Frank Act also requires 
the U.S. Securities and Exchange Commission to prescribe regulations 
that require securitizers to disclose fulfilled and unfulfilled 
repurchase requests across all trusts aggregated by the 
securitizer.\254\ The Bureau believes that the usefulness of the HMDA 
data would be enhanced by having repurchases included so that 
information could be available through multiple HMDA reporting events.
---------------------------------------------------------------------------

    \254\ Dodd-Frank Act section 943; see also 17 CFR 240.15Ga-1.
---------------------------------------------------------------------------

    For the reasons discussed above, the Bureau is adopting comment 
4(a)-5 with modifications. However, the Bureau is creating an exception 
for certain assignments of legal ownership of covered loans through 
interim funding arrangements that operate as the functional equivalent 
of warehouse lines of credit because they may not truly reflect sales 
and purchases of covered loans. These interim funding agreements are 
used as functional equivalents of warehouse lines of credit where legal 
title to the covered loan is acquired by the party providing interim 
funding, subject to an obligation of the originating institution to 
repurchase at a future date, rather than taking a security interest in 
the covered loan as under the terms of a more conventional warehouse 
line of credit. The Bureau does not believe that these arrangements 
should require reporting under Regulation C given the temporary nature 
of the transfer and the intent of the arrangement. Therefore, pursuant 
to HMDA section 305(a) the Bureau is incorporating an exception into 
comment 4(a)-5 for such agreements so that such activity will not be 
reported under Regulation C. This exception is necessary and proper to 
effectuate HMDA's purposes, because reporting of these transfers in 
addition to reporting of the underlying originations, subsequent 
purchases, and any repurchase at a later date may distort HMDA data 
without providing meaningful information that furthers HMDA's purposes. 
This exception will also facilitate compliance for financial 
institutions.
Other Technical Modifications
    The Bureau also proposed technical modifications to 4(a) and 
proposed comment 4(a)-1. The Bureau received no comments on the 
proposed changes to 4(a) and proposed comment 4(a)-1 and is adopting 
them as proposed, with minor modifications. The Bureau is also moving 
comments 4(a)-1.iv, -2, and -3 to the commentary to Sec.  1003.4(f) to 
clarify a financial institution's

[[Page 66175]]

obligation to record data on a quarterly basis.
Number of Data Points
    As detailed in the section 1022 discussion below, currently 
Regulation C requires reporting of approximately 35 separate pieces of 
information, and allows for optional reporting of three denial reasons. 
The Dodd-Frank Act amended HMDA by enhancing two existing data points 
(rate spread and application ID) and identifying 11 new data points, 
which the Bureau proposed to implement with 22 data fields. The Bureau 
also proposed to require financial institutions to report 13 additional 
data points not identified in the Dodd-Frank Act, implemented with 28 
data fields, and to modify and expand some of the existing Regulation C 
data fields. Also detailed in the section 1022 discussion below, while 
the Bureau estimates that the incremental cost of each additional data 
point and associated data fields is small, the Bureau acknowledges that 
there are variable costs, one-time costs, and ongoing costs associated 
with the additional data points when considered collectively. The 
Bureau considered this in developing the proposal and proposed only 
those additional data points that the Bureau believes have sufficient 
value to justify the costs. As discussed below, the Bureau is not 
dramatically changing the number of the proposed data points, either by 
not adopting a substantial number of those that were proposed or by 
adopting substantially more than the number that were proposed. The 
number of data fields implementing some of the data points has 
increased based on changes the Bureau has adopted for the final rule.
    Some industry commenters stated that the Bureau should only require 
data points that were specifically defined in the Dodd-Frank Act. Some 
industry commenters also suggested removing data points currently 
required under Regulation C. Some industry commenters stated that the 
Bureau should only require certain financial institutions to report 
data points not specifically defined in the Dodd-Frank Act, such as 
institutions that had been found to be in violation of fair lending 
laws, HMDA, or the CRA, or institutions that exceed certain asset-size 
or loan-volume thresholds. Some industry commenters stated that the 
Bureau should conduct additional analysis on the value of the proposed 
data points before deciding whether to adopt them. Many consumer 
advocate commenters argued that the Bureau's proposal did not require 
enough information to be reported, and that additional information 
would be required to fulfill HMDA's purposes. Some industry and other 
commenters also suggested additional data points. Collectively these 
commenters suggested more than 45 additional data points. Some industry 
commenters and consumer advocate commenters stated that the Bureau's 
proposal was reasonable and measured in terms of the number of data 
points and made sense given the current mortgage market.
    The Bureau has analyzed the proposed data points carefully in light 
of the comments received and other considerations and believes that the 
data points adopted in this final rule each significantly advance the 
purposes of HMDA and are warranted in light of collection burdens. Each 
such data point is discussed below in the section-by-section analysis. 
The Bureau has authority to expand the data points collected to include 
such other information as it may require under HMDA section 
304(b)(5)(D) and (b)(6)(J). As discussed below throughout the section-
by-section analysis, the Bureau is adopting many of the data points 
proposed, modifying certain data points based on feedback received from 
commenters, and not finalizing certain proposed data points.
    Regarding the comments suggesting criteria or thresholds for 
reporting additional data points, the Bureau does not believe that it 
would be appropriate to condition the reporting of such data points on 
such criteria. The Bureau believes that the data points proposed to be 
reported fulfill HMDA's purposes and that limiting reporting of them to 
only some financial institutions would limit the usefulness of the 
data. Limiting reporting of certain information to financial 
institutions that had a history of violating certain laws would 
compromise the usefulness of the HMDA data because that information 
would not be available from other financial institutions, precluding 
the generating of a representative (presumptively non-violative) sample 
of the market for statistical comparison. Limiting reporting of certain 
information by asset size or loan volume would also undermine the 
utility of the HMDA data, because financial institutions that would 
fall under any threshold may have different characteristics and lending 
practices that would then not be visible through HMDA data. Financial 
institutions have different business models and underwriting practices 
which can, in part, be based on their asset size or loan volume. 
Excluding certain financial institutions would potentially exclude 
information about covered loans with different characteristics or 
information related to differences in underwriting practices and would 
create data that is not uniform. This would not only undermine HMDA's 
purposes, but limit information available to policymakers in 
considering how legal requirements should apply to different business 
models and underwriting practices.
    The Bureau also considered the additional data points suggested by 
commenters. As discussed below throughout the section-by-section 
analysis, certain data points have been modified to take into account 
some of these suggestions. The Bureau is not adopting many of these 
data points because it does not believe it has sufficient information 
at this time to determine whether adding them would serve HMDA's 
purposes and be warranted in light of collection burdens. Others the 
Bureau believes would be duplicative of, or would provide information 
only marginally different than, data points adopted in the final rule. 
Because many of these comments proposed data points similar to ones 
proposed by the Bureau, the responses to many of these comments are 
discussed below in the section-by-section analysis for the data point 
being finalized most relevant to those suggestions.
4(a)(1)
4(a)(1)(i)
    HMDA section 304(b)(6)(G), as amended by Dodd-Frank Act section 
1094(3)(A)(iv), authorizes the Bureau to require a universal loan 
identifier, as it may determine to be appropriate.\255\ Existing Sec.  
1003.4(a)(1) requires financial institutions to report an identifying 
number for each loan or loan application reported. The current 
commentary to Sec.  1003.4(a)(1) strongly discourages institutions from 
using the applicant's or borrower's name or Social Security number in 
the application or loan number. The current commentary also requires 
the number to be unique within the institution, but does not provide 
guidance on how institutions should select ``unique'' identifiers. The 
Bureau proposed to implement HMDA section 304(b)(6)(G) by replacing the 
current HMDA loan identifier with a new self-assigned loan or 
application identifier that would be unique throughout the industry 
rather than just within the reporting financial institution, would be 
used by all financial institutions that report the loan or application 
for HMDA purposes,

[[Page 66176]]

and could not be used to directly identify the applicant or borrower. 
The Bureau believes a reasonable interpretation of ``universal loan 
identifier'' in HMDA section 304(b)(6)(G) is that the identifier would 
be unique within the industry. For the reasons discussed below, the 
Bureau is adopting Sec.  1003.4(a)(1)(i) generally as proposed 
requiring entities to provide a universal loan identifier (ULI) for 
each covered loan or application. The Bureau is adding separate 
paragraphs to address purchased covered loans and applications that are 
reconsidered or reinstated during the same calendar year. In addition, 
as discussed below, the Bureau is adding a paragraph requiring a check 
digit as part of the ULI.
---------------------------------------------------------------------------

    \255\ 12 U.S.C. 2803(b)(6)(G).
---------------------------------------------------------------------------

    The Bureau solicited comment on whether the proposed changes to the 
loan or application identifiers used for HMDA reporting are 
appropriate. Most industry commenters expressed concern that the 
proposed ULI would introduce unnecessary complexities in the HMDA 
reporting process. Several industry commenters stated that requiring 
institutions to reinvent current loan numbering procedures would result 
in significant implementation costs because it would require a 
programming change to current operation systems, such as an 
institution's loan origination software. Industry commenters pointed 
out that most institutions assign loan numbers based on a certain 
order, such as the order the application was received, and furthermore 
that creditors may include information within the loan number that is 
pertinent to the institution's operations. For example, an industry 
commenter stated that its loan origination software assigns numbers 
randomly but uses a unique identifier for originations and a unique 
identifier for all other loans not originated. The Bureau acknowledges 
that the proposed ULI may pose operational challenges for financial 
institutions. However, the Bureau believes that the benefits that can 
be gained from the use of a ULI, including the potential ability to 
track an application or loan over its life and to help in accurately 
identifying lending patterns across various markets justify the burden 
associated with implementing a ULI. Additionally, the Bureau 
understands that financial institutions need flexibility for 
organizational purposes, such as the flexibility to assign loan numbers 
that include numbers that would represent product type. With this in 
mind, the Bureau proposed that the ULI would consist of up to an 
additional 25 characters that follow the Legal Entity Identifier (LEI) 
to identify the covered loan or application. The Bureau believes that 
this approach provides financial institutions with the flexibility to 
accommodate organizational purposes when assigning loan numbers, except 
that the additional 25 characters must not include any information that 
could be used to directly identify the applicant or borrower.
    Currently, institutions assign alphanumeric identifiers, with up to 
25 characters, to identify a covered loan or application. The Bureau 
proposed a maximum 45-character ULI. The first 20 characters would be 
comprised of the LEI followed by up to 25 characters, which would 
represent the unique sequence of characters to identify the covered 
loan or application, and may be letters, numerals, symbols, or a 
combination of letters, numerals, and symbols. A trade association 
recommended that the ULI be lengthened to 65 characters, as opposed to 
the proposed 45. An industry commenter stated that an institution could 
run out of identifiers quickly with the proposed maximum. The Bureau 
believes that lengthening the proposed ULI may benefit some 
institutions with large loan volumes that may use certain characters in 
the ULI to represent business lines or branches, but, at the same time, 
a ULI longer than 45 characters may be burdensome for other financial 
institutions. The Bureau believes the right balance between flexibility 
and usability is a maximum of 45 characters in the ULI, with the first 
20 characters representing the LEI.
    A few commenters expressed concerns regarding the potential errors 
that could arise in a loan identifier as long as 45 characters. One 
commenter stated that manual input of a 45-digit loan identifier will 
likely result in typos while another commenter suggested that manual 
input would need to take place to ensure accurate information because 
there is potential room for error with a 45-character loan identifier. 
To address the potential errors that could arise, an industry commenter 
recommended that the Bureau consider adding a check-digit requirement 
to the ULI. A check digit is used to validate or verify that a sequence 
of numbers or characters, or numbers and characters, are correct. A 
mathematical function is applied to the sequence of numbers or 
characters, or numbers and characters, to generate the check digit. 
This mathematical methodology could then be performed at a point in the 
HMDA process to ensure that the check digit resulting from performing 
the mathematical methodology on the sequence of letters or numerals, or 
letters and numerals, matches the check digit in the ULI. 
Implementation of a check digit can help ensure that the sequence of 
characters assigned to identify the covered loan or application are 
persistent throughout the HMDA process. For example, at the application 
stage, a financial institution assigns the ULI, which consists of the 
financial institution's LEI, a 23-character unique sequence of letters 
and numerals that identify the application, and a 2-character check 
digit. Once the application is complete, the file is transferred to 
another division of the financial institution where it will be handled 
by other staff. To ensure that the ULI was transferred correctly, the 
mathematical function could be performed to obtain the check digit and 
ensure that it matches the check digit in the ULI. This would ensure 
that the ULI does not contain an error due to typos or transposition of 
characters as a result of manual entry or file transfer errors. If the 
check digit resulting from the performed mathematical function does not 
match the check digit in the ULI, then it would be an indication to 
staff that an error in the ULI exists. Adding a check digit requirement 
in the ULI also benefits the file transfer process between financial 
institutions. For example, a file transfer process could be initiated 
because the loans are sold to another financial institution. The 
financial institution that originated the loans electronically 
transmits to the financial institution that purchases the loans the 
applicable information, including the ULI, related to the loans. 
Although an electronic transmission reduces the incidence of errors, it 
is not guaranteed because of the likelihood that the institutions use 
different systems to capture the data and therefore, the financial 
institution that purchased the loans may need to implement specific 
software to intake the data. In addition, unlike other information 
related to the loan that can undergo a quality control process through 
the implementation of business logic and statistical analyses, the ULI 
does not contain information that would make it possible to ensure that 
the ULI transferred is valid through the application of business logic 
or statistical analyses. Therefore, implementation of a check digit can 
help ensure that the ULI was transferred correctly.
    The check-digit requirement would enable financial institutions to 
quickly identify and correct errors in the ULI, which would ensure a 
valid ULI, and therefore enhance data quality. Check digits are 
currently implemented in

[[Page 66177]]

certain identifiers, such as vehicle identification numbers, which 
function as a check against transcription errors.\256\ The national 
unique health plan identifier implemented by the U.S. Department of 
Health and Human Services also incorporates a check digit.\257\ The 
Bureau believes that the benefits of a check digit in the ULI justifies 
the additional burden associated with implementing a check digit.
---------------------------------------------------------------------------

    \256\ See 73 FR 23367, 23369 (Apr. 30, 2008).
    \257\ See 77 FR 54664, 54675 (Sept. 5, 2012).
---------------------------------------------------------------------------

    The Bureau is publishing in this final rule new appendix C that 
includes the methodology for generating a check digit and instructions 
on how to validate a ULI using the check digit. The methodology is 
adapted from Mod 97-10 \258\ in the international standard ISO/IEC 
7064, which is published by the International Organization for 
Standardization (ISO).\259\ ISO/IEC 7064 specifies check character 
systems that can detect errors in a string of characters that are the 
result of data entry or copy errors.\260\ Specifically, ISO/IEC 7064 
check character systems can detect errors caused by substitution or 
transposition of characters. For example, the check digit can detect a 
transposition error such as when two adjacent numbers are transposed or 
when a single character is substituted for another. The Bureau believes 
that the identification of these types of errors will enhance data 
quality and reduce burden in the long run for institutions because the 
errors can be identified early in the process. To reduce burden, the 
Bureau plans to develop a tool that financial institutions may use, at 
their option, to assist with check digit generation.
---------------------------------------------------------------------------

    \258\ Mod 97-10 applies the mathematical function modulus, which 
is defined by ISO as an integer used as a divisor of an integer 
dividend in order to obtain an integer remainder.
    \259\ ISO is the world's largest developer of international 
standards and has published over 19,500 standards that cover aspects 
of business and technology. ISO is comprised of national standards 
bodies from 162 member countries. More information about ISO and the 
standards is available at https://www.iso.org/iso/home.html.
    \260\ Int'l. Org. for Standards, ISO/IEC 7064:2003, Information 
technology-Security techniques-Check character systems (Feb. 15, 
2003), https://www.iso.org/iso/home.html.
---------------------------------------------------------------------------

    For the reasons stated above, the Bureau adopts as final the 
requirement to include a check digit to the ULI. In order to maintain 
the maximum 45-character ULI, the Bureau is also modifying the maximum 
number of additional characters to identify the covered loan or 
application and reducing it from the proposed 25 to 23.
    Several industry commenters suggested that the Bureau should 
consider using the MERS Mortgage Identification Number (MIN) as the 
core of the ULI.\261\ The MIN is an 18-digit number registered on the 
MERS System. The first seven digits of the 18-digit MIN number would be 
the financial institution's identification number assigned by MERS. The 
next 10 digits would be assigned by the financial institution and the 
last digit serves as a check digit. One commenter stated that 
uniqueness is important in a loan number and that the MIN could 
guarantee uniqueness because it is registered with the MERS System. The 
MIN is usually issued at origination but may be issued at application. 
For the reasons discussed below, the Bureau is not adopting a ULI that 
uses the MIN as the core.
---------------------------------------------------------------------------

    \261\ The MERS System is owned and managed by MERSCORP Holdings, 
Inc., an industry-owned and privately held corporation. According to 
MERSCORP, the MERS System is a national electronic database that 
tracks changes in mortgage servicing and beneficial ownership 
interests in residential mortgage loans on behalf of its members.
---------------------------------------------------------------------------

    First, a rule that prescribes the MIN as the core would require all 
financial institutions reporting HMDA data to register with MERSCORP 
and obtain an organization number assigned by MERSCORP. This 
organization number would not be able to serve the same function as the 
LEI described in the section-by-section analysis of Sec.  1003.5(a)(3) 
below because there would not be a way to link HMDA-reporting 
institutions with their corporate families using the MERS 
identification number. Second, the 10-digit number assigned by the 
institution that would serve as the identification number that can be 
used to identify and retrieve the loan application would not provide 
the same flexibility as the maximum 23-character that the ULI provides. 
Some financial institutions may need more than 10 digits to identify 
and retrieve a loan application because certain characters in the loan 
number may represent branches or business lines. For these reasons, the 
Bureau is not adopting a ULI that uses the MERS MIN as the core.
    Some industry commenters suggested that the ULI should be identical 
to the loan identification number prescribed by the 2013 TILA-RESPA 
Final Rule. That rule provides that the loan identification number is a 
number that may be used by the creditor, consumer, and other parties to 
identify the transaction.\262\ See Regulation Z Sec.  1026.37(a)(12). 
Although the burden on industry would be mitigated if the Bureau 
required that financial institutions use the same loan identification 
number for HMDA reporting as the loan identification number in the 
TILA-RESPA disclosures, the Bureau believes that an application number 
that may meet the TILA-RESPA standards may not be appropriate for HMDA 
reporting. Section 1026.37(a)(12) does not limit the number of 
characters in the loan application number. The lack of limitation 
enables creditors to assign as many characters in the loan application 
number as they want, which could result in compliance challenges for 
users of the ULI. For example, if an institution purchases a loan with 
a 60-character application number assigned by the institution that 
originated the loan pursuant to Sec.  1026.37(a)(12), the institution 
that purchased the loan would need to make updates to their system to 
accommodate a 60-character ULI in order to report the purchased loan 
under HMDA if the purchasing institution's system was programmed to 
handle ULIs with a maximum number of 45 characters pursuant to 
Regulation C. For these reasons, the Bureau is not adopting a rule that 
would enable institutions to use the TILA-RESPA loan application number 
for the ULI. The Bureau notes, however, that the loan application 
number requirements in the TILA-RESPA rule are not necessarily 
incompatible with the ULI. Therefore, a financial institution may 
generate a ULI for both HMDA and TILA-RESPA.
---------------------------------------------------------------------------

    \262\ See 78 FR 79730 (Dec. 31, 2013). The rule is effective on 
October 3, 2015 and applies to transactions for which the creditor 
or mortgage broker receives an application on or after that date.
---------------------------------------------------------------------------

    The Bureau also proposed that the ULI may consist of letters, 
numbers, symbols, or a combination of letters, numbers, and symbols. 
While the Bureau did not receive any comments regarding the use of 
letters or numbers, the Bureau received a comment from industry stating 
that symbols may contain embedded special characters that could 
potentially result in interference with applications or programs that 
use the ULI. In addition, certain symbols may not be recognized by 
certain programs that use HMDA data. The commenter suggested that the 
Bureau should provide a list of symbols that are permissible in the ULI 
or provide a list of symbols that are not permissible in the ULI. After 
considering the comment, the Bureau concluded that symbols in the ULI 
can potentially present challenges for financial institutions and data 
when reporting or analyzing HMDA data. Therefore, the final rule does 
not permit the use of symbols, as in proposed Sec.  
1003.4(a)(1)(i)(B)(1). The Bureau is adopting a final rule that 
provides that

[[Page 66178]]

the maximum number of characters in the ULI must be 45, with the first 
20 characters representing the LEI followed by up to 23 additional 
characters that may be letters, numerals, or a combination of both, and 
a 2-character check digit.
    The Bureau explained in the proposal that the current identifier 
requirement makes it difficult to track an application or loan over its 
life. Commenters, including industry, consumer advocates, and trade 
associations, supported the proposed ULI because it would require a 
financial institution that reports HMDA data and that reports a 
purchased loan to report the same ULI that was previously reported 
under HMDA by the financial institution that originated the loan. One 
commenter stated that the ULI will enable a much better understanding 
of how the market works and how loans perform. Another commenter 
pointed out that the ULI is the single most useful addition for 
regulators to assess what happens after a loan is originated, from 
servicer changes to secondary mortgage market activity. Another 
commenter supporting the proposed ULI argued that a ULI that follows a 
loan through various permutations may help shed light into which racial 
and ethnic minority homeowners may be disproportionately subjected to 
predatory lending, foreclosure, fraud, and underwater mortgages.
    A commenter that supported the ULI stated that issues regarding the 
ULI could arise in a transaction that involves a purchased covered 
loan. Specifically, the commenter noted that the proposal did not 
specify which entity assigns the ULI at the initial reporting of the 
covered loan, particularly if a quarterly reporter purchased the loan 
and reports it prior to the annual reporter that originated the loan. 
The Bureau recognizes that the proposal may have created confusion 
regarding the ULI on purchased covered loans. To eliminate the 
confusion, the Bureau is adding Sec.  1003.4(a)(1)(i)(D) to address 
purchased covered loans. Section 1003.4(a)(1)(i)(D) provides that a 
financial institution that reports a purchased covered loan must use 
the ULI that was assigned or previously reported for the covered loan. 
For example, if a quarterly reporter pursuant to Sec.  1003.5(a)(1)(ii) 
purchases a covered loan from a financial institution that is an annual 
reporter and that submits data annually pursuant to Sec.  
1003.5(a)(1)(i), the quarterly reporter that purchased the covered loan 
must use the ULI that the financial institution that is an annual 
reporter assigned to the covered loan. Additionally, the Bureau is 
adding Sec.  1003.4(a)(1)(i)(E) to address the option for using the 
same ULI for an original and reinstated or reconsidered application 
that occur during the same calendar year. For example, assume a 
quarterly reporter pursuant to Sec.  1003.5(a)(1)(ii) takes final 
action on an application in the first quarter and submits it with its 
first quarter information. If in the second quarter during the same 
calendar year, the financial institution reconsiders the application 
and takes final action in the second quarter that is different from 
that in the first quarter, the financial institution may use the same 
ULI that was reported in its first quarter data. The Bureau believes 
that providing this option for financial institutions will reduce 
burden associated with assigning a new ULI for a later transaction that 
a financial institution considers as a continuation of an earlier 
transaction.
    The Bureau proposed Sec.  1003.5(a)(3) to require a financial 
institution to provide an LEI when the financial institution reports 
its data. Section 1003.5(a)(3) also describes the issuance of the LEI. 
The Bureau is adopting the requirement in Sec.  1003.5(a)(3) to require 
a financial institution to provide its LEI when reporting its data, as 
discussed in detail below in the section-by-section analysis of Sec.  
1003.5(a)(3). However, the Bureau is making a technical change and 
moving the description of the issuance of the LEI to Sec.  
1003.4(a)(1)(i)(A) for ease of reference. See the section-by-section 
analysis of Sec.  1003.5(a)(3) below for more information.
    For these reasons and those above, the Bureau is adopting Sec.  
1003.4(a)(1)(i) generally as proposed, with modifications related to 
symbols and the number of characters, the issuance of the LEI, 
additional clarification related to purchased covered loans and 
previously reported applications, and the addition of the check digit 
requirement.
    The Bureau solicited feedback regarding hashing as an encryption 
method for the ULI. The Bureau also solicited feedback on salting in 
addition to hashing to enhance the encryption. One industry commenter 
recommended that the Bureau finalize hashing and salting while most 
other industry commenters opposed such a requirement arguing that it 
would not provide any benefit but would entail an additional cost, 
including expertise and resources. After considering the comments, the 
Bureau has concluded that the benefits of hashing and salting would not 
be sufficient to justify the costs of such requirements. Accordingly, 
the Bureau is not adopting a requirement that the ULI must be encrypted 
using a hash algorithm.
    Proposed comment 4(a)(1)(i)-1 clarified the uniqueness requirement 
of the ULI. The Bureau did not receive any comments on proposed comment 
4(a)(1)(i)-1, which is adopted generally as proposed, but with 
technical modifications. The Bureau did not receive feedback on comment 
4(a)(1)(i)-2, which provided guidance on the ULI's privacy 
requirements, and is adopted as proposed. The Bureau is also adopting 
new comments 4(a)(1)(i)-3 through -5 to provide guidance and 
illustrative examples for the ULI on purchased covered loans and 
reinstated or reconsidered applications, and guidance on the check 
digit.
4(a)(1)(ii)
    The Bureau proposed Sec.  1003.4(a)(1)(ii) to provide for reporting 
of the date the application was received or the date shown on the 
application form. For the reasons discussed below, the Bureau is 
finalizing Sec.  1003.4(a)(1)(ii) as proposed with minor revisions to 
the associated commentary.
    Some commenters requested additional guidance on reporting 
application date. Many of these comments stated that application date 
is difficult to report for commercial loans, because the application 
process is much more fluid than in consumer lending and an application 
form may not be formally completed until the end of the application 
process for some commercial loans. These concerns will be reduced by 
the Bureau's decision to generally maintain reporting of dwelling-
secured, commercial-purpose transactions at its current level as 
discussed above in the section-by-section analysis of Sec.  
1003.3(c)(10). For those commercial loans that will be required to be 
reported, the definition of application, combined with the ability to 
rely on the date shown on the application form, permits sufficient 
flexibility for financial institutions to report application date for 
commercial loans.
    A commenter suggested that instead of reporting application date 
financial institutions should report only the month of application to 
ease compliance. The Bureau believes such a change would reduce the 
data's utility. Because interest rates can change more rapidly than 
monthly, and policies or criteria that affect the action taken on 
applications can change during a calendar month, it is important to 
have a more complete application date reporting requirement so that 
loans can be grouped appropriately for analysis.

[[Page 66179]]

    Therefore, the Bureau is finalizing Sec.  1003.4(a)(1)(ii) as 
proposed, and finalizing comment 4(a)(1)(ii)-1 as proposed with minor 
revisions to provide additional guidance on reporting application date 
when multiple application forms are processed. The Bureau received no 
specific feedback on comment 4(a)(1)(ii)-2 and is finalizing it as 
proposed. The Bureau is adding additional language to comment 
4(a)(1)(ii)-3 for clarity. The Bureau is deleting comment 4(a)(ii)-4, 
because it is duplicative of comment 4(a)(8)(i)-14.
4(a)(2)
    HMDA section 304(b)(1) requires financial institutions to report 
the number and dollar amount of mortgage loans which are insured under 
Title II of the National Housing Act or under Title V of the Housing 
Act of 1949 or which are guaranteed under chapter 37 of Title 38. The 
Bureau proposed to retain the current reporting requirement, but 
incorporate the text of the statutory provision, with conforming 
modifications, directly into Regulation C. For the reasons discussed 
below, the Bureau is finalizing Sec.  1003.4(a)(2) with modifications 
to maintain consistency with the current reporting requirement.
    Commenters suggested various changes to the requirement, including 
aligning it with similar categories in other regulations, including new 
categories, or exempting certain types of covered loans from the 
requirement. A few commenters suggested adding an additional 
enumeration for State housing agency loans. Because many loans that 
State housing agencies are involved with are also insured or guaranteed 
by FHA or another government entity, the Bureau does not believe that 
adding an additional enumeration would accurately capture State housing 
agency loans without requiring financial institutions to select 
multiple categories, which would add additional burden and complexity.
    Other commenters suggested aligning to the Regulation Z Sec.  
1026.37(a)(10)(iv) loan type categories, which would remove the 
category for USDA Rural Housing Service and Farm Service Agency loans 
and combine it with State housing agency loans under an ``other'' 
category. The Bureau believes that the less burdensome approach is to 
maintain the current category for USDA Rural Housing Service and Farm 
Service Agency loans and not adopt a new category incorporating 
multiple types of covered loans.
    Some commenters also argued that commercial loans should be 
exempted from this requirement, or that a Small Business Administration 
enumeration should be added. The Bureau is adopting a reporting 
requirement to identify covered loans primarily for a business or 
commercial purpose as discussed in the section-by-section analysis of 
Sec.  1003.4(a)(38) below and therefore believes it would be largely 
duplicative to add a reporting requirement specifically for Small 
Business Administration loans, especially considering that such loans 
are not specifically identified by HMDA section 304(b)(1).
    After considering the comments and conducting additional analysis, 
the Bureau is finalizing Sec.  1003.4(a)(2) with modifications. The 
Bureau is specifying the name of the government insurer or guarantor 
instead of the chapter or title of the United States Code or statute 
under which the loan is insured or guaranteed as specified in the 
statutory text to maintain consistency with current reporting 
requirements provided in appendix A to Regulation C. Federal Housing 
Administration Title I loans would be reported as FHA loans in addition 
to Title II loans. Because Title I loans include many manufactured 
housing loans, the Bureau is concerned that if the proposal were 
finalized as proposed, Title I manufactured housing loans would have 
been reported as conventional loans which would not clearly distinguish 
them from home-only manufactured home loans not insured by FHA.
4(a)(3)
    Current Sec.  1003.4(a)(3) requires financial institutions to 
report the purpose of a loan or application using the categories home 
purchase, home improvement, or refinancing. The Bureau proposed only 
technical modifications to Sec.  1003.4(a)(3) to conform to proposed 
changes in transactional coverage and to add an ``other'' category, but 
sought comment regarding whether the loan purpose reporting requirement 
should be modified with respect to home improvement loans and cash-out 
refinancings. For the reasons discussed below, the Bureau is adopting 
Sec.  1003.4(a)(3) with modifications to include a cash-out refinancing 
category and to make changes to the commentary to implement this 
additional category and provide instructions for reporting covered 
loans with multiple purposes.
    Some commenters addressed the home improvement loan purpose 
reporting requirement. One commenter suggested that the loan purpose be 
simplified to track only whether a loan was for purchase of a dwelling 
or not, as discerning a borrower's intent can be difficult. Other 
commenters also stated that determining home improvement purpose can be 
difficult for cash-out refinancings and other loans, and various 
commenters recommended eliminating the home improvement purpose 
category. However, some commenters supported requiring financial 
institutions to identify loans and applications with a home improvement 
purpose. The Bureau believes that the home improvement purpose 
continues to be an important indicator of home financing available for 
home improvements, and therefore is preserving that loan purpose 
category in this final rule.
    The Bureau solicited comment on the utility and feasibility of 
requiring a cash-out refinancing purpose, as distinct from refinancings 
generally. Many commenters stated that cash-out refinancings do not 
have a standardized definition in the industry and can vary by loan 
program or financial institution. Some commenters argued that 
definitional problems would make any reporting requirement difficult. A 
few commenters argued that the most the Bureau should require would be 
to report whether the financial institution considered the loan or 
application to be a cash-out refinancing rather than trying to 
establish a specific definition for HMDA purposes alone.
    Other commenters stated that reporting of cash-out refinancings 
would enhance the HMDA data by shedding light on borrowers taking 
equity out of their homes and differentiate these refinancings from 
rate-and-term refinancings in the data. Some commenters also noted that 
there is often a pricing difference between cash-out refinancings and 
other refinancings and that differentiating them in the data would be 
helpful.
    One commenter stated that the Bureau should adopt an additional 
data point for Regulation C indicating the amount of cash received by 
the consumer at closing. The Bureau does not believe it would be 
appropriate to adopt a specific additional data point for cash received 
by the consumer at closing at this time. The amount of cash received 
might not be a true indicator of whether the loan was considered or 
priced as a cash-out refinancing, because some financial institutions 
and loan programs allow for a limited amount of cash to be received in 
rate-and-term refinancings. However, the Bureau believes that 
differentiating cash-out refinancings in HMDA data will be valuable 
because there are often significant differences in rates or fees 
between cash-out refinancings and rate-

[[Page 66180]]

and-term refinancings.\263\ These differences might not otherwise be 
distinguishable in the HMDA data and could appear to be a result of 
discrimination in a fair lending analysis if the distinction could not 
be controlled for.
---------------------------------------------------------------------------

    \263\ See, for example, Fannie Mae, Loan-Level Price Adjustment 
Matrix (July 1, 2015), available at https://www.fanniemae.com/content/pricing/llpa-matrix.pdf; Freddie Mac, Bulletin 2015-6 Ex. 19 
Postsettlement Delivery Fees (Apr. 17, 2015), available at https://www.freddiemac.com/singlefamily/pdf/ex19.pdf.
---------------------------------------------------------------------------

    Therefore, pursuant to HMDA sections 305(a) and 304(b)(6), the 
Bureau is finalizing Sec.  1003.4(a)(3) with the addition of a cash-out 
refinancing loan purpose. The Bureau believes this addition will carry 
out HMDA's purposes, by, for example, assisting in enforcing 
antidiscrimination statutes. The Bureau is adopting new comment 
4(a)(3)-2 to provide guidance on reporting cash-out refinancings. This 
comment provides that a financial institution reports a covered loan or 
an application as a cash-out refinancing if it is a refinancing as 
defined by Sec.  1003.2(p) and the institution considered it to be a 
cash-out refinancing in processing the application or setting the terms 
under its guidelines or an investor's guidelines. This comment also 
provides illustrative examples.
    Some commenters stated that the Regulation C loan purpose 
categories should be aligned with the loan purpose categories in 
Regulation Z Sec.  1026.37(a)(9). HMDA section 304(b) requires the 
disclosure of home improvement loans, which is not a loan purpose under 
Regulation Z Sec.  1026.37(a)(9). Further, the Bureau is adopting a 
cash-out refinancing loan purpose category for Regulation C as 
discussed above, whereas Regulation Z Sec.  1026.37(a)(9) contains only 
a refinancing purpose. Because these differences are important for the 
purposes of Regulation C, the Bureau does not believe that aligning 
Sec.  1003.4(a)(3) with Regulation Z Sec.  1026.37(a)(9) would be 
appropriate.
    After considering the comments and conducting additional analysis, 
the Bureau is finalizing Sec.  1003.4(a)(3) with modifications to 
include cash-out refinancings. Comment 4(a)(3)-1, which is part of 
current Regulation C but was not included in the proposal, is adopted 
with changes to provide additional guidance for reporting the ``other'' 
category. Comment 4(a)(3)-2 is generally adopted as proposed, with 
conforming changes related to the addition of the cash-out refinancing 
purpose and renumbered as 4(a)(3)-3. Comment 4(a)(3)-3 provides 
guidance on reporting covered loans that would qualify under multiple 
categories under the Sec.  1003.4(a)(3) reporting requirement. The 
revised comment would provide that a covered loan that is both a cash-
out refinancing or a refinancing and a home improvement loan should be 
reported as a cash-out refinancing or refinancing. The Bureau believes 
that this will make the cash-out refinancing and refinancing reporting 
categories more valuable by clearly identifying loans that are 
considered cash-out refinancings or refinancings whether or not they 
are for home improvement. Proposed comment 4(a)(3)-3 is adopted with 
modifications related to the addition of the cash-out refinancing 
purpose and is renumbered as 4(a)(3)-4. The Bureau is adopting new 
comment 4(a)(3)-5 to provide guidance on reporting loan purpose under 
Regulation C for loans with a business or commercial purpose when such 
loans are not excluded from coverage.
4(a)(4)
    Current Sec.  1003.4(a)(4) requires financial institutions to 
identify whether the application is a request for a covered 
preapproval. The Bureau proposed to continue this requirement and 
proposed minor technical revisions to the instructions in appendix A. 
Comments related to preapprovals are discussed in the section-by-
section analysis of Sec.  1003.2(b)(2) and Sec.  1003.4(a). The Bureau 
is finalizing Sec.  1003.4(a)(4) with modifications to clarify the 
requirement.
    Based on additional analysis, the Bureau is also finalizing new 
comment 4(a)(4)-1 to provide guidance on the requirement and to 
simplify the current reporting requirement. Currently appendix A 
provides three codes for reporting this requirement: Preapproval 
requested, preapproval not requested, and not applicable. The 
instructions provide that preapproval not requested should be used when 
an institution has a preapproval program but the applicant did not 
request a preapproval through that program and that not applicable 
should be used when the institution does not have a preapproval program 
and for other types of loans and applications that are not part of the 
definition of a preapproval program under Regulation C. The Bureau has 
found that it is a common error for financial institutions to 
incorrectly report not applicable instead of preapproval not requested. 
The information provided by distinguishing these situations is of 
limited value, and the Bureau believes that it will reduce compliance 
burden to no longer have separate reporting options based on this 
distinction. Comment 4(a)(4)-1 provides that an institution complies 
with the reporting requirement by reporting that a preapproval was not 
requested regardless of whether the institution has such a program and 
the applicant did not apply through that program or if the institution 
does not have a preapproval program as defined by Regulation C. The 
Bureau is also finalizing new comment 4(a)(4)-2 to provide guidance on 
the scope of the reporting requirement.
4(a)(5)
    Regulation C currently requires reporting of the property type to 
which the loan or application relates as one- to four-family dwelling 
(other than manufactured housing), manufactured housing, or multifamily 
dwelling. The Bureau proposed to replace the requirement to report 
property type under Sec.  1003.4(a)(5) with the requirement to report 
the construction method for the dwelling related to the property 
identified in Sec.  1003.4(a)(9). For the reasons discussed below, the 
Bureau is adopting Sec.  1003.4(a)(5) with modifications to remove the 
``other'' reporting category and finalizing a new comment providing 
guidance on reporting construction method for manufactured home 
communities.
    Some commenters supported the proposed changes and the treatment of 
modular housing. Other commenters argued that the current property type 
reporting requirement should be retained. A few commenters argued that 
the construction method and property type reporting requirement should 
be removed entirely. The Bureau does not agree that combining 
construction method and number of units as the current Sec.  
1003.4(a)(5) property requirement does is appropriate, and believes 
separating these concepts into two distinct requirements will provide 
data that better reflects how financial institutions are serving the 
housing needs of their communities.
    The Bureau is therefore, pursuant to HMDA sections 305(a) and 
304(b)(6)(J), finalizing Sec.  1003.4(a)(5) generally as proposed, but 
with modifications. The Bureau believes that the modifications will 
carry out HMDA's purposes and facilitate compliance therewith by 
providing more detail regarding whether institutions are serving the 
housing needs of their communities and by better aligning reporting to 
industry standards. The Bureau is removing the ``other'' option for 
reporting of construction method, because, as discussed in the section-
by-section analysis of Sec.  1003.2(f), the Bureau is

[[Page 66181]]

finalizing the exclusion for many types of structures (such as 
recreational vehicles, houseboats, and pre-1976 mobile homes) that do 
not meet the definition of a manufactured home under Sec.  1003.2(l). 
In light of this change, the Bureau believes that an ``other'' category 
is unnecessary. Proposed comment 4(a)(5)-1 is being adopted generally 
as proposed, with minor revisions for clarity. Proposed comment 
4(a)(5)-2 is being adopted as proposed, renumbered as comment 4(a)(5)-
3. The Bureau is also adopting new comment 4(a)(5)-2 to provide 
guidance on reporting the construction method for manufactured home 
communities. As discussed in the supplementary information to the 
proposed rule, the FFIEC had previously provided guidance to report the 
property type for manufactured home communities as manufactured 
housing.\264\ Based on a review of recent HMDA data, the Bureau 
believes that, while some financial institutions are following this 
prior guidance, some financial institutions may not be. The Bureau 
therefore believes it will facilitate compliance to include a comment 
specifically on the topic of reporting construction method for covered 
loans secured by manufactured home communities.
---------------------------------------------------------------------------

    \264\ 79 FR 51731, 51768 (Aug. 29, 2014); Fed. Fin. Insts. 
Examination Council, CRA/HMDA Reporter, Changes Coming to HMDA Edit 
Reports in 2010 (Dec. 2010), available at https://www.ffiec.gov/hmda/pdf/10news.pdf.
---------------------------------------------------------------------------

    A few commenters argued that additional information related to the 
construction of the dwelling should be reported. One trade association 
argued that the age of the dwelling should be reported in order to 
provide public data about housing finance as the housing stock ages, 
which would be helpful for understanding housing demand. Another 
commenter argued that individual condominium or cooperative units 
should be identified as such in HMDA data, which would facilitate 
housing research in large metropolitan areas. While both suggested 
modifications would improve the data, the Bureau does not believe that 
the benefits of these data would justify the burden at this time. 
However, the Bureau believes that with the requirement to report 
property address under Sec.  1003.4(a)(9), it may be possible to derive 
a proxy for condominium and cooperative units from the fact that unit 
numbers generally are included as part of the property address for such 
units. The Bureau may explore whether it would be possible to include 
such data in the release of HMDA data.
4(a)(6)
    HMDA section 304(b)(2) requires the disclosure of the number and 
dollar amount of mortgage loans made to mortgagors who did not, at the 
time of execution of the mortgage, intend to reside in the property 
securing the mortgage loan. Current Sec.  1003.4(a)(6) requires 
reporting the owner occupancy status of the property as owner-occupied 
as a principal dwelling, not owner-occupied as a principal dwelling, or 
not applicable. The Bureau proposed to require financial institutions 
to report whether a property will be used as a principal residence, as 
a second residence, as an investment property with rental income, or as 
an investment property without rental income. The Bureau proposed 
changes to appendix A to require distinguishing between investment 
properties with rental income and investment properties without rental 
income. For the reasons discussed below, the Bureau is finalizing Sec.  
1003.4(a)(6) with modifications to require reporting of whether the 
property is a principal residence, second residence, or investment 
property.
    Some commenters generally supported reporting based on borrower 
occupancy rather than owner occupancy. Some commenters supported the 
additional category for second residences. Many commenters addressed 
the proposed investment property reporting requirement. Some commenters 
argued that the distinction between rental income and other investment 
properties would be burdensome and unnecessary. Some commenters also 
believed the example provided in comment 4(a)(6)-4 was inconsistent 
with the general exclusion for transitory residences in proposed 
comment 2(f)-2 (final comment 2(f)-3). Other commenters believed that 
the distinction would be helpful for research. Some commenters stated 
that investment properties with rental income would not be sufficient, 
that in addition it would be important for research to identify multi-
unit dwellings where the borrower occupies one unit and rents the 
remaining units. The Bureau believes that multi-unit owner-occupied 
rental properties would be identifiable under the proposed reporting 
requirement as principal residences with more than one unit reported 
under the requirements of Sec.  1003.4(a)(31).
    The Bureau recognizes that the proposal's investment property 
distinction may pose compliance challenges and is inconsistent with 
some industry standards for categorizing occupancy. The Bureau is 
therefore finalizing Sec.  1003.4(a)(6) with modifications. The Bureau 
is combining investment properties into a single category. The Bureau 
is also finalizing comment 4(a)(6)-4 with modifications to clarify that 
the example refers to a long-term residential property and to replace 
the proposed term ``owner'' with ``borrower or applicant'' for 
consistency with Sec.  1003.4(a)(6) and comments 4(a)(6)-2 and -3.
    The Bureau is finalizing proposed comment 4(a)(6)-5 regarding 
multiple properties as final comment 4(a)(6)-1. Current comment 
4(a)(6)-1 also deals with multiple properties and the Bureau believes 
that the comments should be consolidated into final comment 4(a)(6)-1.
    For the reasons stated in the preamble to the proposed rule, the 
Bureau believes that the finalized reporting requirement will provide 
valuable information about owner-occupancy for determining how 
financial institutions are serving the housing needs of their 
communities and the requirement as adopted will further understanding 
of how second homes and investment properties affect housing 
affordability and affect local communities.\265\ The Bureau is 
therefore finalizing Sec.  1003.4(a)(6) with modifications as discussed 
above to implement section 304(b)(2) of HMDA and pursuant to its 
authority under sections 305(a) and 304(b)(6)(J) of HMDA. The Bureau 
believes requiring this level of detail about residency status is a 
reasonable interpretation of HMDA section 304(b)(2). Furthermore, for 
the reasons

[[Page 66182]]

given above and in the preamble to the proposed rule, the Bureau 
believes this change is necessary and proper to effectuate HMDA's 
purposes, because this information will help determine whether 
financial institutions are serving the housing needs of their 
communities and will assist in decisions regarding the distribution of 
public sector investments.
---------------------------------------------------------------------------

    \265\ The Bureau adopts its discussion of the benefits of this 
change provided in the preamble to the proposed rule. See 79 FR 
51731 at 51768-69; see also Deborah Halliday, You Can't Eat the 
View: The Loss of Housing Affordability in the West, The Rural 
Collaborative at 9-10 (2003); Linda Venturoni, Northwest Council of 
Governments, The Economic and Social Effects of Second Homes--
Executive Summary at 4-5 (June 2004) (stating that as the number of 
second homes in a community increases, the more the local economy 
will shift towards serving the needs of the second homes); Andrew 
Haughwout et al., Fed. Reserve Bank of New York, Staff Report No. 
514, Real Estate Investors, the Leverage Cycle, and the Housing 
Market Crisis, at 21 (Sept. 2011); see also, e.g., Allan Mallach, 
Urban Institute, Investors and Housing Markets in Las Vegas: A Case 
Study, at 32-34 (2013) (discussing that foreign real estate 
investors in Las Vegas are crowding out potential domestic 
purchasers); Robert D. Cruz and Ebony Johnson, Miami-Dade Cnty. 
Regulatory and Economic Resources Dept., Research Notes on Economic 
Issues: Impact of Real Estate Investors on Local Buyers, (2013) 
(analyzing how domestic first-time home purchasers are at a 
competitive disadvantage compared to foreign real estate investors); 
Kathleen M. Howley, Bloomberg, Families Blocked by Investors from 
Buying U.S. Homes (2013) (discussing that the rise of all-cash 
purchases, among other things, has prevented many potential 
homeowners from purchasing homes).
---------------------------------------------------------------------------

4(a)(7)
    Section 304(a) and (b) of HMDA requires the disclosure of the 
dollar amount of covered loans and applications.\266\ Section 
1003.4(a)(7) of Regulation C requires financial institutions to report 
the amount of the loan or the amount applied for. Paragraph I.A.7 in 
appendix A instructs financial institutions to report loan amount to 
the nearest thousand, among other things. The Bureau proposed Sec.  
1003.4(a)(7), which provided that financial institutions shall report 
the amount of the covered loan or the amount applied for and clarified 
how to determine and report loan amount with respect to various types 
of transactions. In addition, the Bureau proposed to delete the 
requirement to round the loan amount to the nearest thousand, and also 
proposed several technical, conforming, and clarifying modifications to 
Sec.  1003.4(a)(7) and its corresponding comments.
---------------------------------------------------------------------------

    \266\ 12 U.S.C. 2803(a), (b).
---------------------------------------------------------------------------

    Proposed Sec.  1003.4(a)(7)(i) provided that for a closed-end 
mortgage loan, other than a purchased loan or an assumption, a 
financial institution shall report the amount to be repaid as disclosed 
on the legal obligation. The Bureau received a few comments regarding 
reporting the exact dollar amount, rather than the loan amount rounded 
to the nearest thousand. Some industry commenters suggested that the 
Bureau maintain the current rounding requirement, explaining that the 
change to reporting the exact loan amount in dollars will have limited 
value and will present an increased opportunity for clerical errors. 
Other industry commenters recommended that loan amount be reported in 
ranges rather than an exact loan amount in order to eliminate potential 
reporting errors and to better protect the privacy of applicants.
    On the other hand, a few commenters supported the proposal to 
report the exact loan amount, agreeing with the Bureau's proposed 
rationale that this would allow for a more precise calculation of loan-
to-value ratio. One industry commenter indicated that reporting loan 
amount in dollars would also eliminate the potential for errors 
associated with incorrect rounding. Another industry commenter stated 
that while rounding has been the standard for reporting loan amount, it 
has been known to cause problems with data integrity.
    The Bureau has considered this feedback and determined that 
requiring reporting of the exact dollar amount is the more appropriate 
approach. Reporting of the exact dollar amount will facilitate HMDA 
compliance because such information is evident on the face of the loan 
documents and financial institutions will no longer need to make an 
additional calculation required for rounding. In addition, when coupled 
with Sec.  1003.4(a)(28), which requires a financial institution to 
report the value of the property relied on in making the credit 
decision, a requirement to report the exact dollar amount under Sec.  
1003.4(a)(7) will allow for the calculation of loan-to-value ratio, an 
important underwriting variable. A rounded loan amount would render 
these calculations less precise, undermining their utility for data 
analysis.
    Proposed Sec.  1003.4(a)(7)(i) further provides that, for a 
purchased closed-end mortgage loan or an assumption of a closed-end 
mortgage loan, the financial institution shall report the unpaid 
principal balance at the time of purchase or assumption. An industry 
commenter indicated that reporting the unpaid principal balance at the 
time of purchase for a purchased closed-end mortgage loan would present 
operational difficulties since payments may sometimes be in process and 
reconciliation may be required and such reconciliation would be 
complicated with quarterly reporting. The Bureau does not believe that 
requiring a financial institution to report the unpaid principal 
balance of a purchased closed-end mortgage loan at the time of purchase 
would result in significant difficulties. Moreover, the Bureau simply 
moved this existing reporting requirement into the text of proposed 
Sec.  1003.4(a)(7)(i), which prior to the proposal, was found in an 
instruction and comment. With respect to quarterly reporting, those 
requirements are described further below in the section-by-section 
analysis of Sec.  1003.5(a)(1). The Bureau received no other feedback 
regarding this proposed requirement. Consequently, the Bureau is 
adopting Sec.  1003.4(a)(7)(i) generally as proposed, with technical 
and clarifying modifications. In addition, the Bureau is adopting new 
comment 4(a)(7)-5, which clarifies the loan amount that a financial 
institution reports for a closed-end mortgage loan as set forth in 
Sec.  1003.4(a)(7)(i).
    Proposed Sec.  1003.4(a)(7)(ii) provides that for an open-end line 
of credit, including a purchased open-end line of credit or an 
assumption of an open-end line of credit, a financial institution shall 
report the amount of credit available to the borrower under the terms 
of the plan. With respect to open-end lines of credit, the Bureau 
proposed to collect the full line, rather than only the portion 
intended for home purchase or improvement, as is currently required. 
One commenter supported this modification, indicating that it would 
reduce burdens on financial institutions associated with determining 
the purposes of open-end lines of credit. Another industry commenter 
asked the Bureau to expressly clarify that the requirement to report 
loan amount for a home-equity line of credit is the amount of the line 
of credit, regardless of any amounts drawn. No clarification is 
necessary because the commentary provides that the loan amount that 
must be reported for an open-end line of credit is the entire amount of 
credit available to the borrower under the terms of the plan. The 
Bureau is adopting Sec.  1003.4(a)(7)(ii) generally as proposed, with 
one modification to clarify that reverse mortgage open-end lines of 
credit are subject to Sec.  1003.4(a)(7)(iii), discussed below. The 
Bureau is also adopting new comment 4(a)(7)-6, which clarifies that for 
a purchased open-end line of credit and an assumption of an open-end 
line of credit, a financial institution reports the entire amount of 
credit available to the borrower under the terms of the plan.
    Regulation C is currently silent as to how loan amount should be 
determined for a reverse mortgage. Proposed Sec.  1003.4(a)(7)(iii) 
provides that, for a reverse mortgage, the amount of the covered loan 
is the initial principal limit, as determined pursuant to section 255 
of the National Housing Act (12 U.S.C. 1715z-20) and implementing 
regulations and mortgagee letters prescribed by HUD. The Bureau 
specifically solicited feedback on how to determine loan amount for 
non-federally insured reverse mortgages but received no comments. One 
industry commenter requested that the Bureau clarify upon which basis 
financial institutions should report non-federally insured reverse 
mortgages. The Bureau believes that industry is familiar with HUD's 
Home Equity Conversion Mortgage Insurance Program and its implementing 
regulations and mortgagee letters. Applying this well-known calculation 
to both federally insured and non-federally insured

[[Page 66183]]

reverse mortgages will produce more consistent and reliable data on 
reverse mortgages. Consequently, the Bureau is adopting Sec.  
1003.4(a)(7)(iii) generally as proposed, but with technical 
modifications for clarity. In addition, the Bureau is adopting new 
comment 4(a)(7)-9, which clarifies that a financial institution reports 
the initial principal limit of a non-federally insured reverse mortgage 
as set forth in Sec.  1003.4(a)(7)(iii).
    The Bureau also proposed comments 4(a)(7)-2, -5, and -6. The Bureau 
received no specific feedback regarding these comments. Accordingly, 
the Bureau is adopting these comments generally as proposed, with 
several technical amendments for clarity and renumbered as 4(a)(7)-3, -
7, and -8. The Bureau is adopting proposed comment 4(a)(7)-3 generally 
as proposed and renumbered as 4(a)(7)-4, but clarifies that for a 
multiple-purpose loan, a financial institution reports the entire 
amount of the covered loan, even if only a part of the proceeds is 
intended for home purchase, home improvement, or refinancing. In 
addition, the Bureau is adopting new comment 4(a)(7)-2, which clarifies 
the loan amount that a financial institution reports for an application 
or preapproval request approved but not accepted under Sec.  
1003.4(a)(7).
4(a)(8)
4(a)(8)(i)
    Current Sec.  1003.4(a)(8) requires reporting of the action taken 
on the covered loan or application and the date of action taken. The 
Bureau proposed to revise the commentary under Sec.  1003.4(a)(8) with 
respect to rescinded loans, conditional approvals, and applications 
received by third parties. The Bureau proposed to require that 
rescinded loans be reported as loans approved but not accepted. In 
addition, the Bureau proposed guidance on reporting action taken for 
loans involving conditional approvals and on reporting action taken for 
applications received by third parties. Comments regarding reporting 
for applications involving multiple parties are discussed in the 
section-by-section analysis of Sec.  1003.4(a). For the reasons 
discussed below, the Bureau is adopting Sec.  1003.4(a)(8) with 
modifications by providing separate paragraphs for the requirements to 
report action taken and date of action taken and to incorporate 
material from current appendix A into Sec.  1003.4(a)(8)(i) and the 
associated commentary.
    The Bureau did not propose changes to Sec.  1003.4(a)(8). To 
clarify and streamline the regulation, and to provide separate 
paragraph citations for the action taken reporting requirement and the 
action taken date reporting requirement, the Bureau is incorporating 
material from current appendix A into new Sec.  1003.4(a)(8)(i) and new 
Sec.  1003.4(a)(8)(ii). The Bureau is also adopting several comments 
which incorporate material previously contained in appendix A into the 
commentary in order to facilitate compliance. These comments 
4(a)(8)(i)-1 through -8 primarily incorporate existing appendix A 
material, but contain some modifications to align with other changes 
and new comments discussed below. Because the material was previously 
contained in appendix A, no substantive change is made.
    Few commenters addressed the proposal regarding rescinded loans. 
One commenter supported the proposal because it provided a consistent 
reporting rule. Another commenter stated that the proposal would 
provide consistency, but argued that the number of rescinded loans is 
so small that the change would not be worth the regulatory compliance 
cost. The Bureau believes that approved but not accepted most 
accurately reflects the outcome of a rescinded transaction, and that a 
consistent reporting rule for rescinded loans is appropriate and 
justifies any compliance burden. Therefore, it is finalizing comment 
4(a)(8)-2 generally as proposed, but with minor technical revisions, 
renumbered as comment 4(a)(8)(i)-10.
    Some commenters addressed the proposal to clarify conditional 
approvals in comment 4(a)(8)-5. The proposal amended the commentary to 
clarify the types of conditions that are considered credit conditions 
and those that are customary commitment or closing conditions, and to 
clarify which action taken categories should be reported in certain 
circumstances involving conditional approvals. One industry commenter 
stated that the revised commentary was helpful. A few commenters stated 
that the conditional approval rules were generally confusing and did 
not reflect a financial institution's true credit decision in all 
circumstances. The Bureau believes that the general framework 
established by the conditional approvals commentary serves HMDA's 
purposes and provides a reasonable way for reflecting financial 
institutions' actions on covered loans and applications. While some 
financial institutions may view any type of approval, even one with 
many outstanding conditions, as an approved loan and wish to report it 
as such under Regulation C, the Bureau believes this would be an 
inappropriate result for applications that ultimately did not result in 
originations and were conditioned on underwriting or creditworthiness 
conditions. The Bureau is finalizing comment 4(a)(8)-5 as proposed, 
renumbered as comment 4(a)(8)(i)-13.
    One commenter argued that financial institutions should not report 
purchased loans under Regulation C and cited legislative history the 
commenter believed demonstrated that Congress intended to exclude loans 
purchased. HMDA section 304(a)(1)(B) has included a requirement to 
compile and make available information about loans ``purchased by that 
institution'' since HMDA was enacted in 1975.\267\ The legislative 
history referred to by the commenter does not address whether purchased 
loans should be reported, but rather, whether secondary market entities 
that only purchase loans but do not also originate loans should be 
required to report under HMDA; Congress ultimately enacted a 
requirement for financial institutions to report the class of purchaser 
of loans.\268\ The Bureau believes that HMDA section 304(a)(1)(B) 
clearly authorizes reporting of loans purchased by financial 
institutions covered by HMDA. The Bureau is finalizing comment 4(a)(8)-
3 related to purchased loan as proposed, renumbered as comment 
4(a)(8)(i)-11.
---------------------------------------------------------------------------

    \267\ Home Mortgage Disclosure Act of 1975, Public Law 94-200, 
section 304(a)(1)(B). 12 U.S.C. 2803(a).
    \268\ H. Rept. 101-222 (1989), at 460. 12 U.S.C. 2803(h)(1)(C).
---------------------------------------------------------------------------

    The Bureau is finalizing comment 4(a)(8)-1 with modifications for 
clarity, renumbered as comment 4(a)(8)(i)-9. The Bureau is finalizing 
comment 4(a)(8)-4 as proposed, renumbered as comment 4(a)(8)(i)-12. The 
Bureau is also adopting new comments 4(a)(8)(i)-1 through 4(a)(8)(i)-8 
which incorporate material in existing appendix A with some 
modifications for clarity. The Bureau is also adding new comment 
4(a)(8)(i)-15 to provide guidance on reporting action taken when a 
financial institution has provided a notice of incompleteness followed 
by an adverse action notice on the basis of incompleteness under 
Regulation B.\269\ The comment provides that an institution may report 
the action taken as either file closed for incompleteness or 
application denied in such a circumstance.
---------------------------------------------------------------------------

    \269\ 12 CFR 1002.9(c)(1)(i) and (ii).
---------------------------------------------------------------------------

4(a)(8)(ii)
    The Bureau proposed only technical changes and modifications to the

[[Page 66184]]

current Regulation C requirement to report the date of action taken by 
a financial institution on a covered loan or application. The Bureau 
did not receive many comments related to the requirement to report 
action taken date. Comments related generally to the definition of 
application or reporting of applications are discussed in the section-
by-section analysis of Sec.  1003.2(b). The Bureau is finalizing the 
requirement to report the date of action taken as new Sec.  
1003.4(a)(8)(ii) to provide a separate paragraph for the requirement. 
The Bureau is adopting comments 4(a)(8)-7, -8, and -9 as proposed, 
renumbered as comments 4(a)(8)(ii)-4, -5, and -6. The Bureau is also 
adopting new comments 4(a)(8)(ii)-1, -2, and -3, which incorporate 
existing requirements in appendix A related to reporting of action 
taken date.
4(a)(9)
    The Bureau proposed to require financial institutions to report the 
address of the property securing the covered loan, discussed below in 
the section-by-section analysis of Sec.  1003.4(a)(9)(i), and to 
continue to require financial institutions to report the State, MSA or 
MD, county, and census tract of most reported covered loans, discussed 
below in the section-by-section analysis of Sec.  1003.4(a)(9)(ii). The 
Bureau is adopting proposed Sec.  1003.4(a)(9) with the modifications 
discussed below.

Covered Loans Related to Multiple Properties

    The Bureau proposed to revise existing comments 4(a)(9)-1 and -2 to 
provide a single framework clarifying how to report a covered loan 
related to multiple properties. Proposed comment 4(a)(9)-1 discussed 
reporting when a covered loan relates to more than one property but 
only one property secures or would secure the loan. Proposed comment 
4(a)(9)-2 provided that if more than one property secures or would 
secure the covered loan, a financial institution may report one of the 
properties using one entry on its loan/application register or the 
financial institution may report all of the properties using multiple 
entries on its loan/application register. Proposed comment 4(a)(9)-3 
discussed reporting multifamily properties with more than one address.
    A few commenters provided feedback on proposed comment 4(a)(9)-2. 
One consumer advocate suggested that the Bureau should require 
financial institutions to report information concerning all of the 
properties securing the loan. A few industry commenters took the 
opposite position and urged the Bureau to require financial 
institutions to report information about only one of the properties.
    After considering the comments, the Bureau concludes that optional 
reporting is not advisable because HMDA data would provide inconsistent 
information about these types of transactions. At the same time, 
requiring financial institutions to report information about all of the 
properties securing the loan is also problematic because it would 
present additional burden for financial institutions. In addition, 
defining what constitutes multiple properties may present challenges 
for some multifamily complexes, which may sit on one parcel but have 
multiple addresses. For those reasons, the final rule requires 
financial institutions to report information about only one of the 
properties securing the loan.
    Accordingly, the Bureau is finalizing proposed comments 4(a)(9)-1 
through -3 with modifications to require reporting of one property when 
a covered loan is secured by more than one property. The Bureau also 
proposed technical modifications to existing comments 4(a)(9)-4 and -5. 
The Bureau received no comments on comments 4(a)(9)-4 and -5 and is 
finalizing them as proposed.
4(a)(9)(i)
    The Dodd-Frank Act amended HMDA to authorize the Bureau to collect 
``as [it] may determine to be appropriate, the parcel number that 
corresponds to the real property pledged or proposed to be pledged as 
collateral.'' \270\ The Bureau proposed to implement this authorization 
with proposed Sec.  1003.4(a)(9)(i), which provided that financial 
institutions were required to report the postal address of the physical 
location of the property securing the covered loan or, in the case of 
an application, proposed to secure the covered loan. The proposal 
indicated that the Bureau anticipated that postal address information 
would not be publicly released if proposed Sec.  1003.4(a)(9)(i) were 
finalized. The Bureau solicited feedback on whether collecting postal 
address was an effective way to implement the Dodd-Frank amendment.
---------------------------------------------------------------------------

    \270\ HMDA section 304(b)(6)(H) authorizes the Bureau to include 
in the HMDA data collection ``the parcel number that corresponds to 
the real property pledged or proposed to be pledged as collateral.'' 
12 U.S.C. 2803(b)(6)(H).
---------------------------------------------------------------------------

    For the reasons discussed below, the Bureau is adopting Sec.  
1003.4(a)(9)(i) as proposed with the technical modifications discussed 
below. The Bureau is also adopting new comments 4(a)(9)(i)-1 through -3 
to clarify the reporting requirements.
    The Bureau received several comments on proposed Sec.  
1003.4(a)(9)(i). Several consumer advocate commenters supported 
reporting postal address.\271\ These commenters highlighted that postal 
addresses would improve the ability to detect localized discrimination, 
noting that discrimination can occur in areas smaller than census 
tracts or other geographic boundaries. In addition, some explained that 
relying on census tracts for geographic analysis creates challenges for 
longitudinal analysis of the data because census tracts change over 
time. They also noted that collecting address in HMDA would enable 
tracking of multiple liens on the same property and thereby identifying 
risks for borrowers who may be over-leveraged.
---------------------------------------------------------------------------

    \271\ During the Board's hearings, a consumer advocate urged the 
Board to add information that uniquely identifies the property 
related to the loan to the HMDA data. See, e.g., Washington Hearing, 
supra note 39 (remarks of Lisa Rice, Vice President, National Fair 
Housing Alliance).
---------------------------------------------------------------------------

    Several industry commenters raised objections to reporting postal 
address. Some of these commenters suggested that postal address would 
not provide any valuable information because census tract information 
provides sufficient information to conduct fair lending or other 
statistical analysis of the property location. Other commenters 
asserted that reporting postal address would not support HMDA's 
purposes. Some industry commenters also expressed concerns about the 
burden of reporting postal address.
    In addition, many industry commenters raised concerns about the 
privacy implications of including postal address in the HMDA data set. 
Commenters expressed concerns both about collecting the information and 
about disclosing the information. Commenters explained that address can 
be used to link the financially sensitive information included in the 
HMDA data with an individual borrower. Commenters suggested that the 
Bureau's data security systems would not adequately protect the 
information from accidental disclosure during the transmission of the 
information to the Bureau and while the information is stored on the 
Bureau's systems. Some industry commenters noted that information on 
census tract was preferable to postal address because it protects 
privacy. Most commenters urged the Bureau not to release the reported 
postal address information if

[[Page 66185]]

collected. A consumer advocate also urged the Bureau to consider 
protections for specific populations, such as victims of domestic 
violence, when considering whether to release address information. A 
few consumer advocate commenters, on the other hand, urged the Bureau 
to release address, or point-specific information, to trusted 
researchers.
    The Bureau is finalizing the proposal to collect the postal 
address, changed to property address for the reasons discussed below, 
of the property securing or proposed to secure a covered loan. 
Collecting property address will enrich the HMDA data and will support 
achieving HMDA's purposes. With these data, Federal officials will be 
able to track multiple liens on the same property. In addition, 
property address will help officials better understand access to credit 
and risks to borrowers in particular communities and better target 
programs to reach vulnerable borrowers and communities. Using these 
data, Federal officials may be able to detect patterns of geographic 
discrimination not evident from census tract data, which will assist in 
identifying violations of fair lending laws. In addition, as census 
tracts change over time, collecting property address will facilitate 
better longitudinal analysis of geographic lending trends.
    However, the Bureau recognizes that collecting property address 
presents some challenges. As noted in the proposal, including property 
address in the HMDA data raises privacy concerns because property 
address can easily be used to identify a borrower. The Bureau is 
sensitive to the privacy implications of including property address in 
the HMDA data and has considered these implications carefully. Although 
the Bureau's privacy analysis is ongoing, as discussed in part II.B 
above, the Bureau anticipates that property address will not be 
included in the publicly released HMDA data. Due to the significant 
benefits of collecting this information, the Bureau believes it is 
appropriate to collect property address in spite of the privacy 
concerns and other concerns raised by commenters about collecting this 
information.

Parcel Number

    Many commenters discussed whether postal address was an appropriate 
way to implement the Dodd-Frank authorization to collect a parcel 
number. Most of these commenters, including both industry and consumer 
advocate commenters, expressed support for using postal address to 
implement the authorization to collect a parcel number. Commenters 
noted that collecting postal address, while imperfect, is the best 
available option, because it is less burdensome to report than 
reporting a local parcel number and uniquely identifies most 
properties. A few commenters specifically stated that other 
alternatives discussed in the proposal, such as geospatial coordinates 
or local parcel number, present greater reporting burdens than postal 
address. Commenters also noted the current absence of a national 
universal parcel numbering system. One commenter stated that local 
parcel numbers are not used by lenders and are used solely by 
professionals that manage property records. Another commenter described 
the burden associated with reporting a local parcel number, stating 
that address, unlike a local parcel number, is stored in the same 
system as the other HMDA data. Other commenters stated that postal 
address would provide more complete information than a local parcel 
number for loans related to manufactured housing because manufactured 
homes located in mobile home parks may be placed on the same parcel but 
have unique property addresses.
    Some consumer advocate commenters stated that postal address was 
currently an appropriate way to collect a parcel number, but asked the 
Bureau to consider replacing postal address with a universal parcel 
identifier if one is developed in the future. In addition, one 
commenter urged the collection of local parcel numbers because of their 
value for analysis at the local level. A few commenters that 
represented geospatial vendors recommended collecting both postal 
address and local parcel information. They explained that this would 
allow the Bureau, using both the reported address and local parcel 
information, to establish a national parcel database with mapping 
capabilities. Some of these commenters noted that collecting this 
information would also facilitate the creation of a national parcel 
numbering system.
    The Bureau concludes that collecting property address is an 
appropriate way to implement the Dodd-Frank authorization to collect a 
parcel number. As noted by commenters, address is the least burdensome 
way to collect information that will uniquely identify a property. 
Financial institutions currently collect property address during the 
mortgage origination and application process if the address is 
available, and store that information with the other application and 
loan data that is reported in HDMA. In addition, most properties, 
including manufactured homes, have property addresses. In a small 
number of cases, a property address may not be available at the time of 
origination for some properties. Nonetheless, property address is an 
efficient and effective way to implement the authorization to collect a 
parcel number.
    Currently, no universal standard exists for identifying a property 
so that it can be linked to related mortgage data. Parcel data are 
collected and maintained by individual local governments with limited 
State or Federal involvement. Local jurisdictions do not use a standard 
way to identify properties. In addition, local parcel data are not 
easily linked to the location of the property, which, as discussed 
above, substantially amplifies the usefulness of a parcel identifier. 
Local parcel information would provide some value for local analysis, 
but property address also provides valuable information at the local 
level. Therefore, compared with collecting property address, collecting 
a local parcel number would substantially increase the burden 
associated with reporting a parcel identifier and would substantially 
decrease the utility of the data.
    The Bureau is not at this time pursuing commenters' suggestions for 
using Regulation C to develop a national parcel database. The Bureau 
may consider in the future whether and how it could work with other 
regulators and public officials to explore a national parcel 
identification system or other similar systems. The final rule does not 
require financial institutions to collect a local parcel number in 
addition to property address. The Bureau concludes that collecting 
property address strikes the appropriate balance between improving the 
data's utility and minimizing undue burden on data reporters.
    For the reasons discussed above, the Bureau is implementing the 
Dodd-Frank authorization to collect the ``parcel number that 
corresponds to the real property pledged or proposed to be pledged as 
collateral'' by requiring financial institutions to report the property 
address of the property securing the covered loan or, in the case of an 
application, proposed to secure the covered loan.\272\ As discussed 
above, there is no universal parcel number system; therefore, the 
Bureau believes it is reasonable to interpret the Dodd-Frank Act 
amendment to refer to information that uniquely identifies a dwelling 
pledged or proposed to be

[[Page 66186]]

pledged as collateral. The Bureau is also adopting Sec.  
1003.4(a)(9)(i) pursuant to the Bureau's HMDA section 305(a) authority 
to provide for adjustments because, for the reasons given above, the 
Bureau believes the provision is necessary and proper to effectuate 
HMDA's purposes and facilitate compliance therewith.
---------------------------------------------------------------------------

    \272\ HMDA section 304(b)(6)(H) authorizes the Bureau to include 
in the HMDA data collection ``the parcel number that corresponds to 
the real property pledged or proposed to be pledged as collateral.'' 
12 U.S.C. 2803(b)(6)(H).
---------------------------------------------------------------------------

Reporting Issues

    Some industry commenters discussed situations when reporting a 
postal address is not possible or should not be required. A few of 
these commenters asked what to report if the property does not have an 
address. Others urged the Bureau not to require reporting of postal 
address information for purchases or for applications withdrawn or 
denied. The Bureau recognizes that in some cases address information 
will not be known. Consequently, address information will not be 
reported for all HMDA entries, as indicated in new comment 4(a)(9)-3. 
As discussed above, however, because property address greatly enriches 
the utility of HMDA data, financial institutions must report property 
address if the information is available. Therefore, the Bureau is not 
adopting commenters' suggestions to exclude certain types of entries 
from the requirement to report property address.
    Some commenters suggested that Regulation C require reporting of 
the physical location of the property, instead of the mailing address, 
which may be different from the physical location of the property in 
some cases. Proposed Sec.  1003.4(a)(9) and proposed instruction 
4(a)(9)-1 directed financial institutions to report the postal address 
that corresponds to the physical location of the property, not the 
mailing address. To eliminate the confusion about whether to report the 
mailing address or the physical location of the property, the Bureau is 
modifying Sec.  1003.4(a)(9)(i) to replace the term postal address, 
which may have been misunderstood to mean mailing address, with the 
term property address, which is understood to refer to the physical 
location of the property. In addition, the Bureau is adopting new 
comment 4(a)(9)(i)-1 to clarify that the financial institution reports 
the property address of the physical location of the property.
    One commenter urged revising the requirement to include primary 
street address points, sub-address points, and geographic coordinates. 
The commenter also urged the Bureau to partner with States as they 
build addresses to meet the requirements of Next Generation 9-1-1 
systems. The Bureau recognizes that in some cases, addresses may not 
convey full information about a property's location. These enhanced 
addressing standards would enrich the quality of the geographic 
information reported in HMDA data in those cases where address does not 
precisely identify a property's location, such as for dwellings located 
on rural routes. However, importing these standards for HMDA reporting 
seems likely to result in new burden for financial institutions that 
currently collect address during the application process but may not be 
collecting the information required by these standards. At the same 
time, any benefit from using these standards in HMDA would be limited 
only to a subset of HMDA reportable transactions. The Bureau's judgment 
is that reporting property address is less burdensome for institutions 
than enhanced standards, and will provide benefits sufficient to 
justify any burden that might be imposed on financial institutions.
    Some industry commenters noted the challenges of reporting postal 
address in a standard format. To resolve those challenges, one 
commenter suggested requiring reporting the information in the same 
format as the closing disclosure. Another commenter noted that 
reporting postal address would have risks of input errors and suggested 
that the Bureau allow good faith errors for the address information. 
Other commenters sought clarification about how to report and whether 
abbreviations were allowed.
    In response to these comments, the final rule clarifies 
institutions' reporting obligations to help minimize the risk of 
inadvertent reporting errors. Accordingly, new comment 4(a)(9)(i)-2 
provides guidance on how to report the property address. In addition, 
Sec.  1003.6, discussed below, addresses bona fide errors.

Final Rule

    Having considered the comments received and for the reasons 
discussed above, the Bureau is finalizing Sec.  1003.4(a)(9)(i) as 
proposed with the modifications discussed above. In addition, for the 
reasons discussed above, the Bureau is adopting new comments 
4(a)(9)(i)-1 through -3 to provide illustrative examples and to 
incorporate information included in proposed instruction 4(a)(9).
4(a)(9)(ii)
    Under HMDA and current Regulation C, a financial institution is 
required to report the location of the property to which the covered 
loan or application relates by MSA or MD, State, county, and census 
tract if the loan is related to a property located in an MSA or MD in 
which the financial institution has a home or branch office and a 
county with a population of more than 30,000.\273\ In addition, Sec.  
1003.4(e) requires banks and savings associations that are required to 
report data on small business, small farm, and community development 
lending under regulations that implement the CRA to collect the 
location of property located outside MSAs and MDs in which the 
institution has a home or branch office or outside of any MSA. The 
Bureau proposed to renumber existing Sec.  1003.4(a)(9) as Sec.  
1003.4(a)(9)(ii) and to make certain nonsubstantive technical 
modifications for clarification. The Bureau did not propose any changes 
to Sec.  1003.4(e).
---------------------------------------------------------------------------

    \273\ See Sec.  1003.4(a)(9); HMDA section 304(a)(2). Part I.C.3 
of appendix A directs financial institutions to enter ``not 
applicable'' for census tract if the property is located in a county 
with a population of 30,000 or less. A for-profit mortgage-lending 
institution is deemed to have a branch office in an MSA or MD if in 
the preceding calendar year it received applications for, 
originated, or purchased five or more home purchase loans, home 
improvement loans, or refinancings related to property located in 
that MSA or MD, respectively. See Sec.  1003.2 (definition of branch 
office).
---------------------------------------------------------------------------

    The Bureau explained in the proposal that it was exploring ways to 
reduce the burden associated with reporting the State, county, MSA, and 
census tract of a property, such as operational changes that may enable 
the Bureau to perform geocoding (i.e., identifying the State, county, 
MSA, and census tract of a property) for financial institutions. The 
Bureau suggested that it might create a system where a financial 
institution reports only the address and the Bureau provides the 
financial institution with the census tract, county, MSA or MD, and 
State. The Bureau solicited feedback on the potential operational 
improvements.
    For the reasons discussed below, the Bureau is adopting Sec.  
1003.4(a)(9)(ii), which requires financial institutions to report the 
State, county, and census tract of the property securing or proposed to 
secure a covered loan if the property is located in an MSA in which the 
institution has a home or branch office or if Sec.  1003.4(e) applies. 
The final rule eliminates the requirement to report the MSA or MD of 
the property securing or proposed to secure a covered loan. The Bureau 
is also adopting new comments 4(a)(9)(ii)(B)-1 and 4(a)(9)(ii)(C)-1 to 
provide guidance on how to report county and census tract information, 
respectively.
    Many commenters provided feedback on whether the Bureau should 
assume geocoding responsibilities for reporters. Some commenters, 
including a few industry commenters and many consumer advocate 
commenters, expressed support for the Bureau

[[Page 66187]]

assuming geocoding responsibilities. Many of those commenters noted 
that such a change would improve the accuracy of geocoding information. 
Most industry commenters, however, raised concerns with the Bureau 
assuming geocoding responsibilities for reporters. Some asserted that 
such an operational change would not reduce their burden because 
financial institutions already have geocoding systems in place and 
would continue to use those systems even if the Bureau assumed 
geocoding responsibilities. Some of these commenters explained that 
financial institutions would not want to wait until they submit their 
HMDA data to obtain the geocoding information because they need on 
demand geocoding for business purposes such as evaluating their lending 
penetration.
    In addition, some commenters raised some practical issues with the 
Bureau assuming geocoding, such as developing a system for the Bureau 
and financial institutions to communicate back-and-forth about 
geocoding results. Commenters also stated that geocoding would be more 
accurate if performed by the financial institution because the 
institution is probably more familiar with the particular geographic 
area and likely could identify errors in geocoding more readily than 
the Bureau could. In addition, industry commenters raised concerns 
about whether financial institutions would be held responsible for the 
accuracy of the Bureau's geocoding and about whether the Bureau would 
assume responsibility for identifying the census tracts of properties 
that return an error in the Bureau's geocoding database. A few industry 
commenters asked the Bureau to allow them to report their geocoded 
information even if the Bureau decides to take the geocoding on itself. 
A few other industry commenters suggested that instead of geocoding for 
financial institutions, that the Bureau develop a free geocoding 
database or tool for financial institutions.
    The Bureau has concluded that it should not geocode for financial 
institutions and instead should focus on the best way to achieve 
accuracy in the property location information reported in HMDA. 
Property location data is more likely to be accurate if the financial 
institution reporting the covered loan or application also geocodes the 
property. In addition, based on comments from financial institutions, 
it appears that assuming geocoding responsibilities for financial 
institutions might not achieve the burden reduction that the Bureau 
hoped to achieve when it issued the proposal. Therefore, the Bureau 
does not plan to pursue assuming geocoding responsibilities in the 
manner discussed in the proposal. Instead, the Bureau is exploring 
other ways that it can assist reporters with geocoding, such as 
developing an improved geocoding tool for financial institutions.
    Consumer advocate commenters also discussed the value of the 
currently reported property location information and urged the Bureau 
to continue to require reporting of information by census tract and to 
continue to make that information available in the publicly disclosed 
data. The Bureau is generally retaining reporting of the currently 
required property location information because it provides valuable 
information.
    The Bureau believes that it can reduce the burden of reporting by 
eliminating the requirement to report the MSA or MD in which the 
property is located. If a financial institution reports the county, the 
regulators can identify the MSA or MD because MSAs and MDs are defined 
at the county level. The MSA or MD can be inserted into the publicly 
available data so that the data's utility is preserved.
    Finally, it appears that financial institutions do not report MSA 
or MD information when they have incomplete property location 
information. In the past five years, no financial institutions have 
reported the MSA or MD of a property without other property location 
information.\274\ Therefore, retaining this field only for cases when 
the financial institution does not know the county in which the 
property securing, or proposed to secure, the covered loan is located 
would also not provide valuable information. Therefore, the final rule 
eliminates the burden of reporting this information to facilitate 
compliance.
---------------------------------------------------------------------------

    \274\ It is not clear why a financial institution does not 
report property location information for a particular entry. It 
could be because the information is not required, because, for 
example, the property is not located in an MSA or MD in which the 
institution has a home or branch office. See Sec.  1003.4(a)(9). In 
the past five years, some financial institutions reported the State 
in which the property is located without other property location 
information, which may suggest that the financial information had 
incomplete information about the location of the property.
---------------------------------------------------------------------------

    For the reasons discussed above, the Bureau is finalizing proposed 
Sec.  1003.4(a)(9)(ii), with modifications to eliminate the requirement 
included in proposed Sec.  1003.4(a)(9)(ii)(C) as discussed above.
4(a)(10)
4(a)(10)(i)
    HMDA section 304(b)(4) requires the reporting of racial 
characteristics and gender for borrowers and applicants.\275\ Section 
1003.4(a)(10) of Regulation C requires a financial institution to 
collect the ethnicity, race, and sex of the applicant or borrower for 
applications and loan originations for each calendar year. The Bureau 
proposed to renumber this requirement as Sec.  1003.4(a)(10)(i), and 
also proposed several technical and clarifying amendments to the 
instructions in appendix A and the associated commentary.
---------------------------------------------------------------------------

    \275\ 12 U.S.C. 2803(b)(4); see also 79 FR 51731, 51775 (Aug. 
29, 2014), n. 340.
---------------------------------------------------------------------------

    The Bureau's proposal solicited feedback regarding the challenges 
faced by both applicants and financial institutions by the data 
collection instructions prescribed in appendix B and specifically 
solicited comment on ways to improve the data collection of the 
ethnicity, race, and sex of applicants and borrowers. The Bureau also 
conducted a voluntary, small-scale survey to solicit suggestions from 
financial institutions on ways to improve the process of collecting the 
ethnicity, race, and sex of applicants that may potentially relieve 
burden and help increase the response rates by applicants, in 
particular, for applications received by mail, internet, or telephone. 
The Bureau selected nine financial institutions for participation in 
the survey which, according to recent HMDA data, generally exhibited 
relatively high incidences of applicants providing ethnicity, race, and 
sex in applications made by mail, internet, or telephone. The Bureau 
was interested to learn what factors may have contributed to these 
higher response rates and also to identify potential improvements to 
appendix B. Five financial institutions chose to participate in the 
survey and the Bureau considered their responses as part of the HMDA 
rulemaking.
    In response to the proposal's solicitation for feedback, a few 
industry commenters recommended that the Bureau remove the proposed 
requirement, which currently exists under the rule, that financial 
institutions collect an applicant's ethnicity, race, and sex on the 
basis of visual observation and surname when an application is taken in 
person and the applicant does not provide the information. In general, 
these industry commenters did not support this collection requirement 
for the following reasons. First, commenters expressed the belief that 
loan originators should

[[Page 66188]]

not have to guess, on the basis of visual observation or surname, as to 
what is an applicant's ethnicity, race, and sex. Second, commenters 
expressed the belief that such guessing results in inaccurate and 
unreliable data. Lastly, commenters expressed the belief that an 
applicant's decision not to provide his or her demographic information 
should be respected and that a loan originator should not override that 
decision by being required to collect the information on the basis of 
visual observation or surname.
    On the other hand, several consumer advocate commenters provided 
feedback emphasizing that data on an applicant's ethnicity, race, and 
sex is vital to HMDA's utility. A few of these commenters also 
emphasized the need for HMDA data to reflect whether such demographic 
information was self-reported by applicants or the result of a loan 
originator collecting the information on the basis of visual 
observation or surname. For example, one commenter stated that 
information on ethnicity and race is crucial for discovering potential 
patterns of discrimination and recommended that the loan/application 
register include a flag indicating whether ethnicity and race 
information was provided by the applicant, allowing independent 
researchers and community advocates to undertake important fair lending 
analyses. Another commenter stated that in order for the Bureau to 
better understand whether the visual observation or surname requirement 
is producing useful information, it urged the Bureau to require 
financial institutions to report whether the borrowers have furnished 
the race, ethnicity, and sex data. Lastly, another commenter stated 
that information regarding how often borrowers refuse to voluntarily 
report demographic data or how often lenders report such information on 
the basis of visual observation or surname is not easily found and 
therefore, at the very least, the Bureau should flag applicant or 
borrower versus financial institution reporting of demographic 
information.
    The Bureau has considered this feedback and determined that the 
appropriate approach to further HMDA's purposes is to continue to 
require that financial institutions collect the ethnicity, race, and 
sex of applicants on the basis of visual observation and surname when 
an application is taken in person and the applicant does not provide 
the information. The Bureau agrees with both industry and consumer 
advocate commenters that recognized the importance of data on an 
applicant's or borrower's ethnicity, race, and sex to the purposes of 
HMDA. The Bureau has determined that removing the visual observation or 
surname requirement from the final rule would diminish the utility of 
the HMDA data to further HMDA's purposes. The Bureau has also 
determined that requiring financial institutions to report whether the 
applicant's ethnicity, race, and sex was collected on the basis of 
visual observation or surname improves the utility of HMDA data. 
Accordingly, the Bureau is maintaining the current requirement in 
appendix B that when an applicant does not provide the requested 
information for an application taken in person, a financial institution 
is required to collect the demographic information on the basis of 
visual observation or surname. In addition, the Bureau is adopting a 
new requirement in Sec.  1003.4(a)(10)(i) of the final rule that 
requires financial institutions to report whether the applicant's 
ethnicity, race, or sex was collected on the basis of visual 
observation or surname. The Bureau is adopting new instructions and 
modifications to the sample data collection form in appendix B to 
capture this new reporting requirement.
    In response to the proposal's solicitation for feedback on ways to 
improve the data collection of an applicant's ethnicity, race, and sex, 
and in response to the Bureau's survey which sought, among other 
things, suggestions on ways to help increase the response rates by 
applicants, the Bureau received feedback urging the Bureau to 
disaggregate the ethnicity category as well as two race categories--the 
Asian category and the Native Hawaiian and Other Pacific Islander 
category. Before discussing this feedback, it is important to first 
describe the data standards on ethnicity and race issued by the Office 
of Management and Budget (OMB).
    The OMB has issued the standards for the classification of Federal 
data on ethnicity and race.\276\ OMB's current government-wide 
standards provide ``a minimum standard for maintaining, collecting, and 
presenting data on race and ethnicity for all Federal reporting 
purposes. . . . The standards have been developed to provide a common 
language for uniformity and comparability in the collection and use of 
data on race and ethnicity by Federal agencies.'' \277\ The OMB 
standards provide the following minimum categories for data on 
ethnicity and race: Two minimum ethnicity categories (Hispanic or 
Latino; Not Hispanic or Latino) and five minimum race categories 
(American Indian or Alaska Native; Asian; Black or African American; 
Native Hawaiian or Other Pacific Islander; and White). The categories 
for ethnicity and race in existing Regulation C conform to the OMB 
standards.
---------------------------------------------------------------------------

    \276\ Office of Mgmt. and Budget, Revisions to the Standards for 
the Classification of Federal Data on Race and Ethnicity, 62 FR 
58782-90 (Oct. 30, 1997) [hereinafter OMB Federal Data Standards on 
Race and Ethnicity].
    \277\ See id.
---------------------------------------------------------------------------

    In addition to the minimum data categories for ethnicity and race, 
the OMB Federal Data Standards on Race and Ethnicity provide additional 
key principles. First, self-identification is the preferred means of 
obtaining information about an individual's ethnicity and race, except 
in instances where observer identification is more practical.\278\ 
Second, the collection of greater detail is encouraged as long as any 
collection that uses more detail is organized in such a way that the 
additional detail can be aggregated into the minimum categories for 
data on ethnicity and race. More detailed reporting, which can be 
aggregated to the minimum categories, may be used at the agencies' 
discretion. Lastly, Federal agencies must produce as much detailed 
information on ethnicity and race as possible; however, Federal 
agencies shall not present data on detailed categories if doing so 
would compromise data quality or confidentiality standards.\279\
---------------------------------------------------------------------------

    \278\ See id.
    \279\ See id.
---------------------------------------------------------------------------

    In addition to the OMB standards, it is also important to describe 
the data standards used in the 2000 and 2010 Decennial Census. The U.S. 
Census Bureau (Census Bureau) collects Hispanic origin and race 
information following the OMB standards and guidance discussed 
above.\280\ Responses to the Hispanic origin question and race question 
in the 2000 and 2010 Decennial Census were based on self-
identification.\281\
---------------------------------------------------------------------------

    \280\ U.S. Census Bureau, C2010BR-02, Overview of Race and 
Hispanic Origin: 2010, at 2 (2011) [hereinafter Census Bureau 
Overview], available at https://www.census.gov/prod/cen2010/briefs/c2010br-02.pdf.
    \281\ See id.
---------------------------------------------------------------------------

    The OMB definition of Hispanic or Latino origin used in the 2010 
Census refers to a person of Cuban, Mexican, Puerto Rican, South or 
Central American, or other Spanish culture or origin regardless of 
race.\282\ Hispanic or Latino origin can be viewed as the heritage, 
nationality group, lineage, or country of birth of the person or the 
person's parents or ancestors before their arrival in the United 
States.\283\ The

[[Page 66189]]

2010 Census disaggregated ethnicity into four categories (Mexican, 
Puerto Rican, Cuban, Other Hispanic or Latino) and included one area 
where respondents could write-in a specific Hispanic or Latino origin 
group.\284\ As required by the OMB, the response categories and the 
write-in answers for the Census Bureau's ethnicity question can be 
combined to create the two minimum OMB categories for ethnicity, 
discussed above.
---------------------------------------------------------------------------

    \282\ See OMB Federal Data Standards on Race and Ethnicity; 
Census Bureau Overview at 2.
    \283\ See Census Bureau Overview at 2.
    \284\ See id.
---------------------------------------------------------------------------

    The OMB definitions of the race categories used in the 2010 Census, 
plus the Census Bureau's definition of Some Other Race, are discussed 
in footnote 285 below.\285\ For respondents who are unable to identify 
with any of the five minimum OMB race categories, OMB approved the 
Census Bureau's inclusion of a sixth race category--Some Other Race--on 
the 2000 and 2010 Census questionnaires. The 2010 Census disaggregated 
the Asian race into seven categories (Asian Indian, Chinese, Filipino, 
Japanese, Korean, Vietnamese, Other Asian), the Native Hawaiian and 
Other Pacific Islander race into four categories (Native Hawaiian, 
Guamanian or Chamorro, Samoan, Other Pacific Islander) and included 
three areas where respondents could write-in a specific Asian race, a 
specific Pacific Islander race, and the name of his or her enrolled or 
principal tribe in the American Indian or Alaska Native category.\286\ 
As required, the response categories and the write-in answers for the 
Census Bureau's race question can be combined to create the five 
minimum OMB categories for race, discussed above, plus Some Other Race.
---------------------------------------------------------------------------

    \285\ ``White'' refers to a person having origins in any of the 
original peoples of Europe, the Middle East, or North Africa. It 
includes people who indicated their race(s) as ``White'' or reported 
entries such as Irish, German, Italian, Lebanese, Arab, Moroccan, or 
Caucasian.
    ``Black or African American'' refers to a person having origins 
in any of the Black racial groups of Africa. It includes people who 
indicated their race(s) as ``Black, African Am., or Negro'' or 
reported entries such as African American, Kenyan, Nigerian, or 
Haitian.
    ``American Indian or Alaska Native'' refers to a person having 
origins in any of the original peoples of North or South America 
(including Central America) and who maintains tribal affiliation or 
community attachment. The category includes people who indicated 
their race(s) as ``American Indian or Alaska Native'' or reported 
their enrolled or principal tribe, such as Navajo, Blackfeet, 
Inupiat, Yup'ik, or Central American Indian groups or South American 
Indian groups.
    ``Asian'' refers to a person having origins in any of the 
original peoples of the Far East, Southeast Asia, or the Indian 
subcontinent, including, for example, Cambodia, China, India, Japan, 
Korea, Malaysia, Pakistan, the Philippine Islands, Thailand, and 
Vietnam. It includes people who indicated their race(s) as ``Asian'' 
or reported entries such as ``Asian Indian,'' ``Chinese,'' 
``Filipino,'' ``Korean,'' ``Japanese,'' ``Vietnamese,'' and ``Other 
Asian'' or provided other detailed Asian responses.
    ``Native Hawaiian or Other Pacific Islander'' refers to a person 
having origins in any of the original peoples of Hawaii, Guam, 
Samoa, or other Pacific Islands. It includes people who indicated 
their race(s) as ``Pacific Islander'' or reported entries such as 
``Native Hawaiian,'' ``Guamanian or Chamorro,'' ``Samoan,'' and 
``Other Pacific Islander'' or provided other detailed Pacific 
Islander responses.
    ``Some Other Race'' includes all other responses not included in 
the White, Black or African American, American Indian or Alaska 
Native, Asian, and Native Hawaiian or Other Pacific Islander race 
categories described above. Respondents reporting entries such as 
multiracial, mixed, interracial, or a Hispanic or Latino group (for 
example, Mexican, Puerto Rican, Cuban, or Spanish) in response to 
the race question are included in this category. See Census Bureau 
Overview at 2-3.
    \286\ See Census Bureau Overview at 1-2.
---------------------------------------------------------------------------

    Another Federal agency has already begun to require more detailed 
data collection on ethnicity and race as is encouraged by the OMB and 
as has been used by the Census Bureau for 15 years. On October 31, 
2011, the U.S. Department of Health and Human Services (HHS) published 
data standards for ethnicity and race that it now uses in its national 
population health surveys undertaken pursuant to the Affordable Care 
Act. These data standards are based on the disaggregation of the OMB 
standard and the 2000 and 2010 Decennial Census discussed above. Many 
of the commenters that provided feedback on the Bureau's proposal, 
discussed below, urged the Bureau to follow the data collection 
standards being used by the HHS and require financial institutions to 
collect and report more detailed ethnicity and race information.
    In addition, the American Housing Survey, which is a comprehensive 
national housing survey sponsored by HUD and conducted biennially by 
the Census Bureau, will similarly provide more detailed country of 
origin information for the first time ever in 2015.\287\ According to 
HUD's ``Priority Program Goals for the Asian American and Pacific 
Islander Community,'' one of the agency's five program goals is to 
improve the data collected on Asian American and Pacific Islander 
(AAPI) communities and it is working to disaggregate data for all major 
programs, including homeownership, tenant based rental assistance, and 
public housing. HUD's goal to disaggregate data extends not only to the 
AAPI community, but also to the Hispanic or Latino community.\288\
---------------------------------------------------------------------------

    \287\ See https://www.whitehouse.gov/the-press-office/2015/05/12/fact-sheet-white-house-summit-asian-americans-and-pacific-islanders.
    \288\ See U.S. Dep't. of Housing and Urban Dev., Priority 
Program Goals for the Asian American and Pacific Islander Community, 
available at https://www.hud.gov/offices/hsg/mfh/trx/meet/raceethnicdatacollexecorder.pdf.
---------------------------------------------------------------------------

    The Bureau received many comments in response to its solicitation 
regarding the challenges faced by both applicants and financial 
institutions by the HMDA data collection instructions regarding an 
applicant's ethnicity, race, and sex, and on ways to improve that data 
collection. The comment letters of many consumer advocacy groups--
reinforced in subsequent communications and outreach--recommended 
disaggregation of the Asian and Native Hawaiian or Other Pacific 
Islander categories. A handful of these organizations also recommended 
disaggregation of data on the ethnicity category. These recommendations 
generally align with the 2000 and 2010 Decennial Census, the approach 
that HHS has been using since 2011 in its national population health 
surveys, and the approach HUD will be taking in all of its major 
programs.
    In general, these commenters urged the Bureau to disaggregate the 
ethnicity and race categories under HMDA for the following reasons. 
First, commenters stated that disaggregated data will more accurately 
reflect the borrowing experiences of various AAPI and Hispanic or 
Latino communities across the country. For example, some commenters 
stated that newer immigrants are likely to have different experiences 
in the mortgage market than earlier immigrants. In addition, since many 
subpopulation groups include limited-English proficient communities, 
commenters supported disaggregated data as a vehicle to better 
understanding of lending to these vulnerable groups and perhaps 
improved access to homeownership.
    Second, commenters expressed the belief that the aggregate OMB 
categories for ethnicity and race may mask discriminatory practices 
that are occurring against subpopulation groups that fall within these 
aggregate categories. For example, one consumer advocate commenter 
described the efforts made by one of its member organizations to 
manually disaggregate the HMDA data using borrowers' last name, census 
tract information in Queens, New York, and public court records to 
determine that more than 50 percent of defaults were among South Asians 
in many neighborhoods. In response, the organization assessed the needs 
of this particular Asian subpopulation group and prioritized building a 
foreclosure prevention program, which helped stabilize these minority 
neighborhoods. Overall, many commenters stated that expanding the

[[Page 66190]]

aggregate ethnicity and race categories to include specific 
subpopulations will assist regulators and the public in determining 
whether discrimination against certain subpopulations is occurring in 
minority communities.
    Lastly, commenters stated that the importance of ethnicity and race 
data to HMDA's purposes is critical and as such, the Bureau should do 
what it can to encourage applicants to provide their demographic 
information. These commenters expressed the belief that the aggregate 
OMB categories for ethnicity and race are often too broad and do not 
provide applicants within subpopulation groups with the opportunity of 
self-identification. One industry participant in the Bureau's survey 
expressed a similar perspective after speaking to several of its 
originators indicating that applicants opt to skip the ethnicity and 
race questions altogether when the options do not accurately describe 
their ethnic or racial identity.
    As discussed above, the OMB encourages the collection of greater 
detail beyond the two minimum categories for ethnicity and the five 
minimum categories for race, and as such, agencies may use more 
detailed reporting at their discretion so long as any collection that 
uses more detail is organized in such a way that the additional detail 
can be aggregated into the minimum categories for data on ethnicity and 
race. The Bureau has considered the feedback it received in response to 
its solicitation on ways to improve the data collection of an 
applicant's ethnicity, race, and sex under appendix B and determined, 
as discussed below, that the appropriate approach to further HMDA's 
purposes is to build upon the OMB standards by adding the type of 
granularity for subpopulations that was used in the 2000 and 2010 
Decennial Census, with the exception that the Bureau is not adopting 
the sixth race category used by Census--Some Other Race--which cannot 
be aggregated to the five minimum OMB categories for race.
    First, the Bureau believes that disaggregated data on applicants' 
ethnicity and race will provide meaningful data, which will further 
HMDA's purposes--in determining whether financial institutions within a 
particular market are serving the housing needs of specific 
communities; in distributing public-sector investments so as to attract 
private investment to areas or communities where it is needed; and in 
identifying possible discriminatory lending patterns. Consumer 
advocates have been urging the Bureau for years to gather disaggregated 
information, which will enable them to determine whether institutions 
are filling their obligations to serve the housing needs of the 
communities and neighborhoods in which they are located. Data on 
subpopulation groups in the residential mortgage market will 
substantially advance the ability to better understand the market for 
particular subgroups and monitor access to credit.
    The Bureau recognizes that disaggregated data may not be useful in 
analyzing potential discrimination where financial institutions do not 
have a sufficient number of applicants or borrowers within particular 
subgroups to permit reliable assessments of whether unlawful 
discrimination may have occurred. However, in situations in which the 
numbers are sufficient to permit such fair lending assessments, 
disaggregated data on ethnicity and race will help identify potentially 
discriminatory lending patterns. Improved data will not only assist in 
identifying potentially discriminatory practices, but will also 
contribute to a better understanding of the experiences that members 
within subpopulations may share in the mortgage market.
    Second, as a 21st century, data-driven agency, the Bureau believes 
that its rules should recognize the nation's changing ethnic and racial 
diversity. By aligning the ethnicity and race categories in HMDA with 
the questions on Hispanic origin and race used by the Census Bureau 
during the last 15 years, the Bureau is taking a step forward in 
updating its data collection requirements. Lastly, as pointed out by 
commenters, disaggregation will also encourage self-reporting by 
applicants by offering, as the Census does, categories which promote 
self-identification.
    The Bureau recognizes that financial institutions may have concerns 
about this change to the collection and reporting of ethnicity and race 
under HMDA. This change may increase the burden of collection and 
reporting HMDA data. Disaggregation, as described here, may also result 
in financial institutions having to expand their data systems, update 
their application forms and processes, and provide additional training 
to loan originators to ensure compliance with the new requirements. 
There may also be questions as to what the Bureau expects of financial 
institutions with respect to their compliance management systems and 
challenges they may face in conducting fair lending analyses with the 
new data on ethnicity and race.
    The Bureau has considered these potential concerns, among others, 
and nonetheless believes that the utility of disaggregated HMDA data on 
applicants' ethnicity and race justifies the potential burdens and 
costs. Accordingly, the Bureau is adopting new data standards for the 
collection and reporting of ethnicity and race by modifying the 
instructions in appendix B and the sample data collection form. As 
such, the final rule requires financial institutions to use the 
following data standards for the collection and reporting of an 
applicant's ethnicity and race.

[[Page 66191]]

[GRAPHIC] [TIFF OMITTED] TR28OC15.000

    As discussed above, with regard to the current requirement in 
appendix B that a financial institution collect an applicant's 
ethnicity, race, and sex on the basis of visual observation or surname 
when the applicant does not provide the requested information for an 
application taken in person, the Bureau has determined that it will 
maintain this requirement as is. However, the concerns with the visual 
observation and surname requirement expressed by commenters discussed 
above, would arguably be magnified due to the difficulties loan 
originators would potentially encounter in determining an applicant's 
ethnicity and race with the expanded categories the Bureau is 
finalizing. Thus, to reduce the potential burden of this change on 
financial institutions, the Bureau has determined that, at this point 
in time, the appropriate approach is to only permit self-identification 
of the disaggregated categories. That is, only an applicant may use the 
disaggregated categories to identify his or her ethnicity or race. When 
an application is taken in person and the applicant does not provide 
the information, the final rule will continue to require loan 
originators to collect, on the basis of visual observation or surname, 
the minimum OMB categories of ethnicity and race. The Bureau believes 
that this approach balances the value of disaggregated data on 
ethnicity and race to further HMDA's purposes with the potential 
burdens on financial institutions.
    Accordingly, the Bureau is modifying appendix B by adding a new 
instruction to require a financial institution to collect an 
applicant's ethnicity, race, and sex on the basis of visual observation 
or surname when the applicant does not provide the requested 
information for an application taken in person, by selecting from the 
following OMB minimum categories: Ethnicity (Hispanic or Latino; not 
Hispanic or Latino); race (American Indian or Alaska Native; Asian; 
Black or African American; Native Hawaiian or Other Pacific Islander; 
White). The Bureau is also modifying appendix B by adding a new 
instruction to provide that only an applicant may self-identify as 
being of a particular Hispanic or Latino subcategory (Mexican, Puerto 
Rican, Cuban, Other Hispanic or Latino) or of a particular Asian 
subcategory (Asian Indian, Chinese, Filipino, Japanese, Korean, 
Vietnamese, Other Asian) or of a particular Native Hawaiian or Other 
Pacific Islander subcategory (Native Hawaiian, Guamanian or Chamorro, 
Samoan, Other Pacific Islander) or of a particular American Indian or 
Alaska Native enrolled or principal tribe. The

[[Page 66192]]

Bureau recognizes the change to the collection and reporting of 
ethnicity and race under HMDA may raise concerns regarding applicant 
and borrower privacy. See part II.B above for a discussion of the 
Bureau's approach to protecting applicant and borrower privacy with 
respect to the public disclosure of HMDA data.
    Similar to the Census questionnaire and as outlined above in the 
new data standards the Bureau is adopting for the collection and 
reporting of an applicant's ethnicity and race, the Bureau is modifying 
the sample data collection form in appendix B to allow an applicant to 
provide a particular Hispanic or Latino origin when ``Other Hispanic or 
Latino'' is selected by the applicant, a particular Asian race when 
``Other Asian'' is selected by the applicant, a particular Other 
Pacific Islander race when ``Other Pacific Islander'' is selected by 
the applicant, and lastly, the name of the enrolled or principal tribe 
when the applicant selects American Indian or Alaska Native race. The 
Bureau believes that this may encourage self-reporting by applicants by 
offering, as the Census does, an option for applicants to provide a 
specific Hispanic/Latino origin and race, which promotes self-
identification and will improve the HMDA data's usefulness.
    In addition, in order to facilitate compliance, the Bureau has 
determined that it will limit the number of particular racial 
designations of applicants that are required to be reported by 
financial institutions. The Bureau reviewed recent Census data to 
consider the occurrence of respondents that self-identify as being of 
more than one particular race. For example, the 2010 Census data shows 
that of the Asian population where only Asian was reported as the 
respondents' race, only 0.11 percent of those self-identified as being 
of three particular Asian races, while only 0.02 percent self-
identified as being of seven particular Asian races. Regulation C 
currently requires financial institutions to report up to five racial 
designations of an applicant. The Bureau believes that the likelihood 
of applicants self-identifying as being of more than five particular 
racial designations is low. Accordingly, the Bureau is adopting a new 
instruction 9 in appendix B, which provides that a financial 
institution must offer the applicant the option of selecting more than 
one particular ethnicity or race. The new instruction provides that if 
an applicant selects more than one particular ethnicity or race, a 
financial institution must report each selected designation, subject to 
the limits described in the instruction.
    With respect to ethnicity, the instruction requires a financial 
institution to report each aggregate ethnicity category and each 
ethnicity subcategory selected by the applicant. In addition, the 
instruction explains that if an applicant selects the Other Hispanic or 
Latino ethnicity subcategory, the applicant may also provide a 
particular Hispanic or Latino ethnicity not listed in the standard 
subcategories. In such a case, the instruction requires a financial 
institution to report both the selection of Other Hispanic or Latino 
and the additional information provided by the applicant.
    With respect to race, the instruction requires a financial 
institution to report every aggregate race category selected by the 
applicant. If the applicant also selects one or more race 
subcategories, the instruction requires the financial institution to 
report each race subcategory selected by the applicant, except that the 
financial institution must not report more than a total of five 
aggregate race categories and race subcategories combined. The 
instruction provides illustrative examples to facilitate HMDA 
compliance. In addition, the instruction explains that if an applicant 
selects the Other Asian race subcategory or the Other Pacific Islander 
race subcategory, the applicant may also provide a particular Other 
Asian or Other Pacific Islander race not listed in the standard 
subcategories. In either such case, the instruction requires a 
financial institution to report both the selection of Other Asian or 
Other Pacific Islander, as applicable, and the additional information 
provided by the applicant, subject to the five-race maximum. In all 
such cases where the applicant has selected an Other race subcategory 
and also provided additional information, for purposes of the five-race 
maximum, the Other race subcategory and additional information provided 
by the applicant together constitute only one selection. The 
instruction provides an illustrative example to facilitate compliance.
    The Bureau is also modifying the introductory paragraph in the 
sample data collection form in appendix B in an effort to improve the 
explanation provided to applicants by financial institutions as to why 
their demographic information is being collected. In response to the 
Bureau's solicitation for feedback on ways to improve the data 
collection on ethnicity, race, and sex, a few commenters stated that 
applicants may be reluctant to provide their demographic information 
because they do not understand why it is being collected or for what 
purposes. For example, an industry commenter suggested that the 
language explaining to the applicant why the information is being 
requested should be in plain language and contain less legalese in 
order for an applicant to feel more comfortable in responding to the 
request. Another industry commenter suggested that applicants who 
choose not to provide their demographic information may be concerned 
that by doing so, such information may negatively influence the credit 
decision made by a financial institution. The Bureau believes that the 
explanation provided to applicants by financial institutions should 
clearly state why their demographic information is being collected and 
for what purposes such information is requested by the Federal 
government. Accordingly, the Bureau is modifying the introductory 
paragraph in the sample data collection form in appendix B to include 
the following sentences: ``The purpose of collecting this information 
is to help ensure that all applicants are treated fairly and that the 
housing needs of communities and neighborhoods are being fulfilled. For 
residential mortgage lending, Federal law requires that we ask 
applicants for their demographic information (ethnicity, race, and sex) 
in order to monitor our compliance with equal credit opportunity, fair 
housing, and home mortgage disclosure laws.'' The Bureau is adopting 
other changes to the introductory paragraph in the sample data 
collection form to align with the new data standards on collection and 
reporting of ethnicity and race.
    In order to align with the modified introductory paragraph in the 
sample data collection form, the Bureau is also adopting new 
instruction 2, which clarifies that a financial institution must inform 
applicants that Federal law requires collection of their demographic 
information in order to protect consumers and to monitor compliance 
with Federal statutes that prohibit discrimination against applicants 
on the basis of ethnicity, race, and sex. The Bureau is also modifying 
the title of the sample data collection form. A few commenters stated 
that ``Information for Government Monitoring Purposes'' may discourage 
applicants from providing their demographic information. For example, 
by using the words ``government monitoring,'' a few industry commenters 
suggested that applicants may view the collection of this information 
as intrusive or intimidating, as opposed to ensuring that they are 
protected from discrimination. Another industry

[[Page 66193]]

commenter stated that some applicants are not aware that Federal 
statutes and regulations protect them from discrimination and that 
``government monitoring information'' promotes a sense among applicants 
that the financial institution's credit decision is based, at least in 
part, on their demographic information. The Bureau has considered this 
feedback and determined that the title of the sample data collection 
form should be modified in order to address the concern that the 
current title may discourage applicants from providing their 
demographic information. Accordingly, the Bureau is modifying the title 
of the sample data collection form to ``Demographic Information of 
Applicant and Co-Applicant.''
    The Bureau has determined that modifying the introductory paragraph 
in the sample data collection form and its title, as well as adopting 
new instruction 2 in appendix B, will assist financial institutions in 
explaining to applicants the purposes of collecting their demographic 
information and how the information is used. The Bureau believes that 
these changes may improve the HMDA data's usefulness by encouraging 
applicants to provide their demographic information.
    The Bureau is also modifying instruction 1 in appendix B, which 
currently provides that for applications taken by telephone, the 
information in the collection form must be stated orally by the lender, 
except for that information which pertains uniquely to applications 
taken in writing. The Bureau has received questions regarding the 
meaning of the phrase ``except for that information which pertains 
uniquely to applications taken in writing.'' The Bureau has modified 
this instruction in the final rule and provides an illustrative 
example, which will address confusion regarding this phrase.
    The Bureau is also modifying the sample data collection form by 
allowing applicants to select ``I do not wish to provide this 
information'' separately for ethnicity, race, and sex. Previously, the 
sample data collection form provided a ``I do not wish to furnish this 
information'' box at the top of the form, which applied to ethnicity, 
race, and sex as a group. The Bureau believes that modifying the 
selection to include a ``I do not wish to provide this information'' 
box following the request for the applicant's ethnicity, race, and sex 
will allow an applicant to more clearly articulate a decision to 
decline to provide certain information but not other information. 
Additional guidance on this topic had been published in the FFIEC 
FAQs.\289\ The Bureau believes it is appropriate to modify the sample 
data collection form in appendix B, adapted from the FFIEC FAQs, to 
improve the collection of this information and assist financial 
institutions with HMDA compliance.
---------------------------------------------------------------------------

    \289\ See https://www.ffiec.gov/hmda/faqreg.htm#threeboxes.
---------------------------------------------------------------------------

    The Bureau is also proposing to add four new instructions to 
appendix B to provide additional guidance regarding the reporting 
requirement under Sec.  1003.4(a)(10)(i). First, the Bureau received 
feedback requesting that it clarify whether a financial institution 
must report the demographic information of a guarantor. To help 
facilitate HMDA compliance, the Bureau is adopting new instruction 4 in 
appendix B, which clarifies that for purposes of Sec.  
1003.4(a)(10)(i), if a covered loan or application includes a 
guarantor, a financial institution does not report the guarantor's 
ethnicity, race, and sex. While the terms ``applicant'' and 
``borrower'' may include guarantors in other regulations,\290\ the 
Bureau believes the inclusion of information regarding the ethnicity, 
race, and sex of guarantors in the HMDA data would be unnecessarily 
burdensome and potentially lead to inconsistencies in the data.
---------------------------------------------------------------------------

    \290\ For example, Regulation B defines the term ``applicant'' 
to include guarantors, sureties, endorsers, and similar parties for 
some purposes. See 12 CFR 1002.2(e).
---------------------------------------------------------------------------

    Second, an industry commenter pointed out that the Bureau's 
proposed instruction 4(a)(10)-2.a provides ``You need not collect or 
report this information for covered loans purchased. If you choose not 
to report this information for covered loans that you purchase, use the 
Codes for not applicable.'' However, the Bureau's proposed instructions 
4(a)(10)(i)-2.c, 4(a)(10)(i)-3.b, 4(a)(10)(i)-4.a, and 4(a)(10)(ii)-1.d 
instructed financial institutions to report the corresponding code for 
``not applicable'' for ethnicity, race, sex, age, and income ``when the 
applicant or co-applicant information is unavailable because the 
covered loan has been purchased by your institution.'' The Bureau 
agrees that these instructions do not align and has determined that a 
clarification will facilitate HMDA compliance. Consequently, the Bureau 
is adopting new instruction 6 in appendix B, which requires that when a 
financial institution purchases a covered loan and chooses not to 
report the applicant's or co-applicant's ethnicity, race, and sex, the 
financial institution reports that the requirement is not applicable.
    Third, prior to the Bureau's proposal, financial institutions had 
expressed uncertainty as to whether a trust is a non-natural person for 
purposes of HMDA. In response, the Bureau proposed to add ``trust'' to 
the list of examples in the technical instructions in appendix A, which 
direct financial institutions to report the code for ``not applicable'' 
if the borrower or applicant is not a natural person. A few commenters 
supported the proposed clarification. The Bureau has determined that 
the proposed clarification will facilitate HMDA compliance. 
Consequently, the Bureau is adopting new instruction 7, which provides, 
in part, a financial institution reports that the requirement to report 
the applicant's or co-applicant's ethnicity, race, and sex is not 
applicable when the applicant or co-applicant is not a natural person 
(for example, a corporation, partnership, or trust). The new 
instruction clarifies that for a transaction involving a trust, a 
financial institution reports that the requirement is not applicable if 
the trust is the applicant. On the other hand, if the applicant is a 
natural person, and is the beneficiary of a trust, a financial 
institution reports the applicant's ethnicity, race, and sex.
    Lastly, the Bureau is adopting new instruction 13 in appendix B, 
which clarifies how a financial institution should report partial 
demographic information provided by an applicant. Additional guidance 
on this topic had been published in the FFIEC FAQs.\291\ The Bureau 
believes it is appropriate to include an instruction in appendix B, 
adapted from the FFIEC FAQs, to assist financial institutions with HMDA 
compliance.
---------------------------------------------------------------------------

    \291\ See https://www.ffiec.gov/hmda/faqreg.htm#collectioninfo.
---------------------------------------------------------------------------

    For the reasons discussed above, the Bureau is adopting proposed 
Sec.  1003.4(a)(10)(i), with the following substantive change. The 
Bureau is requiring financial institutions to report whether the 
applicant's or co-applicant's ethnicity, race, and sex was collected on 
the basis of visual observation or surname. Consequently, Sec.  
1003.4(a)(10)(i) and appendix B of the final rule require a financial 
institution to collect and report the applicant's or co-applicant's 
ethnicity, race, and sex, and whether this information was collected on 
the basis of visual observation or surname.
    In addition, for the reasons discussed above, the Bureau is adding 
new instructions, as well as modifying a few of the current 
instructions, in appendix B and the sample data collection form

[[Page 66194]]

in order to facilitate compliance with the new collection and reporting 
requirements relating to an applicant's ethnicity, race, and sex. The 
Bureau is adopting proposed comments 4(a)(10)(i)-1, -2, -3, -4, and -5 
as new instructions 8, 10, 12, 5, and 3, respectively, in appendix B, 
modified to conform to the changes the Bureau is finalizing in Sec.  
1003.4(a)(10)(i) and to provide additional clarity as to the data 
collection requirements. In addition, as discussed above, the Bureau is 
adopting new instructions 4, 6, 7, 9, 11, and 13 in appendix B. The 
Bureau has modified proposed comment 4(a)(10)(i)-1, which directs 
financial institutions to refer to appendix B for instructions on 
collection of an applicant's ethnicity, race, and sex. By placing all 
of the data collection instructions with respect to an applicant's 
ethnicity, race, and sex in one location--appendix B--the Bureau has 
streamlined the regulatory requirements in an effort to reduce 
compliance burden. The Bureau has determined that these data collection 
instructions in appendix B and the revised sample data collection form, 
discussed above, will help facilitate HMDA compliance by providing 
additional guidance regarding the reporting requirements under Sec.  
1003.4(a)(10)(i).
    Lastly, in order to facilitate compliance with the new collection 
and reporting requirements in Sec.  1003.4(a)(10)(i) and appendix B 
relating to an applicant's ethnicity, race, and sex, the Bureau added 
new comment 4(a)(10)(i)-2 in the final rule and provides an 
illustrative example. Comment 4(a)(10)(i)-2 provides that if a 
financial institution receives an application prior to January 1, 2018, 
but final action is taken on or after January 1, 2018, the financial 
institution complies with Sec.  1003.4(a)(10)(i) and (b) if it collects 
the information in accordance with the requirements in effect at the 
time the information was collected. For example, if a financial 
institution receives an application on November 15, 2017, collects the 
applicant's ethnicity, race, and sex in accordance with the 
instructions in effect on that date, and takes final action on the 
application on January 5, 2018, the financial institution has complied 
with the requirements of Sec.  1003.4(a)(10)(i) and (b), even though 
those instructions changed after the information was collected but 
before the date of final action. However, if, in this example, the 
financial institution collected the applicant's ethnicity, race, and 
sex on or after January 1, 2018, Sec.  1003.4(a)(10)(i) and (b) 
requires the financial institution to collect the information in 
accordance with the amended instructions.
4(a)(10)(ii)
    Section 1094(3)(A)(i) of the Dodd-Frank Act amended HMDA section 
304(b)(4) to require financial institutions to report an applicant's or 
borrower's age.\292\ The Bureau proposed to implement the requirement 
to collect and report age by adding this characteristic to the 
information listed in proposed Sec.  1003.4(a)(10)(i). In light of 
potential applicant and borrower privacy concerns related to reporting 
date of birth, the Bureau proposed that financial institutions enter 
the age of the applicant or borrower, as of the date of application, in 
number of years as derived from the date of birth as shown on the 
application form.
---------------------------------------------------------------------------

    \292\ 12 U.S.C. 2803(b)(4).
---------------------------------------------------------------------------

    The Bureau solicited feedback regarding whether this was an 
appropriate manner of collecting the age of applicants. Many commenters 
expressed concern about potential privacy implications if the Bureau 
requires financial institutions to report an applicant's age or if the 
Bureau were to release such data to the public. As with other proposed 
data points like credit score, commenters were concerned that if 
information regarding an applicant's or borrower's age is made 
available to the public, such information could be coupled with other 
publicly available information, such as the security instrument and 
other local records, in a way that compromises an applicant's or 
borrower's privacy. A national trade association commented that by 
increasing the scope of HMDA reporting, the Bureau would increase 
potential privacy risks of consumers. The commenter argued that 
expansive new data elements, like age, result in an unjustifiable 
privacy intrusion by providing information that allows someone to 
identify applicants and borrowers along with a detailed picture of 
their financial state. Similarly, an industry commenter suggested that 
in addition to the potential for criminal misuse of a borrower's 
financial information, the availability of the expanded data released 
under HMDA will very likely permit marketers to access the information 
which will result in aggressive marketing that is ``personalized'' to 
unsophisticated and vulnerable consumers for potentially harmful 
financial products and services. Another State trade association 
recommended that the Bureau strengthen its data protection as it 
relates to the selective disclosure of HMDA data to third parties and 
specifically recommended that the Bureau convert actual values to 
ranges or normalize values before sharing the data with a third party. 
The Bureau has considered this feedback. See part II.B above for a 
discussion of the Bureau's approach to protecting applicant and 
borrower privacy with respect to the public disclosure of HMDA data.
    In contrast, many consumer advocate commenters stated that 
requiring financial institutions to report an applicant's age is vital 
information that allows the public to evaluate age biases in lending, 
especially in conjunction with reverse mortgages. These commenters 
stated that the public needs to know the extent of reverse mortgage 
lending for various categories of older adults to ensure that various 
age cohorts are being served and are not being abused. Another 
commenter stated that an applicant's age is an important element for 
understanding patterns of mortgage lending and noted that mortgage 
underwriting standards may contribute to disparate outcomes in 
homeownership among different age cohorts. Another commenter stated 
that requiring financial institutions to report a borrower's age is 
important to ensure that borrowers in any particular age category are 
not experiencing undue barriers to mortgage credit.
    Many commenters also provided feedback regarding the Bureau's 
request as to whether there was a less burdensome way for financial 
institutions to collect such information for purposes of HMDA. For 
example, many industry commenters recommended that the Bureau require 
financial institutions to report age as a ``range of values'' rather 
than an applicant's or borrower's actual age. The commenters suggested 
that reporting an applicant's age as a range of values will eliminate a 
substantial number of potential errors on financial institutions' loan/
application registers, would better protect the privacy of applicants, 
and would not compromise the integrity of the HMDA data. Another 
industry commenter generally agreed that applicants' age information 
would be useful to users of the HMDA data when analyzing housing trends 
and a financial institution's fair lending performance, but recommended 
that the Bureau require reporting of an applicant's date of birth and 
not the actual age of the applicant. Another industry commenter 
explained that it only requires date of birth on its applications and 
not age specifically. If the Bureau implements the requirement to 
report the applicant's age in years, the commenter stated that the 
consequence would be that

[[Page 66195]]

customized loan application forms would need to be amended to include 
this additional information or institutions would need to manually 
calculate an applicant's age, which will significantly increase both 
the burden of this reporting requirement and errors. A few industry 
commenters stated that the costs of the proposed requirement would not 
be justified. Other industry commenters stated that calculating an 
applicant's actual age will be an unnecessary burden and an area of 
potentially high error rate, and as such, the Bureau should require 
reporting of the applicant's year of birth.
    The Bureau has considered this feedback and determined that 
requiring financial institutions to report the applicant's actual age--
and not the applicant's date of birth, year of birth, or a range within 
which an applicant's age falls--is the appropriate method of 
implementing HMDA section 304(b)(4) and carrying out HMDA's purposes. 
In light of potential applicant and borrower privacy concerns related 
to reporting date of birth or year of birth, the Bureau has determined 
that requiring financial institutions to report the applicant's actual 
age is the proper approach. The Bureau has also determined that 
requiring financial institutions to report age as a range of values 
would diminish the utility of the data to further HMDA's purposes. By 
requiring financial institutions to report the applicant's actual age, 
this information will assist in identifying whether financial 
institutions are serving the housing needs of their communities, 
identifying possible discriminatory lending patterns, and enforcing 
antidiscrimination statutes. The Bureau recognizes that a requirement 
to collect and report the applicant's age may impose some burden on 
financial institutions and that requiring financial institutions to 
calculate the age of an applicant in number of years by referring to 
the date of birth as shown on the application form may result in 
potential calculation errors. However, the Bureau has determined that 
the benefits of this reporting requirement justify any burdens and 
financial institutions will have to manage the risk of an error in 
calculating an applicant's age to ensure HMDA compliance.
    The final rule renumbers proposed Sec.  1003.4(a)(10)(i) and moves 
the requirement to collect the age of the applicant or borrower to 
Sec.  1003.4(a)(10)(ii). The new numbering is intended only for ease of 
reference and is not a substantive change. In addition, in order to 
help facilitate HMDA compliance, the Bureau is moving the proposed 
commentary regarding the reporting requirements for an applicant's and 
borrower's age into new comments. The Bureau is adopting new comments 
4(a)(10)(ii)-1, -2, -3, -4, and -5.
    The Bureau is adopting new comment 4(a)(10)(ii)-1, which explains 
that a financial institution complies with Sec.  1003.4(a)(10)(ii) by 
reporting the applicant's age, as of the application date under Sec.  
1003.4(a)(1)(ii), as the number of whole years derived from the date of 
birth as shown on the application form, and provides an illustrative 
example. This requirement aligns with the definition of age under 
Regulation B.\293\
---------------------------------------------------------------------------

    \293\ The Bureau's Regulation B requires, as part of the 
application for credit, a creditor to request the age of an 
applicant for credit primarily for the purchase or refinancing of a 
dwelling occupied or to be occupied by the applicant as a principal 
dwelling, where the credit will be secured by the dwelling. 
Regulation B Sec.  1002.13(a)(1)(iv). Age has been a protected 
category under ECOA and Regulation B since 1976, and a creditor may 
not discriminate against an applicant on the basis of age regarding 
any aspect of a credit transaction, including home mortgage lending. 
See Regulation B Sec. Sec.  1002.1(b), 1002.4(a)(b), 15 U.S.C. 
1691(a)(1). Under Regulation B, ``age'' refers ``only to the age of 
natural persons and means the number of fully elapsed years from the 
date of an applicant's birth.'' Regulation B Sec.  1002.2(d).
---------------------------------------------------------------------------

    Similar to the requirement applicable to an applicant's ethnicity, 
race, and sex, the Bureau is adopting new comment 4(a)(10)(ii)-2, which 
clarifies that if there are no co-applicants, a financial institution 
reports that there is no co-applicant. On the other hand, if there is 
more than one co-applicant, the financial institution reports the age 
only for the first co-applicant listed on the application form. The 
comment also explains that a co-applicant may provide the absent co-
applicant's age on behalf of the absent co-applicant.
    The Bureau is adopting new comment 4(a)(10)(ii)-3, which clarifies 
when a financial institution reports that the requirement is not 
applicable. Similar to the requirement applicable to an applicant's 
ethnicity, race, and sex, comment 4(a)(10)(ii)-3 explains that for a 
covered loan that the financial institution purchases and for which the 
institution chooses not to report the applicant's or co-applicant's 
age, the financial institution reports that the requirement is not 
applicable. In addition, comment 4(a)(10)(ii)-4 explains that a 
financial institution reports that the requirement to report the 
applicant's or co-applicant's age is not applicable when the applicant 
or co-applicant is not a natural person (for example, a corporation, 
partnership, or trust), and provides an illustrative example.
    Lastly, the Bureau received feedback requesting that it clarify 
whether a financial institution must report the demographic information 
of a guarantor. Similar to the requirement applicable to an applicant's 
ethnicity, race, and sex, the Bureau is adopting new comment 
4(a)(10)(ii)-5, which clarifies that for purposes of Sec.  
1003.4(a)(10)(ii), if a covered loan or application includes a 
guarantor, a financial institution does not report the guarantor's age. 
These five new comments will help facilitate HMDA compliance by 
providing guidance on the reporting requirements regarding an 
applicant's or borrower's age.
4(a)(10)(iii)
    HMDA section 304(b)(4) requires the reporting of income level for 
borrowers and applicants. Section 1003.4(a)(10) of Regulation C 
implements this requirement by requiring collection and reporting of 
the applicant's gross annual income relied on in processing the 
application. Proposed Sec.  1003.4(a)(10)(ii) revised the current rule 
to require the reporting of gross annual income relied on in making the 
credit decision requiring consideration of income or, if a credit 
decision requiring consideration of income was not made, the gross 
annual income collected as part of the application process. The Bureau 
also proposed amendments to the commentary and two new illustrative 
comments. The Bureau is adopting Sec.  1003.4(a)(10)(iii), renumbered 
from proposed Sec.  1003.4(a)(10)(ii), and comments 4(a)(10)(iii)-1 
through -10.
    The Bureau received feedback on proposed Sec.  1003.4(a)(10)(ii) 
and its commentary from a small number of commenters. A handful of 
commenters, including consumer advocates and industry commenters, 
expressed support for proposed Sec.  1003.4(a)(10)(ii). As information 
about an applicant's or borrower's income provides information about 
underwriting decisions and access to credit, the Bureau believes that 
collecting it is important for achieving HMDA's purposes: to identify 
possible fair lending violations, to understand whether financial 
institutions are meeting the housing needs of their communities, and to 
help policymakers allocate public investments so as to attract private 
capital. Therefore, it is appropriate to continue to require financial 
institutions to report information about an applicant's or borrower's 
gross annual income.
    A few industry commenters addressed challenges associated with 
reporting the gross annual income relied on in making the credit 
decision. One commenter suggested requiring

[[Page 66196]]

reporting of the income obtained from a readily verifiable source 
instead of the gross annual income relied on in making the credit 
decision. Others asked for clarification about what is meant by gross 
annual income, including whether gross annual income requires reporting 
of the income that the financial institution has verified. It is not 
necessary to modify proposed Sec.  1003.4(a)(10)(ii) to allow financial 
institutions that rely on the verified gross annual income to report 
the verified gross annual income. Proposed Sec.  1003.4(a)(10)(ii) 
provided flexibility for the financial institution to report the gross 
annual income that the financial institution relied on in making the 
credit decision for the loan or application that the institution is 
reporting. Under the proposal, if a financial institution relied on the 
verified gross annual income, then the institution would report the 
verified gross annual income. In addition, in circumstances when a 
financial institution did not rely on the verified gross annual income, 
the financial institution would report the gross annual income that it 
relied on in making the credit decision. The Bureau believes that it is 
important to maintain this flexibility in the final rule and 
accordingly is not adopting commenters' suggestions to change the 
requirement. However, in response to the comments, the Bureau is 
modifying proposed comment 4(a)(10)(ii)-1, renumbered as comment 
4(a)(10)(iii)-1, to clarify that a financial institution reports the 
verified gross annual income when the financial institution relied on 
the verified gross annual income in making the credit decision.
    Some industry commenters also raised concerns about public 
disclosure of this information. See part II.B above for a discussion of 
the Bureau's approach to protecting applicant and borrower privacy with 
respect to the public disclosure of the data.
    Other industry commenters urged the Bureau to consider excluding 
certain types of loans, such as multifamily loans, business purpose 
loans, and purchased loans, from the requirement to report income in 
proposed Sec.  1003.4(a)(10)(ii). The final rule effectively excludes 
these loans from income reporting. New comment 4(a)(10)(iii)-7 excludes 
loans to non-natural persons and new comment 4(a)(10)(iii)-8 excludes 
those related to multifamily dwellings from the requirement to report 
income information. New comment 4(a)(10)(iii)-9 provides that reporting 
income information is optional for purchased loans. However, as 
discussed in comments 4(a)-3 and -4, a financial institution that 
reviews an application for a covered loan, makes a credit decision on 
that application prior to closing, and purchases the covered loan after 
closing will report the covered loan that it purchases as an 
origination, not a purchase. Accordingly, in those circumstances, the 
final rule requires the financial institution to report the gross 
annual income that it relied on in making the credit decision.
    Other industry commenters expressed concerns about the proposed 
requirement to report the gross annual income collected as part of the 
application process. One commenter urged the Bureau to only require 
reporting of income information if it is relied on in making a credit 
decision. Another commenter urged the Bureau to require reporting of 
the most recent verified income, instead of the income stated by the 
borrower, because institutions update income throughout the application 
process to take into account new information. Another commenter 
suggested that collecting income information that is not verified is 
inconsistent with the Bureau's 2013 ATR Final Rule, which the commenter 
stated requires income to be verified.
    Information concerning income on applications when no credit 
decision was made provides valuable data to understand access to credit 
and underwriting decisions. The Bureau recognizes, however, as 
suggested by commenters, that the proposal's description of the 
requirement to report income in those circumstances created confusion 
about what income information to report. To respond to the concerns 
raised by the commenters, the Bureau is not adopting the language in 
proposed Sec.  1003.4(a)(10)(ii) that describes reporting income on 
applications when no credit decision was made. Instead, the Bureau is 
retaining the language currently used in Sec.  1003.4(a)(10) to 
describe what to report in that circumstance. The final rule provides 
that if a credit decision is not made, a financial institution reports 
the gross annual income relied on in processing the application for a 
covered loan that requires consideration of income. In that case, the 
financial institution should report whatever income information it was 
relying on when the application was withdrawn or closed for 
incompleteness, which could include the income information provided by 
the applicant initially, any additional income information provided by 
the applicant during the application process, and any adjustments to 
that information during the application process due to the 
institution's policies and procedures. These adjustments may include, 
for example, reducing the income amount to reflect verified income or 
to eliminate types of income not considered by the financial 
institution. In addition, proposed comment 4(a)(10)(ii)-5, finalized as 
comment 4(a)(10)(iii)-5, is revised to clarify that a financial 
institution is not necessarily required to report the income 
information initially provided on the application. Rather, the 
financial institution may update the income information initially 
provided by the applicant with additional information collected from 
the applicant if it relies on that additional information in processing 
the application.
    Another industry commenter expressed concerns about proposed 
comment 4(a)(10)(ii)-4, which explained that an institution should not 
include as income, amounts considered in making a credit decision based 
on factors that an institution relies on in addition to income. For 
example, the proposal directed financial institutions not to include as 
income any amounts derived from annuitization or depletion of an 
applicant's remaining assets. The commenter noted that proposed comment 
4(a)(10)(ii)-4 would be difficult to implement because lenders would 
have to create new data fields to identify and exclude annuitized 
income. In addition, the commenter stated that adopting the proposed 
comment would create a distorted picture of an applicant's cash flow. 
The Bureau is finalizing proposed comment 4(a)(10)(ii)-4, renumbered as 
comment 4(a)(10)(iii)-4, to focus on applicant income as distinct from 
an applicant's assets or other resources. Although financial 
institutions may rely on assets or other resources in underwriting a 
loan, including amounts other than income, such as assets, would result 
in data that is less useful and less accurate. Therefore, it would not 
be appropriate to report that information as income.
    For the reasons discussed above, the Bureau is finalizing proposed 
Sec.  1003.4(a)(10)(ii), renumbered as Sec.  1003.4(a)(10)(iii), with 
technical modifications for clarification. The Bureau is also 
finalizing proposed comments 4(a)(10)(ii)-1 through -6, renumbered as 
comments 4(a)(10)(iii)-1 through -6, with clarifying modifications to 
provide illustrative examples. The Bureau is also moving proposed 
instruction 4(a)(10)-2.a into new comment 4(a)(10)(iii)-9 and proposed 
instruction 4(a)(10)(ii)-1 into new comments 4(a)(10)(iii)-7, -8, and -
10.

[[Page 66197]]

4(a)(11)
    Current Sec.  1003.4(a)(11) requires financial institutions to 
report the type of entity purchasing a loan that the financial 
institution originates or purchases and then sells within the same 
calendar year, and provides that this information need not be included 
in quarterly updates.\294\ In conjunction with the Bureau's proposal to 
require quarterly data reporting by certain financial institutions as 
described further below in the section-by-section analysis of Sec.  
1003.5(a)(1)(ii), the Bureau proposed to modify Sec.  1003.4(a)(11) by 
deleting the statement that the information about the type of purchaser 
need not be included in quarterly updates. In addition, the Bureau 
proposed technical modifications to current comments 4(a)(11)-1 and -2 
and also proposed to add six new comments to provide additional 
guidance regarding the type of purchaser reporting requirement.
---------------------------------------------------------------------------

    \294\ 12 CFR 1002.4(a)(11); see also 12 U.S.C. 2803(h)(1)(C) 
(authorizing regulations that ``require disclosure of the class of 
the purchaser of such loans'').
---------------------------------------------------------------------------

    The Bureau solicited feedback regarding whether the proposed 
comments were appropriate and specifically solicited feedback regarding 
whether additional clarifications would assist financial institutions 
in complying with proposed Sec.  1003.4(a)(11). The Bureau received a 
few comments.
    With respect to the Bureau's proposal that the type of purchaser 
data be included in quarterly reporting by certain financial 
institutions, one industry commenter stated that the proposal did not 
specify how a quarterly reporter would report a loan it originated in 
one quarter and sold in another quarter during the same year. The 
Bureau proposed an instruction, which it is adopting as new comment 
4(a)(11)-9 with the following clarifications: A financial institution 
records that the requirement is not applicable if the institution 
originated or purchased a covered loan and did not sell it during the 
calendar quarter for which the institution is recording the data; if 
the financial institution sells the covered loan in a subsequent 
quarter of the same calendar year, the financial institution records 
the type of purchaser on its loan/application register for the quarter 
in which the covered loan was sold; if the financial institution sells 
the covered loan in a succeeding year, the institution should not 
record the sale. For clarity, the Bureau also adopts new comment 
4(a)(11)-10, which provides that a financial institution reports that 
the requirement is not applicable for applications that were denied, 
withdrawn, closed for incompleteness or approved but not accepted by 
the applicant; and for preapproval requests that were denied or 
approved but not accepted by the applicant. The new comment also 
provides that a financial institution reports that the requirement is 
not applicable if the institution originated or purchased a covered 
loan and did not sell it during that same calendar year.
    The Bureau proposed comment 4(a)(11)-3, which clarifies when a 
financial institution shall report the code for ``affiliate 
institution'' by providing a definition of the term ``affiliate'' and 
clarifying that for purposes of proposed Sec.  1003.4(a)(11), the term 
``affiliate'' means any company that controls, is controlled by, or is 
under common control with, another company, as set forth in the Bank 
Holding Company Act of 1956 (12 U.S.C. 1841 et seq.). One industry 
commenter stated that it is difficult for a financial institution to 
determine the correct code to report for the type of purchaser, 
especially when mergers, acquisitions, and affiliates are involved in 
the transaction, and recommended that financial institutions simply 
report ``sold'' or ``kept in portfolio'' for this requirement. Another 
industry commenter stated that the proposed definition of ``affiliate'' 
remains unclear and urged the Bureau to align the definition with 
existing regulations, including the Secure and Fair Enforcement of 
Mortgage Licensing Act of 2008 (SAFE Act).
    The Bureau considered the recommendation to require reporting of 
whether a particular loan has been ``sold'' within the same calendar 
year or ``kept in portfolio,'' but has determined that requiring 
reporting of the type of purchaser is the more appropriate approach. 
The type of purchaser information reported under HMDA provides valuable 
information, for example, by helping data users understand the 
secondary mortgage market. A requirement to simply report whether a 
particular loan was ``sold'' or ``kept in portfolio'' would greatly 
diminish the utility of this HMDA data. In addition, the Bureau has 
determined that the proposed definition of ``affiliate'' is appropriate 
and provides clarity as to when a financial institution should report 
that the type of purchaser is an affiliate institution. The Bureau 
considered other definitions of ``affiliate'' across various laws and 
regulations and has concluded that for purposes of reporting the type 
of purchaser under HMDA, the definition of ``affiliate'' established in 
the Bank Holding Company Act is appropriate.
    Appendix A to Sec.  1003.4(a)(11) groups ``life insurance company, 
credit union, mortgage bank, or finance company'' into one category 
when reporting type of purchaser. The Bureau did not propose to change 
this grouping. However, one commenter recommended that ``insurance 
companies'' be separated from ``life insurance company, credit union, 
mortgage bank, or finance company.'' The commenter argued that 
separating insurance companies from other types of purchasers would 
result in improved data with respect to both information about the 
ultimate source of financing in the multifamily market and information 
about secondary-market financing provided by credit unions, mortgage 
banks, and finance companies. In response, the Bureau is adopting a new 
modification that will permit reporting that the purchaser type is a 
life insurance company separately from other purchaser types.
    The Bureau is also modifying proposed comment 4(a)(11)-5 by 
replacing ``mortgage bank'' with ``mortgage company'' and clarifying 
that for purposes of Sec.  1003.4(a)(11), a mortgage company means a 
nondepository institution that purchases mortgage loans and typically 
originates such loans. Additional guidance on this topic had been 
published in the FFIEC FAQs.\295\ The Bureau believes this 
clarification, adapted from the FFIEC FAQs, will facilitate compliance 
with the type of purchaser reporting requirement.
---------------------------------------------------------------------------

    \295\ See https://www.ffiec.gov/hmda/faqreg.htm#mrtgbanks.
---------------------------------------------------------------------------

    The Bureau is adopting Sec.  1003.4(a)(11) as proposed. The Bureau 
is also adopting comments 4(a)(11)-1 through -8, with several technical 
and clarifying modifications, and new comments 4(a)(11)-9 and -10 to 
help facilitate HMDA compliance by providing additional guidance 
regarding the type of purchaser reporting requirement.
4(a)(12)
    HMDA section 304(b)(5)(B) requires financial institutions to report 
mortgage loan information, grouped according to measurements of ``the 
difference between the annual percentage rate associated with the loan 
and a benchmark rate or rates for all loans.'' \296\ Currently, 
Regulation C requires financial institutions to report the difference 
between a loan's annual

[[Page 66198]]

percentage rate (APR) and the average prime offer rate (APOR) for a 
comparable transaction, as of the date the interest rate is set, if the 
difference equals or exceeds 1.5 percentage points for first-lien 
loans, or 3.5 percentage points for subordinate-lien loans. The Bureau 
proposed to implement HMDA section 304(b)(5)(B) in Sec.  1003.4(a)(12), 
by requiring financial institutions to report, for covered loans 
subject to Regulation Z, 12 CFR part 1026, other than purchased loans 
and reverse mortgage transactions, the difference between the covered 
loan's annual percentage rate and the average prime offer rate for a 
comparable transaction as of the date the interest rate is set. For the 
reasons discussed below, the Bureau is adopting Sec.  1003.4(a)(12) 
generally as proposed, but with a modification to exclude assumptions.
---------------------------------------------------------------------------

    \296\ Section 1094(3)(A)(iv) of the Dodd-Frank Act amended HMDA 
by adding section 304(b)(5)(B), which expanded the rate spread 
reporting requirement beyond higher-priced mortgage loans.
---------------------------------------------------------------------------

    The Bureau solicited comment on the general utility of the revised 
rate spread data and on the costs associated with collecting and 
reporting. Several industry commenters and a few trade associations 
opposed the Bureau's proposal requiring rate spread information. One 
commenter stated that certain financial institutions should be exempted 
from the rate spread reporting requirement on covered loans and 
applications. Industry commenters were generally concerned about the 
burden associated with reporting rate spread data for more transactions 
than what is currently collected and reported. In particular, 
commenters pointed to the expense or additional work required to 
calculate the rate spread, such as the need to update software. One 
industry commenter stated that current systems determine rate spread 
and provide a numerical difference if the difference exceeds a 
predetermined trigger. The Bureau's proposal that the rate spread 
should be reported for all loans and not just the ones whose rate 
spread exceeds a certain threshold will require systems updates or a 
manual updates, according to the commenter. One commenter stated that 
rate spread information would not provide any meaningful data regarding 
access to credit on fair terms and another commenter stated that the 
additional regulatory burden would not be beneficial to consumers or 
for the purposes of antidiscriminatory monitoring.
    As noted in the proposal, Congress found that improved pricing 
information would bring greater transparency to the market and 
facilitate enforcement of fair lending laws.\297\ Feedback from the 
Board's 2010 Hearings suggested that requiring rate spread information 
for all loans, not just certain loans considered higher-priced, would 
provide a more complete understanding of the mortgage market and also 
improve loan analyses across various markets and communities.\298\ 
Furthermore, the proposal noted that recent enforcement actions pursued 
by the U.S. Department of Justice indicated that price discrimination 
can occur even at levels that fall below the current higher-priced 
thresholds. Based on the findings of Congress, feedback from the 
Board's 2010 Hearings, and enforcement actions, the Bureau concluded 
that requiring the rate spread for most loans or applications by all 
financial institutions will enhance the HMDA data by providing the 
information that could improve loan analyses and therefore enable a 
better understanding of the mortgage market. The Bureau believes that 
such benefits will justify any additional burden imposed by the final 
rule.
---------------------------------------------------------------------------

    \297\ H.R. Rep. No. 111-702, at 191 (2011).
    \298\ See Atlanta Hearing, supra note 40; Chicago Hearing, supra 
note 46; see also Neil Bhutta & Glenn B. Canner, Bd. of Governors of 
the Fed. Reserve Sys., 99 Fed. Reserve Bulletin 4, Mortgage Market 
Conditions and Borrower Outcomes: Evidence from the 2012 HMDA Data 
and Matched HMDA-Credit Record Data, at 31-32 (Nov. 2013) (noting 
that gaps in the rate spread data limit its current usefulness for 
assessing fair lending compliance).
---------------------------------------------------------------------------

    Several industry commenters asked for clarification on whether the 
rate spread field will be required to be completed on loans subject to 
Regulation Z but exempted from the higher-priced loan category in 
Regulation Z Sec.  1026.35, such as a home-equity lines of credit. The 
Bureau believes that the rate spread data on most transactions, 
including open-end lines of credit, would be beneficial by providing 
data to contribute to a more complete understanding of the mortgage 
market.
    One industry commenter questioned whether reporting a covered 
loan's or application's APR would be a better alternative than 
reporting rate spread data. This commenter pointed out that reporting 
APR is much less burdensome than calculating the rate spread and 
therefore less prone to errors, such as the use of the wrong date on 
which to compare APR to the APOR. In addition to the risk of errors, 
the commenter stated that requiring the financial institution to report 
the rate spread information will increase the cost of preparing the 
report. A trade association questioned why it would not be sufficient 
for the APR to be reported, which would then allow the data user to 
select a benchmark of their choice for comparison. Although reporting 
the APR on the covered loan or application would reduce the burden on 
financial institutions reporting the rate spread data, based on the 
language in the Dodd-Frank Act, the Bureau believes a reasonable 
interpretation of HMDA section 304(b)(5)(B) is that financial 
institutions should report the difference between the APR and APOR. In 
addition, the rate spread provides a more accurate picture of a loan's 
price relative to the rate environment at the time of the lender's 
pricing decision because the date the loan's interest rate was set is 
not publicly available.
    A few commenters warned that rate spread data could be misleading 
if viewed out of context. For example, a trade association commented 
that some loans may have higher rate spreads but offer special 
features, such as lower down payment requirements or waiver of an 
institution's private mortgage insurance requirement. Another commenter 
suggested that users need to be aware of the issues regarding rate 
spread data and pointed out that lender credits do not impact the APR 
and therefore the rate spread will look higher in comparison to similar 
loans without lender credits. Although there may be issues regarding 
rate spread data, the Bureau believes that it would be less burdensome 
on financial institutions to calculate the difference between APR, 
which is already a calculation performed by the financial institutions 
for TILA-RESPA purposes, and APOR. The Bureau does not believe that the 
additional burden of requiring financial institutions to take into 
account other factors, such as lender credits, when calculating the APR 
for the purposes of the rate spread would outweigh any benefit provided 
by this adjusted method of calculation. In addition, the Bureau 
believes that a reasonable interpretation of HMDA section 304(b)(5)(B) 
is that financial institutions should report the difference between the 
APR on the loan and the APOR for a comparable transaction.
    The Bureau also solicited comment on the scope of the rate spread 
reporting requirement, including whether the requirement should be 
expanded to cover purchased loans. One trade association agreed with 
the Bureau's proposal that reverse mortgages should be exempted from 
rate spread reporting. A few trade associations agreed with the Bureau 
and commented that the rate spread reporting requirement should not be 
expanded to include purchased loans. One trade association reasoned 
this this would require a manual retroactive process to determine the 
APOR for the financial institution reporting the purchased loan. The 
Bureau recognizes the burden that

[[Page 66199]]

would be imposed on the financial institution reporting the purchased 
loan to also report the rate spread and therefore is excluding 
purchased covered loans from the rate spread reporting requirement as 
proposed.
    One industry commenter asked the Bureau to clarify whether rate 
spread should be reported on commercial loans that do not have an APR. 
The Bureau did not propose to, and the final rule does not, require a 
financial institution to report the rate spread for commercial loans 
because these loans are not covered by Regulation Z, and therefore 
creditors are not required to calculate and disclose an APR to 
borrowers.
    Many commenters noted that the Bureau's proposal contained 
inconsistent rounding methodologies across various data points, 
including the rate spread, and recommended that the Bureau provide a 
consistent rounding method. The technical instructions in current 
appendix A provides that the rate spread should be reported to two 
decimal places. If the rate spread figure is more than two decimal 
places, the figure should be rounded or truncated to two decimal 
places. The Bureau proposed that the rate spread should be rounded to 
three decimal places. One commenter questioned the Bureau's proposal to 
report the rate spread to three decimal places and stated that APR is 
typically disclosed to two decimal places. The Bureau acknowledges that 
the proposed instruction may pose some challenges for financial 
institutions. After considering the feedback, the Bureau has determined 
that the proposed instruction may be unduly burdensome on financial 
institutions. Consequently, the Bureau is not adopting the proposed 
instruction in the final rule.
    The Bureau proposed comment 4(a)(12)-4.iii to provide guidance on 
the rounding method for calculating the rate spread for a covered loan 
with a term to maturity that is not in whole years. The proposed 
comment specifically provided that when the actual loan term is exactly 
halfway between two whole years, the shorter loan term should be used. 
This proposed comment was based on guidance published in an FFIEC 
FAQ.\299\ One commenter pointed out that this rounding method does not 
follow the typical method of rounding up when a number is exactly 
halfway in between two others. This commenter suggested that 
unnecessary errors can occur as a result of this rounding method. The 
Bureau considered this feedback and believes that the benefit of 
adopting a rounding method inconsistent with the guidance published in 
the FFIEC FAQ for this specific calculation does not outweigh the 
burden because it would require a change in a financial institution's 
systems or processes for calculating the rate spread for the specific 
scenario that the proposed comment addresses. For example, financial 
institutions may have already instituted processes for rounding down 
when a loan term is exactly halfway between two years based on current 
FFIEC guidance. Accordingly, the Bureau is adopting comment 4(a)(12)-
4.iii as proposed.
---------------------------------------------------------------------------

    \299\ See https://www.ffiec.gov/hmda/faqreg.htm#rate.
---------------------------------------------------------------------------

    The Bureau proposed comment 4(a)(12)-5.i to illustrate the relevant 
date to use to determine the APOR if the interest rate in the 
transaction is set pursuant to a ``lock-in'' agreement between the 
financial institution and the borrower. The proposed comment also 
explained that the relevant date to use if no lock-in agreement is 
executed. Several industry commenters asked the Bureau to clarify the 
rate spread lock-in date where the transaction did not include an 
option to lock the loan's rate. The guidance provided in comment 
4(a)(12)-5.i clarifies that, in a transaction where no lock-in 
agreement is executed, the relevant date to use to determine the 
applicable APOR is the date on which the financial institution sets the 
rate for the final time before closing.
    Except for technical amendments to comments 4(a)(12)-3, -4.i and 
.ii, and -5.iii, the Bureau is adopting the commentary to Sec.  
1003.4(a)(12) substantially as proposed. In addition, the Bureau is 
adopting two comments that incorporate material contained in proposed 
appendix A into the commentary to Sec.  1003.4(a)(12). Comments 
4(a)(12)-7 and -8 primarily incorporate proposed appendix A 
instructions and do not contain any substantive changes.
    The Bureau is making a technical change and incorporating the 
exclusion of assumptions from rate spread reporting in Sec.  
1003.4(a)(12), which was included in proposed appendix A and was based 
on FFIEC guidance. The Bureau believes that the utility that the rate 
spread would provide on assumptions does not justify the burden in 
collecting the information. Therefore, the Bureau is adopting Sec.  
1003.4(a)(12) generally to require financial institutions to report the 
difference between a loan's APR and APOR for a comparable transaction 
as of the date the interest rate is set, except for purchased loans, 
reverse mortgages, and loans that are not subject to Regulation Z, 12 
CFR part 1026, with a modification that excludes assumptions from the 
scope of the rate spread reporting requirement. The Bureau believes 
that rate spread information on loans that are both below and above the 
threshold for higher-priced mortgage loans will reveal greater detail 
about the extent of the availability of prime lending in all 
communities. Pursuant to HMDA section 305(a), the Bureau is excluding 
purchased loans, reverse mortgages, assumptions, and loans that are not 
subject to Regulation Z, 12 CFR part 1026 from rate spread reporting to 
facilitate compliance and because information about the rate spread for 
such transactions could be potentially misleading.
4(a)(13)
    Regulation C Sec.  1003.4(a)(13) currently requires financial 
institutions to report whether a loan is subject to HOEPA, as 
implemented by Regulation Z Sec.  1026.32. Prior to the proposal, the 
Bureau received feedback suggesting that information regarding the 
reason for a loan's HOEPA status might improve the usefulness of the 
HMDA data. Pursuant to HMDA sections 305(a) and 304(b)(5)(D), the 
Bureau proposed to require financial institutions to report for covered 
loans subject to HOEPA, whether the covered loan is a high-cost 
mortgage under Regulation Z Sec.  1026.32(a), and the reason that the 
covered loan qualifies as a high-cost mortgage, if applicable. For the 
reasons discussed below, the Bureau is adopting Sec.  1003.4(a)(13) 
with modifications to remove the requirement to report information 
concerning the reasons for a loan's HOEPA status.
    The Bureau solicited feedback on the general utility of the 
modified data and on the costs associated with reporting the data. A 
few commenters stated that the expanded HOEPA flag would create an 
unnecessary burden. Several industry commenters suggested removing the 
HOEPA status field from HMDA reporting. They argued that the Bureau's 
2013 ATR Final Rule eliminated the origination of HOEPA loans. One 
financial institution stated that the proposed HOEPA flag is either not 
applicable to it or would offer little benefit. Another commenter 
stated that the HOEPA status field is unnecessary because a user should 
be able to determine using the rate spread whether the loan's APR meets 
the HOEPA trigger. Another industry commenter stated that the proposal 
would require financial institutions to report points and fees, final 
rate, and origination charges as well as the rate spread. Data users 
could use these data points to determine whether a loan is higher-cost.

[[Page 66200]]

    A few commenters supported the HOEPA flag but suggested that the 
Bureau should not collect the additional information regarding the 
reason(s) for whether the loan is subject to HOEPA. They pointed to the 
burden associated with reporting the information and the Bureau's 
proposal to collect other information about loan pricing, such as 
points and fees.
    An expanded HOEPA reporting requirement would have the potential to 
provide greater insight into which specific triggers are most prevalent 
among high-cost mortgages. However, the Bureau acknowledges the 
compliance burden associated with reporting information concerning the 
reasons for a loan's HOEPA status. As commenters pointed out, pricing 
information is available in other data fields, such as the rate spread, 
total points and fees, and interest rate. The benefits that would be 
provided by an expanded HOEPA reporting requirement does not justify 
the burden associated with reporting the information, particularly 
because other HMDA data fields capture pricing information that could 
be used to determine the reason for a loan's HOEPA status. In response 
to concerns raised by commenters regarding burden, the Bureau will only 
require financial institutions to report whether a loan is subject to 
HOEPA, as implemented by Regulation Z Sec.  1026.32. The Bureau 
believes that requiring financial institutions to report whether a loan 
is subject to HOEPA is necessary to carry out the purposes of HMDA 
because an indication of a loan's HOEPA status will help determine 
whether financial institutions are serving the housing needs of their 
communities. Accordingly, pursuant to HMDA sections 305(a) and 
304(b)(5)(D), the Bureau is adopting Sec.  1003.4(a)(13) with 
modifications to remove the requirement to report information 
concerning the reasons for a loan's HOEPA status.
    In addition, the Bureau is adopting new comment 4(a)(13)-1 to 
clarify when a financial institution reports that the HOEPA status 
reporting requirement is not applicable. Comment 4(a)(13)-1 explains 
that a financial institution reports that the requirement to report the 
HOEPA status is not applicable if the covered loan is not subject to 
the Home Ownership and Equity Protection Act of 1994, as implemented in 
Regulation Z, 12 CFR 1026.32. Comment 4(a)(13)-1 also explains that, if 
an application did not result in an origination, a financial 
institution complies with Sec.  1003.4(a)(13) by reporting that the 
requirement is not applicable.
4(a)(14)
    Current Sec.  1003.4(a)(14) requires financial institutions to 
report the lien status of the loan or application (first lien, 
subordinate lien, or not secured by a lien on a dwelling). The 
technical instructions in current appendix A provide that, for loans 
that a financial institution originates and for applications that do 
not result in an origination, a financial institution shall report the 
lien status as one of the following: Secured by a first lien, secured 
by a subordinate lien, not secured by a lien, or not applicable 
(purchased loan). The Bureau proposed to modify Sec.  1003.4(a)(14) to 
require reporting of the priority of the lien against the subject 
property that secures or would secure the loan in order to conform to 
the MISMO industry data standard, which provides the following 
enumerations: First lien, second lien, third lien, fourth lien, or 
other. The proposal also removed the current exclusion of reporting 
lien status on purchased loans.
    The Bureau proposed technical modifications to the instruction in 
appendix A regarding how to enter lien status on the loan/application 
register. In addition, in order to provide clarity on proposed Sec.  
1003.4(a)(14), the Bureau proposed technical modifications to comment 
4(a)(14)-1 and proposed new comment 4(a)(14)-2.
    The Bureau solicited feedback regarding whether the Bureau should 
maintain the current reporting requirement (secured by a first lien or 
subordinate lien) modified to conform to the proposed removal of 
unsecured home improvement loans, or whether financial institutions 
prefer to report the actual priority of the lien against the property 
(secured by a first lien, second lien, third lien, fourth lien, or 
other). In response, a consumer advocate commenter supported the 
proposal to require reporting of the priority of the lien against the 
subject property and a few industry commenters stated that alignment 
with the MISMO industry data standard would help ensure consistency.
    However, most of the commenters that responded to this solicitation 
of feedback opposed the proposal to require reporting of the priority 
of the lien against the subject property and recommended that the 
Bureau continue to require reporting the lien status of the loan or 
application as either first lien or subordinate lien. In general, 
industry commenters stated that very few loans are secured by liens 
beyond a second lien and that as a result, the additional burden of 
reporting the actual lien priority would outweigh the potential utility 
of the data. For example, an industry commenter argued that a lien 
status beyond a second lien is rare and that reporting the actual lien 
status will not add much value to the HMDA data. A State trade 
association suggested that requiring financial institutions to specify 
the exact lien priority of the mortgage would result in little useful 
data and yet the burden would be excessive and unnecessary.
    In addition, with respect to potential privacy implications, a few 
commenters were concerned that if information regarding lien priority 
is made available to the public, such information could be coupled with 
other publicly available information on property sales and ownership 
records to compromise a borrower's privacy. The Bureau has considered 
this feedback. See part II.B above for a discussion of the Bureau's 
approach to protecting applicant and borrower privacy with respect to 
the public disclosure of HMDA data.
    While HMDA compliance and data submission can be made easier by 
aligning the requirements of Regulation C, to the extent practicable, 
to existing industry standards for collecting and transmitting mortgage 
data, the Bureau has determined that requiring reporting of the lien 
status of the loan or application as either first lien or subordinate 
lien is the appropriate approach. Based on the comments the Bureau 
received, it appears that the burdens associated with reporting the 
various enumerations (first lien, second lien, third lien, fourth lien, 
and other) may not outweigh the benefits discussed in the Bureau's 
proposal--namely, enhanced data collected under Regulation C and 
facilitating compliance by better aligning the data collected with 
industry practice. Accordingly, the Bureau does not adopt Sec.  
1003.4(a)(14) as proposed but instead maintains the current reporting 
requirement (secured by a first lien or subordinate lien) modified to 
conform to the removal of non-dwelling-secured home improvement loans, 
and adopts corresponding modifications to the proposed commentary.
    The Bureau also solicited feedback on the general utility of lien 
status data on purchased loans and on the unique costs and burdens 
associated with collecting and reporting the data that financial 
institutions may face as a result of the proposal. A few industry 
commenters did not support the Bureau's proposal to remove the current 
exclusion of reporting lien status on purchased loans. For example, one

[[Page 66201]]

industry commenter suggested that such data is not an indicator of 
discriminatory lending and also that such information is better 
examined on a loan-by-loan basis by bank examiners. Another industry 
commenter did not support the proposed reporting requirement because it 
would be a regulatory burden with no particular benefit.
    While requiring financial institutions to report the lien status of 
purchased loans would add some burden on financial institutions, the 
Bureau has determined that such data will further enhance the utility 
of HMDA data overall. Given that loan terms, including loan pricing, 
vary based on lien status, and in light of the Bureau's determination 
to require reporting of certain pricing data for purchased loans, such 
as the interest rate, lender credits, total origination charges, and 
total discount points, the Bureau has determined that requiring 
financial institutions to report the lien status of purchased loans 
will improve the HMDA data's usefulness overall. In addition, as 
described in the Bureau's proposal, the liquidity provided by the 
secondary market is a critical component of the modern mortgage market, 
and information about the types of loans being purchased in a 
particular area, and the pricing terms associated with those purchased 
loans, is needed to understand whether the housing needs of communities 
are being fulfilled. Furthermore, local and State housing finance 
agency programs facilitate the mortgage market for low- to moderate-
income borrowers, often by offering programs to purchase or insure 
loans originated by a private institution. Since the HMDA data reported 
by financial institutions does not include the lien status of purchased 
loans, it is difficult to determine the pricing characteristics of the 
private secondary market. Lien status information on purchased loans 
may help public entities, such as local and State housing finance 
agencies, understand how to complement the liquidity provided by the 
secondary market in certain communities, thereby maximizing the 
effectiveness of such public programs. Requiring that such data be 
reported may assist public officials in their determination of the 
distribution of public sector investments in a manner designed to 
improve the private investment environment. Additionally, providing 
lien status information to purchasers is standard industry practice.
    For these reasons, the Bureau has determined that data on the lien 
status of purchased loans will further the purposes of HMDA in 
determining whether financial institutions are serving the housing 
needs of their communities; in distributing public-sector investments 
so as to attract private investment to areas or communities where it is 
needed; and in identifying possible discriminatory lending patterns. 
Pursuant to the Bureau's authority under sections 305(a) and 
304(b)(6)(J) of HMDA, the Bureau is adopting the modification to Sec.  
1003.4(a)(14) to require reporting of lien status information--whether 
the covered loan is a first or subordinate lien--for purchased loans.
    Lastly, in order to facilitate HMDA compliance, the Bureau is 
modifying comment 4(a)(14)-1.i to clarify that financial institutions 
are required to report lien status for covered loans they originate and 
purchase and applications that do not result in originations, which 
include preapproval requests that are approved but not accepted, 
preapproval requests that are denied, applications that are approved 
but not accepted, denied, withdrawn, or closed for incompleteness. The 
Bureau is also adopting proposed comment 4(a)(14)-2, which directs 
financial institutions to comment 4(a)(9)-2 regarding transactions 
involving multiple properties with more than one property taken as 
security.
4(a)(15)
    Neither HMDA nor Regulation C historically has required reporting 
of information relating to an applicant's or borrower's credit score. 
Section 1094(3)(A)(iv) of the Dodd-Frank Act amended section 304(b) of 
HMDA to require financial institutions to report ``the credit score of 
mortgage applicants and mortgagors, in such form as the Bureau may 
prescribe.'' \300\ The Bureau proposed Sec.  1003.4(a)(15) to implement 
this requirement.\301\ Except for purchased covered loans, proposed 
Sec.  1003.4(a)(15)(i) requires financial institutions to report the 
credit score or scores relied on in making the credit decision and the 
name and version of the scoring model used to generate each credit 
score. In addition, the Dodd-Frank Act amendments to HMDA do not 
provide a definition of ``credit score.'' Therefore, the Bureau 
proposed in Sec.  1003.4(a)(15)(ii) to interpret ``credit score'' to 
have the same meaning as in section 609(f)(2)(A) of the Fair Credit 
Reporting Act (FCRA), 15 U.S.C. 1681g(f)(2)(A).
---------------------------------------------------------------------------

    \300\ 12 U.S.C. 2803(b)(6)(I).
    \301\ The Dodd-Frank amendments to HMDA added new provisions 
directing the Bureau to develop regulations that ``modify or require 
modification of itemized information, for the purpose of protecting 
the privacy interests of the mortgage applicants or mortgagors, that 
is or will be available to the public,'' and identified credit score 
as a new data point that may raise privacy concerns. HMDA sections 
304(h)(1)(E) and (h)(3)(A)(i). See part II.B above for discussion of 
the Bureau's approach to protecting applicant and borrower privacy 
in light of the goals of HMDA.
---------------------------------------------------------------------------

    The Bureau also proposed instruction 4(a)(15)-1, which directed 
financial institutions to enter the credit scores relied on in making 
the credit decision and proposed instruction 4(a)(15)-2, which provided 
the codes that financial institutions would use for each credit score 
reported to indicate the name and version of the scoring model used to 
generate the credit score relied on in making the credit decision.
    In addition, the Bureau proposed four comments to provide 
clarification on the reporting requirement under proposed Sec.  
1003.4(a)(15). The Bureau proposed comment 4(a)(15)-1, which explained 
that a financial institution relies on a credit score in making the 
credit decision if the credit score was a factor in the credit decision 
even if it was not a dispositive factor, and provided an illustrative 
example. Proposed comment 4(a)(15)-2 addressed circumstances where a 
financial institution obtains or creates multiple credit scores for a 
single applicant or borrower, as well as circumstances in which a 
financial institution relies on multiple scores for the applicant or 
borrower in making the credit decision, and provided illustrative 
examples. Proposed comment 4(a)(15)-3 addressed situations involving 
credit scores for multiple applicants or borrowers and provided 
illustrative examples. Finally, proposed comment 4(a)(15)-4 clarified 
that a financial institution complies with proposed Sec.  1003.4(a)(15) 
by reporting ``not applicable'' when a credit decision is not made, for 
example, if a file was closed for incompleteness or the application was 
withdrawn before a credit decision was made. Proposed comment 4(a)(15)-
4 also clarified that a financial institution complies with proposed 
Sec.  1003.4(a)(15) by reporting ``not applicable'' if it makes a 
credit decision without relying on a credit score for the applicant or 
borrower.
    In order to facilitate HMDA compliance and address concerns that it 
could be burdensome to identify credit score information for purchased 
covered loans, the Bureau excluded purchased covered loans from the 
requirements of proposed Sec.  1003.4(a)(15)(i). The Bureau solicited 
feedback on whether this exclusion was appropriate and received a few 
comments. A national trade association supported the Bureau's proposal 
to exclude purchased covered

[[Page 66202]]

loans from the proposed reporting requirement under Sec.  
1003.4(a)(15)(i) without providing further explanation. One consumer 
advocate commenter did not oppose the proposal so long as the ULI is 
included in the final rule, because it can be used to link origination 
data to purchased loans. Similarly, another consumer advocate commenter 
recommended that until the ULI is successfully implemented, purchased 
loans should not be excluded from the credit score data reporting 
requirement. Finally, two other consumer advocate commenters argued 
that credit score should be reported for purchased loans. One of these 
commenters stated that the Bureau's proposed exclusion of purchased 
loans from Sec.  1003.4(a)(15)(i) will have the negative effect of not 
requiring financial institutions to report credit score information 
even when the applicant or borrower's credit score is in its possession 
or the institution could easily obtain it. The commenter suggested that 
any exception for purchased loans under proposed Sec.  1003.4(a)(15)(i) 
should be limited only to instances where the financial institution 
does not have and cannot reasonably obtain the credit score. The other 
commenter recommended that purchasers of covered loans should use the 
ULI to look up credit score information from the HMDA data associated 
with the loan's origination, or should request the information from the 
originator if the loan was not made by a financial institution required 
to report under HMDA.
    The Bureau has considered this feedback and has determined that it 
would be unduly burdensome for financial institutions that purchase 
loans to identify the credit score or scores relied on in making the 
underlying credit decision and the name and version of the scoring 
model used to generate each credit score. Consequently, the Bureau is 
adopting the exclusion of purchased covered loans proposed under Sec.  
1003.4(a)(15)(i). The Bureau is also adopting new comment 4(a)(15)&6 
which explains that a financial institution complies with Sec.  
1003.4(a)(15) by reporting that the requirement is not applicable when 
the covered loan is a purchased covered loan.
    The Bureau solicited feedback on whether the Bureau should require 
any other related information to assist in interpreting credit score 
data, such as the date on which the credit score was created. In 
response, a few consumer advocate commenters specifically recommended 
that the Bureau require disclosure of the date on which the credit 
score was created. One commenter pointed out that this additional 
information will provide for richer data for purposes of statistical 
analysis. Other commenters stated that credit scores are essentially 
analyses of risk at a given point in time and thus the meaning of the 
score is relative to the date on which it was created, and that the 
date on which the credit score was created would allow the Bureau to 
ensure that financial institutions are treating borrowers equally when 
using credit score information.
    In contrast, a few industry commenters did not support requiring 
the date on which the credit score was created arguing that such 
additional data is not necessary. For example, one industry commenter 
stated that while credit scores can change, they usually do not 
significantly change in a short period of time. A national trade 
association stated that additional data related to credit score, such 
as the date, should not be required because it is superfluous 
information and would be burdensome to report for financial 
institutions.
    The Bureau has considered the feedback received and has determined 
that requiring financial institutions to report the date on which the 
credit score was created would not add sufficient value to the credit 
score information that will be required to be reported to warrant the 
additional burden placed on financial institutions. Accordingly, a 
financial institution will not be required to report the date on which 
the credit score was created under Sec.  1003.4(a)(15).
    In response to the Bureau's solicitation for feedback on whether it 
should require any other related information to assist in interpreting 
credit score data, a few consumer advocate commenters recommended that 
the Bureau also require financial institutions to report the name of 
the credit reporting agency that provided the underlying data to create 
the credit score (i.e., Equifax, Experian, or TransUnion). One 
commenter stated that in some cases, the proposed required disclosure 
of the ``name and version'' of the credit scoring model by a financial 
institution will indicate which credit reporting agency's data was 
used. For example, the disclosure will reveal not only that a ``FICO'' 
score was used, but that a ``Beacon'' score (the FICO 04 score based on 
Equifax data) was used. However, in other cases, such as VantageScore, 
the commenter stated that the name or the version of the credit scoring 
model will not indicate which credit reporting agency's data was used. 
In order to address the latter scenario, the commenter recommended that 
the Bureau require financial institutions to report the credit 
reporting agency whose data was used to generate the credit score that 
is reported.
    The Bureau has considered this feedback and has determined that it 
will not require financial institutions to report the name of the 
credit reporting agency that provided the underlying credit score data 
that institutions report under Sec.  1003.4(a)(15). Requiring that this 
additional information be reported would add burden on financial 
institutions, which the Bureau has determined is not justified by the 
value of the data.
    In response to the Bureau's general solicitation for feedback, 
several industry commenters recommended that the Bureau require 
financial institutions to report credit score as a ``range of values'' 
rather than an applicant's or borrower's actual credit score. The 
commenters suggested that reporting credit score as a range of values 
will eliminate a substantial number of potential errors on financial 
institutions' loan/application registers, would better protect the 
privacy of applicants, and would not compromise the integrity of the 
HMDA data. In contrast, one consumer advocate commenter argued that an 
applicant's or borrower's precise credit score is important because 
financial institutions may use different cutoff points in their 
underwriting processes which may not align with the provided ranges. 
The Bureau has considered this feedback and determined that requiring 
financial institutions to report credit score as a range of values 
would diminish the utility of the data to further HMDA's purposes. The 
Bureau has determined that requiring financial institutions to report 
the applicant's or borrower's actual credit score or scores relied on 
in making the credit decision is the appropriate approach and will 
assist in identifying whether financial institutions are serving the 
housing needs of their communities, identifying possible discriminatory 
lending patterns, and enforcing antidiscrimination statutes.
    The Bureau solicited feedback on whether the proposed codes that 
financial institutions would use for each credit score reported to 
indicate the name and version of the scoring model used to generate the 
credit score relied on in making the credit decision are appropriate 
for reporting credit score data, including using a free-form text field 
to indicate the name and version of the scoring model when the code for 
``Other credit scoring model'' is reported by financial institutions. 
The Bureau also invited comment on any alternative

[[Page 66203]]

approaches that might be used for reporting this information.
    In response, a few commenters did not support the Bureau's proposed 
instruction 4(a)(15)-2.b, which instructs financial institutions to 
provide the name and version of the scoring model used in a free-form 
text field if the credit scoring model is one that is not listed. One 
commenter recommended that the Bureau not require a free-form text 
field for credit score because the data would be impossible to 
aggregate and would cause significant confusion. As an alternative, the 
commenter recommended that the Bureau maintain its proposal that 
financial institutions report the code for ``Other credit scoring 
model'' when appropriate but not require institutions to indicate the 
name and version of the scoring model in a free-form text field. 
Another industry commenter stated that free-form text fields are 
illogical because they lack the ability of being sorted and reported 
accurately. This commenter also opined that the additional staff and/or 
programming that will be needed on a government level to analyze these 
free text fields is costly and not justified when looking at the 
minimal impact these fields have on the overall data collection under 
HMDA.
    The Bureau has considered the concerns expressed by industry 
commenters with respect to the proposed requirement that a financial 
institution enter the name and version of the scoring model in a free-
form text field when ``Other credit scoring model'' is reported but has 
determined that the utility of this data justifies the potential burden 
that may be imposed by the reporting requirement. As to the commenters' 
concern that credit scoring model data reported in the free-form text 
field would be impossible to aggregate due to the variety of potential 
names and versions of scoring model reported, the Bureau has determined 
that the data reported in the free-form text field will be useful even 
if the data cannot be aggregated.
    Lastly, with respect to the commenters' recommendation that 
requiring a financial institution to report the corresponding code for 
``Other credit scoring model'' is sufficient and that the Bureau should 
not also require an institution to enter the name and version of the 
scoring model in a free-form text field in these circumstances, the 
Bureau has determined that such an approach would hinder the utility of 
the credit score data for purposes of HMDA. When a financial 
institution reports ``Other credit scoring model'' in the loan/
application register without further explanation as to what the other 
credit scoring model is, it would be difficult to perform accurate 
analyses of such data since different models are associated with 
different scoring ranges and some models may even have different ranges 
depending on the version used. Moreover, the free-form text field will 
provide key information on credit scoring models that are used by 
financial institutions to underwrite a loan but are not currently 
listed. For example, the data reported in the free-form text field for 
``Other credit scoring model'' can be used to monitor those credit 
scoring models or to add commonly used, but previously unlisted, credit 
scoring models to the list. As such, the Bureau has determined that the 
HMDA data's usefulness will be improved by requiring financial 
institutions to report in a free-form text field the name and version 
of the scoring model when the institution reports ``Other credit 
scoring model'' on its loan/application register.
    The Bureau invited comment on whether it was appropriate to request 
the name and version of the scoring model under proposed Sec.  
1003.4(a)(15)(i). For a variety of reasons, several industry commenters 
did not support the Bureau's proposal to include the name and version 
of the credit scoring model used to generate the credit score relied on 
in making the credit decision. In general, the commenters stated that 
while they support requiring financial institutions to report the 
credit score relied on in making the credit decision, reporting the 
name and version of the credit scoring model used to generate that 
score would impose significant regulatory and operational burden on 
industry. Commenters also stated that the Bureau had failed to provide 
compelling reasons for how the collection and reporting of this 
additional credit score data ensures fair access to credit in the 
residential mortgage market. In addition, commenters did not support 
the Bureau's proposal requiring financial institutions to report the 
credit scoring model used to generate the credit score on the grounds 
that the Dodd-Frank Act mandated that an applicant's or borrower's 
credit score be reported, but not additional data on the credit scoring 
model.
    In contrast, the vast majority of commenters supported the Bureau's 
proposal to require financial institutions to report not only the 
credit score or scores relied on in making the credit decision, but 
also the name and version of the scoring model used to generate each 
credit score. Several consumer advocate commenters pointed out that the 
name and version of the scoring model used to generate the credit score 
relied on in making the credit decision is needed to accurately 
interpret the credit score field. These commenters stated that 
requiring financial institutions to report this information is vital 
because each credit scoring model may generate different credit scores 
which may confound simple comparisons. Some industry commenters also 
supported the Bureau's proposal. One industry commenter stated that for 
purposes of fair lending analysis, credit score information is vital to 
understanding a financial institution's credit and pricing decision and 
that without such information, inaccurate conclusions may be reached by 
users of HMDA data.
    The Bureau has considered this feedback and determined that its 
proposal to require financial institutions to report the credit score 
or scores relied on in making the credit decision is the appropriate 
approach and is a reasonable interpretation of HMDA section 
304(b)(6)(I). The Bureau has also determined that its interpretation of 
HMDA section 304(b)(6)(I) to require the name and version of the 
scoring model is reasonable because, as discussed above, this 
information is necessary to understand any credit scores that will be 
reported, as different models are associated with different scoring 
ranges and some models may even have different ranges depending on the 
version used.\302\ In addition, the Bureau's implementation is 
authorized by HMDA sections 305(a) and 304(b)(6)(J), and is necessary 
and proper to effectuate the purposes of HMDA, because, among other 
reasons, the name and version of the credit scoring model facilitates 
accurate analyses of whether financial institutions are serving the 
housing needs of their communities by providing adequate home financing 
to qualified applicants. Accordingly, the Bureau is adopting Sec.  
1003.4(a)(15)(i) as proposed.
---------------------------------------------------------------------------

    \302\ For example, the range for VantageScore 3.0 scores is 300 
to 850, but earlier VantageScore models have a range of 501 to 990. 
See VantageScore, How the Scores Range, https://your.vantagescore.com/interpret_scores.
---------------------------------------------------------------------------

    As discussed above, the Bureau proposed Sec.  1003.4(a)(15)(ii), 
which provides that ``credit score'' has the meaning set forth in 15 
U.S.C. 1681g(f)(2)(A). The Bureau's proposal interpreted ``credit 
score'' to have the same meaning as in section 609(f)(2)(A) of the Fair 
Credit Reporting Act (FCRA), 15 U.S.C. 1681g(f)(2)(A). However, the 
Bureau solicited feedback on whether Regulation C should instead use a 
different definition of ``credit score.''

[[Page 66204]]

For example, the Bureau suggested that it could define ``credit score'' 
based on the Regulation B definitions of ``credit scoring system'' or 
``empirically derived, demonstrably and statistically sound, credit 
scoring system.'' \303\ Another alternative would be to interpret 
credit score to mean the probability of default, using a concept 
similar to the probability of default metric that the FDIC uses in 
determining assessment rates for large and highly complex insured 
depository institutions.\304\
---------------------------------------------------------------------------

    \303\ According to Regulation B, a credit scoring system is ``a 
system that evaluates an applicant's creditworthiness mechanically, 
based on key attributes of the applicant and aspects of the 
transaction, and that determines, alone or in conjunction with an 
evaluation of additional information about the applicant, whether an 
applicant is deemed creditworthy.'' Regulation B Sec.  1002.2(p)(1). 
The four-part definition of an ``empirically derived, demonstrably 
and statistically sound, credit scoring system'' in Regulation B 
Sec.  1002.2(p)(1) establishes the criteria that a credit system 
must meet in order to use age as a predictive factor. Regulation B 
comment 2(p)-1.
    \304\ FDIC Assessments, Large Bank Pricing, 77 FR 66000 (Oct. 
31, 2012).
---------------------------------------------------------------------------

    The commenters that provided feedback on the proposed definition of 
``credit score'' supported the Bureau's proposal to use the FCRA 
section 609(f)(2)(A) definition of credit score. For example, one 
consumer advocate commenter stated that it supports the Bureau's 
proposal to use the definition of ``credit score'' set forth in the 
FCRA because the definition is familiar to industry, regulators, and 
other stakeholders. Similarly, another consumer advocate commenter 
stated that it supports the definition because it would facilitate 
compliance. The Bureau has considered this feedback and determined that 
the FCRA section 609(f)(2)(A) definition of ``credit score'' is the 
most appropriate because it provides a general purpose definition that 
is familiar to financial institutions that are already subject to FCRA 
and Regulation V requirements. Consequently, the Bureau is adopting 
Sec.  1003.4(a)(15)(ii) generally as proposed, but with technical 
modifications for clarity.
    Lastly, many commenters expressed concern about potential privacy 
implications if the Bureau collects credit score data or if it were to 
release credit score data to the public. As with other proposed data 
points like property value, commenters were concerned that if 
information regarding credit score data is made available to the 
public, such information could be coupled with other publicly available 
information, such as property sales and ownership records, in a way 
that compromises a borrower's privacy. A State trade association 
commented that public disclosure of credit score data creates the 
ability for unscrupulous third parties to specifically identify 
borrowers and directly market to those borrowers. The commenter 
suggested that these third parties would have access to a sufficient 
amount of information disclosed through HMDA and coupled with other 
information, such as public recordation information, to give the 
appearance through their marketing that they have some connection to 
the original lender. Similarly, an industry commenter suggested that in 
addition to the potential for criminal misuse of a borrower's financial 
information, the availability of the expanded data released under HMDA 
will very likely permit marketers to access the information which will 
result in aggressive marketing that is ``personalized'' to 
unsophisticated and vulnerable consumers for potentially harmful 
financial products and services. Another State trade association stated 
that credit score data should not be released to the public because 
collecting and releasing credit score data could lead to fraudsters, 
neighbors, marketers, and others learning very private pieces of 
information about the applicant or borrower. Another State trade 
association recommended that the Bureau strengthen its data protection 
as it relates to the selective disclosure of HMDA data to third parties 
and specifically recommended that the Bureau convert actual values to 
ranges or normalize values before sharing the data with a third party. 
The Bureau has considered this feedback. See part II.B above for a 
discussion of the Bureau's approach to protecting applicant and 
borrower privacy with respect to the public disclosure of HMDA data.
    As discussed above, the Bureau is adopting Sec.  1003.4(a)(15)(i) 
as proposed and Sec.  1003.4(a)(15)(ii) generally as proposed, but with 
technical modifications for clarity. The Bureau is adopting comments 
4(a)(15)-1 and -2, as proposed. The Bureau is also adopting comment 
4(a)(15)-3 as proposed with a clarification that in a transaction 
involving two or more applicants or borrowers for which the financial 
institution obtains or creates a single credit score, and relies on 
that credit score in making the credit decision for the transaction, 
the institution complies with Sec.  1003.4(a)(15) by reporting that 
credit score for either the applicant or first co-applicant.
    With regard to a financial institution reporting that the 
requirement is not applicable, the Bureau is modifying comment 
4(a)(15)-4 by maintaining in that comment the guidance with respect to 
transactions for which no credit decision was made and moves the 
guidance with respect to transactions for which credit score was not 
relied on to new comment 4(a)(15)-5. The Bureau clarifies in comment 
4(a)(15)-4 that if a file was closed for incompleteness or the 
application was withdrawn before a credit decision was made, the 
financial institution complies with Sec.  1003.4(a)(15) by reporting 
that the requirement is not applicable, even if the financial 
institution had obtained or created a credit score for the applicant or 
co-applicant. As discussed above, the Bureau is also adopting new 
comment 4(a)(15)-6, which clarifies that a financial institution 
complies with Sec.  1003.4(a)(15) by reporting that the requirement is 
not applicable when the covered loan is a purchased covered loan. The 
Bureau is also adopting new comment 4(a)(15)-7, which clarifies that 
when the applicant and co-applicant, if applicable, are not natural 
persons, a financial institution complies with Sec.  1003.4(a)(15) by 
reporting that the requirement is not applicable.
4(a)(16)
    Section 1003.4(c)(1) currently permits optional reporting of the 
reasons for denial of a loan application. However, certain financial 
institutions supervised by the OCC and the FDIC are required by those 
agencies to report denial reasons on their HMDA loan/application 
registers.\305\ The Bureau proposed Sec.  1003.4(a)(16), which requires 
mandatory reporting of denial reasons by all financial institutions.
---------------------------------------------------------------------------

    \305\ 12 CFR 27.3(a)(1)(i), 128.6, 390.147.
---------------------------------------------------------------------------

    The Bureau proposed instruction 4(a)(16) in appendix A, which 
modified the current instruction and provided technical instructions 
regarding how to enter the denial reason data on the loan/application 
register. First, proposed instruction 4(a)(16)-1 provided that a 
financial institution must indicate the principal reason(s) for denial, 
indicating up to three reasons. Second, the Bureau explained in 
proposed instruction 4(a)(16)-2 that, when a financial institution 
denies an application for a principal reason not included on the list 
of denial reasons in appendix A, the institution should enter the 
corresponding code for ``Other'' and also enter the principal denial 
reason(s) in a free-form text field. Third, the Bureau added a code for 
``not applicable'' and explained in proposed instruction 4(a)(16)-3 
that this code should be used by a financial institution if the action 
taken on the application was not a denial pursuant to Sec.  
1003.4(a)(8), such as if the application

[[Page 66205]]

was withdrawn before a credit decision was made or the file was closed 
for incompleteness. Lastly, the Bureau also proposed to renumber 
current instruction I.F.2 of appendix A as proposed instruction 
4(a)(16)-4, which explains how a financial institution that uses the 
model form for adverse action contained in appendix C to Regulation B 
(Form C-1, Sample Notice of Action Taken and Statement of Reasons) 
should report the denial reasons for purposes of HMDA, including 
entering the principal denial reason(s) in a free-form text field when 
the financial institution enters the corresponding code for ``Other.''
    In addition, the Bureau proposed comment 4(a)(16)-1 to provide 
clarity as to what the Bureau requires with respect to a financial 
institution reporting the principal reason(s) for denial. The Bureau 
also proposed comment 4(a)(16)-2 to align with proposed instructions 
4(a)(16)-2 and -4.
    A few industry commenters did not support the Bureau's proposal and 
recommended that reporting of denial reasons remain optional under 
Regulation C. The main reason offered by commenters was that a 
mandatory requirement to report denial reasons would increase 
regulatory burden on financial institutions. In contrast, most consumer 
advocate commenters supported the Bureau's proposed Sec.  
1003.4(a)(16). For example, several consumer advocate commenters 
pointed out that different types of housing counseling and intervention 
is needed depending on the most frequent reasons for denial. These 
commenters stated that denial reason data is important to housing 
counseling agencies because it helps identify the most significant 
impediments to homeownership and provide more effective counseling. A 
government commenter noted that denial reasons will be particularly 
effective for fair lending analyses. Another consumer advocate 
commenter pointed out that denial reason data will be helpful for 
understanding why a particular loan application was denied and 
identifying potential barriers in access to credit.
    The Bureau has determined that maintaining the current requirement 
of optional reporting of denial reasons is not the appropriate approach 
given the value of the data in furthering HMDA's purposes. The reasons 
an application is denied are critical to understanding a financial 
institution's credit decision and to screen for potential violations of 
antidiscrimination laws, such as ECOA and the Fair Housing Act.\306\ 
Denial reasons are important for a variety of purposes including, for 
example, assisting examiners in their reviews of denial disparities and 
underwriting exceptions. The Bureau has determined that requiring the 
collection of the reasons for denial will facilitate more efficient, 
and less burdensome, fair lending examinations by the Bureau and other 
financial regulatory agencies, thereby furthering HMDA's purpose of 
assisting in identifying possible discriminatory lending patterns and 
enforcing antidiscrimination statutes.
---------------------------------------------------------------------------

    \306\ 15 U.S.C. 1691 et seq.; 42 U.S.C. 3601 et seq. ECOA and 
Regulation B require all financial institutions to provide 
applicants the reasons for denial, or a notice of their right to 
receive those denial reasons, and to maintain records of compliance. 
See Regulation B Sec. Sec.  1002.9 and 1002.12, 15 U.S.C. 1691(d).
---------------------------------------------------------------------------

    The Bureau acknowledges that mandatory reporting of denial reasons 
will contribute to certain financial institutions' compliance burden. 
However, the statistical value of optionally reported data is lessened 
because of the lack of standardization across all HMDA reporters. 
Moreover, as discussed above, certain financial institutions supervised 
by the OCC and the FDIC are already required by those agencies to 
report denial reasons.\307\ A requirement that all financial 
institutions report reasons for denial of an application is the proper 
approach for purposes of HMDA. For these reasons, pursuant to its 
authority under HMDA sections 305(a) and 304(b)(6)(J), the Bureau is 
finalizing the requirement that all financial institutions report 
reasons for denial of an application. This information is necessary to 
carry out HMDA's purposes, because it will provide more consistent and 
meaningful data, which will assist in identifying whether financial 
institutions are serving the housing needs of their communities, as 
well as assist in identifying possible discriminatory lending patterns 
and enforcing antidiscrimination statutes.
---------------------------------------------------------------------------

    \307\ See supra note 306.
---------------------------------------------------------------------------

    The Bureau solicited feedback on the proposed requirement that a 
financial institution enter the principal denial reason(s) in a free-
form text field when ``Other'' is entered in the loan/application 
register. Several commenters did not support the proposed requirement 
for a variety of reasons, including, for example, concerns about having 
sufficient space to accurately or adequately capture the denial reason 
with the limited space available for reporting on the loan/application 
register, concerns that denial reason data reported in the free-form 
text field would be impossible to aggregate due to the variety of 
potential denial reasons reported, and concerns that such reporting 
would cause significant confusion and regulatory burden. A few industry 
commenters suggested that requiring a financial institution to report 
the corresponding code for ``Other'' would be sufficient when the 
institution denies an application for a principal reason not included 
on the list of denial reasons in appendix A or on the model form for 
adverse action contained in appendix C to Regulation B. The commenters 
suggested that the Bureau should not also require an institution to 
enter the principal denial reason(s) in a free-form text field in these 
circumstances for the reasons listed above.
    The Bureau has considered the concerns expressed by industry 
commenters with respect to the proposed requirement that a financial 
institution enter the principal denial reason(s) in a free-form text 
field when a financial institution reports the denial reason as 
``Other'' in the loan/application register but has determined that the 
utility of this data justifies the potential burden that may be imposed 
by the reporting requirement. In addition, with respect to the concern 
that financial institutions will not have sufficient space in the loan/
application register to accurately or adequately capture the denial 
reasons, the Bureau believes that the free-form text field will provide 
institutions with sufficient space to comply with proposed Sec.  
1003.4(a)(16). As explained in proposed comment 4(a)(16)-1, the denial 
reasons reported by a financial institution must be specific and 
accurately describe the principal reason or reasons an institution 
denied the application. The free-form text field will not limit a 
financial institution's ability to comply with proposed Sec.  
1003.4(a)(16). As to the commenters' concern that denial reason data 
reported in the free-form text field would be impossible to aggregate 
due to the variety of potential denial reasons reported, the Bureau has 
determined that the data reported in the free-form text field will be 
useful even if the data cannot be aggregated. The Bureau also proposed 
comment 4(a)(16)-2, which provides clarification as to the proposed 
requirement that a financial institution enter the principal denial 
reason(s) in a free-form text field when ``Other'' is entered in the 
loan/application register. The Bureau is finalizing this comment, 
modified for additional clarity, to address any potential confusion.
    Lastly, with respect to the commenters' recommendation that it be 
sufficient to require a financial institution to report ``Other'' as 
the denial reason and that the Bureau

[[Page 66206]]

should not also require an institution to enter the principal denial 
reason(s) in a free-form text field in these circumstances, the Bureau 
has determined that such an approach would hinder the utility of the 
denial reason data for purposes of HMDA. Many consumer advocate 
commenters pointed out that transparency about denial reasons provides 
the public as well as regulators with the information needed to better 
understand challenges to access to credit. One commenter specifically 
pointed out the reporting accuracy of denial reasons will be improved 
in two ways if financial institutions are required to explain the 
denial reason in the free-form text field when the institution 
indicates ``Other'' as a reason for denial. First, the commenter 
suggested that this reporting requirement will prevent the misuse of 
the ``Other'' category when financial institutions report the denial 
reason as ``Other'' when in fact the denial reason may more 
appropriately fall into one or more of the listed denial reasons. 
Without further explanation as to what the ``Other'' denial reason 
actually is, the commenter stated that it has been impossible to tell 
if the financial institution accurately reported the denial reason. 
Second, the commenter stated that the free-form text field will provide 
key information on denial reasons that are not currently listed. For 
example, the denial reason data can be used to monitor other denial 
reasons or to add common, but previously unlisted, denial reasons to 
the list. The Bureau has determined that the HMDA data's usefulness 
will be improved by requiring financial institutions to report the 
principal reason(s) it denied the application in a free-form text field 
when the institution reports the denial reason as ``Other'' in the 
loan/application register.
    The Bureau solicited feedback regarding whether additional 
clarifications would assist financial institutions in complying with 
the proposed requirement. A few industry commenters pointed out that 
while the proposal requires a financial institution to report up to 
three principal reasons for denial, the commenters read Regulation B as 
providing that a creditor may provide up to four principal reasons for 
denial and such inconsistency between regulations adds to the 
compliance burden imposed by the Bureau's new mandatory reporting 
requirement under proposed Sec.  1003.4(a)(16). The adverse action 
notification provisions of Regulation B do not mandate that a specific 
number of reasons be disclosed when a creditor denies an application 
but instead provides that disclosure of more than four reasons is not 
likely to be helpful to the applicant.\308\ In light of the feedback on 
the proposal and in an effort to help facilitate compliance and 
consistency between regulations, the Bureau is modifying proposed 
comment 4(a)(16)-1 to provide that a financial institution complies 
with Sec.  1003.4(a)(16) by reporting the principal reason or reasons 
it denied the application, indicating up to four reasons.
---------------------------------------------------------------------------

    \308\ See Regulation B Sec.  1002.9, Supp. I., Sec.  1002.9, 
comment 9(b)(2)-1. The Bureau noted in its proposal that ECOA and 
Regulation B require creditors to provide applicants the reasons for 
denial, or a notice of their right to receive those denial reasons, 
and to maintain records of compliance. See 79 FR 51731, 51775 (Aug. 
29, 2014), note 381. See also 15 U.S.C. 1691(d), Regulation B 
Sec. Sec.  1002.9 and 1002.12.
---------------------------------------------------------------------------

    In order to help facilitate compliance with proposed Sec.  
1003.4(a)(16), the Bureau also adopts two new comments. The Bureau is 
adopting new comment 4(a)(16)-2, which clarifies that a request for a 
preapproval under a preapproval program as defined by Sec.  
1003.2(b)(2) is an application and therefore, if a financial 
institution denies a preapproval request, the financial institution 
complies with Sec.  1003.4(a)(16) by reporting the reason or reasons it 
denied the preapproval request. The Bureau also adopts new comment 
4(a)(16)-4, which clarifies that a financial institution complies with 
Sec.  1003.4(a)(16) by reporting that the requirement is not applicable 
if the action taken on the application, pursuant to Sec.  1003.4(a)(8), 
is not a denial. For example, a financial institution complies with 
Sec.  1003.4(a)(16) by reporting that the requirement is not applicable 
if the loan is originated or purchased by the financial institution, or 
the application or preapproval request was approved but not accepted, 
or the application was withdrawn before a credit decision was made, or 
the file was closed for incompleteness.
    Several commenters were also concerned that if information 
regarding denial reasons were made available to the public, such 
information could be coupled with other publicly available information, 
which would result in not only compromising a borrower's privacy but 
also potentially place consumers at greater risk of financial harm 
through unlawful marketing to consumers by unscrupulous parties, such 
as identify thieves, other scammers, or criminals. For example, one 
industry commenter suggested that ``unsophisticated consumers could be 
vulnerable to aggressive marketing techniques, which may appear even 
more `personalized' to their situation because of the availability of 
their specific financial picture through the LAR data.'' The Bureau has 
considered this feedback. See part II.B above for a discussion of the 
Bureau's approach to protecting applicant and borrower privacy with 
respect to the public disclosure of HMDA data.
    The Bureau is adopting Sec.  1003.4(a)(16) as proposed, with minor 
technical modifications. The Bureau is adopting proposed comments 
4(a)(16)-1 and 4(a)(16)-2, with several technical and clarifying 
modifications, and renumbers proposed comment 4(a)(16)-2 as 4(a)(16)-3. 
In addition, as discussed above, the Bureau is adopting new comments 
4(a)(16)-2 and -4, which will help facilitate HMDA compliance by 
providing additional guidance regarding the denial reason reporting 
requirement.
4(a)(17)
    Section 304(b)(5)(A) of HMDA \309\ provides for reporting of ``the 
total points and fees payable at origination in connection with the 
mortgage as determined by the Bureau, taking into account 15 U.S.C. 
1602(aa)(4).'' \310\ The Bureau proposed to implement this provision 
through proposed Sec.  1003.4(a)(17), which required financial 
institutions to report the total points and fees charged in connection 
with certain mortgage loans or applications. Proposed Sec.  
1003.4(a)(17) defined total points and fees by reference to TILA, as 
implemented by Regulation Z Sec.  1026.32(b)(1) or (2). Section 
1026.32(b)(1) defines ``points and fees'' for closed-end credit 
transactions, while Sec.  1026.32(b)(2) defines ``points and fees'' for 
open-end credit transactions. Proposed Sec.  1003.4(a)(17) would have 
applied to applications for and originations of certain closed-end 
mortgage loans and open-end lines of credit, but not to reverse 
mortgages or commercial-purpose loans or lines of credit.
---------------------------------------------------------------------------

    \309\ Section 1094(3)(A)(iv) of the Dodd-Frank Act amended 
section 304(b) of HMDA to provide for the reporting of total points 
and fees.
    \310\ 15 U.S.C. 1602(aa)(4) is part of TILA. Prior to amendments 
made by the Dodd-Frank Act, that section generally defined ``points 
and fees'' for the purpose of determining whether a transaction was 
a high-cost mortgage. See 15 U.S.C. 1602(aa)(4). Section 1100A of 
the Dodd-Frank Act redesignated subsection 1602(aa)(4) as subsection 
1602(bb)(4), where it is currently codified. In light of that 
redesignation, the Bureau interprets HMDA section 304(b)(5)(A) as 
directing it to take into account 15 U.S.C. 1602(bb)(4) and its 
implementing regulations, as those provisions address ``points and 
fees'' and because current subsection 1602(aa)(4) is no longer 
relevant to a determination regarding points and fees.
---------------------------------------------------------------------------

    The Bureau also solicited comment on the costs and benefits of the 
proposed

[[Page 66207]]

definition of total points and fees and on the specific charges that 
should be included or excluded. Additionally, in discussing proposed 
Sec.  1003.4(a)(18), the Bureau sought feedback on the merits of a more 
inclusive measure of the cost of a loan.
    For the reasons provided below, the Bureau is requiring financial 
institutions to report the total loan costs for any covered loan that 
is both subject to the ability-to-repay section of the Bureau's 2013 
ATR Final Rule and for which a Closing Disclosure is required under the 
Bureau's 2013 TILA-RESPA Final Rule. Total loan costs are disclosed 
pursuant to Regulation Z Sec.  1026.38(f)(4). For a covered loan that 
is subject to the ability-to-repay section of the Bureau's 2013 ATR 
Final Rule but for which a Closing Disclosure is not required under the 
Bureau's 2013 TILA-RESPA Final Rule, financial institutions must report 
the total points and fees, unless the covered loan is a purchased 
covered loan. This reporting requirement does not apply to applications 
or to covered loans not subject to the ability-to-repay requirements in 
the 2013 ATR Final Rule, such as open-end lines of credit, reverse 
mortgages, or loans or lines of credit made primarily for business or 
commercial purposes.
    Commenters were divided on whether financial institutions should be 
required to report points-and-fees data. Most consumer advocates 
generally supported the proposed pricing data points, including total 
points and fees. These commenters explained that more detailed pricing 
information will improve their ability to identify potential price 
discrimination and to understand the terms on which consumers in their 
communities are being offered credit. One consumer advocate stated that 
certain groups, such as women, minorities, and borrowers of 
manufactured housing loans may be unfairly charged higher amounts of 
points and fees than other borrowers. This commenter also stated that 
the total amount of points and fees was important for determining a 
loan's status under HOEPA and the ability-to-repay and qualified 
mortgage requirements of Regulation Z, and that data about points and 
fees would clarify any need for further regulation.
    Industry commenters, on the other hand, generally opposed 
collection of points-and-fees data. Many commenters stated that 
reporting the data would be unduly burdensome because of uncertainty 
regarding the definition of points and fees or because the total is not 
required to be calculated by other regulations. Other commenters 
believed that points-and-fees data would mislead users or duplicate 
data reported pursuant to other provisions of the proposal. Finally, a 
few commenters claimed that the data would not be valuable for HMDA 
purposes.
    Specifically, several industry commenters stated that variance 
among the fees and charges included in points and fees may result in 
unclear data. One commenter noted that the points-and-fees calculation 
adjusts based on factors unrelated to the total loan cost, such as 
whether a particular charge was paid to an affiliate of the creditor. 
Similarly, other industry commenters stated that the total amount of 
points and fees was subject to factors that would prevent effective 
comparison among borrowers, such as daily market fluctuations, 
differences in location, and borrower decisionmaking.
    The Bureau believes that total points-and-fees data, as defined in 
proposed Sec.  1003.4(a)(17), would have some value in helping HMDA 
data users to understand certain fees and charges imposed on borrowers. 
However, after considering the comments, the Bureau concludes that 
other measures of loan cost, such as total loan costs, as defined in 
final Sec.  1003.4(a)(17)(i), will be more valuable and nuanced than 
points and fees, as defined in proposed Sec.  1003.4(a)(17), and will 
better capture the type of information that HMDA section 304(b)(5)(A) 
is intended to cover. Total loan costs are the total upfront costs 
involved in obtaining a mortgage loan. Specifically, for covered loans 
subject to the disclosure requirements of Regulation Z Sec.  
1026.19(f), total loan costs are the sum of the amounts disclosed as 
borrower-paid at or before closing found on Line D of the Closing Cost 
Details page of the current Closing Disclosure, as provided for in 
Regulation Z Sec.  1026.38(f)(4). Final Sec.  1002.4(a)(17)(i) requires 
financial institutions to report total loan costs because they are a 
more comprehensive measure than total points and fees, as defined in 
proposed Sec.  1003.4(a)(17), and because they better facilitate 
comparisons among borrowers.
    Total loan costs include all amounts paid by the consumer to the 
creditor and loan originator for originating and extending credit, all 
points paid to reduce the interest rate, all amounts paid for third-
party settlement services for which the consumer cannot shop, and all 
amounts paid for third-party settlement services for which the consumer 
can shop. However, total loan costs omits other closing costs, such as 
amounts paid to State and local governments for taxes and government 
fees, prepaids such as homeowner's insurance premiums, initial escrow 
payments at closing, and other services that are required or obtained 
in the real estate closing by the consumer, the seller, or another 
party. In other words, this total generally represents the costs that 
the financial institution imposes in connection with the mortgage loan, 
and omits costs controlled by other entities, such as government 
jurisdictions.
    Unlike total points and fees as defined in proposed Sec.  
1003.4(a)(17), total loan costs may be more easily compared across 
borrowers because third-party charges are not included or excluded 
depending on various factors, such as whether they were paid to an 
affiliate of the creditor. This consistency enables users to better 
compare loan costs among borrowers and to understand the total upfront 
costs that borrowers face when obtaining mortgage loans. The amount of 
total loan costs may also be analyzed in combination with the other 
pricing data points more readily than the total points and fees. For 
example, the difference between the total loan costs and total 
origination charges provides the total amount the borrower paid for 
third-party services.\311\ Because of the improved utility of total 
loan costs, for covered loans subject to final Sec.  1003.4(a)(17) for 
which total loan costs are available, the final rule requires financial 
institutions to report total loan costs.
---------------------------------------------------------------------------

    \311\ Some costs, such as certain upfront mortgage insurance 
premiums, would not be included.
---------------------------------------------------------------------------

    The Bureau acknowledges that total loan costs do not include all 
closing costs. For example, total loan costs omit amounts paid to State 
and local governments for taxes and government fees, prepaids such as 
homeowner's insurance premiums, initial escrow payments at closing, and 
other services that are required or obtained in the real estate closing 
by the consumer, the seller, or another party. Many excluded closing 
costs, however, are unrelated to the cost of extending credit by the 
financial institution. Because HMDA focuses on the lending activity of 
financial institutions, the Bureau has determined that the exclusion of 
these costs is proper. Total loan costs, as provided for in the final 
rule, also exclude upfront charges paid by sellers or other third 
parties if these parties were legally obligated to pay for such 
costs.\312\ This omission would understate the total loan costs charged 
by a financial institution for covered loans with seller-paid or other-
paid closing costs in certain situations. However, including such costs 
would require financial institutions to perform

[[Page 66208]]

a calculation that they are not otherwise performing for purposes of 
the Closing Disclosure. The Bureau has determined that avoiding 
requiring such calculations by relying on the description of total loan 
costs found in Regulation Z reduces burden and facilitates compliance.
---------------------------------------------------------------------------

    \312\ See 12 CFR 1026.19(f)(1)(i).
---------------------------------------------------------------------------

    Total loan costs are not currently required to be calculated for 
certain loans. The Bureau's 2013 TILA-RESPA Final Rule exempted certain 
loans from the requirement to provide a Closing Disclosure. For 
example, manufactured housing loans secured by personal property are 
exempt from the requirements of the Bureau's 2013 TILA-RESPA Final 
Rule. But such loans are subject to the ability-to-repay provision of 
the Bureau's 2013 ATR Final Rule. For these loans, final Sec.  
1003.4(a)(17) requires financial institutions to report the total 
points and fees, calculated pursuant to Regulation Z Sec.  
1026.32(b)(1). Although total points and fees as defined in final Sec.  
1003.4(a)(17)(ii) are a less comprehensive and less comparable measure 
of cost than total loan costs, requiring financial institutions to 
calculate the total loan costs for loans outside of the scope of the 
2013 TILA-RESPA Final Rule would be overly burdensome because financial 
institutions would have no regulatory definition or experience on which 
to rely. Moreover, the Bureau believes that total points and fees as 
defined in final Sec.  1003.4(a)(17)(ii) will provide valuable 
information about the upfront cost of a loan that would otherwise be 
lacking from the data. Total points and fees as defined in final Sec.  
1003.4(a)(17)(ii) include many of the same charges that comprise total 
loan costs, albeit in a less consistent fashion. Moreover, in some 
cases loans not subject to the Closing Disclosure requirement may be 
made to vulnerable consumers. For example, the Bureau's research 
suggests that manufactured-housing borrowers of chattel loans are more 
likely to be older, to have lower incomes, and to pay higher prices for 
their loans.\313\ Without points-and-fees data, users would have no 
insight into the upfront costs associated with such loans.
---------------------------------------------------------------------------

    \313\ See Bureau of Consumer Fin. Prot., Manufactured-Housing 
Consumer Finance in the United States at 5-6 (2014), available at 
https://files.consumerfinance.gov/f/201409_cfpb_report_manufactured-housing.pdf.
---------------------------------------------------------------------------

    Regarding the commenters' concerns about misleading data, the final 
rule includes a number of factors that will help users put the data in 
their proper context. Regarding total loan costs and total points and 
fees, many of the factors identified by commenters are reflected in the 
final rule, such as location and product type.\314\ More importantly, 
however, the HMDA data need not reflect all conceivable determinants of 
loan pricing to be beneficial to users. The final rule's pricing data 
will provide important benefits that would be lost if the Bureau were 
to eliminate it entirely. For example, regulators are able to use 
pricing data to efficiently prioritize fair lending examinations. 
Prioritizing examinations based on insufficient data would result in 
some financial institutions facing unnecessary examination burden while 
others whose practices warrant closer review would not receive 
sufficient scrutiny. Overall, the pricing data included in the final 
rule represent a marked improvement over the current regulation.
---------------------------------------------------------------------------

    \314\ See 12 CFR 1003.4(a)(2) (loan type); id. at 1003.4(a)(9) 
(location).
---------------------------------------------------------------------------

    One trade association stated that points-and-fees data would lead 
to reduced price competition. However, the Bureau believes, consistent 
with standard economic theory, that increased transparency regarding 
price generally increases competition and ultimately benefits 
consumers. Therefore, the Bureau is not persuaded that the commenter's 
price competition concern is a basis for not capturing information 
regarding total loan costs and points and fees, as defined in Sec.  
1003.4(a)(17). A more detailed discussion of the benefits, costs, and 
impacts can be found in the section 1022 discussion below.
    Other industry commenters expressed concern over the burden 
associated with proposed Sec.  1003.4(a)(17). For example, several 
industry commenters pointed out that although financial institutions 
face limits on points and fees if they wish to avoid coverage under the 
2013 HOEPA Final Rule, and if they wish to make a qualified mortgage 
under the 2013 ATR Final Rule, neither rule expressly requires 
financial institutions to calculate that total. One industry commenter 
explained that the total amount of points and fees was not currently 
recorded electronically. Many industry commenters cited concerns over 
the uncertainty or complexity of the definition of points and fees. 
Similarly, some commenters requested guidance on what charges to 
include within the total points and fees or called on the Bureau to 
supply a ``standard'' definition of the term. Some industry commenters 
believed that the reporting the total points and fees would expose them 
to citations under Regulation C for small errors.
    In comparison to the proposed rule, final Sec.  1003.4(a)(17) 
substantially reduces burden while still ensuring that valuable data 
are reported. Commenters generally stated that the calculation of total 
points and fees was not completed for all loans subject to HOEPA or the 
Bureau's 2013 ATR Final Rule, and that, if the calculation was 
completed, it involved substantial uncertainty and complexity. For the 
vast majority of covered loans subject to final Sec.  1003.4(a)(17), 
financial institutions will report the total loan costs. These 
institutions would have already calculated the total loan costs in 
order to disclose the total to borrowers pursuant to the 2013 TILA-
RESPA Final Rule. Therefore, the burden of reporting for Sec.  
1003.4(a)(17) is generally limited to loans for which financial 
institutions would already have to calculate the total loan costs. 
Using the same definition across regulations was supported by several 
commenters with respect to total points and fees, and final Sec.  
1003.4(a)(17) does so by using the existing definition of total loan 
costs found in Regulation Z.
    For the narrow class of loans subject to the ability-to-repay 
provision of the Bureau's 2013 ATR Final Rule but which are exempt from 
the 2013 TILA-RESPA Final Rule, financial institutions must report the 
total points and fees as defined in final Sec.  1003.4(a)(17)(ii). 
These loans are generally manufactured housing loans secured by 
personal property. Because such loans run a greater risk of crossing 
the high-cost mortgage thresholds than site-built home loans, the 
Bureau believes that most financial institutions would calculate the 
total points and fees for these loans for compliance with HOEPA and 
other laws.\315\ Additionally, the final rule does not increase burden 
on these same institutions because it uses the existing definition of 
``total points and fees'' found in Regulation Z.
---------------------------------------------------------------------------

    \315\ See Bureau of Consumer Fin. Prot., Manufactured-Housing 
Consumer Finance in the United States at 32-37 (2014), available at 
https://files.consumerfinance.gov/f/201409_cfpb_report_manufactured-housing.pdf (comparing the pricing of manufactured home loans and 
site-built home loans).
---------------------------------------------------------------------------

    The final rule also avoids increased burden by limiting Sec.  
1003.4(a)(17) to covered loans that are subject to the ability-to-repay 
provision of the 2013 ATR Final Rule, rather than loans subject to 
either the 2013 ATR Final Rule or HOEPA. The primary effect of this 
change from the proposal is to exclude open-end lines of credit from 
the scope of the reporting requirement. The Bureau believes that such 
loans typically have lower upfront charges than comparable closed-end 
loans. Additionally, many open-end lines of

[[Page 66209]]

credit feature bona fide third-party charges that are waived on the 
condition that the consumer not terminate the line of credit sooner 
than 36 months after account opening, which are excluded from the total 
points and fees.\316\ At the same time, such loans are less likely to 
trigger high-cost mortgage status, which makes financial institutions 
less likely to complete the points-and-fees calculation for such loans. 
Therefore, the Bureau believes that on balance, Sec.  1003.4(a)(17) 
should be limited to covered loans that are subject to the ability-to-
repay provision of the 2013 ATR Final Rule.
---------------------------------------------------------------------------

    \316\ See 12 CFR 1026.32(b)(6)(ii).
---------------------------------------------------------------------------

    Final Sec.  1003.4(a)(17) will provide a more consistent measure of 
upfront loan costs than total points and fees as defined in proposed 
Sec.  1003.4(a)(17). Total loan costs, combined with total origination 
charges, discount points, and lender credits, will also enable a more 
detailed understanding of the upfront costs that borrowers pay for 
their loans. Accordingly, these data will provide significant utility 
for fair lending analysis and for understanding the terms of credit 
being offered. With respect to loans made to lower-income consumers, 
such as some borrowers in manufactured housing communities, final Sec.  
1003.4(a)(17) provides information about upfront loan costs by adopting 
reporting of points and fees. Finally, by substituting total loan costs 
for most loans and limiting the reporting of points and fees as 
described above, final Sec.  1003.4(a)(17) represents a substantial 
decrease in burden from the proposed rule. Therefore, the Bureau is 
adopting final Sec.  1003.4(a)(17), which requires financial 
institutions to report, for covered loans subject to the ability-to-
repay provision of the 2013 ATR Final Rule, the total loan costs if the 
loan is subject to the disclosure requirements in Sec.  1026.19(f), or 
the total points and fees if the loan is not subject to the disclosure 
requirements in Sec.  1026.19(f) and is not a purchased covered loan.
    The Bureau believes that final Sec.  1003.4(a)(17) also addresses 
many of the specific issues or questions that commenters raised 
regarding the proposed points-and-fees data point. For example, several 
commenters asked the Bureau for clarification or modification of the 
scope of the reporting requirement. Two industry commenters asked the 
Bureau to exclude commercial loans from the scope of proposed Sec.  
1003.4(a)(17), or to confirm that commercial loans are excluded. The 
final rule limits Sec.  1003.4(a)(17) to covered loans subject to 
Regulation Z Sec.  1026.43(c), which is inapplicable to commercial 
loans. Therefore, financial institutions are not required to report the 
total loan costs or the total points and fees for commercial-purpose 
transactions. The Bureau is adopting final comment 4(a)(17)(i)-1 to 
clarify that the total loan costs reporting requirement is not 
applicable to covered loans not subject to Regulation Z Sec.  
1026.19(f), and final comment 4(a)(17)(ii)-1 to clarify that the 
reporting requirement is not applicable to covered loans not subject to 
Regulation Z Sec.  1026.43(c).
    One industry commenter recommended that no points and fees be 
required to be reported for applications that are not approved. This 
commenter also recommended that, for applications that have been 
approved by the financial institution but not accepted by the consumer, 
the total points and fees should be considered accurate if the amount 
is no less than the amount on which the financial institution relied. 
Regarding total loan costs, the Closing Disclosure required by 
Regulation Z Sec.  1026.19(f) is generally not provided for 
applications that do not result in a closed loan. Regarding total 
points and fees, elements of points and fees have the highest degree of 
uncertainty during the application stage, which limits their utility 
but increases the reporting burden. Therefore, final Sec.  
1003.4(a)(17) excludes applications from the scope of the reporting 
requirement. Final comments 4(a)(17)(i)-1 and 4(a)(17)(ii)-1 explain 
that applications are not subject to the requirement to report either 
total loan costs or total points and fees.
    A few industry commenters suggested that proposed Sec.  
1003.4(a)(17) be limited to HOEPA loans and qualified mortgages because 
the total points and fees would be most readily available for those 
loans. However, another industry commenter stated that the total points 
and fees were more likely to be available for loans that exceeded the 
qualified-mortgage thresholds. Finally, one industry commenter urged 
the Bureau to restrict the scope of proposed Sec.  1003.4(a)(17) to 
loans secured by principal dwellings to better fulfill the purposes of 
HMDA.
    These comments are largely addressed by the changes the Bureau has 
made in the final rule. The vast majority of covered loans subject to 
the requirement in Sec.  1003.4(a)(17) are governed by the scope of 
Regulation Z Sec.  1026.19(f). For these loans, final Sec.  
1003.4(a)(17) requires no calculations that would not otherwise be 
performed for purposes of the Closing Disclosure. Accordingly, there is 
no reason to exclude a particular subset of covered loans for which the 
total loan costs are reported. For the narrow remainder of manufactured 
home loans for which total points and fees are reported, the risk to 
consumers warrants maintaining coverage of these loans, and points and 
fees are a less burdensome requirement than applying regulatory 
definitions that would not otherwise apply to these loans. Finally, the 
final rule does not exclude loans secured by secondary dwellings from 
Sec.  1003.4(a)(17) because HMDA's coverage is not limited to loans 
secured by the borrower's primary residence and includes loans secured 
by second homes as well as non-owner-occupied properties. Pricing data 
about such dwelling-secured homes will provide information necessary to 
better understand potentially speculative purchases of housing units 
similar to those that contributed to the recent financial crisis.
    One industry commenter recommended that the Bureau exclude 
community banks from the points-and-fees reporting requirement because 
the calculation is burdensome and may not be completed in all cases, 
and because community banks avoided the irresponsible lending practices 
that contributed to the financial crisis.\317\ Another industry 
commenter suggested that the Bureau require financial institutions to 
report either the loan's annual percentage rate or the finance charge 
instead of the total points and fees. This commenter stated that total 
points and fees require a manual calculation. As explained above, final 
Sec.  1003.4(a)(17) generally does not require financial institutions 
to calculate an amount that would not otherwise be calculated for other 
regulatory requirements or purposes. The Bureau acknowledges that a 
financial institution may have to report points and fees for a limited 
set of loans for which the institution does not otherwise calculate the 
total points and fees, such as for manufactured housing loans secured 
by personal property. However, as discussed above, the Bureau believes 
that the burden of performing such a calculation is justified by the 
benefit of having some measure of fees charged to borrowers. Moreover, 
the APR and finance charge combine both interest and fees and do not 
allow users to identify the amount of fees imposed on a borrower in 
connection with a transaction. Therefore, the final rule does not adopt

[[Page 66210]]

the changes recommended by these commenters.
---------------------------------------------------------------------------

    \317\ The Bureau notes that many community banks will be 
excluded from HMDA reporting altogether under the revised loan-
volume threshold.
---------------------------------------------------------------------------

    Several industry commenters supported the exclusion for purchased 
covered loans found in proposed Sec.  1003.4(a)(17). In fact, one 
industry commenter recommended excluding all data points, including 
pricing data, from purchased covered loans. This commenter explained 
that the ULI would enable tracking of purchased covered loans and 
believed that the exclusion of the government-sponsored enterprises, 
which purchase most of the covered loans, would distort the data. 
Conversely, a consumer advocate recommended that the Bureau require 
reporting of data for purchased covered loans unless the purchasing 
entity is unable to reasonably obtain the relevant information from the 
original financial institution. This commenter noted that a blanket 
exception for purchased covered loans would create gaps in the HMDA 
data, especially if the original financial institution was not subject 
to HMDA.
    The Bureau proposed to exclude purchased loans from Sec.  
1003.4(a)(17) because the total points and fees are not readily 
available from the information obtained from the selling entity. 
Therefore, purchasing entities would be required to calculate the total 
points and fees, and might lack the information necessary to do so. If 
the purchasing financial institution required the selling entity to 
calculate the total points and fees, and the seller was not a HMDA 
reporter, then the seller would face a difficult and uncertain 
calculation without the benefit of having to otherwise report the data 
under HMDA. For these reasons, the Bureau adopts this exclusion with 
respect to total points and fees, as required by final Sec.  
1003.4(a)(17)(ii). However, the same reasoning does not support 
providing a similar exclusion from purchased loans with respect to 
total loan costs, as required by final Sec.  1003.4(a)(17)(i). Unlike 
total points and fees, the total loan costs are calculated for all 
covered loans subject to the reporting requirement, and are present on 
the Closing Disclosure. Therefore, the Bureau is including purchased 
covered loans in the scope of final Sec.  1003.4(a)(17)(ii). Final 
comments 4(a)(17)(i)-2 and 4(a)(17)(ii)-1 provide guidance on the scope 
of the total-loan-costs and total-points-and-fees reporting 
requirements with respect to purchased covered loans. One consumer 
advocate asked the Bureau to clarify the scope of proposed Sec.  
1003.4(a)(17) with respect to covered loans ``subject to'' HOEPA or the 
Bureau's 2013 ATR Final Rule. This commenter also urged the Bureau to 
expand Sec.  1003.4(a)(17) to include home-equity lines of credit and 
reverse mortgages because both types of loans have been subject to 
abusive pricing. Proposed Sec.  1003.4(a)(17) would have applied to 
open-end lines of credit secured by the borrower's principal dwelling, 
but would have excluded other open-end lines of credit and all reverse 
mortgages. The Bureau believes that the benefit of points-and-fees data 
on such loans does not justify the burden of reporting for the reasons 
discussed above. Reverse mortgages are exempt from the ability-to-repay 
provisions of the 2013 ATR Final Rule and the 2013 TILA-RESPA Final 
Rule. Therefore, extending final Sec.  1003.4(a)(17) to reverse 
mortgages would require a calculation using a regulatory definition 
that would likely require certain modifications. The Bureau believes 
that this burden does not justify extending coverage to reverse 
mortgages or open-end lines of credit. However, the final rule will 
vastly improve upon the current regulation regarding the pricing 
information for these loans, by requiring reporting of data points such 
as rate spread,\318\ interest rate, prepayment penalty, and 
nonamortizing features. Final comments 4(a)(17)(i)-1 and 4(a)(17)(ii)-1 
clarify that open-end lines of credit and reverse mortgages are 
excluded from the scope of the total-loan-costs and total-points-and-
fees reporting requirements.
---------------------------------------------------------------------------

    \318\ Rate spread applies to open-end lines of credit but not 
reverse mortgages. See Sec.  1003.4(a)(12).
---------------------------------------------------------------------------

    Finally, many industry commenters and consumer advocates made 
comments that were broadly applicable to the proposed pricing data 
points. For example, both industry and consumer advocate commenters 
urged the Bureau to adopt alternative or additional pricing data 
points. Several industry commenters suggested that rate spread be 
reported instead of the other proposed pricing data points. These 
commenters noted that financial institutions were currently reporting 
the rate spread under existing Regulation C and believed that it made 
the other data points unnecessary. Similarly, one industry commenter 
proposed replacing the pricing data points with the annual percentage 
rate. The final rule does not adopt these suggestions because neither 
the rate spread nor the APR allows users to identify and compare fees 
imposed on borrowers.
    Two commenters recommended that ``legitimate discount points'' be 
distinguished from other disguised charges intended to compensate the 
lender or mortgage broker. One of these commenters recommended 
different data points for direct fees, yield-spread premiums, and 
points that are fees. Similarly, one consumer advocate recommended that 
the Bureau require reporting of loan originator compensation. This 
commenter explained that loan originator compensation was a factor in 
disparate pricing, is related to abusive lending practices, and that 
compensation data is necessary to monitor the appropriateness of the 
Bureau's loan originator compensation rules.
    The Bureau believes that the final pricing data points will enable 
HMDA data users to distinguish many of the costs about which these 
commenters were concerned. To the extent that additional data points 
would be necessary to perfectly address these commenters' concerns, the 
final rule does not adopt them. The final rule includes numerous data 
points related to loan pricing that will vastly improve the ability of 
users to understand and evaluate the costs associated with mortgage 
loans. More pricing data could increase the utility of the data, but 
not without imposing substantial burden on financial institutions. For 
example, many of the data points needed to represent various fees and 
charges or loan originator compensation would not be aligned with an 
existing regulation or appear consistently on any disclosure.
    Another commenter urged the Bureau to substantially expand the 
pricing data required by the final rule by including upfront costs to 
the lender or originator, less fees for title and settlement services; 
discount points; lender credits; interest rate; APR; upfront fees for 
settlement services; and a flag to indicate whether a lender or real 
estate agent possess an ownership interest in the title company. This 
commenter explained that the data described above were necessary to 
examine numerous issues related to loan pricing and cost, including the 
existence of high title service fees and the use of discount points. 
The Bureau agrees that including such data would provide value to users 
and notes that it has adopted many of the recommended data points in 
the final rule, such as discount points, lender credits, and interest 
rate. Further expansion at this time, however, would impose an 
unjustified burden on financial institutions. For example, the 
recommendations regarding the financial institution's ownership 
interest in the title company and the exclusion of title and settlement 
service costs from the total loan costs are absent from existing 
regulatory definitions, Federal disclosure forms, and standard industry 
data formats.

[[Page 66211]]

    One industry commenter noted that certain pricing data points were 
not applicable to open-end lines of credit, such as total origination 
charges and total discount points. This commenter believed that this 
exclusion suggested that such data are not valuable. In fact, the 
exclusion of open-end lines of credit is a consequence of the Bureau's 
decision to align the data point to the Closing Disclosure and 
Regulation Z Sec.  1026.38(f)(1) in order to reduce burden. As 
explained in greater detail below, these data points provide important 
price information to users. Therefore, the Bureau believes that the 
scope of these data points balances the benefit of the data with the 
burden of reporting.
    For the reasons provided above, the Bureau is adopting new Sec.  
1003.4(a)(17), which requires financial institutions to report, for 
covered loans subject to Regulation Z Sec.  1026.43(c), one of the 
following measures of loan cost: (i) If a disclosure is provided for 
the covered loan pursuant to Regulation Z, 12 CFR 1026.19(f), the 
amount of total loan costs, as disclosed pursuant to Regulation Z, 12 
CFR 1026.38(f)(4), or, (ii) if the covered loan is not subject to the 
disclosure requirements in Regulation Z, 12 CFR 1026.19(f), and is not 
a purchased covered loan, the total points and fees charged in 
connection with the covered loan, expressed in dollars and calculated 
in accordance with Regulation Z, 12 CFR 1026.32(b)(1). This reporting 
requirement does not apply to applications or to covered loans not 
subject to the ability-to-repay requirements in the 2013 ATR Final 
Rule, such as open-end lines of credit, reverse mortgages, or loans or 
lines of credit made primarily for business or commercial purposes.
    The Bureau is also adopting several new comments. Final comments 
4(a)(17)(i)-1 and 4(a)(17)(ii)-1 clarify the scope of the reporting 
requirement. Final comment 4(a)(17)(i)-2 explains that purchased 
covered loans are not subject to this reporting requirement if the 
application was received by the selling entity prior to the effective 
date of Regulation Z Sec.  1026.19(f). Final comment 4(a)(17)(ii)-2 
provides guidance in situations where a financial institution has cured 
a points-and-fees overage. Final comment 4(a)(17)(i)-3 provides 
guidance in situations where a financial institution has issued a 
revised Closing Disclosure with a new amount of total loan costs.
    The Bureau believes that final Sec.  1003.4(a)(17) satisfies 
Congress's direction to provide for reporting total points and fees 
``as determined by the Bureau, taking into account'' the definition of 
total points and fees provided by TILA and implemented in Regulation Z 
Sec.  1026.32(b).\319\ In requiring reporting of a covered loan's total 
points and fees, Congress intended to increase transparency regarding 
mortgage lending and improve fair lending screening.\320\ As defined in 
proposed Sec.  1003.4(a)(17), total points and fees would provide 
information about some of the upfront costs paid by borrowers. 
Similarly, total loan costs, as defined in final Sec.  1003.4(a)(17), 
also provide information about upfront costs paid by borrowers. 
Congress recognized the importance of the Bureau's expertise in 
deciding how to implement this measure by expressing that it should be 
defined ``as determined by the Bureau.'' The Bureau's implementation is 
consistent with that broad delegation of discretion. The Bureau has 
carefully considered the merits of both total points and fees, as 
defined in Regulation Z Sec.  1026.32(b), and total loan costs, as 
defined in Regulation Z Sec.  1026.38(f)(4). In proposing to require 
reporting of the total points and fees, as defined in Regulation Z 
Sec.  1026.32(b), the Bureau believed that such information would 
enable users to gain deeper insight into the terms on which different 
communities are offered mortgage loans. As explained above, after 
reviewing public comments, the Bureau has determined that total loan 
costs provide greater analytical value for comparing borrowers and 
understanding the cost of loans than total points and fees as defined 
in the proposal, while reducing the burden of reporting for financial 
institutions. Therefore, for certain loans, total loan costs are more 
consistent with Congress's goals in amending HMDA than proposed Sec.  
1003.4(a)(17). For the reasons given above, final Sec.  1003.4(a)(17) 
implements HMDA section 304(b)(5)(A), and is also authorized by the 
Bureau's authority pursuant to HMDA section 304(b)(5)(D) to require 
such other information as the Bureau may require, and by the Bureau's 
authority pursuant to HMDA section 305(a) to provide for adjustments 
and exceptions. For the reasons given above, final Sec.  1003.4(a)(17) 
is necessary and proper to effectuate the purposes of and facilitate 
compliance with HMDA, because it will help identify possible 
discriminatory lending patterns and help determine whether financial 
institutions are serving the housing needs of their communities, and 
because it will significantly reduce burden for reporting financial 
institutions. Accordingly, where total loan costs are available, final 
Sec.  1003.4(a)(17) requires financial institutions to report them. 
However, as explained above, where total loan costs are not available, 
total points and fees, as defined in Sec.  1003.4(a)(17)(ii), will 
provide useful information that would not otherwise be available.
---------------------------------------------------------------------------

    \319\ 12 U.S.C. 2803(b)(5)(A).
    \320\ H. Rept. 111-702 at 191 (2011) (finding that more specific 
loan pricing information would ``provide more transparency on 
underwriting practices and patterns in mortgage lending and help 
improve the oversight and enforcement of fair lending laws.'').
---------------------------------------------------------------------------

4(a)(18)
    Section 304(b) of HMDA permits the disclosure of such other 
information as the Bureau may require.\321\ Pursuant to HMDA sections 
305(a) and 304(b)(5)(D), the Bureau proposed to require financial 
institutions to report, for covered loans subject to the disclosure 
requirements in Regulation Z Sec.  1026.19(f), the total origination 
charges associated with the covered loan. Origination charges are those 
costs designated ``borrower-paid'' on Line A of the Closing Cost 
Details page of the current Closing Disclosure, as provided for in 
Regulation Z Sec.  1026.38(f)(1). Proposed Sec.  1003.4(a)(18) would 
have applied to closed-end covered loans and purchases of such loans, 
but not to applications, open-end lines of credit, reverse mortgages, 
or commercial-purpose loans. For the reasons provided below, the Bureau 
is adopting Sec.  1003.4(a)(18) as proposed, with additional clarifying 
commentary.
---------------------------------------------------------------------------

    \321\ Section 1094(3)(A)(iv) of the Dodd-Frank Act amended 
section 304(b) of HMDA.
---------------------------------------------------------------------------

    Industry commenters generally opposed the adoption of total 
origination charges. Several industry commenters believed that the 
total amount of borrower-paid origination charges provided little 
value, for various reasons. Two industry commenters asserted that the 
value of origination charges was minimal because they were influenced 
by factors outside of the financial institution's control, such as the 
borrower's decisionmaking. Many industry commenters raised similar 
objections to the proposed pricing data in general. For example, one 
industry commenter pointed out that the pricing data were incomplete 
because it omitted additional information about the borrower's overall 
relationship with the financial institution, such as the borrower's 
loan payment history or deposit balances. Therefore, these commenters 
argued, the pricing data points, including borrower-paid origination 
charges, would mislead users.

[[Page 66212]]

    Despite the presence of other variables that influence loan 
pricing, information about origination charges offers analytical value. 
First, the final rule will capture several factors about which 
commenters were concerned, such as a borrower's decision to trade a 
higher interest rate for lower closing costs. To the extent that 
financial institutions lack the ability to unilaterally determine every 
item of borrower-paid origination charges, the control they exercise is 
high relative to many of the other elements of the Closing Disclosure, 
such as taxes and other government fees, prepaids, or the initial 
escrow payment at closing. Moreover, as stated above, the Bureau 
believes that the final rule need not provide an exhaustive 
representation of every factor that might conceivably affect loan 
pricing in order to benefit users. The final rule's pricing data 
represents a marked improvement over the existing regulation, and these 
benefits would be lost if the Bureau were to eliminate any data point 
that might be influenced by the complexity of the pricing process.
    Other industry commenters pointed out that proposed Sec.  
1003.4(a)(18) omitted certain charges, such as appraisal fees and items 
paid by the seller. However, Sec.  1003.4(a)(18) is intended to capture 
the origination charges paid to the financial institution by the 
borrower; it is not intended to measure the total cost of the 
transaction. The Bureau is also providing for reporting of total loan 
costs in final Sec.  1003.4(a)(17), which will provide some of the 
information about the upfront cost of credit that commenters believed 
was missing from Sec.  1003.4(a)(18), such as costs associated with 
appraisal and settlement services. Regarding origination charges paid 
by the seller, as with total loan costs, seller-paid origination 
charges would appear on the Closing Disclosure if the seller were 
legally obligated to pay for such costs.\322\ However, only the sum of 
borrower-paid origination charges are disclosed on the current Closing 
Disclosure. Incorporating seller-paid origination charges would 
increase burden because financial institutions could no longer simply 
report the amount calculated under Regulation Z.
---------------------------------------------------------------------------

    \322\ See 12 CFR 1026.19(f)(1)(i).
---------------------------------------------------------------------------

    Several industry commenters argued that proposed Sec.  
1003.4(a)(18) was duplicative because the Bureau had also proposed to 
require reporting of the total points and fees in Sec.  1003.4(a)(17). 
These commenters stated that origination charges were included in total 
points and fees, and that, in many cases, the origination charges would 
be identical to the total points and fees. Although final Sec.  
1003.4(a)(17) requires reporting of the total loan costs rather than 
the total points and fees, as defined in proposed Sec.  1003.4(a)(17), 
the two data points overlap somewhat. However, total loan costs and 
borrower-paid origination charges differ in important respects. Total 
loan costs include many additional costs that are excluded from 
borrower-paid origination charges, such as charges for third-party 
settlement services. In contrast, total origination charges represent 
the costs that financial institutions themselves are directly imposing 
on borrowers. Furthermore, a user could take the difference between 
total loan costs and total origination charges as an approximate 
measure of total third-party charges. Therefore, final Sec.  
1003.4(a)(17) and final Sec.  1003.4(a)(18) are necessary to enable 
users to gain a more precise understanding of the costs associated with 
a mortgage loan.
    Several other industry commenters argued that the total amount of 
borrower-paid origination charges was too burdensome to report. As 
mentioned above, the Bureau has aligned Sec.  1003.4(a)(18) to 
Regulation Z and to the Closing Disclosure in order to reduce burden. 
As with all pricing data points aligned to the Closing Disclosure, the 
calculation of origination charges will be required only for covered 
loans for which a Closing Disclosure is required pursuant to Regulation 
Z Sec.  1026.19(f). Loans excluded from Regulation Z Sec.  1026.19(f), 
such as open-end lines of credit, reverse mortgages, and commercial 
loans, are not subject to this provision. Therefore, the burden of 
reporting under Sec.  1003.4(a)(18) is limited to loans for which 
financial institutions would already have to calculate the total loan 
costs in order to disclose them to consumers. This alignment was 
supported by two industry commenters. Because using the definition of 
origination charges found in Regulation Z reduces burden while 
preserving the utility of the data, the Bureau is adopting this 
definition in the final rule. These exclusions are stated in final 
comment 4(a)(18)-1, which clarifies the scope of the reporting 
requirement.
    As stated in the proposal, the total amount of borrower-paid 
origination charges provides a relatively focused measure of the 
charges imposed on the borrower by the financial institution for 
originating and extending credit. Furthermore, separate identification 
of borrower-paid origination charges in addition to total discount 
points and lender credits facilitates understanding of loan pricing 
because charges are often interchangeable and may be spread across 
different elements of loan pricing. The proposed pricing data points, 
including total origination charges, will help users of HMDA data 
determine whether different borrowers are receiving fair pricing and 
develop a better understanding of the ability of borrowers in certain 
communities to access credit. Therefore, the Bureau is adopting Sec.  
1003.4(a)(18) generally as proposed.
    In response to the Bureau's solicitation of feedback, one consumer 
advocate urged the Bureau to require the amount listed as the ``total 
closing costs'' on Line J of the current Closing Disclosure in addition 
to or instead of the total origination charges. The commenter stated 
that origination charges represent a small part of total costs and that 
financial institutions exert some control over other costs through 
affiliated business arrangements. In contrast, one industry commenter 
opposed requiring total closing costs because the commenter believed 
that the number of factors incorporated into the total closing costs 
made meaningful comparisons among borrowers impossible. The Bureau 
acknowledges that total closing costs would provide important 
information about the costs required for consumers to close on a loan, 
but is not adopting a new data point for total closing costs. As 
described above, the Bureau is adopting Sec.  1003.4(a)(17), which 
requires reporting the total loan costs associated with the covered 
loan. Final Sec.  1003.4(a)(17) addresses many of the concerns this 
commenter raised regarding a more inclusive, consistent measure of loan 
costs, and also includes the upfront cost associated with many third-
party settlement services. Furthermore, total closing costs, as 
disclosed pursuant to Regulation Z Sec.  1026.38(h)(1), include many 
costs unrelated to the charges imposed by financial institutions for 
extending credit, such as taxes and other government fees. The Bureau 
believes that many of these costs can be more accurately estimated by 
users than the total loan costs, because they will be largely 
determined by the jurisdiction in which the loan was originated. Total 
origination charges and total loan costs also bear a closer 
relationship to the lending practices of financial institutions than 
total closing costs, and therefore better advance the purposes of HMDA.
    For the reasons provided above, pursuant to HMDA sections 305(a) 
and 304(b)(5)(D), the Bureau is adopting

[[Page 66213]]

Sec.  1003.4(a)(18) as proposed. For the reasons given above, data 
about total origination charges will assist public officials and 
members of the public in determining whether financial institutions are 
serving the housing needs of their communities and in identifying 
potentially discriminatory lending patterns. Final Sec.  1003.4(a)(18) 
requires financial institutions to report, for covered loans subject to 
the disclosure requirements in Regulation Z Sec.  1026.19(f), the total 
of all itemized amounts that are designated borrower-paid at or before 
closing, as disclosed pursuant to Sec.  1026.38(f)(1). These charges 
are the total costs designated ``borrower-paid'' on Line A of the 
Closing Cost Details page of the current Closing Disclosure.
    The Bureau is also adopting several new comments. Final comment 
4(a)(18)-1 clarifies the scope of the reporting requirement. Final 
comment 4(a)(18)-2 explains that purchased covered loans are not 
subject to this reporting requirement if the application was received 
by the selling entity prior to the effective date of Regulation Z Sec.  
1026.19(f). Final comment 4(a)(18)-3 provides guidance in situations 
where a financial institution has issued a revised Closing Disclosure 
with a new amount of total origination charges.

4(a)(19)

    Section 304(b) of HMDA permits the disclosure of such other 
information as the Bureau may require.\323\ Pursuant to HMDA sections 
305(a) and 304(b)(5)(D), the Bureau proposed to require financial 
institutions to report, for covered loans subject to the disclosure 
requirements in Regulation Z Sec.  1026.19(f), the total discount 
points paid by the borrower. Discount points are points paid to the 
creditor to reduce the interest rate, and are listed on Line A.01 of 
the Closing Cost Details page of the current Closing Disclosure, as 
described in Regulation Z Sec.  1026.37(f)(1)(i). Proposed Sec.  
1003.4(a)(19) would have applied to closed-end covered loans and 
purchases of such loans, but not to applications, open-end lines of 
credit, reverse mortgages, or commercial-purpose loans. For the reasons 
provided below, the Bureau is adopting Sec.  1003.4(a)(19) generally as 
proposed, with minor technical modifications and new commentary for 
increased clarity.
---------------------------------------------------------------------------

    \323\ Section 1094(3)(A)(iv) of the Dodd-Frank Act amended 
section 304(b) of HMDA.
---------------------------------------------------------------------------

    Industry commenters generally opposed the requirement to report 
discount points. Some industry commenters believed that reporting the 
total discount points was unnecessary or duplicative. Several of these 
commenters pointed out that the proposal also required financial 
institutions to report the total points and fees, while other 
commenters stated that discount points were only applicable to a 
limited class of loans sold into the secondary market. One industry 
commenter believed that rate spread and total points and fees could be 
used to reveal potential unlawful discrimination.
    Although discount points are included in both total loan costs and 
total origination charges, these data points are not substitutes for 
each other. As explained above, total loan costs and total origination 
charges represent different elements of loan cost. Discount points are 
also different than the other loan costs because they represent charges 
directly related to reductions in the interest rate and are necessary 
to understand the tradeoffs between rates and points. Other measures of 
pricing, such as rate spread and total loan costs, can be useful for 
comparing borrowers, but separate reporting of discount points will 
improve analysis of the value borrowers are receiving for paying 
discount points. Finally, even if discount points are not present in 
every loan, studies of loan costs and public comments received before 
and after the proposal suggest that discount points are an important 
element of loan pricing.\324\
---------------------------------------------------------------------------

    \324\ See, e.g., 79 FR 51731, 51788-89 (Aug. 29, 2014) 
(describing feedback received prior to the proposal); Susan E. 
Woodward, A Study of Closing Costs for FHA Mortgages, at 60-69 
(2008) (report prepared for the U.S. Dep't. of Hous. and Urban Dev., 
Office of Policy Dev. and Research) (discussing problems with 
discount points on FHA loans); David Nickerson & Marsha Courchane, 
Discrimination Resulting from Overage Practices, 11 J. of Fin. 
Servs. Research 133 (1997).
---------------------------------------------------------------------------

    Other industry commenters opposed reporting discount points because 
they believed that doing so would distort the data or potentially 
mislead users. One industry commenter noted that the absence of 
information about lender credits would make comparisons between loans 
with and without lender credits misleading. Other industry commenters 
argued that comparisons between borrowers were difficult or impossible 
because of market fluctuations, differences in product type, and 
borrower decisionmaking.
    In response to these comments, the Bureau is adding a requirement 
for financial institutions to report lender credits. As explained 
above, however, even though HMDA data are not exhaustive, the data 
still provide extremely valuable information for the public and public 
officials that fulfills HMDA's purposes. Regarding the influence of 
other variables, the final rule includes several data points that will 
allow users to control for several of the factors mentioned by 
commenters, including location and product type. Indeed, not requiring 
reporting of discount points might also mislead users by limiting their 
ability to explain the lower rates received by borrowers who paid 
discount points.
    Several industry commenters argued that the benefit of proposed 
Sec.  1003.4(a)(19) was unclear and questioned whether there was any 
evidence of discrimination against borrowers through discount points. 
As stated in the proposal, reporting discount points benefits users of 
HMDA data by enabling them to develop a more detailed understanding of 
loan pricing. This improved information allows for better analyses 
regarding the value that borrowers receive in exchange for discount 
points, and determinations of whether similarly situated borrowers are 
receiving similar value. Existing studies of loan costs and feedback 
received prior to the proposal suggested that discount points were a 
sufficiently important element of loan pricing to justify their 
inclusion in HMDA.\325\
---------------------------------------------------------------------------

    \325\ See, e.g., 79 FR 51731, 51788-89 (Aug. 29, 2014) 
(describing feedback received prior to the proposal); Susan E. 
Woodward, A Study of Closing Costs for FHA Mortgages, at 60-69 
(2008) (report prepared for the U.S. Dep't. of Hous. and Urban Dev., 
Office of Policy Dev. and Research) (discussing problems with 
discount points on FHA loans); David Nickerson & Marsha Courchane, 
Discrimination Resulting from Overage Practices, 11 J. of Fin. 
Servs. Research 133 (1997).
---------------------------------------------------------------------------

    Finally, one industry commenter believed that reporting discount 
points was too burdensome because the definition was uncertain. To 
minimize any burden associated with reporting discount points, the 
Bureau is adopting a definition of discount points that aligns to 
Regulation Z. Loans excluded from Regulation Z Sec.  1026.19(f), such 
as open-end lines of credit, reverse mortgages, and commercial loans, 
are not subject to final Sec.  1003.4(a)(19). Therefore, the burden of 
reporting is limited to loans for which financial institutions would 
already have to know the amount of discount points in order to disclose 
it to consumers. These exclusions are stated in final comment 4(a)(19)-
1, which clarifies the scope of the reporting requirement. This 
alignment was supported by one industry commenter. The TILA-RESPA 
integrated disclosure forms, including the Closing Disclosure, are the 
subject of considerable outreach and guidance from the Bureau during 
the implementation process. As financial institutions become familiar 
with these

[[Page 66214]]

forms, the burden of reporting should decrease.
    For the reasons provided above, pursuant to HMDA sections 305(a) 
and 304(b)(5)(D), the Bureau is adopting Sec.  1003.4(a)(19) generally 
as proposed, with minor technical modifications. These technical 
modifications clarify that, although discount points are described more 
clearly in Regulation Z Sec.  1026.37(f)(1)(i), financial institutions 
should report the amount found on the Closing Disclosure, as disclosed 
pursuant to Regulation Z Sec.  1026.38(f)(1). For the reasons given 
above, data about discount points will assist public officials and 
members of the public in determining whether financial institutions are 
serving the housing needs of their communities and in identifying 
potentially discriminatory lending patterns. Final Sec.  1003.4(a)(19) 
requires financial institutions to report, for covered loans subject to 
the disclosure requirements in Regulation Z, 12 CFR 1026.19(f), the 
points paid to the creditor to reduce the interest rate, expressed in 
dollars, as described in Regulation Z, 12 CFR 1026.37(f)(1)(i), and 
disclosed pursuant to Regulation Z, 12 CFR 1026.38(f)(1). For covered 
loans subject to the disclosure requirements in Regulation Z Sec.  
1026.19(f), the discount points that financial institutions would 
report are those listed on Line A.01 of the Closing Cost Details page 
of the current Closing Disclosure.
    The Bureau is also adopting several new comments. Final comment 
4(a)(19)-1 clarifies the scope of the reporting requirement. Final 
comment 4(a)(19)-2 explains that purchased covered loans are not 
subject to this reporting requirement if the application was received 
by the selling entity prior to the effective date of Regulation Z Sec.  
1026.19(f). Final comment 4(a)(19)-3 provides guidance in situations 
where a financial institution has issued a revised Closing Disclosure 
with a new amount of discount points.
4(a)(20)
Proposed 4(a)(20)
    Section 304(b) of HMDA authorizes the disclosure of such other 
information as the Bureau may require.\326\ Pursuant to HMDA sections 
305(a) and 304(b)(5)(D), the Bureau proposed to require financial 
institutions to report, for covered loans subject to the disclosure 
requirements in Regulation Z Sec.  1026.19(f), other than purchased 
covered loans, the risk-adjusted, pre-discounted interest rate 
associated with a covered loan. The risk-adjusted, pre-discounted 
interest rate (RPIR) is the rate that the borrower would have received 
in the absence of any discount points or rebates and is the same base 
rate from which a financial institution would exclude ``bona fide 
discount points'' from the points-and-fees total used to determine 
qualified mortgage and high-cost mortgage status under Regulation Z. 
Proposed Sec.  1003.4(a)(20) would have applied to closed-end covered 
loans, but not to applications or purchased covered loans, or open-end 
lines of credit, reverse mortgages, or commercial-purpose loans. For 
the reasons provided below, the Bureau is not finalizing proposed Sec.  
1003.4(a)(20).
---------------------------------------------------------------------------

    \326\ Section 1094(3)(A)(iv) of the Dodd-Frank Act amended 
section 304(b) of HMDA.
---------------------------------------------------------------------------

    Most consumer advocates expressed support for the proposed pricing 
data points collectively, but few commented specifically on the RPIR. 
One commenter generally stated that the RPIR would be helpful for fair 
lending analysis. Another consumer advocate believed that, combined 
with the other proposed data points, the RPIR would better enable users 
to understand pricing disparities among groups of consumers. This 
consumer advocate further urged the Bureau to expand Sec.  
1003.4(a)(20) to cover home-equity lines of credit because doing so 
would improve the ability of users to compare pricing across loan 
types.
    The Bureau agrees with commenters that the concept of a risk-
adjusted, pre-discounted interest rate would have value for fair 
lending purposes, provided that such a rate was consistently 
calculated. However, public comments and additional outreach have 
revealed that the rate proposed to be reported under Sec.  
1003.4(a)(20) is less valuable and more unclear than the Bureau 
initially believed. Several industry commenters cited definitional 
issues surrounding proposed Sec.  1003.4(a)(20). For example, one 
commenter noted that a single loan may have multiple rates available to 
the consumer that would satisfy the description of the RPIR. Another 
commenter stated that the concept of an RPIR existed only in the realm 
of informal guidance provided by the Bureau under Regulation Z. Similar 
feedback was provided by many of the vendors and financial institutions 
that participated in additional outreach conducted by the Bureau after 
the proposal's comment period closed. These participants expressed 
different understandings of the rate that would be required by proposed 
Sec.  1003.4(a)(20). For example, two participants noted that multiple 
rates could potentially satisfy the requirements of the RPIR, and that 
the discretion of a financial institution was required to select a rate 
that would actually function as the pre-discounted rate, if applicable, 
for Regulation Z purposes. Other participants cited lack of 
definitional clarity as a factor that would add significant burden to 
the proposed reporting requirement.
    Additionally, several industry commenters questioned the benefit 
that the RPIR would provide for fair lending purposes. For example, one 
commenter doubted that the RPIR would produce any fair lending insights 
beyond those made possible by the current pricing data. As stated in 
the proposal, the potential value of the RPIR comes from its 
explanatory power. Pricing outcomes are determined by many factors, 
including rate-sheet inputs, loan-level pricing adjustments, other 
discretionary pricing adjustments, and consumer decisionmaking. The 
RPIR would reflect many of the pricing adjustments for which users 
would have to control in order to determine whether pricing disparities 
were explained by legitimate business considerations. Therefore, 
analyzing the changes to loan pricing that occur after a financial 
institution has determined the RPIR may provide strong evidence of 
potential impermissible discrimination with a reduced need to control 
for multiple legitimate factors that influence loan pricing.
    However, the Bureau now believes that the RPIR may not provide 
sufficient value to justify the burden associated with collecting and 
reporting it. The rate described in proposed Sec.  1003.4(a)(20) is the 
base rate to which a financial institution would apply any reduction 
obtained by the payment of discount points in determining whether those 
points may be excluded as ``bona fide discount points'' from points and 
fees pursuant to Regulation Z Sec.  1026.32(b). This rate was 
originally designed to ensure that discount points excluded from the 
points-and-fees coverage tests actually produced an appropriate 
reduction in the borrower's interest rate. The rate was not intended to 
isolate pricing adjustments necessary to facilitate fair lending 
analysis. Therefore, the Bureau believes that the rate is less 
beneficial for fair lending purposes than it initially thought. After 
considering the function of the rate and the burden associated with 
reporting it, the Bureau has decided not to finalize proposed Sec.  
1003.4(a)(20).
    As part of the additional outreach, the Bureau also sought 
information about two other measures of loan pricing that might have 
greater fair lending benefit than the proposed RPIR. These measures are 
the ``post-LLPA rate'' and the ``discretionary adjustment.'' The

[[Page 66215]]

post-LLPA rate is the interest rate that reflects all the transaction-
specific, nondiscretionary pricing adjustments dictated by the 
financial institution's standard loan pricing policy. The discretionary 
adjustment is any alteration by the financial institution of the 
interest rate or points made for any reason other than the application 
of the standard loan pricing policy. However, feedback received through 
the additional outreach process suggested that these measures would be 
more burdensome to report. For example, they may be calculated and 
stored less commonly than the RPIR, and neither currently possesses a 
definition in either existing regulation or industry custom. Therefore, 
at this time, the Bureau has not identified a suitable alternative base 
rate that it could substitute for the RPIR proposed in Sec.  
1003.4(a)(20).
    For the reasons provided above, the Bureau is not finalizing 
proposed Sec.  1003.4(a)(20).
Final 4(a)(20)
    Section 304(b) of HMDA permits the disclosure of such other 
information as the Bureau may require.\327\ In using its discretionary 
authority to propose to require financial institutions to report the 
total discount points paid by the consumer, the Bureau also invited 
comment on ``whether to include any lender credits, premiums, or 
rebates in the measure of discount points.'' \328\ For the reasons 
provided below, the Bureau is adopting new Sec.  1003.4(a)(20), which 
requires financial institutions to report, for covered loans subject to 
the disclosure requirements in Regulation Z Sec.  1026.19(f), the total 
amount of lender credits, as disclosed pursuant to Regulation Z Sec.  
1026.38(h)(3). Lender credits are amounts provided to the borrower to 
offset closing costs and are disclosed under Line J of the Closing Cost 
Details page of the current Closing Disclosure. Final Sec.  
1003.4(a)(20) applies to closed-end covered loans and purchases of such 
loans, but not to applications, open-end lines of credit, reverse 
mortgages, or commercial-purpose loans.
---------------------------------------------------------------------------

    \327\ Section 1094(3)(A)(iv) of the Dodd-Frank Act amended 
section 304(b) of HMDA.
    \328\ See 79 FR 51731, 51789 (Aug. 29, 2014).
---------------------------------------------------------------------------

    The Bureau received several comments in response to its 
solicitation for feedback regarding lender credits. Some industry 
commenters requested clarification regarding whether such credits would 
be included within any of the proposed data points. For example, two 
commenters asked how offsetting credits associated with an interest 
rate would be reported, if at all. One industry commenter believed that 
information regarding lender credits would provide no value to HMDA 
users. However, other comments suggested that data on lender credits 
would be valuable even though the commenters did not advocate for 
reporting of these data. For example, one commenter explained that 
without some representation of lender credits, the prices of loans with 
such offsetting credits would appear artificially high.
    The Bureau believes that lender credits are a basic element of the 
cost of the loan that should be represented in the HMDA data. Financial 
institutions often offer borrowers a credit or rebate to offset some or 
all of the closing costs associated with a loan in return for accepting 
a higher interest rate. These credits reflect trade-offs similar to 
those that borrowers make between discount points and the interest 
rate, and are generally displayed as negative points on the rate sheet. 
As commenters have pointed out, without accounting for these credits, 
users of HMDA data would be unable to determine that loans with credits 
or rebates were not higher priced than similar loans without such 
credits. As noted above, the final rule cannot provide for reporting of 
every factor that might conceivably influence loan pricing. However, 
the Bureau finds that lender credits should be included because they 
are sufficiently important to understanding the price of a loan. 
Although the amount of lender credits disclosed under Regulation Z 
Sec.  1026.38(h)(3) may also include any refunds provided for amounts 
that exceed the limitations on increases in closing costs, the Bureau 
believes that an imperfect measure of lender credits is substantially 
better than no measure at all.\329\ Furthermore, removing such refunds 
to obtain a pure measure of lender credits would increase burden by 
forcing lenders to perform a new calculation that they would not 
otherwise perform under any existing regulation.
---------------------------------------------------------------------------

    \329\ The lender credits disclosed pursuant to Regulation Z 
Sec.  1026.38(h)(3) would also exclude any credits attributable to 
specific loan costs listed in the Closing Disclosure. See 12 CFR 
1026.19(f), comment 38(h)(3)-1.
---------------------------------------------------------------------------

    Two industry commenters opposed reporting lender credits because 
they would be burdensome to report. However, the Bureau is adopting a 
definition of lender credits that aligns to Regulation Z Sec.  
1026.38(h)(3) and is applying the final reporting requirement only to 
covered loans for which a Closing Disclosure is required. Loans 
excluded from Regulation Z Sec.  1026.19(f), such as open-end lines of 
credit, reverse mortgages, and commercial loans, are not subject to 
final Sec.  1003.4(a)(20). Therefore, the burden of reporting is 
limited to loans for which financial institutions would already have to 
disclose the total amount of lender credits. These exclusions are 
stated in final comment 4(a)(20)-1, which clarifies the scope of the 
reporting requirement.
    For the reasons provided above, pursuant to HMDA sections 305(a) 
and 304(b)(5)(D), the Bureau is adopting new Sec.  1003.4(a)(20), which 
requires financial institutions to report, for covered loans subject to 
the disclosure requirements in Regulation Z Sec.  1026.19(f), the total 
amount of lender credits, as disclosed pursuant to Regulation Z Sec.  
1026.38(h)(3). The total amount of lender credits appears under Line J 
of the Closing Cost Details page of the current Closing Disclosure. For 
the reasons given above, data about lender credits will assist public 
officials and members of the public in determining whether financial 
institutions are serving the housing needs of their communities and in 
identifying potentially discriminatory lending patterns.
    The Bureau is also adopting several comments. Final comment 
4(a)(20)-1 clarifies the scope of the reporting requirement. Final 
comment 4(a)(20)-2 explains that purchased covered loans are not 
subject to this reporting requirement if the application was received 
by the selling entity prior to the effective date of Regulation Z Sec.  
1026.19(f). Final comment 4(a)(20)-3 provides guidance in situations 
where a financial institution has issued a revised Closing Disclosure 
with a new amount of lender credits.
4(a)(21)
    Section 304(b) of HMDA permits the disclosure of such other 
information as the Bureau may require.\330\ Pursuant to HMDA sections 
305(a) and 304(b)(6)(J), the Bureau proposed to require financial 
institutions to report the interest rate that is or would be applicable 
to the covered loan or application at closing or account opening. 
Proposed comment 4(a)(21)-1 explained the interest rate that financial 
institutions should report for covered loans subject to certain 
disclosure requirements in Regulation Z. For the reasons provided 
below, the Bureau is generally adopting Sec.  1003.4(a)(21) as 
proposed, with minor modifications and the addition of commentary 
clarifying the reporting obligations for applications and for 
adjustable-rate transactions for which

[[Page 66216]]

the interest rate is unknown at the time final action is taken.
---------------------------------------------------------------------------

    \330\ Section 1094(3)(A)(iv) of the Dodd-Frank Act amended 
section 304(b) of HMDA.
---------------------------------------------------------------------------

    Consumer groups supported the proposed pricing data points, 
including the interest rate. These commenters stated that such 
information would help identify potentially unlawful price 
discrimination and better understand the type and terms of credit 
offered to different communities. For example, one commenter noted that 
the interest rate would be particularly valuable for analyzing the 
impact of discount points. Another commenter stated that the interest 
rate was necessary to study the terms of the loan. Finally, other 
consumer advocate commenters noted that the interest rate, when 
combined with the other pricing variables, would enable a more precise 
understanding of the elements of loan pricing.
    Industry commenters generally opposed requiring financial 
institutions to report the interest rate. Some industry commenters 
argued that the interest rate had little value or relevance, and one 
industry commenter disagreed that facilitating comparisons among 
borrowers was sufficient to justify the reporting requirement. The 
value of information regarding the interest rate, however, comes not 
only from comparing the interest rates received by borrowers but from 
the ability to better understand the relationship between the interest 
rate and discount points, origination charges, and lender credits. This 
more detailed understanding will better facilitate identification of 
potentially discriminatory lending patterns and provide a more complete 
picture of the credit available to particular communities.
    Several other industry commenters argued that the interest rate was 
an unnecessary data point. Most of these commenters pointed out that 
the rate spread was already reported and would enable some analysis of 
loan pricing. One industry commenter suggested that the annual 
percentage rate be reported instead of the interest rate. However, one 
commenter believed that the APR was often calculated inaccurately and 
therefore supported reporting of the interest rate.
    Although the rate spread and the interest rate are related, they 
are not equivalent measures of loan pricing. As explained in the 
proposal, the APR is a measure of the cost of credit, including both 
interest and certain fees, expressed as a yearly rate, while the 
interest rate is the cost of the loan expressed as a percentage rate. 
The interest rate enables users to understand the relationship between 
the interest rate and discount points, origination charges, and lender 
credits more directly than the rate spread, because the rate spread 
does not isolate the interest rate. Second, the rate spread and 
interest rate data points have substantially different scopes. Unlike 
rate spread, final Sec.  1003.4(a)(21) applies to both reverse 
mortgages and commercial loans. Indeed, Sec.  1003.4(a)(21) is one of 
few pricing data points that applies to such loans.
    Other industry commenters stated that information about the 
interest rate would be misleading. One industry commenter noted that 
the interest rate was influenced by factors outside of a financial 
institution's control, such as market fluctuations and borrower 
decisionmaking. Two industry commenters believed that proposed Sec.  
1003.4(a)(21) would encourage financial institutions to provide 
``teaser rates'' to create the illusion of lower-priced loans in their 
HMDA data. Although financial institutions set interest rates based in 
part on market factors that they may not control, interest rate data 
are still valuable, along with other data elements, to help further 
HMDA's purposes, including as a screen for potential fair lending 
concerns. For example, the final rule provides for reporting 
information about the date, product type, location, and certain 
consumer decisions, such as the choice to pay discount points for a 
lower rate or receive lender credits in exchange for a higher rate. 
Moreover, eliminating the interest rate might also undermine the 
utility of other data points. Users would experience more difficulty 
understanding the discount points and lender credits among borrowers or 
groups of borrowers. Finally, the final rule will also provide for 
reporting of the introductory rate period, which should discourage the 
type of rate manipulation about which commenters were concerned.
    One industry commenter believed that reporting the interest rate 
might allow competitors to gain insight into confidential business 
information, such as underwriting criteria. This commenter did not 
explain how a competitor would derive proprietary information regarding 
its underwriting criteria from the interest rate, and the Bureau is 
aware of no reliable means of doing so.
    Several industry commenters raised concerns over the burden of 
reporting the interest rate. These commenters pointed out that interest 
rates fluctuate frequently and may be unavailable for loans that are 
not originated. Similarly, several commenters requested that the Bureau 
not require financial institutions to report the interest rate for 
applications because the rate might be unknown. One commenter asked 
what rate should be reported for an application for which the rate has 
not been locked. The Bureau notes that, for many applications, a 
financial institution may not know the interest rate applicable to the 
covered loan. However, for applications approved by the financial 
institution but not accepted by the applicant, the interest rate would 
typically be available. Accordingly, the Bureau is clarifying that 
Sec.  1003.4(a)(21) requires a financial institution to report the 
interest rate only if the application has been approved by the 
financial institution but not accepted by the borrower, or if the 
financial institution reports the loan as originated. For all other 
applications or preapprovals, such as applications that have been 
denied or withdrawn, or files closed for incompleteness, a financial 
institution reports that no interest rate was applicable. The Bureau is 
adopting final comment 4(a)(21)-2 to clarify the reporting obligations 
in the case of applications. This comment removes the burden of 
attempting to determine the interest rate where the rate is truly 
unavailable while preserving data utility regarding applications by 
providing for reporting of the rate where the rate is available. For 
applications that have been approved but not accepted for which the 
rate has not been locked, financial institutions would report the rate 
applicable at the time the application was approved. The Bureau is also 
adopting comment 4(a)(21)-3, which states that, for adjustable-rate 
covered loans or applications, if the interest rate is unknown at the 
time that the application was approved, or at closing or account 
opening, a financial institution reports the fully-indexed rate. For 
purposes of Sec.  1003.4(a)(21), the fully-indexed rate is the index 
value and margin at the time that the application was approved, or, for 
covered loans, at closing or account opening. This comment mirrors the 
approach taken by comment 4(a)(21)-1, which clarifies the interest rate 
to be reported for loans subject to the Bureau's TILA-RESPA Integrated 
Disclosure Rule.
    Several industry commenters also requested that the Bureau exclude 
commercial loans, including multifamily mortgage loans, from the scope 
of Sec.  1003.4(a)(21). Commercial loans, these commenters explained, 
typically have interest rates that are variable and based on different 
indices than consumer loans. Similarly, one industry commenter noted 
that the interest rates for multifamily mortgage loans were based on a 
variety of factors that differed among multifamily loans.

[[Page 66217]]

Regarding variable interest rates, as explained above, the Bureau is 
adopting comment 4(a)(21)-3, which provides that, for adjustable-rate 
covered loans or applications, if the interest rate is unknown at the 
time that the application was approved, or at closing or account 
opening, a financial institution reports the fully-indexed rate based 
on the index applicable to the covered loan or application.
    Regarding loan comparisons, the adoption of a commercial-purpose 
flag in the final rule will enable HMDA data users to identify these 
loans and avoid potentially misleading comparisons. Information about 
multifamily housing continues to be an important component of the HMDA 
data. Information about the conditions of financing for multifamily 
dwellings may help public officials in distributing public-sector 
investment so as to attract private investment to areas where it is 
needed. Therefore, the Bureau is not excluding such loans from Sec.  
1003.4(a)(21).
    For the reasons provided above, pursuant to HMDA sections 305(a) 
and 304(b)(6)(J), the Bureau is adopting Sec.  1003.4(a)(21) generally 
as proposed, with minor modifications and additional clarifying 
commentary. For the reasons given above, data about the interest rate 
will assist public officials and members of the public in determining 
whether financial institutions are serving the housing needs of their 
communities and in identifying potentially discriminatory lending 
patterns. The Bureau is adopting commentary identifying the interest 
rate that should be reported for covered loans subject to the 
disclosure requirements of Regulation Z Sec.  1026.19(e) or (f). The 
commentary also explains that, for applications, final Sec.  
1003.4(a)(21) requires a financial institution to report the interest 
rate only for applications that have been approved by the financial 
institution but not accepted by the borrower. Finally, the Bureau is 
adopting commentary clarifying the interest rate to be reported for 
adjustable-rate covered loans or applications for which the initial 
interest rate is unknown. Final Sec.  1003.4(a)(21) applies to closed-
end covered loans, open-end lines of credit, reverse mortgages, and 
commercial-purpose loans, as well as to purchases of such loans, and 
applications that have been approved by the lender but not accepted by 
the borrower.
4(a)(22)
    Section 304(b) of HMDA \331\ requires reporting of the term in 
months of any prepayment penalty or other fee or charge payable upon 
repayment of some portion of principal or the entire principal in 
advance of scheduled payments.\332\ The Bureau proposed to implement 
this provision through proposed Sec.  1003.4(a)(22), which required 
financial institutions to report the term in months of any prepayment 
penalty, as defined in Regulation Z Sec.  1026.32(b)(6)(i) or (ii), as 
applicable. Prepayment penalties are charges imposed on borrowers for 
paying all or part of the transaction's principal before the date on 
which the principal is due. Proposed Sec.  1003.4(a)(22) would have 
applied to applications for, and originations of, closed-end loans, 
open-end lines of credit, reverse mortgages, and commercial-purpose 
loans, but not to purchases of such loans. For the reasons provided 
below, the Bureau is adopting Sec.  1003.4(a)(22) generally as 
proposed, with clarifying commentary, but is limiting its scope to 
certain covered loans or applications subject to Regulation Z, 12 CFR 
part 1026. The revised scope of the reporting requirement excludes 
purchased covered loans, as well as reverse mortgages and loans or 
lines of credit made primarily for business or commercial purposes.
---------------------------------------------------------------------------

    \331\ Section 1094(3)(A)(iv) of the Dodd-Frank Act amended 
section 304(b) of HMDA.
    \332\ 12 U.S.C. 2803(b)(5)(C).
---------------------------------------------------------------------------

    The Bureau received few comments supporting or opposing proposed 
Sec.  1003.4(a)(22). Two industry commenters asserted that reporting 
information about prepayment penalties was unnecessary because 
regulatory scrutiny and the requirements of secondary market programs 
have diminished their prevalence. On the other hand, several consumer 
advocates supported the improved pricing data, including reporting of 
the prepayment penalty. One consumer advocate was particularly 
supportive of proposed Sec.  1003.4(a)(22) because of the importance of 
understanding whether certain communities were receiving loans with 
problematic features.
    The final rule retains the requirement to report data about 
prepayment penalties, consistent with the Dodd-Frank Act amendments to 
HMDA. In the lead-up to the financial crisis, prepayment penalties were 
frequently cited as a risky feature for consumers with subprime loans. 
Although prepayment penalties may be less prevalent than they were in 
the years preceding the financial crisis, their use may increase in the 
future. Prepayment penalty data will allow for the identification of 
any potential increase in prepayment penalties when considering how 
institutions are meeting the housing needs of their communities, and 
when looking for any potentially discriminatory lending practices.
    Most industry commenters requested certain clarifications or 
revisions to the scope of the reporting requirement. One industry 
commenter requested that the final rule not require reporting of the 
prepayment penalty for applications that do not result in originations. 
The Bureau is not adopting this suggestion. Both loans and applications 
for loans with prepayment penalties will provide valuable data for 
HMDA's purposes, and commenters have not suggested that the prepayment 
penalty term is more burdensome to determine for an application than 
for an originated loan. If the loan for which a consumer applied 
featured a prepayment penalty, the financial institution would report 
the term of that prepayment penalty. Similarly, if the loan for which 
the consumer applied featured no prepayment penalty, the financial 
institution would report that the reporting requirement was not 
applicable to the transaction. The Bureau has reflected these 
requirements in final comment 4(a)(22)-2. Two other industry commenters 
requested clarification regarding certain conditionally-waived charges. 
Final Sec.  1003.4(a)(22) defines prepayment penalty with reference to 
Regulation Z Sec.  1026.32(b)(6)(i) or (ii), as applicable. The 
commentary to Sec.  1026.32(b)(6) discusses waived, bona fide third-
party charges imposed under certain conditions and, as explained in 
final comment 4(a)(22)-2, may be relied on for purposes of Sec.  
1003.4(a)(22).
    Two industry commenters asked the Bureau to exclude commercial 
loans, including multifamily loans, from the prepayment penalty 
reporting requirement. These commenters pointed out that prepayment 
penalties serve different purposes in commercial lending. One commenter 
explained that multifamily mortgage loans featured various forms of 
prepayment protection, such as lock-out features, yield maintenance, or 
prepayment premiums that were not contemplated in the definition of 
prepayment penalty found in Regulation Z Sec.  1026.32(b)(6)(i) and 
(ii). This commenter urged the Bureau to either limit Sec.  
1003.4(a)(22) to consumer loans or to adopt a new definition that was 
relevant to the commercial and multifamily lending context.

[[Page 66218]]

    The Bureau understands that commercial loans, particularly 
multifamily mortgage loans, include forms of prepayment protection 
which have no analog in the consumer-purpose mortgage context. For 
example, these loans may feature defeasance, in which the borrower of a 
multifamily mortgage loan substitutes a new form of collateral, such as 
bonds or other securities, designed to generate sufficient cash flow to 
cover future loan payments. In order to capture these complex 
arrangements, the final rule would have to include a new definition of 
prepayment penalty. A new definition that is not part of any other 
existing regulation would likely impose burden on financial 
institutions. Moreover, consumer mortgage loans with prepayment 
penalties were most frequently cited as a concern in the lead up to the 
financial crisis and the Dodd-Frank Act. The Bureau is not aware of 
similar concerns about commercial loans covered by HMDA. At this time, 
the Bureau does not believe that applying Sec.  1003.4(a)(22) to 
commercial loans would provide sufficient benefits to justify the 
additional burden on financial institutions. Therefore, the Bureau is 
limiting the scope of final Sec.  1003.4(a)(22) to covered loans or 
applications subject to Regulation Z, 12 CFR part 1026.
    For the reasons provided above, to implement HMDA section 
304(b)(5)(C), and pursuant to HMDA section 305(a), the Bureau is 
adopting Sec.  1003.4(a)(22) generally as proposed, but is modifying 
the scope of the provision to apply to certain covered loans and 
applications subject to Regulation Z, 12 CFR part 1026. Final Sec.  
1003.4(a)(22) applies to applications for, and originations of, closed-
end covered loans and open-end lines of credit, but not reverse 
mortgages and commercial-purpose loans. To facilitate compliance, the 
Bureau is excepting covered loans that have been purchased by a 
financial institution. As the Bureau explained in the proposal, it does 
not believe that the term of a prepayment penalty would be readily 
available from the information obtained from the selling entity.\333\ 
The Bureau is also excepting reverse mortgages and commercial-purpose 
loans, which, as explained above, will facilitate compliance.
---------------------------------------------------------------------------

    \333\ 79 FR 51731 at 51791-92.
---------------------------------------------------------------------------

    Final Sec.  1003.4(a)(22) includes commentary clarifying the 
reporting obligations of financial institutions in certain situations. 
Final comment 4(a)(22)-1 clarifies the scope of the reporting 
requirement. Final comment 4(a)(22)-2 provides guidance for reporting 
the prepayment penalty for applications and allows financial 
institutions to rely on the commentary to the relevant sections of 
Regulation Z.
4(a)(23)
    Proposed Sec.  1003.4(a)(23) provided that a financial institution 
must report the ratio of the applicant's or borrower's total monthly 
debt to the total monthly income relied on in making the credit 
decision (debt-to-income ratio). Proposed Sec.  1003.4(a)(23) applied 
to covered loans and applications, except for reverse mortgages. The 
Bureau also proposed new comments 4(a)(23)-1 through -4. Many 
commenters addressed including the debt-to-income ratio in the HMDA 
data. Many community advocate commenters expressed support for its 
inclusion, while many industry commenters raised concerns about 
reporting the data. For the reasons discussed below, the Bureau is 
finalizing Sec.  1003.4(a)(23) and comments 4(a)(23)-1 through -4 as 
proposed with technical modifications discussed below. In addition, the 
Bureau is adopting new comments 4(a)(23)-5 through -7.

Comments

    Several consumer advocate commenters expressed strong support for 
proposed Sec.  1003.4(a)(23). Many noted that the debt-to-income ratio 
will help identify problematic loans where there may be a need for 
intervention. One commenter stated that higher ratios correspond with 
higher default rates and suggested that lenders' acceptance of higher 
debt-to-income ratios in loans originated in the mid-2000s contributed 
to the high foreclosure rates after 2005. In addition, commenters 
stated that the debt-to-income ratio will enable users to identify 
whether the debt-to-income ratio is a barrier to credit and, if so, 
which consumers are affected.
    A consumer advocate commenter expressed support for collecting the 
debt-to-income ratio, but noted limitations to its utility because it 
can be easily manipulated. The commenter explained that the debt-to-
income ratio may overstate a borrower's repayment ability because a 
borrower may repay an open-end line of credit to reduce their debt in 
order to qualify, but then immediately re-draw the line. In addition, 
the debt-to-income ratio may understate a borrower's ability to repay 
because a financial institution may only consider the minimum income to 
qualify.
    Many industry commenters expressed concerns about proposed Sec.  
1003.4(a)(23). Many commenters questioned the value of reporting this 
information. Some noted that the data would be difficult to analyze 
because the debt-to-income ratio is calculated and weighted differently 
depending on the loan product, financial institution, and applicant's 
circumstances. Others stated that the data would not be valuable for 
different reasons, including that the debt-to-income ratio is not 
calculated for all loans and that the debt-to-income ratio only factors 
into denial, and not into pricing decisions. Commenters also expressed 
concern that the information may be misunderstood because the debt-to-
income ratio is one of many factors in an underwriting decision and 
conveys complex information. Other commenters objected to including 
this requirement because it is not expressly required by the Dodd-Frank 
amendments to HMDA. A few commenters asserted that collecting the debt-
to-income ratio would not support HMDA's purposes. Others suggested 
that collecting the debt-to-income ratio was duplicative of other 
information included in the proposal, including denial reasons.
    In addition to general concerns about the proposed requirement, 
some commenters stated that reporting the debt-to-income ratio would be 
too burdensome for financial institutions. On the other hand, some 
industry commenters noted that the burden for reporting proposed Sec.  
1003.4(a)(23) would be low because it requires reporting of the debt-
to-income ratio relied on by the financial institution in making the 
credit decision instead of prescribing a specific calculation.
    A few industry commenters stated that they supported reporting the 
debt-to-income ratio relied on in making the credit decision, rather 
than requiring financial institutions to report a calculation 
prescribed by the Bureau. Other commenters urged the Bureau to require 
reporting of a specific debt-to-income ratio to increase the utility of 
the data.
    The Bureau concludes that including the debt-to-income ratio in the 
HMDA data will provide many benefits and further HMDA's purposes. The 
debt-to-income ratio will help identify potential patterns of 
discrimination. The Bureau understands that the debt-to-income ratio is 
only one factor in underwriting. Nonetheless, the debt-to-income ratio 
provides important information about the likelihood of default and 
about access to credit. Reporting debt-to-income information 
supplements the denial reason field in which financial institutions may 
indicate whether an application was denied due to the debt-to-income 
ratio. In addition to information about whether a loan was

[[Page 66219]]

denied due to the debt-to-income ratio, reporting the debt-to-income 
ratio will illuminate potential disparate treatment of similarly 
situated applicants. This information will help to better identify 
discriminatory practices, better understand whether lenders are meeting 
their obligations to serve the needs of the communities in which they 
operate, and, potentially, better target programs and investments to 
vulnerable borrowers.
    Requiring the financial institution to report the debt-to-income 
ratio relied on in making the credit decision would provide these 
benefits even though, as noted by industry commenters, the debt-to-
income ratio is calculated differently depending on the loan product 
and lender. A prescribed debt-to-income calculation for HMDA purposes 
may allow for better comparison of debt-to-income information across 
the data. However, a prescribed calculation would significantly 
increase the burden associated with reporting the debt-to-income ratio. 
Therefore, the final rule, like the proposal, does not require a 
prescribed debt-to-income ratio calculation for HMDA purposes, and, 
instead, requires financial institutions to report the debt-to-income 
ratio relied on in making the credit decision.
    Some consumer advocate commenters urged the Bureau to collect 
additional information related to the mortgage payment-to-income ratio 
(front-end debt-to-income ratio). The front-end debt-to-income ratio 
differs from the information requested by proposed Sec.  1003.4(a)(23), 
which is commonly referred to as the back-end debt-to-income ratio, in 
that it, unlike the back-end debt-to-income ratio, does not include 
debts other than the mortgage debt in the debt-to-income ratio. As a 
result, the front-end debt-to-income ratio is a less complete measure 
of a borrower's ability to repay a loan and, accordingly, is a less 
important factor in underwriting decisions. In addition, using the 
reported income, discussed above in the section-by-section analysis of 
Sec.  1003.4(a)(10)(iii), and loan amount, discussed above in the 
section-by-section analysis of Sec.  1003.4(a)(7), it will be possible 
to calculate that ratio, if desired. For these reasons, the final rule 
does not require financial institutions to report the front-end debt-
to-income ratio.
    Several industry commenters also raised concerns about the privacy 
implications of collecting and disclosing the applicant or borrower's 
debt-to-income ratio. See part II.B above for a discussion of the 
Bureau's approach to protecting applicant and borrower privacy with 
respect to the public disclosure of the data. Due to the significant 
benefits of collecting this information, the Bureau believes it is 
appropriate to collect the debt-to-income ratio despite the concerns 
raised by commenters about collecting this information.
    Some industry commenters urged the Bureau to exclude certain types 
of transactions (e.g., applications) or types of financial institutions 
(e.g., community banks) from the requirement to report the information 
required by proposed Sec.  1003.4(a)(23). In addition, some commenters 
believed that the proposal would require a financial institution to 
calculate a debt-to-income ratio for HMDA reporting purposes even if 
the financial institution did not calculate or use debt-to-income 
information in its credit decisions.
    Proposed Sec.  1003.4(a)(23) does not require reporting the debt-
to-income ratio unless the financial institution has calculated and 
relied upon a debt-to-income ratio in evaluating an application. As 
discussed above, the debt-to-income ratio is an important aspect in 
underwriting and reporting this information will provide an important 
insight into an institution's credit decision. This information is 
particularly important when a financial institution denies an 
application due to the debt-to-income ratio. In addition, as discussed 
above, a financial institution is not required to report a debt-to-
income ratio if it has not calculated the debt-to-income ratio for a 
particular application. The final rule does not require financial 
institutions to calculate debt-to-income ratios solely for HMDA 
reporting purposes. Therefore, the debt-to-income ratio should be 
reported for applications and originations if the ratio is calculated 
and relied on by the financial institution in making the credit 
decision.
    Other commenters explained that the debt-to-income information 
should not be reported for loans related to multifamily properties or 
loans to a trust because financial institutions do not calculate the 
debt-to-income ratio in making a credit decision on applications for 
those types of loans. Commenters explained that financial institutions 
usually consider the cash flow of the property, such as the debt 
service coverage ratio, rather than the income of the applicant when 
evaluating a multifamily loan or loan to a non-natural person. The 
Bureau understands that this cash flow analysis is different from the 
debt-to-income ratio. However, some commenters expressed uncertainty 
about whether financial institutions would be required to report the 
debt service coverage ratio or other cash flow analysis for loans to 
non-natural persons or for multifamily properties. To eliminate the 
confusion, the final rule will not require the financial institution to 
report the debt-to-income ratio for such loans. New comments 4(a)(23)-5 
and -6 explain that a financial institution may report that the 
requirement does not apply if the applicant and co-applicant, if 
applicable, are not natural persons and for loans secured by, or 
proposed to be secured by, multifamily dwellings.
    In addition, the Bureau has excluded purchased covered loans from 
the requirements of Sec.  1003.4(a)(23). The Bureau does not believe 
that the debt-to-income ratio information is as valuable for purchased 
covered loans as for applications and originations. The debt-to-income 
ratio that the originating financial institution relied on in making 
the credit decision may no longer be accurate because a borrower's 
debts and incomes may have changed since origination. In addition, the 
Bureau believes that purchasing financial institutions may face 
practical challenges in ascertaining the debt-to-income ratio that the 
originating financial institution relied on in making the credit 
decision because it may not be evident on the face of the loan 
documents. In light of the limited value of the data and these 
practical challenges, the Bureau is excluding purchased covered loans 
from the requirements in Sec.  1003.4(a)(23). However, as discussed in 
comments 4(a)-2 through -4, a financial institution that reviews an 
application for a covered loan, makes a credit decision on that 
application prior to closing, and purchases the covered loan after 
closing will report the covered loan as an origination, not a purchase. 
In that case, the final rule requires the financial institution to 
report the debt-to-income ratio that it relied on in making the credit 
decision.
    Finally, an industry commenter also asked the Bureau to explain 
what a financial institution should report if it calculates more than 
one ratio in making the credit decision. The Bureau is finalizing 
proposed comment 4(a)(23)-1, which addresses the situation in which 
more than one ratio is used. If a financial institution calculated an 
applicant's or borrower's ratio more than one time, the financial 
institution reports the debt-to-income ratio relied on in making the 
credit decision.

Final Rule

    Having considered the comments received and for the reasons 
discussed above, pursuant to its authority under

[[Page 66220]]

sections 305(a) and 304(b)(6)(J) of HMDA, the Bureau is finalizing 
Sec.  1003.4(a)(23) as proposed with technical modifications. In 
addition, the Bureau is finalizing proposed comments 4(a)(23)-1 through 
-4, as proposed, with the clarifying modifications discussed above and 
other technical modifications. Finally, the Bureau is finalizing new 
comments 4(a)(23)-5 through -7 to clarify when a financial institution 
is not required to report the applicant's or borrower's debt-to-income 
ratio.
    In addition, proposed Sec.  1003.4(a)(23) excluded reverse 
mortgages from the requirement to report the debt-to-income ratio. The 
Bureau is removing that exclusion from the final rule. The Bureau 
included that exclusion because it understood that financial 
institutions historically did not consider income or debt-to-income 
information when evaluating applications for reverse mortgages. HUD 
recently changed its guidelines for evaluating reverse mortgages for 
participation in the Home Equity Conversion Mortgage (HECM) program, 
which currently accounts for the majority of the reverse mortgage 
market.\334\ These revised guidelines include consideration of some 
income information.\335\ Currently, the revised standards do not 
contemplate calculation of a debt-to-income ratio. However, it is 
possible that in the future these guidelines or other underwriting 
standards applicable to reverse mortgages may include the consideration 
of a debt-to-income ratio. Therefore, the final rule removes the 
exclusion for reverse mortgages from Sec.  1003.4(a)(23). The Bureau 
anticipates that this information will not be reported for most reverse 
mortgages because an institution is only required to report the debt-
to-income ratio if it relies on it in making a credit decision and 
institutions do not typically rely on a debt-to-income ratio in making 
a credit decision on a reverse mortgage.
---------------------------------------------------------------------------

    \334\ U.S. Dept. of Housing and Urban Dev., Mortgagee Letter 
2014-22, HECM Fin. Assessment and Property Charge Requirements, 
available at https://portal.hud.gov/hudportal/documents/huddoc?id=14-22ml.pdf.
    \335\ Id. at 33.
---------------------------------------------------------------------------

4(a)(24)
    Currently, neither HMDA nor Regulation C contains requirements 
regarding loan-to-value ratio. Section 304(b) of HMDA permits the 
disclosure of such other information as the Bureau may require.\336\ 
The Bureau proposed Sec.  1003.4(a)(24), which requires financial 
institutions to report the ratio of the total amount of debt secured by 
the property to the value of the property. The ratio of total amount of 
secured debt to the value of the property securing the debt is 
generally referred to as the combined loan-to-value (CLTV) ratio.
---------------------------------------------------------------------------

    \336\ See Dodd-Frank Act section 1094(3)(A)(iv).
---------------------------------------------------------------------------

    The Bureau proposed two different calculations for CLTV--one 
calculation for a covered loan that is a home-equity line of credit and 
another calculation for a covered loan that is not a home-equity line 
of credit. Specifically, the Bureau proposed Sec.  1003.4(a)(24)(i), 
which provides that, for a covered loan that is a home-equity line of 
credit, the CLTV ratio shall be determined by dividing the sum of the 
unpaid principal balance of the first mortgage, the full amount of any 
home-equity line of credit (whether drawn or undrawn), and the balance 
of any other subordinate financing by the property value identified in 
proposed Sec.  1003.4(a)(28). As to a covered loan that is not a home-
equity line of credit, the Bureau proposed Sec.  1003.4(a)(24)(ii), 
which provides that the CLTV ratio shall be determined by dividing the 
combined unpaid principal balance amounts of the first and all 
subordinate mortgages, excluding undrawn home-equity lines of credit 
amounts, by the property value identified in proposed Sec.  
1003.4(a)(28).
    In addition, the Bureau proposed instruction 4(a)(24)-1, which 
directs financial institutions to enter the CLTV ratio applicable to 
the property to two decimal places, and if the CLTV ratio is a figure 
with more than two decimal places, directs institutions to truncate the 
digits beyond two decimal places. The Bureau also proposed instruction 
4(a)(24)-2, which provides technical instructions for covered loans in 
which no combined loan-to-value ratio is calculated.
    The Bureau also proposed three comments to clarify this reporting 
requirement. Proposed comment 4(a)(24)-1 clarifies that, if a financial 
institution makes a credit decision without calculating the combined 
loan-to-value ratio, the financial institution complies with Sec.  
1003.4(a)(24) by reporting that no combined loan-to-value ratio was 
calculated in connection with the credit decision. Proposed comment 
4(a)(24)-2 describes the CLTV calculation for home-equity lines of 
credit proposed in Sec.  1003.4(a)(24)(i) and provides illustrative 
examples. Proposed comment 4(a)(24)-3 describes the CLTV calculation 
for transactions that are not home-equity lines of credit proposed in 
Sec.  1003.4(a)(24)(ii) and provides illustrative examples.
    The Bureau solicited feedback regarding whether proposed Sec.  
1003.4(a)(24) is appropriate generally. Most commenters that provided 
feedback on proposed Sec.  1003.4(a)(24) supported the Bureau's 
proposal. For example, one consumer advocate commenter stated that the 
CLTV ratio provides the most accurate calculation of borrower equity 
and is therefore most relevant to assess the credit risk of the loan. 
Another consumer advocate commenter pointed out that CLTV ratio data 
provides important information regarding both an individual property's 
leverage and the general level of leverage in specific geographic 
locations, and noted that areas in which many properties are highly 
leveraged are especially vulnerable to changes in economic conditions. 
Another consumer advocate commenter suggested that CLTV ratio data is 
vital to determining whether particular financial institutions are 
making loans with high CLTV ratios on a census tract level. Some 
industry commenters also supported the Bureau's proposal. For example, 
as with credit score data, one industry commenter stated that for 
purposes of fair lending analysis, CLTV is crucial to understanding a 
financial institution's credit and pricing decision and that without 
such information, inaccurate conclusions may be reached by users of 
HMDA data.
    In contrast, several industry commenters opposed the Bureau's 
proposal to require reporting of CLTV. For example, some industry 
commenters stated that the proposed requirement is an unnecessary 
burden on financial institutions since loan-to-value ratio may be 
calculated using the Bureau's proposed property value data and the loan 
amount data that the regulation already requires. These commenters 
explained that while the proposed CLTV requirement would provide the 
ratio of the total amount of debt secured by the property to the value 
of the property, they believe the additional burden placed on financial 
institutions by this new reporting requirement outweighs any added 
value to data users.
    The Bureau has considered this feedback and determined that CLTV 
ratio data would improve the HMDA data's usefulness. CLTV ratio is a 
standard underwriting factor regularly calculated by financial 
institutions, both for a financial institution's own underwriting 
purposes and to satisfy investor requirements. For a particular 
transaction in which a CLTV ratio is not calculated or considered 
during the underwriting process, the Bureau is adopting a new comment, 
discussed further below, which permits financial institutions to report 
that the requirement is not applicable if the

[[Page 66221]]

financial institution did not rely on the CLTV ratio in making the 
credit decision. The Bureau believes that the CLTV ratio is an 
important factor both in the determination of whether to extend credit 
and for the pricing terms upon which credit would be extended. 
Consequently, the Bureau is adopting proposed Sec.  1003.4(a)(24), 
modified as discussed further below.
    The Bureau has determined to exclude purchased covered loans from 
the requirements of Sec.  1003.4(a)(24). The Bureau does not believe 
that the combined-loan-to-value ratio information is as valuable for 
purchased covered loans as for applications and originations. The 
combined-loan-to-value ratio that the originating financial institution 
relied on in making the credit decision may no longer be accurate, 
because the total amount of debt secured by the property to the value 
of the property likely has changed since origination. In addition, the 
Bureau believes that purchasing financial institutions may face 
practical challenges in ascertaining the combined-loan-to-value ratio 
that the originating financial institution relied on in making the 
credit decision because it may not be evident on the face of the loan 
documents. In light of the limited value of the data and these 
practical challenges, the Bureau is excluding purchased covered loans 
from the requirements in Sec.  1003.4(a)(24). However, as discussed in 
comment 4(a)-3, a financial institution that reviews an application for 
a covered loan, makes a credit decision on that application prior to 
closing, and purchases the covered loan after closing will report the 
covered loan that it purchases as an origination, not a purchase. In 
that case, the final rule requires the financial institution to report 
the combined-loan-to-value ratio that it relied on in making the credit 
decision.
    The Bureau solicited feedback regarding whether the proposed 
alignment to the MISMO data standards for CLTV is appropriate and 
whether the text of this proposed requirement should be clarified. 
Consistent with the Small Business Review Panel's recommendation, the 
Bureau also solicited feedback regarding whether it would be less 
burdensome for small financial institutions to report the combined 
loan-to-value relied on in making the credit decision, or if it would 
be less burdensome to small financial institutions for the Bureau to 
adopt a specific combined loan-to-value ratio calculation as proposed 
under Sec.  1003.4(a)(24).
    Several commenters did not support the Bureau's proposal to align 
with the MISMO data standards and require two different CLTV 
calculations depending on whether or not the transaction is a home-
equity line of credit. Both consumer advocates and industry were 
concerned with the proposed requirement to calculate CLTV ratio one way 
for home-equity lines of credit but another way for non-home-equity 
lines of credit. Several commenters did not support the Bureau's 
proposed CLTV calculations under proposed Sec.  1003.4(a)(24), which 
requires that the full amount of a home-equity line of credit be 
included in the CLTV calculation for a covered loan that is a home-
equity line of credit, whether it is drawn or not, but that for 
transactions that are not home-equity lines of credit, only the 
outstanding amount of any home-equity line of credit should be 
included. One industry commenter noted that it calculates the CLTV 
ratio for a covered loan that is not a home-equity line of credit by 
including the total amount of home-equity lines of credit (and does not 
exclude ``undrawn'' home-equity lines of credit as required under the 
Bureau's proposal).
    One consumer advocate commenter recommended that the transactions 
should be treated identically by requiring the full amount be included 
in the CLTV calculation since the entire amount of a home-equity line 
of credit available to the borrower constitutes potential leverage of 
the property in either situation. Similarly, another consumer advocate 
commenter suggested that loan-to-value calculations involving home-
equity lines of credit should always use the full amount of credit 
available to the borrower because the borrower has access to the full 
line of credit without any additional underwriting by the financial 
institution and thus a loan-to-value calculation that ignores the 
undrawn amount will be unreliable for purposes of analysis. This same 
commenter stated that the Bureau's desire to align with the MISMO data 
standards does not justify the adoption of inferior CLTV measurements. 
Lastly, in order to address the burden that results from requiring 
different CLTV ratio calculations based on the type of transaction, 
industry commenters also recommended that the Bureau allow for 
consistent treatment of outstanding lines of credit, regardless of the 
loan type being originated.
    The Bureau has considered this feedback and acknowledges that CLTV 
ratio calculations on home-equity lines of credit may vary between 
financial institutions. The Bureau has determined that having two 
different methods of calculating CLTV--one calculation for a covered 
loan that is a home-equity line of credit and another calculation for a 
covered loan that is not a home-equity line of credit--is unduly 
burdensome on financial institutions. The Bureau has also determined 
that it would be less burdensome for financial institutions to report 
the CLTV relied on in making the credit decision. Consequently, the 
Bureau will not adopt Sec.  1003.4(a)(28) as proposed. Instead, the 
Bureau is adopting a modified Sec.  1003.4(a)(28), which requires a 
financial institution to report the ratio of the total amount of debt 
secured by the property to the value of the property relied on in 
making the credit decision.
    As discussed in the proposal, the Bureau is generally concerned 
about the potential burden associated with reporting calculated data 
fields, such as the CLTV ratio. Some commenters noted that consistency 
in the rounding method for all relevant HMDA data will lead to more 
accurate reporting. A few industry commenters stated that the proposal 
presented a confusing rounding process that is not intuitive and 
differs depending on the data point being reported. For example, one 
commenter suggested that rather than the requirement to truncate any 
digits beyond the first two decimal places, proposed instruction 
4(a)(24)-1 should be adjusted to read that a CLTV ratio be rounded up 
if the third digit behind the decimal is 5 or larger, and rounded down 
if the digit is 4 or smaller. The commenter stated that current 
underwriting systems such as Fannie Mae's Desktop Underwriter use this 
method and that unnecessary errors can be expected if the CLTV 
instructions are finalized as proposed.
    The Bureau acknowledges that the CLTV reporting requirement in 
proposed instruction 4(a)(24)-1 may have posed some challenges for 
financial institutions. The Bureau has considered the feedback and 
believes that the proposed CLTV reporting requirement may be unduly 
burdensome on financial institutions. Consequently, the Bureau is not 
adopting the proposed CLTV reporting requirement in the final rule.
    The Bureau is adopting a modified Sec.  1003.4(a)(24), which 
requires reporting of the CLTV that a financial institution relied on 
in making the credit decision and excludes reporting of CLTV for 
purchased covered loans. In order to align with the new reporting 
requirement, the Bureau will not adopt comments 4(a)(24)-1, -2, and -3 
as proposed, and adopts new comments 4(a)(24)-1, -2, -3, -4, and -5.

[[Page 66222]]

    The Bureau is adopting new comment 4(a)(24)-1, which explains that 
Sec.  1003.4(a)(24) requires a financial institution to report the CLTV 
ratio relied on in making the credit decision and provides an 
illustrative example. The example provides that if a financial 
institution calculated a CLTV ratio twice--once according to the 
financial institution's own requirements and once according to the 
requirements of a secondary market investor--and the financial 
institution relied on the CLTV ratio calculated according to the 
secondary market investor's requirements in making the credit decision, 
Sec.  1003.4(a)(24) requires the financial institution to report the 
CLTV ratio calculated according to the requirements of the secondary 
market investor.
    The Bureau is adopting new comment 4(a)(24)-2, which explains that 
a financial institution relies on the total amount of debt secured by 
the property to the value of the property (CLTV ratio) in making the 
credit decision if the CLTV ratio was a factor in the credit decision 
even if it was not a dispositive factor. For example, if the CLTV ratio 
is one of multiple factors in a financial institution's credit 
decision, the financial institution has relied on the CLTV ratio and 
complies with Sec.  1003.4(a)(24) by reporting the CLTV ratio, even if 
the financial institution denies the application because one or more 
underwriting requirements other than the CLTV ratio are not satisfied.
    The Bureau is adopting new comment 4(a)(24)-3, which explains that 
a financial institution should report that the requirement is not 
applicable for transactions in which a credit decision was not made and 
provides illustrative examples. The comment provides that if a file was 
closed for incompleteness, or if an application was withdrawn before a 
credit decision was made, a financial institution complies with Sec.  
1003.4(a)(24) by reporting that the requirement is not applicable, even 
if the financial institution had calculated the CLTV ratio.
    The Bureau is adopting new comment 4(a)(24)-4, which explains that 
a financial institution should report that the requirement is not 
applicable for transactions in which no CLTV ratio was relied on in 
making the credit decision. The comment provides that Sec.  
1003.4(a)(24) does not require a financial institution to calculate the 
CLTV ratio, nor does it require a financial institution to rely on a 
CLTV ratio in making a credit decision. The comment clarifies that if a 
financial institution makes a credit decision without relying on a CLTV 
ratio, the financial institution complies with Sec.  1003.4(a)(24) by 
reporting that the requirement is not applicable since no CLTV ratio 
was relied on in connection with the credit decision.
    Lastly, the Bureau is adopting new comment 4(a)(24)-5, which 
explains that a financial institution complies with Sec.  1003.4(a)(24) 
by reporting that the reporting requirement is not applicable when the 
covered loan is a purchased covered loan. The Bureau believes that 
comments 4(a)(24)-1, -2, -3, -4, and -5 will provide clarity regarding 
the new reporting requirement adopted in Sec.  1003.4(a)(24) and will 
facilitate HMDA compliance.
    The Bureau believes that requiring financial institutions to 
collect information regarding CLTV ratios is necessary to carry out 
HMDA's purposes, such as helping to ensure that the citizens and public 
officials of the United States are provided with sufficient information 
to enable them to determine whether depository institutions are filling 
their obligations to serve the housing needs of the communities and 
neighborhoods in which they are located and assist public officials in 
their determination of the distribution of public sector investments in 
a manner designed to improve the private investment environment. CLTV 
ratios are a significant factor in the underwriting process and provide 
valuable insight into both the stability of community homeownership and 
the functioning of the mortgage market. Accordingly, pursuant to its 
authority under sections 305(a) and 304(b)(6)(J) of HMDA, the Bureau is 
adopting Sec.  1003.4(a)(24), which requires, except for purchased 
covered loans, reporting of the CLTV that a financial institution 
relied on in making the credit decision.
4(a)(25)
    HMDA section 304(b)(6)(D) requires, for loans and completed 
applications, that financial institutions report the actual or proposed 
term in months of the mortgage loan.\337\ Currently, Regulation C does 
not require financial institutions to report information regarding the 
loan's term. The Bureau proposed to implement HMDA section 304(b)(6)(D) 
by requiring in Sec.  1003.4(a)(25) that financial institutions collect 
and report data on the number of months until the legal obligation 
matures for a covered loan or application. For the reasons discussed 
below, the Bureau is finalizing Sec.  1003.4(a)(25) substantially as 
proposed.
---------------------------------------------------------------------------

    \337\ Dodd-Frank Act section 1094(3)(A)(iv).
---------------------------------------------------------------------------

    The Bureau solicited feedback on what method of reporting loan term 
would minimize the burden on small institutions while still meeting the 
Dodd-Frank Act reporting requirements and purposes of HMDA. Several 
commenters opposed the Bureau's proposal and suggested that reporting 
the loan term, along with other proposed data points specific to 
applicant or borrower and property characteristics, could create 
privacy risks. One commenter stated that it would be difficult to 
retain borrower and lender privacy in transactions that involve 
multifamily loans because there are a limited number of transactions in 
a geographic area. The Bureau has considered this feedback. See part 
II.B above for a discussion of the Bureau's approach to protecting 
applicant and borrower privacy with respect to the public disclosure of 
the HMDA data.
    One commenter stated that collecting data on the loan term is 
appropriate for closed-end loans but would create burdensome 
programming demands if it became a requirement for open-end credit. As 
the Bureau explained in the proposal, the length of time a borrower has 
to repay a loan is an important feature for borrowers and creditors. 
With this information, borrowers are able to determine the amount due 
with each payment, which could significantly influence their ability to 
afford the loan. Creditors, on the other hand, can use loan term as a 
factor in assessing interest rate risk, which in turns, affects loan 
pricing. The Bureau believes that the benefit of the information that 
the loan term could provide, including loan terms on open-end lines of 
credit, justifies the burden because this information could help 
explain pricing or any other differences that are indiscernible with 
current HMDA data.
    A few commenters suggested that the loan term should be reported 
consistent with the loan term disclosed under TILA-RESPA, which 
provides under Regulation Z Sec.  1026.37(a)(8) that the term to 
maturity should be disclosed in years or months or both.\338\ Although 
consistency with TILA-RESPA might mitigate burden if the creditor 
disclosing the loan term under TILA-RESPA elects to disclose term to 
maturity in months instead of years or years plus the remaining months, 
the Bureau believes that a reasonable interpretation of HMDA section 
304(b)(6)(D) is that financial institutions

[[Page 66223]]

should report the actual or proposed term for a loan or application in 
months. Another commenter stated that reporting loan term can be 
confusing on loans with unusual terms, such as those with terms that 
are not in whole months. Proposed comment 4(a)(25)-2 clarified that for 
covered loans with non-monthly repayment schedules, the loan term 
should be in months and not include any fractional months remaining. 
This guidance, for which the Bureau did not receive any comments, 
should facilitate compliance for loans with repayment schedules that 
are measured in units of time other than months.
---------------------------------------------------------------------------

    \338\ See 78 FR 79730 (Dec. 31, 2013). The rule is effective on 
October 3, 2015 and applies to transactions for which the creditor 
or mortgage broker receives an application on or after that date.
---------------------------------------------------------------------------

    Several other commenters supported the Bureau's proposal to include 
the loan term. One commenter that supported the Bureau's proposal 
stated that it is very useful, particularly given the risk maturity 
premium for longer term loans. Moreover, researchers would be able to 
examine whether a concentration of shorter term loans can lead to a 
more stable housing market.
    The Bureau concludes that the information that could be provided by 
loan terms will help determine whether financial institutions are 
serving the housing needs of their communities and assist in 
identifying possible discriminatory lending patterns and enforcing 
antidiscrimination statutes by allowing information about similar loans 
to be compared and analyzed appropriately. Accordingly, to implement 
HMDA section 304(b)(6)(D), the Bureau is adopting Sec.  1003.4(a)(25) 
substantially as proposed with minor wording changes and is also 
adopting as proposed comments 4(a)(25)-1 and -2. In addition, the 
Bureau is adopting a few comments that incorporate material contained 
in proposed appendix A into the commentary to Sec.  1003.4(a)(25) 
because of the removal of appendix A as discussed in the section-by-
section analysis of appendix A below. These comments 4(a)(25)-3 through 
4(a)(25)-5 primarily incorporate proposed appendix A instructions that 
do not contain any substantive changes from the proposed reporting 
requirements.
4(a)(26)
    HMDA section 304(b)(6)(B) requires the reporting of the actual or 
proposed term in months of any introductory period after which the rate 
of interest may change.\339\ Currently, Regulation C does not require 
financial institutions to report information regarding the numbers of 
months until the first interest rate adjustment. The Bureau proposed to 
implement HMDA section 304(b)(6)(B) by requiring in Sec.  1003.4(a)(26) 
that financial institutions collect and report data on the number of 
months until the first date the interest rate may change after loan 
origination. The Bureau also proposed that Sec.  1003.4(a)(26) would 
apply regardless of how the interest rate adjustment is characterized 
by product type, such as adjustable rate, step rate, or another type of 
product with a ``teaser'' rate. For the reasons discussed below, the 
Bureau is adopting Sec.  1003.4(a)(26) generally as proposed.
---------------------------------------------------------------------------

    \339\ Dodd-Frank Act section 1094(3)(A)(iv).
---------------------------------------------------------------------------

    The Bureau solicited feedback on what method of reporting initial 
interest rate period would minimize burden on small financial 
institutions while still meeting the Dodd-Frank Act reporting 
requirements and purposes of HMDA. Several commenters supported the 
Bureau's proposal to collect data about introductory terms. One 
commenter stated that along with other data points, the introductory 
rate period will enable accurate analyses and a full understanding of 
the extent of the terms to which residents have access to credit. The 
Bureau finds these reasons compelling in finalizing Sec.  
1003.4(a)(26). As the Bureau explained in the proposal, interest rate 
variability can be an important feature in affordability. In addition, 
having information about introductory rates will enable better analyses 
of loans and applications, which could be used to identify possible 
discriminatory lending patterns.
    One commenter pointed out that the Bureau's proposal to report the 
number of months until the first date the interest rate may change 
after origination is a measure different from Regulation Z Sec.  
1026.43(e)(2)(iv)(A), which measures the interest rate change from the 
date the first regular periodic payment is due. This commenter 
suggested that the measure for the introductory term for HMDA reporting 
should be consistent with the measure prescribed by Regulation Z Sec.  
1026.43(e)(2)(iv)(A), which relates to the underwriting of a qualified 
mortgage adopted under the Bureau's 2013 ATR Final Rule. Section 
1026.43(e)(2)(iv)(A) provides that a qualified mortgage under Sec.  
1026.43(e)(2) must be underwritten, taking into account any mortgage-
related obligations, using the maximum interest rate that may apply 
during the first five years after the date on which the first regular 
periodic payment will be due. As stated in the Bureau's 2013 ATR Final 
Rule, the Bureau believes that the approach of requiring creditors to 
underwrite a loan based on the maximum interest rate that applies 
during the first five years after the first regular periodic payment 
due date provides greater protections to consumers and is also 
consistent with Regulation Z disclosure requirements for interest rates 
on adjustable-rate amortizing loans.\340\ The Bureau, however, believes 
that a reasonable interpretation of HMDA section 304(b)(6)(B) requires 
the reporting of the number of months after a loan origination until 
the first instance of an interest rate changes or for a loan 
application, the proposed number of months until the first instance of 
an interest rate change. Accordingly, the Bureau is adopting Sec.  
1003.4(a)(26) generally as proposed but is modifying the scope of the 
provision to include applications. The Bureau is also adopting comments 
4(a)(26)-1 and -2 generally as proposed, but with minor modifications 
for clarification. In addition, because appendix A will be deleted as 
discussed in the section-by-section analysis of appendix A below, the 
Bureau is adopting new comments 4(a)(26)-3 and -4 to incorporate 
instructions in proposed appendix A. New comments 4(a)(26)-3 and -4 to 
incorporate proposed instructions in appendix A. New comment 4(a)(26)-3 
specifies that a financial institution reports that the requirement to 
report the introductory rate period is not applicable when the 
transaction involves a fixed rate covered loan or an application for a 
fixed rate covered loan. Similarly, new comment 4(a)(26)-4 specifies 
that a financial institution reports that the requirement to report the 
introductory rate period is not applicable if the transaction involves 
a purchased fixed rate covered loan.
---------------------------------------------------------------------------

    \340\ 78 FR 6407, 6521 (Jan. 30, 2013).
---------------------------------------------------------------------------

4(a)(27)
    HMDA section 304(b)(6)(C) requires reporting of the presence of 
contractual terms or proposed contractual terms that would allow the 
mortgagor or applicant to make payments other than fully amortizing 
payments during any portion of the loan term.\341\ Current Regulation C 
does not require financial institutions to report whether a loan allows 
or would have allowed the borrower to make payments other than fully 
amortizing payments. The Bureau believes it is reasonable to interpret 
HMDA section 304(b)(6)(C) to require reporting non-amortizing features 
by identifying specific, well-defined non-amortizing loan features. 
Thus, the Bureau proposed to implement HMDA section 304(b)(6)(C) by 
requiring the reporting non-amortizing features, including balloon 
payments, interest only payments, and negative

[[Page 66224]]

amortizations. Proposed Sec.  1003.4(a)(27) requires reporting balloon 
payments, as defined by 12 CFR 1026.18(s)(5)(i); interest only 
payments, as defined by 12 CFR 1026.18(s)(7)(iv); a contractual term 
that could cause the loan to be a negative amortization loan, as 
defined by 12 CFR 1026.18(s)(7)(v); or any other contractual term that 
would allow for payments other than fully amortizing payments, as 
defined by 12 CFR 1026.43(b)(2). For the reasons discussed below, the 
Bureau is finalizing Sec.  1003.4(a)(27) as proposed.
---------------------------------------------------------------------------

    \341\ Dodd-Frank Act section 1094(3)(A)(iv).
---------------------------------------------------------------------------

    The Bureau solicited feedback on what method of report non-
amortizing features would minimize the burden on small financial 
institutions but still meet the reporting requirements of the Dodd-
Frank Act and the purposes of HMDA. Most commenters, however, supported 
the proposal to collect non-amortizing features without modification. 
They stated that the data will indicate whether a high incidence of 
these features, particularly in loans to vulnerable and underserved 
populations, is a cause for concern that requires intervention. For the 
same reason, the Bureau believes that the reporting of non-amortizing 
features is helpful and can provide insight into lending activity that 
features these loans. It will provide data about the types of loans 
that are being made and assist in identifying possible discriminatory 
lending patterns and enforce antidiscrimination statutes.
    A few commenters did not support the Bureau's proposal to require 
the reporting of non-amortizing features. A financial institution 
commenter stated that it does not originate loans with risky features 
and opined that most small institutions probably do not originate such 
loans either. The Bureau recognizes that loans with non-amortizing 
features may be rare today. However, such features that may not be 
present in certain markets today may arise at a later time. Given the 
risk of payment shock with such products, the Bureau proposed Sec.  
1003.4(a)(27)(iv) to ensure the data includes information about non-
amortizing products. Furthermore, during the SBREFA process, small 
entity representatives informed the Bureau that information regarding 
non-amortizing features of a loan is currently collected by financial 
institutions. Based on this information, the Bureau concludes that at 
least some small institutions originate loans that contain non-
amortizing features.
    Additionally, commenters that opposed the reporting of non-
amortizing features reasoned that such information is not helpful and 
may not even be pertinent to most underwriting and pricing decisions. 
The Bureau explained in the proposal that non-amortizing features were 
a rarity but then became more common in the lead-up to the mortgage 
crisis. These features could be pertinent to underwriting and pricing 
decisions because of the nature of the risk they pose on the borrower. 
One commenter stated that HMDA reporters will experience confusion when 
multiple loan features apply and create difficulties in developing new 
products. The proposal and the final rule address this concern by 
aligning the definitions of non-amortizing features for HMDA purposes 
with existing definitions in Regulation Z. This alignment will 
facilitate compliance and reduce potential implementation and 
compliance difficulties.
    Accordingly, to implement HMDA section 304(b)(6)(C), the Bureau is 
finalizing Sec.  1003.4(a)(27) as proposed and is making minor 
technical amendments and wording changes to the commentary to Sec.  
1003.4(a)(27). Data about non-amortizing features will help determine 
whether financial institutions are serving the housing needs of their 
communities and assist in identifying possible discriminatory lending 
patterns and enforcing antidiscrimination statutes by allowing 
information about similar loans to be compared and analyzed 
appropriately.
4(a)(28)
    Regulation C does not require financial institutions to report 
information regarding the value of the property that secures or will 
secure the loan. HMDA section 304(b)(6)(A) requires the reporting of 
the value of the real property pledged or proposed to be pledged as 
collateral.\342\ The Bureau proposed Sec.  1003.4(a)(28), which 
implements this requirement by requiring financial institutions to 
report the value of the property securing the covered loan or, in the 
case of an application, proposed to secure the covered loan relied on 
in making the credit decision. The Bureau proposed a new technical 
instruction in appendix A for reporting the property value relied on in 
dollars. In addition, in order to provide clarity on proposed Sec.  
1003.4(a)(28), the Bureau proposed new illustrative comments 4(a)(28)-1 
and -2.
---------------------------------------------------------------------------

    \342\ Dodd-Frank Act section 1094(3)(A)(iv), 12 U.S.C. 
2803(b)(6)(A).
---------------------------------------------------------------------------

    The Bureau solicited feedback on which property value should be 
reported. Several commenters, including both industry and consumer 
advocates, supported the Bureau's proposal to implement the Dodd-Frank 
Act requirement regarding property value by requiring reporting of the 
value of the property relied on in making the credit decision in 
dollars. Other commenters suggested different approaches to collecting 
property value. One consumer advocate commenter suggested that the 
Bureau require financial institutions to report the purchase price of 
the property in all circumstances. Another industry commenter suggested 
that financial institutions be required to report the final property 
value determined by the loan underwriter and used in the investment 
decision.
    The Bureau believes that financial institutions should report the 
value relied on in making the credit decision. Thus, if the financial 
institution relied upon the purchase price in making the credit 
decision, the financial institution would report that value. If the 
final property value determined by a loan underwriter and used in the 
financial institution's investment decision is the property value that 
the institution relied on in making the credit decision, then reporting 
that property valuation will comply with Sec.  1003.4(a)(28). To this 
end, comment 4(a)(28)-1 explains, if a financial institution relies on 
an appraisal or other valuation for the property in calculating the 
loan-to-value ratio, it reports that value; if the institution relies 
on the purchase price of the property in calculating the loan-to-value 
ratio, it reports that value.
    A national trade association commenter requested that the Bureau 
clarify that if an application is withdrawn or is closed for 
incompleteness, a financial institution may report that the requirement 
is not applicable since there was no reliance on property value in 
making the credit decision. In order to help facilitate HMDA compliance 
by providing additional guidance regarding the property value reporting 
requirement, the Bureau is adopting new comment 4(a)(28)-3, which 
clarifies how a financial institution complies with Sec.  1003.4(a)(28) 
by reporting that the requirement is not applicable for transactions 
for which no credit decision was made. New comment 4(a)(28)-3 clarifies 
that if a file was closed for incompleteness or the application was 
withdrawn before a credit decision was made, the financial institution 
complies with Sec.  1003.4(a)(28) by reporting that the requirement is 
not applicable, even if the financial institution had obtained a 
property value.
    Two State trade association commenters expressed concern that 
proposed Sec.  1003.4(a)(28) compels a

[[Page 66225]]

financial institution to obtain an appraisal even when a property 
valuation is not in fact required for the underwriting process of a 
particular transaction or is not required per regulations. In order to 
address this concern, the Bureau is adopting new comment 4(a)(28)-4, 
which clarifies that Sec.  1003.4(a)(28) does not require a financial 
institution to obtain a property valuation, nor does it require a 
financial institution to rely on a property value in making a credit 
decision. Comment 4(a)(28)-4 explains that if a financial institution 
makes a credit decision without relying on a property value, the 
financial institution complies with Sec.  1003.4(a)(28) by reporting 
that the requirement is not applicable since no property value was 
relied on in connection with the credit decision.
    A consumer advocate commenter suggested that the Bureau require 
reporting of property value if a valuation was performed and even if 
the property valuation was not relied on in making the credit decision. 
The Bureau is not adopting this recommendation in the final rule. The 
Bureau believes that the property value relied on will be more useful 
in understanding a financial institution's credit decision and other 
HMDA data, such as pricing information. The proposed standard in Sec.  
1003.4(a)(28) requires a financial institution to report the property 
value relied on in making the credit decision. As explained in new 
comments 4(a)(28)-3 and -4, if a financial institution has not made a 
credit decision or has not relied on property value in making the 
credit decision, the financial institution complies with Sec.  
1003.4(a)(28) by reporting that the requirement is not applicable. The 
Bureau has determined that this is the appropriate approach for 
purposes of HMDA compliance.
    One State trade association commenter recommended that property 
value be reported in ranges rather than the actual value to better 
protect the privacy of applicants. While reporting property value in 
ranges may address some of the privacy concerns raised by commenters, 
the Bureau has determined that requiring reporting of the value of the 
property relied on in making the credit decision in dollars is the more 
appropriate approach. When coupled with Sec.  1003.4(a)(7), which 
requires a financial institution to report the exact loan amount, a 
requirement to report the property value relied on in dollars under 
Sec.  1003.4(a)(28) will allow the calculation of loan-to-value ratio, 
an important underwriting variable. Reporting property value in ranges 
would render these calculations less precise, undermining their utility 
for data analysis.
    A few commenters were concerned that if information regarding 
property value is made available to the public, such information could 
be coupled with other publicly available information on property sales 
and ownership records to compromise a borrower's privacy. The Bureau 
has considered this feedback. See part II.B above for a discussion of 
the Bureau's approach to protecting applicant and borrower privacy with 
respect to the public disclosure of HMDA data.
    Several commenters, including both industry and consumer advocates, 
supported the Bureau's proposal to implement the Dodd-Frank Act 
requirement regarding property value by requiring reporting of the 
value of the property relied on in making the credit decision in 
dollars. As discussed above, knowing the property value in addition to 
loan amount allows HMDA users to estimate the loan-to-value ratio, 
which measures a borrower's equity in the property and is a key 
underwriting and pricing criterion. In addition, requiring financial 
institutions to report information about property value will enhance 
the utility of HMDA data. Property value data will further HMDA's 
purposes by providing the public and public officials with data to help 
determine whether financial institutions are serving the housing needs 
of their communities by providing information about the values of 
properties that are being financed; it will also assist public 
officials in distributing public-sector investment so as to attract 
private investment by providing information about property values; and 
it will assist in identifying possible discriminatory lending patterns 
and enforcing antidiscrimination statutes by allowing information about 
similar loans to be compared and analyzed appropriately. Moreover, for 
the reasons given in the section-by-section analysis of Sec.  
1003.4(a)(29), the Bureau believes that implementing HMDA through 
Regulation C to treat mortgage loans secured by all manufactured homes 
consistently, regardless of legal classification under State law, is 
reasonable, and is necessary and proper to effectuate HMDA's purposes 
and facilitate compliance therewith.
    Accordingly, pursuant to its authority under HMDA sections 305(a) 
and 304(b)(6)(A), the Bureau is adopting Sec.  1003.4(a)(28) as 
proposed, with several technical and clarifying modifications to 
proposed comments 4(a)(28)-1 and -2. In addition, as discussed above, 
the Bureau is adopting new comments 4(a)(28)-3 and -4, which will help 
facilitate HMDA compliance by providing additional guidance regarding 
the property value reporting requirement.
4(a)(29)
    Section 304(b) of HMDA permits disclosure of such other information 
as the Bureau may require. The Bureau proposed Sec.  1003.4(a)(29), 
which required that financial institutions report whether a 
manufactured home is legally classified as real property or as personal 
property. For the reasons discussed below, the Bureau is adopting Sec.  
1003.4(a)(29) with modifications, to require financial institutions to 
report whether a covered loan or application is or would have been 
secured by a manufactured home and land or a manufactured home and not 
land.
    Since 1988, Regulation C has required reporting of home purchase 
and home improvement loans and refinancings related to manufactured 
homes, whether or not the homes are considered real property under 
State law.\343\ Manufactured homes serve vital housing needs in 
communities and neighborhoods throughout the United States. For 
example, manufactured housing is the largest unsubsidized source of 
affordable homeownership in the United States.\344\ Manufactured homes 
also often share certain essential financing features with non-
manufactured homes. But classifications of manufactured homes as real 
or personal property vary significantly among States and can be 
ambiguous.\345\
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    \343\ 53 FR 31683, 31685 (Aug. 19, 1988).
    \344\ Ann M. Burkhart, Bringing Manufactured Housing into the 
Real Estate Finance System, 37 Pepperdine Law Review 427, 428 
(2010), available at https://digitalcommons.pepperdine.edu/cgi/viewcontent.cgi?article=1042&context=plr.
    \345\ See James M. Milano, An Overview and Update on Legal and 
Regulatory Issues in Manufactured Housing Finance, 60 Consumer 
Financial Law Quarterly Report 379, 383 (2006); Burkhart, supra note 
344, at 430.
---------------------------------------------------------------------------

    Regulation C's consistent treatment of manufactured housing in HMDA 
data has proven important to furthering HMDA's purposes and provided 
communities and public officials with important information about 
manufactured housing lending.\346\ The

[[Page 66226]]

Bureau believes that the unique nature of the manufactured home 
financing market warrants additional information reporting. Although in 
many respects manufactured and site built housing are similar, 
manufactured home financing reflects certain key differences as 
compared to site built home financing. State laws treat site built 
homes as real property, with financing secured by a mortgage or deed of 
trust. On the other hand State law may treat manufactured homes as 
personal property or real property depending on the circumstances.\347\ 
Manufactured home owners may own or rent the underlying land, which is 
an additional factor in manufactured home owners' total housing cost 
and can be relevant to financing.\348\
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    \346\ Adam Rust & Peter Skillern, Community Reinvestment 
Association of North Carolina, Nine Myths of Manufactured Housing: 
What 2004 HMDA Data says about a Misunderstood Sector (2006), 
available at https://www.reinvestmentpartners.org/sites/reinvestmentpartners.org/files/Myths-and-Realities-of-Manufactured-Housing.pdf; Delaware State Housing Authority, Manufactured Housing 
in Delaware: A Summary of Information and Issues (2008), available 
at https://www.destatehousing.com/FormsAndInformation/Publications/manu_homes_info.pdf.
    \347\ Milano, supra note 345 at 380.
    \348\ William Apgar et al., An Examination of Manufactured 
Housing Community- and Asset-Building Strategies, at 5 (Neighborhood 
Reinvestment Corporation Report to the Ford Foundation, Working 
Paper No. W02-11, 2002), available at https://www.jchs.harvard.edu/research/publications/examination-manufactured-housing-community-and-asset-building-strategy.
---------------------------------------------------------------------------

    Many consumer advocate commenters supported the proposed 
requirement. Some argued, however, that additional information about 
whether the covered loan was secured by both the manufactured home and 
land or the manufactured home alone would be valuable in addition to 
the manufactured home's classification under State law, to distinguish 
covered loans in States where manufactured homes may be classified as 
real property even if the home is sited on leased land. Many industry 
commenters opposed the proposed requirement as burdensome. However, one 
industry commenter supported the requirement and stated that it had 
been subject to a fair lending review that would have been unnecessary 
if the HMDA data had differentiated between land-and-home and home-only 
manufactured home loans. A few industry commenters stated that in some 
circumstances financial institutions secure loans using multiple 
methods to perfect a lien under both State real property and personal 
property law because of secondary market standards or prudence.
    Other commenters argued that State law can be difficult to 
understand and that the proposed requirement would therefore be 
difficult to comply with and create the risk that the financial 
institution would be cited for incorrectly stating the legal 
classification. Some commenters noted that the legal classification may 
change after the closing date of the loan. Some industry commenters 
argued that the proposed requirement did not accurately reflect pricing 
distinctions made by manufactured housing lenders because pricing is 
based primarily on whether the security interest will cover both the 
land and home or the home only, regardless of State law classification. 
One commenter stated that the proposed requirement is relevant only to 
individual manufactured home loans, and not loans secured by 
manufactured home communities.
    The Bureau understands that the proposed requirement may pose 
reporting challenges because of multiple methods of lien perfection and 
the complexity of and differences among State laws. However, 
information about manufactured home loan classification is valuable 
because there are material differences in types of manufactured home 
financing related to rate, term, origination costs, legal requirements, 
and consumer protections. These differences are discussed in the 
Bureau's white paper on Manufactured Housing Consumer Finance in the 
United States.\349\ Furthermore, capturing the pricing distinction 
between types of manufactured home loans is important to facilitate 
fair lending analyses. Section 1003.4(a)(29) will provide necessary 
insight into this loan data and allow it to be used to help determine 
whether financial institutions are serving the housing needs of their 
communities, assist in identifying possible discriminatory lending 
patterns and enforcing antidiscrimination statutes, and, potentially, 
assist public officials in public-sector investment 
determinations.\350\
---------------------------------------------------------------------------

    \349\ See Bureau of Consumer Fin. Prot., Manufactured-Housing 
Consumer Finance in the United States (2014), available at https://www.consumerfinance.gov/reports/manufactured-housing-consumer-finance-in-the-u-s/; see also 79 FR 51731, 51797-98 (Aug. 29, 2014).
    \350\ U.S. Gov't. Accountability Office, GAO 07-879, Federal 
Housing Administration: Agency Should Assess the Effects of Proposed 
Changes to the Manufactured Home Loan Program (2007), available at 
https://www.gao.gov/new.items/d07879.pdf; See Milano, supra note 345 
at 383; Burkhart, supra note 344 at 428; Washington Hearing, supra 
note 39.
---------------------------------------------------------------------------

    After considering the comments, pursuant to its authority under 
HMDA section 305(a) and 304(b)(6)(J), the Bureau is adopting Sec.  
1003.4(a)(29) with modifications. Pursuant to its authority under HMDA 
section 305(a) to provide for adjustments for any class of 
transactions, the Bureau believes that interpreting HMDA to treat 
mortgage loans secured by all manufactured homes consistently is 
necessary and proper to effectuate HMDA's purposes and facilitate 
compliance therewith.\351\ Final Sec.  1003.4(a)(29) requires financial 
institutions to report whether the covered loan is secured by a 
manufactured home and land or a manufactured home and not land instead 
of whether the manufactured home is legally classified as real or 
personal property. The Bureau believes that the final rule will 
facilitate fair lending analyses, and will help to explain pricing 
data. At the same time, the final rule will avoid the issues associated 
with reporting classification under State law such as using multiple 
methods of lien perfection. As adopted, the requirement will also not 
apply to multifamily dwellings to make clear that covered loans secured 
by a manufactured home community are not subject to this reporting 
requirement.
---------------------------------------------------------------------------

    \351\ See also 79 FR 51732, 51797-98 (Aug. 29, 2014) (explaining 
basis for treating mortgage loans secured by all manufactured homes 
consistently).
---------------------------------------------------------------------------

    The Bureau is adopting new comment 4(a)(29)-1 to specify that even 
covered loans secured by a manufactured home classified as real 
property under State law should be reported as secured by a 
manufactured home and not land if the covered loan is also not secured 
by land. The Bureau is adopting new comment 4(a)(29)-2 to specify that 
this reporting requirement does not apply to loans secured by a 
multifamily dwelling that is a manufactured home community. Proposed 
comment 4(a)(29)-1 is adopted as comment 4(a)(29)-3. The Bureau is also 
adopting new comment 4(a)(29)-4 to provide guidance on the scope of the 
reporting requirement.
4(a)(30)
    Section 304(b) of HMDA permits disclosure of such other information 
as the Bureau may require. The Bureau proposed to require financial 
institutions to collect and report whether the applicant or borrower 
owns the land on which a manufactured home is or will be located 
through a direct or indirect ownership interest or leases the land 
through a paid or unpaid leasehold interest. For the reasons discussed 
below, the Bureau is finalizing Sec.  1003.4(a)(30) generally as 
proposed with technical modifications for clarity and to specify that 
multifamily dwellings are not subject to the reporting requirement.
    Many consumer advocate commenters supported the proposed 
requirement and stated that the information would be valuable. In 
contrast, many industry commenters opposed the proposed requirement for 
several reasons. Some industry commenters stated that the proposed 
requirement is information

[[Page 66227]]

that they currently do not verify for loans secured by a manufactured 
home and not land. Other industry commenters stated that they do 
collect some information about the land interest of the borrower for 
loans secured by a manufactured home and not land, but that the 
information reported by the applicant is often unreliable. Other 
industry commenters stated that the information is not a factor in loan 
pricing and questioned the value of the information. Some industry 
commenters stated that the proposed requirement would relate only to 
individual manufactured home loans and not loans secured by 
manufactured home communities.
    The Bureau believes that the proposed requirement will provide 
valuable information about the land interest of manufactured home loan 
borrowers. The information could aid in determining whether borrowers 
are obtaining loans secured by a manufactured home and not land when 
they could qualify for a loan secured by a manufactured home and land. 
This information could aid policymakers at the local, State, and 
Federal level and financial institutions in determining how the housing 
needs of manufactured home borrowers could best be served by loan 
products relating to manufactured homes and legal requirements relating 
to such financing or the classification and treatment of manufactured 
homes under State law.\352\
---------------------------------------------------------------------------

    \352\ See Bureau of Consumer Fin. Prot., Manufactured-Housing 
Consumer Finance in the United States (2014), available at https://www.consumerfinance.gov/reports/manufactured-housing-consumer-finance-in-the-u-s/; Consumers Union Report, Manufactured Housing 
Appreciation: Stereotypes and Data (2003), available at https://consumersunion.org/pdf/mh/Appreciation.pdf ; Katherine MacTavish et 
al., Housing Vulnerability Among Rural Trailer-Park Households, 13 
Georgetown Journal on Poverty Law and Policy 97 (2006); Sally Ward 
et al., Carsey Institute, Resident Ownership in New Hampshire's 
``Mobile Home Parks:'' A Report on Economic Outcomes, (2010), 
available at https://www.rocusa.org/uploads/Carsey%20Institute%20Reprint%202010.pdf.
---------------------------------------------------------------------------

    After considering the comments, the Bureau is finalizing Sec.  
1003.4(a)(30) with technical modifications for clarity and to specify 
that multifamily dwellings are not subject to the reporting 
requirement. The Bureau is finalizing comments 4(a)(30)-1, -2, and -3 
generally as proposed, with technical modifications for clarity. The 
Bureau is adopting new comment 4(a)(30)-4 to clarify that a loan 
secured by a multifamily dwelling that is a manufactured home community 
is not subject to the reporting requirement. The Bureau is adopting new 
comment 4(a)(30)-5 to provide guidance on direct ownership consistent 
with proposed appendix A. The Bureau is also adopting new comment 
4(a)(30)-6 to provide guidance on the scope of the reporting 
requirement. The Bureau is adopting Sec.  1003.4(a)(30) pursuant to its 
authority under section 305(a) and 304(b)(6)(J) of HMDA. The Bureau 
finds that Sec.  1003.4(a)(30) is necessary to carry out HMDA's 
purposes, because it will provide necessary insight into loan data and 
allow it to be used to help determine whether financial institutions 
are serving the housing needs of their communities, since this 
information can have important implications for the financing, long-
term affordability, and appreciation of the housing at issue.
4(a)(31)
    Current Regulation C requires financial institutions to identify 
multifamily dwellings as a property type. The Bureau proposed to add 
Sec.  1003.4(a)(31), which requires a financial institution to report 
the number of individual dwelling units related to the property 
securing the covered loan or, in the case of an application, proposed 
to secure the covered loan. As discussed above, the Bureau proposed to 
replace the current property type reporting requirement with 
construction method and to separate the concept of the number of units 
from that reporting requirement. For the reasons discussed below, the 
Bureau is adopting Sec.  1003.4(a)(31) generally as proposed with 
additional commentary to provide clarity.
    Some commenters supported the proposed requirement and stated that 
it would provide valuable information about covered loans related to 
multifamily housing and covered loans related to one- to four-unit 
dwellings. Other commenters argued that the number of units should be 
reported in ranges, such 1, 2-4, and 5 or more. Some commenters stated 
that ranges would be insufficient as they would not permit 
distinguishing between small and large multifamily dwellings or among 
one- to four-unit dwellings. Other commenters argued that no 
requirement to report number of units should be adopted and the current 
property type requirement should be retained. Some commenters stated 
that they currently collect an exact total number of units and the data 
would therefore be easy to obtain, while other commenters stated that 
they use ranges and the proposed requirement would be burdensome. Some 
commenters stated that there would be compliance difficulties in 
reporting total units for certain types of properties, such as 
manufactured home communities, condominium developments, and 
cooperative housing developments.
    The Bureau believes that reporting the precise number of individual 
dwelling units would be preferable to ranges. The precise number would 
permit better comparison among loans related to dwellings with a single 
dwelling unit, two- to four-unit dwellings, and multifamily dwellings 
with similar numbers of dwelling units, thus facilitating the analysis 
of the housing needs served by both small and large multifamily 
dwellings. Reporting the precise number of units will also facilitate 
matching HMDA data to other publically available data about multifamily 
dwellings.
    After considering the comments, the Bureau is finalizing Sec.  
1003.4(a)(31) as proposed pursuant to its authority under sections 
305(a) and 304(b)(6)(J) of HMDA. Multifamily housing has always been an 
essential component of the nation's housing stock. In the wake of the 
housing crisis, multifamily housing has taken on an increasingly 
important role in communities, as families have turned to rental 
housing for a variety of reasons.\353\ The Bureau finds that Sec.  
1003.4(a)(31) will further HMDA's purposes by assisting in 
determinations about whether financial institutions are serving the 
housing needs of their communities, and it may assist public officials 
in targeting public investments.
---------------------------------------------------------------------------

    \353\ See analysis of HMDA data at 79 FR 51731, 51800 (Aug. 29, 
2014). See San Francisco Hearing, supra note 42.
---------------------------------------------------------------------------

    The Bureau received no specific feedback on comment 4(a)(31)-1, 
which is adopted with modifications for consistency with final comment 
4(a)(9)-2. In response to the requests for clarification, the Bureau is 
adopting three new comments. New comments 4(a)(31)-2, -3, and -4 
provide guidance on: Reporting the total units for a manufactured home 
community; reporting the total units for condominium and cooperative 
properties; and the information that a financial institution may rely 
on in complying with the requirement to report total units.
4(a)(32)
    The Bureau proposed to add Sec.  1003.4(a)(32), which requires 
financial institutions to collect and report information on the number 
of individual dwelling units in multifamily dwellings that are income-
restricted pursuant to Federal, State, or local affordable housing 
programs. The Bureau also solicited comment on whether additional 
information about the program or type of affordable housing would be 
valuable and serve HMDA's purposes, and about the

[[Page 66228]]

burdens associated with collecting such information compared with the 
burdens of the proposal. In addition to soliciting feedback generally 
about this requirement, the Bureau specifically solicited comment on 
the following points:
     Whether the Bureau should require reporting of information 
concerning programs targeted at specific groups (such as seniors or 
persons with disabilities);
     Whether income restrictions above a certain threshold 
should be excluded for reporting purposes (such as income restrictions 
above the area median income);
     Whether it would be appropriate to simplify the 
requirement and report only whether a multifamily dwelling contains a 
number of income-restricted units above a certain percentage threshold;
     Whether financial institutions should be required to 
report the specific affordable housing program or programs;
     Whether financial institutions should be required to 
report the area median income level at which units in the multifamily 
dwelling are considered affordable; and
     Whether the burden on financial institutions may be 
reduced by providing instructions or guidance specifying that 
institutions only report income-restricted dwelling units that they 
considered or were aware of in originating, purchasing, or servicing 
the loan.
    Many industry commenters opposed the proposed income-restricted 
units reporting requirement and stated that it would impose new burden 
on many financial institutions that do not regularly collect this 
information currently. Many consumer advocate commenters supported the 
proposed reporting requirement and stated that it would provide 
valuable information on how financial institutions are serving the 
housing needs of their communities. However, most consumer advocate 
commenters argued that the proposed requirement would not provide 
enough information, and that the Bureau should add additional reporting 
requirements to gather information about the affordability level of the 
income-restricted units. Some commenters proposed additional reporting 
requirements related to multifamily dwellings including the number of 
bedrooms for the individual dwellings units, whether the housing is 
targeted at specific populations, the presence and number of commercial 
tenants, the debt service coverage ratio at the time of origination, 
and whether the developer or owner of the housing is a mission-driven 
nonprofit organization.
    Regarding whether housing is targeted at specific populations, the 
Bureau notes that it is providing commentary to the definition of 
dwelling as discussed above in the section-by-section analysis of Sec.  
1003.2(f) regarding when housing associated with related services or 
medical care should be reported. However, the Bureau does not believe 
it would be appropriate to adopt a reporting requirement regarding 
housing targeted at specific populations, at this time.
    The Bureau does not have sufficient information on the costs and 
benefits associated with such a reporting requirement and the 
challenges in developing an appropriate reporting scheme given the wide 
variety of housing designated for specific populations including 
persons with disabilities and seniors. Similarly, the Bureau is not 
finalizing reporting requirements on the other specific suggestions for 
multifamily dwellings at this time because it does not have sufficient 
information on the costs and benefits associated with such reporting 
requirements and the Bureau believes it may be likely that the burdens 
of such reporting would outweigh the benefits.
    Consumer advocate commenters generally stated that the Bureau 
should adopt additional data points similar to the data reporting 
requirements for the GSEs' affordable housing goals.\354\ One commenter 
stated that income-restricted units at 80, 100, or 120 percent of area 
median income should not be considered affordable and not reported. 
Other commenters stated that financial institutions should be permitted 
to rely on information provided by the applicant or considered during 
the underwriting process to fulfill this reporting requirement.
---------------------------------------------------------------------------

    \354\ 12 CFR part 1282, subpart B.
---------------------------------------------------------------------------

    The Bureau believes that additional information about income-
restricted multifamily dwellings would be valuable, but believes any 
benefits would not justify the burdens for collecting detailed 
information about the level of affordability for individual dwelling 
units. The suggestion to align HMDA reporting with the GSE affordable 
housing goals would require financial institutions to report five data 
points.\355\ The Bureau believes that the GSE affordable housing goal 
reporting requirements are sufficiently distinct from HMDA that they 
should not be adopted for HMDA purposes. For example, the HMDA 
reporting requirement proposed concerns only income-restricted dwelling 
units, which would generally be identifiable from information about the 
property and not require tenant income or rent determinations for HMDA 
reporting, whereas dwelling units may qualify for the GSE affordable 
housing goals based on tenant income information compared to area 
median income or on rent levels and adopting a similar reporting 
requirement for HMDA would therefore require information related to 
tenant income or rent levels that a financial institution may not 
consider in all instances when not required to do so by GSE 
requirements.\356\ This would be significantly more burdensome than the 
requirement proposed. Furthermore, for the GSE affordable housing goals 
the GSEs themselves participate in analyzing the data and making the 
determinations, and may estimate in the case of missing 
information.\357\ The Bureau did not propose to participate in making 
the determinations on affordable housing in a similar way.
---------------------------------------------------------------------------

    \355\ Financial institutions would have to report the number of 
dwelling units affordable at moderate-income (not in excess of 100 
percent of area median income), low-income (not in excess of 80 
percent of area median income), low-income (not in excess of 60 
percent of area median income), very low-income (not in excess of 50 
percent of area median income), and extremely low-income (not in 
excess of 30 percent of area median income). See 12 CFR 1282.17, 12 
CFR 1282.18.
    \356\ 12 CFR 1282.15(d)(1), 12 CFR 1282.15(d)(2).
    \357\ 12 CFR 1282.15(e).
---------------------------------------------------------------------------

    Some commenters stated that the burden of imposing the GSE 
affordable housing goal requirements would not be significant because 
many HMDA reporters would already be following them for covered loans 
secured by multifamily dwellings sold to the GSEs. However, according 
to the 2013 HMDA data, of the 39,861 originated loans secured by 
multifamily dwellings, only 2,388 were sold to the GSEs within the 
calendar year of origination. The Bureau is concerned that many 
financial institutions would not be using the GSE affordable housing 
goal standards for the majority of their HMDA-reportable loans secured 
by multifamily dwellings. Therefore, the Bureau is not adopting the 
suggested reporting requirement aligned with the GSE affordable housing 
goals.
    The Bureau believes that information about the number of income-
restricted units in multifamily dwellings is valuable and will further 
HMDA's purposes, in part by providing more useful information about 
these vital public resources, and thereby assisting public officials in 
distributing public-sector investment so as to attract private 
investment to areas where it is needed. Presently the need for 
affordable

[[Page 66229]]

housing is much greater than the supply.\358\ Although the requirement 
entails additional burden for some financial institutions, other 
financial institutions that specialize in lending related to income-
restricted multifamily housing may have lesser initial burden 
associated with this requirement. By limiting the requirement to 
income-restricted units and excluding some other forms of affordable 
housing policies and programs, the rule provides a well-defined scope 
of reporting that should generally be verifiable through property 
records and other sources.
---------------------------------------------------------------------------

    \358\ Harvard University Joint Ctr. for Housing Studies, 
America's Rental Housing: Evolving Market and Needs (2013), 
available at https://www.jchs.harvard.edu/sites/jchs.harvard.edu/files/jchs_americas_rental_housing_2013_1_0.pdf.
---------------------------------------------------------------------------

    After considering the comments and conducting additional analysis, 
pursuant to HMDA sections 305(a) and 304(b)(6)(J), the Bureau is 
finalizing Sec.  1003.4(a)(32) as proposed. The Bureau is adopting new 
comment 4(a)(32)-5 to provide guidance on information that a financial 
institution may rely on in complying with the requirement to report the 
number of income-restricted units. The Bureau is adopting new comment 
4(a)(32)-6 to provide guidance on the scope of the reporting 
requirement. The Bureau is also finalizing comments 4(a)(32)-1, -2, -3, 
and -4 generally as proposed, with modifications for clarity.
4(a)(33)
    The Bureau proposed Sec.  1003.4(a)(33) to implement the Dodd-Frank 
Act amendment that requires financial institutions to disclose ``the 
channel through which application was made, including retail, broker, 
and other relevant categories'' for each covered loan and 
application.\359\ Proposed Sec.  1003.4(a)(33) provided that, except 
for purchased covered loans, a financial institution was required to 
report the following information about the application channel of the 
covered loan or application: whether the applicant or borrower 
submitted the application for the covered loan directly to the 
financial institution; and whether the obligation arising from the 
covered loan was or would have been initially payable to the financial 
institution. The Bureau also proposed illustrative commentary. The 
Bureau is finalizing Sec.  1003.4(a)(33) as proposed and proposed 
comments 4(a)(33)-1 through -3 with the modifications discussed below.
---------------------------------------------------------------------------

    \359\ Dodd-Frank Act section 1094(3), 12 U.S.C. 2803(b)(6)(E).
---------------------------------------------------------------------------

Comments

    Several consumer advocate commenters expressed support for the 
proposed requirement, noting the importance of this information in 
identifying risks to consumers. On the other hand, some industry 
commenters expressed concerns about proposed Sec.  1003.4(a)(33). One 
industry commenter explained that collecting this information would be 
burdensome because financial institutions do not routinely capture it 
in the proposed format. Another industry commenter asked the Bureau to 
exempt multifamily loans from this requirement. In addition, a 
commenter asked the Bureau to exempt community banks because all of 
their originations come through the same application channel.
    Information about the application channel of covered loans and 
applications will enhance the HMDA data. The loan terms and rates that 
a financial institution offers an applicant may depend on how the 
applicant submits the application (i.e., whether through the retail, 
wholesale, or correspondent channel).\360\ Thus, identifying 
transactions by channel may help users to interpret loan pricing and 
other information in the HMDA data. In addition, these data will aid in 
understanding whether certain channels present particular risks for 
consumers.
---------------------------------------------------------------------------

    \360\ See, e.g., Keith Ernst et al., Center for Responsible 
Lending, Steered Wrong: Brokers, Borrowers, and Subprime Loans 
(April 2008), available at https://www.responsiblelending.org/mortgage-lending/research-analysis/steered-wrong-brokers-borrowers-and-subprime-loans.pdf.
---------------------------------------------------------------------------

    While there is some burden associated with collecting this 
information, the Bureau understands that the burden is minimal because 
the information is readily available and easily reported in two true-
false fields. For the same reasons, the Bureau does not believe that it 
is appropriate to exclude certain types of institutions or types of 
loans from the requirement, except the exclusion for purchased loans 
discussed below.
    Some commenters suggested different approaches to collect 
application channel information. One consumer advocate commenter asked 
the Bureau to collect the loan channel information as defined by the 
Secure and Fair Enforcement of Mortgage Licensing Act (SAFE Act), 
Public Law 110-289, to identify the retail, wholesale, and 
correspondent channels. However, neither the SAFE Act nor its 
implementing regulations define loan channels, so it is not possible to 
align with loan channel definitions in that statute. \361\
---------------------------------------------------------------------------

    \361\ See 12 U.S.C. 5101 et seq.; 12 CFR part 1007; 12 CFR part 
1008.
---------------------------------------------------------------------------

    In addition, the final rule will collect sufficient information to 
identify the various loan channels. The application channels in the 
mortgage market can be identified with three pieces of information: (1) 
Which institution received the application directly from the applicant, 
(2) which institution made the credit decision, and (3) the institution 
to which the obligation initially was payable. For example, the term 
``retail channel'' generally refers to situations where the applicant 
submits the application directly to the financial institution that 
makes the credit decision on the application and to which the 
obligation is initially payable. The term ``wholesale channel,'' which 
is also referred to as the ``broker channel,'' generally refers to 
situations where the applicant submits the application to a mortgage 
broker and the broker sends the application to a financial institution 
that makes the credit decision on the application and to which the 
obligation is initially payable. The correspondent channel includes 
correspondent arrangements between two financial institutions. A 
correspondent with delegated underwriting authority processes an 
application much like the retail channel described above. The 
correspondent receives the application directly from the applicant, 
makes the credit decision, closes the loan in its name, and immediately 
or within a short period of time sells the loan to another institution. 
Correspondents with nondelegated authority operate somewhat more like a 
mortgage broker in the wholesale channel. These correspondents receive 
the application from the applicant, but prior to closing involve a 
third-party institution that makes the credit decision. The transaction 
generally closes in the name of the correspondent, which immediately or 
within a short period of time sells the loan to the third-party 
institution that made the credit decision.\362\
---------------------------------------------------------------------------

    \362\ See generally 78 FR 11280, 11284 (Feb. 15, 2013); CFPB 
Examination Procedures on Mortgage Origination (2014), https://files.consumerfinance.gov/f/201401_cfpb_mortgage-origination-exam-procedures.pdf.
---------------------------------------------------------------------------

    Regulation C requires the institution that makes the credit 
decision to report the action taken on the application, as discussed 
above in the section-by-section analysis of Sec.  1003.4(a). Therefore, 
the application channels described above can be identified with the 
information required by proposed Sec.  1003.4(a)(33), which included 
whether

[[Page 66230]]

the applicant or borrower submitted the application directly to the 
financial institution that is reporting the loan and whether the 
obligation was, or would have been, initially payable to the financial 
institution that is reporting the loan.
    An industry commenter suggested that the Bureau implement the Dodd-
Frank Act amendment by requiring financial institutions to report 
whether a broker was involved. The Bureau believes the proposal would 
be less burdensome than the suggested approach, which would require the 
final rule to define the term ``broker'' solely for the purpose of HMDA 
reporting. A broker is generally understood to refer applicants to 
lenders, but a broker may play a different role in a given transaction 
depending on the business arrangement it has with a lender or investor. 
In addition, as discussed above, the commenter's suggested approach 
would not identify other channels, such as the correspondent channel. 
Therefore, proposed Sec.  1003.4(a)(33) is the preferable approach.
    An industry commenter also opposed the exclusion of purchase loans 
from the requirement to report the information required by proposed 
Sec.  1003.4(a)(33). The commenter reasoned that it is more efficient 
to collect information from investors than from the originating 
organization. The commenter also did not believe that the information 
required by Sec.  1003.4(a)(33) would be the same for all purchased 
loans reported by a financial institution. The Bureau continues to 
believe that collecting application channel information for purchased 
loans is unnecessary. Under Regulation C, if the financial institution 
reports a loan as a purchase, the reporting institution did not make a 
credit decision on the loan. See the section-by-section analysis of 
Sec.  1003.4(a) and comments 4(a)-2 through -4. Thus data users could 
assume that most, if not all, entries reported as purchases did not 
involve an application submitted to the purchaser and that the loan did 
not close in the institution's name.
    A consumer advocate commenter urged the Bureau to collect a unique 
identifier for each loan channel in addition to the information 
required by proposed Sec.  1003.4(a)(33). The final rule will require 
financial institutions to report the NMLS ID of the loan originator for 
covered loans and applications. See the section-by-section analysis of 
Sec.  1003.4(a)(34). The NMLS ID will further help to identify the loan 
channel.
    Direct submission of an application. Some commenters sought 
clarification about proposed Sec.  1003.4(a)(33)(i), which required 
financial institutions to indicate whether a financial institution 
submitted an application directly to the financial institution. A 
commenter suggested referencing the language used in the SAFE Act about 
loan origination activities to clarify what proposed Sec.  
1003.4(a)(33)(i) required. The Bureau's Regulations G and H, which 
implement the SAFE Act, provide detailed examples of activities that 
are conducted by loan originators.\363\ If the loan originator that 
performed loan origination services for the application or loan that 
the financial institution is reporting was an employee of the reporting 
financial institution, the applicant likely submitted the application 
directly to the financial institution. Section 1003.4(a)(34), discussed 
below, references the definition of loan originator in the SAFE Act, 
and directs financial institutions to report the NMLS ID of the loan 
originator that performed origination activities on the covered loan or 
application. Therefore, the Bureau is modifying proposed comment 
4(a)(33)-1, renumbered as comment 4(a)(33)(i)-1 to clarify that an 
application was submitted directly to the financial institution that is 
reporting the covered loan or application if the loan originator 
identified pursuant to Sec.  1003.4(a)(34) was employed by the 
financial institution when the loan originator performed loan 
origination activities for the loan or application that the financial 
institution is reporting.
---------------------------------------------------------------------------

    \363\ See 12 U.S.C. 5101 et seq.; 12 CFR part 1007; 12 CFR part 
1008.
---------------------------------------------------------------------------

    Another commenter suggested clarifying whether an application is 
submitted directly to the financial institution if the application is 
submitted to a credit union service organization (CUSO) hired by the 
credit union that is reporting the entry to receive applications for 
covered loans on behalf of a credit union. The Bureau is also modifying 
proposed comment 4(a)(33)-1, renumbered as comment 4(a)(33)(i)-1, to 
illustrate how to report whether the application was submitted directly 
to the financial institution when a CUSO or other similar agent is 
involved.
    Another industry commenter raised privacy concerns about releasing 
to the public the application channel information. The Bureau 
appreciates this feedback and is carefully considering the privacy 
implications of the publicly released data. See part II.B above for a 
discussion of the Bureau's approach to protecting applicant and 
borrower privacy with respect to the public disclosure of the data. Due 
to the significant benefits of collecting this information, the Bureau 
believes it is appropriate to collect application channel information 
despite the concerns raised by commenters about collecting this 
information. The Bureau received no comments on proposed comments 
4(a)(33)-2 and -3.

Final Rule

    For the reasons discussed above and pursuant to its authority under 
HMDA sections 304(b)(6)(E) and 305(a), the Bureau is adopting Sec.  
1003.4(a)(33) as proposed. This requirement is an appropriate method of 
implementing HMDA section 304(b)(6)(E) in a manner that carries out 
HMDA's purposes. To facilitate compliance, pursuant to HMDA 305(a), the 
Bureau is excepting purchased covered loans from this requirement. The 
Bureau is also finalizing proposed comments 4(a)(33)-1, -2, and -3, 
renumbered as comments 4(a)(33)(i)-1, 4(a)(33)(ii)-1, and 4(a)(33)-1, 
with the modifications discussed above. The Bureau is also adopting new 
comment 4(a)(33)(ii)-2 to clarify that a financial institution may 
report that Sec.  1003.4(a)(33)(ii) is not applicable when the 
institution had not determined whether the covered loan would have been 
initially payable to the institution reporting the application when the 
application was withdrawn, denied, or closed for incompleteness.
4(a)(34)
    Regulation C does not require financial institutions to report 
information regarding a loan originator identifier. HMDA section 
304(b)(6)(F) requires the reporting of, ``as the Bureau may determine 
to be appropriate, a unique identifier that identifies the loan 
originator as set forth in section 1503 of the [Secure and Fair 
Enforcement for] Mortgage Licensing Act of 2008'' (S.A.F.E. Act).\364\ 
The Bureau proposed Sec.  1003.4(a)(34), which implements this 
requirement by requiring financial institutions to report, for a 
covered loan or application, the unique identifier assigned by the 
Nationwide Mortgage Licensing System and Registry (NMLSR ID) for the 
mortgage loan originator, as defined in Regulation G Sec.  1007.102 or 
Regulation H Sec.  1008.23, as applicable.
---------------------------------------------------------------------------

    \364\ Dodd-Frank Act section 1094(3)(A)(iv), 12 U.S.C. 
2803(b)(6)(F).
---------------------------------------------------------------------------

    In addition, the Bureau proposed three comments. Proposed comment 
4(a)(34)-1 discusses the requirement that a financial institution 
report the NMLSR ID for the mortgage loan

[[Page 66231]]

originator and describes the NMLSR ID. Proposed comment 4(a)(34)-2, 
clarifies that, in the event that the mortgage loan originator is not 
required to obtain and has not been assigned an NMLSR ID, a financial 
institution complies with Sec.  1003.4(a)(34) by reporting ``NA'' for 
not applicable. Proposed comment 4(a)(34)-2 also provides an 
illustrative example to clarify that if a mortgage loan originator has 
been assigned an NMLSR ID, a financial institution complies with Sec.  
1003.4(a)(34) by reporting the mortgage loan originator's NMLSR ID 
regardless of whether the mortgage loan originator is required to 
obtain an NMLSR ID for the particular transaction being reported by the 
financial institution. Lastly, the Bureau proposed comment 4(a)(34)-3, 
which clarifies that if more than one individual meets the definition 
of a mortgage loan originator, as defined in Regulation G, 12 CFR 
1007.102, or Regulation H, 12 CFR 1008.23, for a covered loan or 
application, a financial institution complies with Sec.  1003.4(a)(34) 
by reporting the NMLSR ID of the individual mortgage loan originator 
with primary responsibility for the transaction. The proposed comment 
explains that a financial institution that establishes and follows a 
reasonable, written policy for determining which individual mortgage 
loan originator has primary responsibility for the reported transaction 
complies with Sec.  1003.4(a)(34).
    The vast majority of commenters supported the Bureau's proposed 
Sec.  1003.4(a)(34). Many consumer advocate commenters supported the 
Bureau's proposal to include a unique identifier for a mortgage loan 
originator because this information may help regulatory agencies and 
the public identify financial institutions and loan originators that 
are engaged in problematic loan practices. Commenters also supported 
the Bureau's proposed Sec.  1003.4(a)(34) because they believe the 
information is critical to understanding the residential mortgage 
market.
    Consistent with the Small Business Review Panel's recommendation, 
the Bureau specifically solicited comment on whether the mortgage loan 
originator unique identifier should be required for all entries on the 
loan/application register, including applications that do not result in 
originations, or only for loan originations and purchases. One industry 
commenter stated without explanation that the reporting requirement 
should only apply to originations and purchases. Another national trade 
association stated, without further explanation, that reporting of the 
mortgage loan originator unique identifier should not be required on 
applications that do not result in originations because such data will 
not provide any value and will impose burden on industry. In contrast, 
another industry commenter stated that in order for the NMLSR ID to be 
useful, such data should only be collected and reported if the loan 
officer has the authority to decide whether to approve or deny the 
application. This commenter stated that in such cases, the NMLSR ID 
would need to be collected for both originated and non-originated 
applications.
    The Bureau has considered this feedback and determined it will 
adopt proposed Sec.  1003.4(a)(34), which applies to applications, 
originations, and purchased loans. The Bureau believes the HMDA data's 
usefulness will be improved by being able to identify individual 
mortgage loan originators with primary responsibility over 
applications, originations, and purchased loans. While the Bureau 
acknowledged in its proposal that a requirement to collect and report a 
mortgage loan originator unique identifier may impose some burden on 
financial institutions, the Bureau did not receive feedback 
specifically addressing the potential burden. In fact, a State trade 
association commented that reporting the mortgage loan originator's 
NMLS ID would not pose an additional burden for its members because it 
already collects and reports this information for the mortgage Call 
Report. A government commenter also stated that this data should be 
readily accessible by HMDA reporters since it will be provided on the 
TILA-RESPA integrated disclosure form.
    The Bureau has determined that the benefits gained by the 
information reported under proposed Sec.  1003.4(a)(34) justify any 
potential burdens on financial institutions. As discussed in the 
Bureau's proposal, this information is provided on certain loan 
documents pursuant to the loan originator compensation requirements 
under TILA.\365\ As noted by a commenter, this information will also be 
provided on the TILA-RESPA integrated disclosure form.\366\ As a 
result, the Bureau has determined that the NMLSR ID for the mortgage 
loan originator will be readily available to HMDA reporters at little 
to no ongoing cost.
---------------------------------------------------------------------------

    \365\ Regulation Z Sec.  1026.36(g).
    \366\ Regulation Z Sec.  1026.37(k).
---------------------------------------------------------------------------

    Several commenters did not support the Bureau's proposed Sec.  
1003.4(a)(34) for two main reasons. This opposition is based on 
concerns related to disclosure of this information by the Bureau. 
First, one State trade association and a few industry commenters 
suggested that review of a mortgage loan originator's performance 
should be left up to the individual financial institution and not be 
subject to public scrutiny. Second, a few commenters stated that 
requiring financial institutions to report the NMLSR ID of the 
individual mortgage loan originator would raise concerns regarding the 
privacy of those mortgage loan originators. For example, a State trade 
association and another industry commenter opposed the Bureau's 
proposed Sec.  1003.4(a)(34) because it believes disclosing an NMLSR ID 
in connection with specific loan transactions has the potential to 
violate the financial privacy of individual employees of a financial 
institution. The commenter suggested that making this information 
publicly available would create privacy concerns for a financial 
institution's loan originator employees by opening the door to 
identification of the loan originator by name and address. In addition, 
the commenter argued that this information, combined with other 
transaction specific public information, could enable someone to 
calculate an individual loan originator employee's commission income, 
sales volume and other private financial information. Another industry 
commenter suggested that if a mortgage loan originator can be 
identified in the HMDA data, and the loan originator originated a large 
volume of loans at a financial institution that subsequently fails for 
reasons unrelated to underwriting, the loan originator may be unable to 
find employment.
    The Bureau has considered this feedback. The Bureau has concluded 
that it will not withhold from public release the NMLSR ID of mortgage 
loan originators for the reasons expressed by commenters. As summarized 
above, the commenters were concerned that the public disclosure of this 
information may implicate the privacy interests of mortgage loan 
originators. As discussed in part II.B above, HMDA directs the Bureau 
to ``modify or require modification of itemized information, for the 
purpose of protecting the privacy interests of the mortgage applicants 
or mortgagors, that is or will be available to the public.'' \367\ The 
Bureau is applying a balancing test to determine whether and how HMDA 
data should be modified prior to its disclosure to the public in order 
to protect applicant and borrower privacy while also fulfilling HMDA's 
public disclosure purposes. The Bureau will consider NMLSR ID

[[Page 66232]]

under this applicant and borrower privacy balancing test. The Bureau is 
implementing, in Sec.  1003.4(a)(34), the Dodd-Frank Act amendment to 
HMDA requiring a unique identifier for mortgage loan originators. 
Because the Dodd-Frank Act explicitly amended HMDA to add a loan 
originator identifier, while at the same time directing the Bureau to 
modify or require modification of itemized information ``for the 
purpose of protecting the privacy interests of the mortgage applicants 
or mortgagors,'' the Bureau believes it is reasonable to interpret HMDA 
as not requiring modifications of itemized information to protect the 
privacy interests of mortgage loan originators, and that that 
interpretation best effectuates the purposes of HMDA.
---------------------------------------------------------------------------

    \367\ HMDA section 304(h)(1)(E), (h)(3)(B); 12 U.S.C. 
2803(h)(1)(3), (h)(3)(B).
---------------------------------------------------------------------------

    The Bureau is finalizing the Dodd-Frank Act requirement for the 
collection and reporting of a mortgage loan originator unique 
identifier as proposed in Sec.  1003.4(a)(34). The Bureau believes that 
this information will improve HMDA data by, for example, identifying an 
individual who has primary responsibility in the transaction, which 
will in turn enable new dimensions of analysis, including being able to 
link individual mortgage loan originators or groups of mortgage loan 
originators to a financial institution. Accordingly, the Bureau is 
adopting Sec.  1003.4(a)(34) as proposed, with minor modification for 
proposed clarity to proposed comment 4(a)(34)-2 and one substantive 
change to proposed comment 4(a)(34)-3. In order to facilitate 
compliance with the new reporting requirement when multiple mortgage 
loan originators are associated with a particular covered loan or 
transaction, the comment clarifies that a financial institution reports 
the NMLSR ID of the individual mortgage loan originator with primary 
responsibility for the transaction as of the date of action taken 
pursuant to Sec.  1003.4(a)(8)(ii). A financial institution that 
establishes and follows a reasonable, written policy for determining 
which individual mortgage loan originator has primary responsibility 
for the reported transaction as of the date of action taken complies 
with Sec.  1003.4(a)(34).
4(a)(35)
    Currently, Regulation C does not require financial institutions to 
report information regarding results received from automated 
underwriting systems, and HMDA does not expressly require this 
itemization. Section 304(b) of HMDA permits the disclosure of ``such 
other information as the Bureau may require.'' \368\ The Bureau 
proposed Sec.  1003.4(a)(35)(i), which provides that except for 
purchased covered loans, a financial institution shall report the name 
of the automated underwriting system it used to evaluate the 
application and the recommendation generated by that automated 
underwriting system. In addition, the Bureau proposed Sec.  
1003.4(a)(35)(ii), which defines an automated underwriting system (AUS) 
as an electronic tool developed by a securitizer, Federal government 
insurer, or guarantor that provides a recommendation regarding whether 
the application is eligible to be purchased, insured, or guaranteed by 
that securitizer, Federal government insurer, or guarantor. The Bureau 
also proposed three comments to provide clarification on the reporting 
requirement regarding AUS information under proposed Sec.  
1003.4(a)(35).
---------------------------------------------------------------------------

    \368\ Dodd-Frank Act section 1094(3)(A)(iv), 12 U.S.C. 
2803(b)(6)(J).
---------------------------------------------------------------------------

    In order to facilitate HMDA compliance and address concerns that it 
could be burdensome for financial institutions that purchase loans to 
identify automated underwriting system information, the Bureau excluded 
purchased covered loans from the requirements of proposed Sec.  
1003.4(a)(35)(i). The Bureau solicited feedback on whether this 
exclusion was appropriate and received a few comments. One consumer 
advocate commenter recommended that unless and until the ULI is 
successfully implemented, purchased loans should not be excluded from 
the automated underwriting data reporting requirement. Another consumer 
advocate commenter provided feedback recommending that there be no 
exception for reporting of AUS information for purchased loans. This 
commenter suggested that the official interpretation of the rule should 
specify that the Bureau considers it reasonable for any institution 
purchasing covered loans to negotiate a contractual agreement requiring 
the seller institution to provide all data required by HMDA. The 
commenter also suggested that if an exception for purchased loans under 
proposed Sec.  1003.4(a)(35)(i) remains, it should be limited only to 
instances where the financial institution does not have and cannot 
reasonably obtain the AUS information.
    The Bureau has considered this feedback and has determined that it 
would be burdensome for financial institutions that purchase loans to 
identify the AUS used by the originating financial institution to 
evaluate the application and to identify the AUS result generated by 
that system. Consequently, the Bureau is adopting the exclusion of 
purchased covered loans proposed under Sec.  1003.4(a)(35)(i). The 
Bureau is also adopting new comment 4(a)(35)-5, which explains that a 
financial institution complies with Sec.  1003.4(a)(35) by reporting 
that the requirement is not applicable when the covered loan is a 
purchased covered loan.
    In response to the Bureau's solicitation for feedback regarding 
whether the proposed AUS requirements are appropriate, a few commenters 
recommended that the reporting requirement under proposed Sec.  
1003.4(a)(35) be optional. For example, one industry commenter stated 
that reporting AUS data should be optional, not mandatory, since many 
smaller institutions do not use an automated system to evaluate certain 
loans. Another commenter stated that financial institutions do not use 
an AUS to evaluate multifamily and other commercial mortgage finance 
applications.
    While the Bureau acknowledges that proposed Sec.  1003.4(a)(35) 
will contribute to financial institutions' compliance burden, the 
Bureau has determined that a requirement of optional reporting of AUS 
data is not the appropriate approach given the value of the data in 
furthering HMDA's purposes. As discussed above with respect to denial 
reasons under Sec.  1003.4(a)(16), the statistical value of optionally 
reported data is lessened because of the lack of standardization across 
all HMDA reporters. A requirement that all financial institutions 
report the name of the AUS used to evaluate an application and the 
result generated by that system is the proper approach for purposes of 
HMDA. Moreover, as discussed further below, new comment 4(a)(35)-4 
clarifies that a financial institution complies with proposed Sec.  
1003.4(a)(35) by reporting that the requirement is not applicable if it 
does not use an AUS to evaluate the application, for example, if it 
only manually underwrites an application. In addition, as discussed 
further below, in order to address the concern that an AUS may not be 
used for all the types of transactions covered by the final rule, new 
comment 4(a)(35)-6 clarifies that when the applicant and co-applicant, 
if applicable, are not natural persons, a financial institution 
complies with Sec.  1003.4(a)(35) by reporting that the requirement is 
not applicable.
    In response to the Bureau's solicitation for feedback regarding

[[Page 66233]]

whether the proposed AUS requirements are appropriate, several 
commenters expressed concern that the Bureau's use of the term 
``recommendation'' when describing the output from an AUS is inaccurate 
since such systems do not provide a credit decision. For example, one 
industry commenter stated that AUS recommendations are not a proxy for 
underwriter discretion and that even though an AUS recommendation can 
inform the level of underwriting that is appropriate for an 
application, it is not a credit decision on that application. 
Similarly, another industry commenter stated that when a financial 
institution obtains an AUS recommendation, the loan is then typically 
fully underwritten by in-house underwriters who make the final credit 
decision. Another commenter noted that the output from an AUS does not 
reflect the complete underwriting decision of a loan application and 
that a financial institution may have additional requirements such as 
credit-related overlays on top of those specified by the AUS used by 
the institution to evaluate the application.
    The Bureau considered this feedback and has determined that in 
order to address the concern that ``AUS recommendation'' incorrectly 
signals that the recommendation is a credit decision made by the AUS, 
the Bureau is adopting Sec.  1003.4(35)(i) generally as proposed, but 
replaces the term ``recommendation'' with ``result.'' Accordingly, the 
final rule requires a financial institution to report, except for 
purchased covered loans, the name of the automated underwriting system 
it used to evaluate the application and the result generated by that 
automated underwriting system.
    The Bureau solicited feedback on whether limiting the definition of 
an automated underwriting system as proposed in Sec.  1003.4(a)(35)(ii) 
to one that is developed by a securitizer, Federal government insurer, 
or guarantor is appropriate, and whether commentary is needed to 
clarify the proposed definition or to facilitate compliance. The 
Bureau's proposed AUS definition provided that financial institutions 
would report AUS data regarding the automated underwriting systems of 
the government-sponsored enterprises (GSEs)--the Federal National 
Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage 
Corporation (Freddie Mac)--other Federal government insurer or 
guarantor systems, and the proprietary automated underwriting systems 
of securitizers. The Bureau's proposed AUS definition did not include 
the proprietary automated underwriting systems developed by financial 
institutions that are not securitizers, nor the systems of third party 
vendors. In response to the Bureau's solicitation for feedback, several 
commenters suggested that the definition of AUS be expanded to include 
all systems used by financial institutions to evaluate an application. 
For example, one consumer advocate commenter stated that financial 
institutions use automated underwriting systems developed and sold by 
companies that are not securitizers, Federal government insurers or 
guarantors to determine whether or not loans will be eligible for 
government guarantee, insurance programs or sale to private investors, 
and that the Bureau should require financial institutions to report the 
use of and results from those systems as well. Another industry 
commenter stated that the Bureau's failure to cover the full range of 
all platforms used by financial institutions to make a credit decision, 
including proprietary or third-party AUSs, will necessarily produce 
incomplete data. Another commenter stated that the Bureau's proposed 
AUS definition is both under and over inclusive. The commenter argued 
that the definition is under inclusive because it excludes from HMDA 
reporting requirements the AUS name and result generated by a system 
developed by an entity that is not a securitizer, Federal government 
insurer, or guarantor. The commenter also argued that the definition is 
over inclusive since it could be interpreted as capturing other 
electronic tools used by financial institutions that are designed by 
the secondary market to provide an assessment of credit risk of an 
applicant or purchase eligibility of a loan, but are not intended to 
replace the purpose of an AUS.
    The Bureau considered this feedback and has determined that it will 
adopt the proposed definition of AUS in Sec.  1003.4(a)(35)(ii), with 
three modifications. First, the Bureau added the words ``Federal 
government'' in front of guarantor to the definition of AUS in the 
final rule to clarify that the definition captures an AUS developed by 
a Federal government guarantor, but not one developed by a non-Federal 
government guarantor. Second, the Bureau added the word ``originated'' 
to the definition of AUS in the final rule to clarify that in order for 
an electronic tool to meet the definition of an AUS under Sec.  
1003.4(a)(35)(ii), the system must provide a result regarding the 
eligibility of the covered loan to be originated, purchased, insured, 
or guaranteed by the securitizer, Federal government insurer, or 
Federal government guarantor that developed the system being used to 
evaluate the application. Third, the Bureau added the words ``the 
credit risk of the applicant'' to the definition of AUS in the final 
rule to clarify that in order for an electronic tool to meet the 
definition of an AUS under Sec.  1003.4(a)(35)(ii), the system must 
also provide a result regarding the credit risk of the applicant.
    In order to facilitate compliance, the Bureau is also adopting new 
comment 4(a)(35)-2, discussed further below, which explains the 
definition of AUS and provides illustrative examples of the reporting 
requirement. In addition, the Bureau recognizes that the Federal 
Housing Administration's (FHA) Technology Open to Approved Lenders 
(TOTAL) Scorecard is different than the automated underwriting systems 
developed by Fannie Mae and Freddie Mac. TOTAL Scorecard is a tool 
developed by HUD that is used by financial institutions to evaluate the 
creditworthiness of applicants and determine an associated risk level 
of a loan's eligibility for insurance by the FHA. Unlike the automated 
underwriting systems of the GSEs, TOTAL Scorecard works in conjunction 
with various automated underwriting systems.\369\ However, if a 
financial institution uses TOTAL Scorecard to evaluate an application, 
the Bureau has determined that the HMDA data's usefulness will be 
improved by requiring the financial institution to report that it used 
that system along with the result generated by that system.
---------------------------------------------------------------------------

    \369\ See https://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/total.
---------------------------------------------------------------------------

    Accordingly, pursuant to its authority under sections 305(a) and 
304(b)(6)(J) of HMDA, the Bureau is adopting Sec.  1003.4(a)(35)(ii), 
which provides that an automated underwriting system means an 
electronic tool developed by a securitizer, Federal government insurer, 
or Federal government guarantor that provides a result regarding the 
credit risk of the applicant and whether the covered loan is eligible 
to be originated, purchased, insured, or guaranteed by that 
securitizer, Federal government insurer, or Federal government 
guarantor. Notwithstanding the concerns associated with collecting and 
reporting information about automated underwriting systems and results, 
the Bureau has determined that this information will further HMDA's 
purposes. This data will assist in understanding a financial 
institution's underwriting decisionmaking and will provide information 
that will assist in

[[Page 66234]]

identifying potentially discriminatory lending patterns and enforcing 
antidiscrimination statutes.
    As discussed above, the Bureau solicited feedback on whether 
commentary is needed to facilitate compliance. Several commenters 
provided a variety of feedback, including concern that the proposal 
will result in incomplete or inconsistent data. One commenter noted 
while the Bureau's proposed commentary recognizes the fact that 
financial institutions often use multiple AUSs for any given loan 
application, the proposal leaves open potential inconsistencies in how 
a lender chooses which AUS to report. For example, a few commenters 
noted that the ``closest in time'' standard in the proposal for 
reporting an AUS name and result could result in the HMDA data not 
capturing AUS data that the financial institution actually considered 
in making the credit decision. To highlight this concern, one commenter 
stated that financial institutions may use a ``waterfall strategy'' to 
evaluate applications by which an institution runs loan applications 
through one AUS first, then takes the `caution' loans from the first 
system and runs them through a second AUS. The commenter stated that 
the first AUS would see a lower risk population, while the second AUS 
would see a pre-screened higher risk population. The commenter 
expressed concern that since the Bureau's proposal requires a financial 
institution to report one AUS it used to evaluate an application and 
one AUS result generated by that system, the waterfall approach could 
potentially provide inaccurate HMDA results if not properly understood 
because it might be possible that such reporting would exclude AUS data 
that actually played a role in a financial institution's credit 
decision. Commenters noted if the Bureau is to take a comprehensive 
approach to collecting AUS data and address the concerns related to 
incomplete and inconsistent data, it should take into account the 
sequential decision making processes that financial institutions may 
use when running applications through multiple AUSs. One commenter 
suggested that until the Bureau adopts an approach that takes into 
account the various differences and complexities involved when a loan 
application is evaluated using multiple AUSs, it should reconsider 
requiring disclosure of AUS data. Another commenter recommended that 
the Bureau require financial institutions to report each AUS result 
(including non-securitizer proprietary and third party systems) that 
was used in the credit decision, as well as an indication of the 
relative importance of each result to the credit decision. Lastly, 
another commenter requested clarification as to whether a financial 
institution is required to report AUS information in the circumstance 
when an AUS provides a negative result, but the institution chooses to 
assume the credit risk and hold the resulting loan in its portfolio, 
rather than sell the loan to an investor.
    The Bureau considered this feedback and has determined that 
revisions to the proposed commentary and additional comments will 
facilitate compliance with the reporting requirement. For example, 
comment 4(a)(35)-3, discussed further below, provides additional 
clarity as to what AUS (or AUSs) and result (or results) a financial 
institution is required to report in cases when the institution uses 
one or more AUSs, which generate two or more results. In addition, 
comment 4(a)(35)-1.ii provides two illustrative examples and explains 
that a financial institution that uses an AUS, as defined in Sec.  
1003.4(a)(35)(ii), to evaluate an application, must report the name of 
the AUS it used to evaluate the application and the result generated by 
that system, regardless of whether the financial institution intends to 
hold the covered loan in its portfolio or sell the covered loan.
    The Bureau solicited feedback on the proposed requirement that a 
financial institution enter, in a free-form text field, the name of the 
AUS used to evaluate the application and the result generated by that 
system, when ``Other'' is selected. Several industry commenters did not 
support the proposed requirement for a variety of reasons. A few 
commenters recommended removal of the free-form text field because it 
would be impossible to aggregate the data, without further explanation. 
Another commenter did not support the proposal to include a free-form 
text field for automated underwriting system information because there 
is no way to make the text input consistent among staff and financial 
institutions and as such, suggested that simply requiring a financial 
institution to report ``Other'' would be appropriate and sufficient. 
Lastly, another commenter stated that free-form text fields are 
illogical because they lack the ability of being sorted and reported 
accurately. This commenter also opined that the additional staff and/or 
programming that will be needed on a government level to analyze these 
free text fields is costly and not justified when looking at the 
minimal impact these fields have on the overall data collection under 
HMDA.
    The Bureau has considered the concerns expressed by industry 
commenters with respect to the proposed requirement that a financial 
institution enter the name of the AUS used to evaluate the application 
and the result generated by that system in a free-form text field when 
``Other'' is reported but has determined that the utility of this data 
justifies the potential burden that may be imposed by the reporting 
requirement. As to the commenters' concern that data reported in the 
free-form text field would be impossible to aggregate, perhaps due to 
the variety of potential AUS names and results reported, the Bureau has 
determined that the data reported in the free-form text field will be 
useful even if the data cannot be aggregated.
    Lastly, with respect to a commenter's recommendation that requiring 
a financial institution to report ``Other'' is appropriate and 
sufficient and that the Bureau should not also require an institution 
to enter the name of the AUS used to evaluate the application and the 
result generated by that system in a free-form text field in these 
circumstances, the Bureau has determined that such an approach would 
hinder the utility of the AUS data for purposes of HMDA. As with the 
other free-form text fields the Bureau is adopting--the name and 
version of the scoring model when ``Other credit scoring model'' is 
reported by financial institutions under Sec.  1003.4(a)(15) and the 
denial reason or reasons when ``Other'' is reported by financial 
institutions under Sec.  1003.4(a)(16)--the free-form text field for 
AUS data will provide key information on the automated underwriting 
systems that are not listed and the results generated by those systems. 
For example, the AUS data can be used to monitor other automated 
underwriting systems that may enter the market or to add common, but 
previously unlisted, AUSs and results to the lists. The Bureau has 
determined that the HMDA data's usefulness will be improved by 
requiring financial institutions to report the name of the AUS used to 
evaluate the application and the result generated by that system in a 
free-form text field when the institution enters ``Other'' in the loan/
application register.
    The Bureau has modified proposed comments 4(a)(35)-1, -2, which is 
renumbered as -3, and -3, which is renumbered as -5. The Bureau is also 
adopting new comments 4(a)(35)-2, -4, and -6. As discussed below, the 
Bureau believes these modified and new

[[Page 66235]]

comments will facilitate compliance with the AUS reporting requirement.
    The Bureau is adopting proposed comment 4(a)(35)-1, with 
modifications. Comment 4(a)(35)-1 explains that a financial institution 
complies with Sec.  1003.4(a)(35) by reporting, except for purchased 
covered loans, the name of the automated underwriting system used by 
the financial institution to evaluate the application and the result 
generated by that automated underwriting system, and provides four 
scenarios to illustrate when a financial institution reports this 
information.
    The Bureau is adopting new comment 4(a)(35)-2, which explains that 
a financial institution must report the information required by Sec.  
1003.4(a)(35)(i) if the financial institution uses an automated 
underwriting system (AUS), as defined in Sec.  1003.4(a)(35)(ii), to 
evaluate an application. Comment 4(a)(35)-2 clarifies that in order for 
an AUS to be covered by the definition in Sec.  1003.4(a)(35)(ii), the 
system must be an electronic tool that has been developed by a 
securitizer, Federal government insurer, or a Federal government 
guarantor, and provides two illustrative examples. In addition, comment 
4(a)(35)-2 explains that in order for an AUS to be covered by the 
definition in Sec.  1003.4(a)(35)(ii), the system must provide a result 
regarding both the credit risk of the applicant and the eligibility of 
the covered loan to be originated, purchased, insured, or guaranteed by 
the securitizer, Federal government insurer, or Federal government 
guarantor that developed the system being used to evaluate the 
application, and provides an illustrative example. Comment 4(a)(35)-2 
clarifies that a financial institution that uses a system that is not 
an AUS, as defined in Sec.  1003.4(a)(35)(ii), to evaluate an 
application does not report the information required by Sec.  
1003.4(a)(35)(i).
    The Bureau is adopting proposed comment 4(a)(35)-2, with 
modifications, and renumbered as -3. Comment 4(a)(35)-3 sets forth the 
reporting requirements under Sec.  1003.4(a)(35) when multiple AUS 
results are generated by one or more AUSs. Comment 4(a)(35)-3 explains 
that when a financial institution uses one or more AUS to evaluate the 
application and the system or systems generate two or more results, the 
financial institution complies with Sec.  1003.4(a)(35) by reporting, 
except for purchased covered loans, the name of the AUS used by the 
financial institution to evaluate the application and the result 
generated by that AUS as determined by the principles set forth in the 
comment. The comment explains that to determine what AUS (or AUSs) and 
result (or results) to report under Sec.  1003.4(a)(35), a financial 
institution must follow each of the principles that is applicable to 
the application in question, in the order in which they are set forth 
in comment 4(a)(35)-3.
    First, comment 4(a)(35)-3.i explains that if a financial 
institution obtains two or more AUS results and the AUS generating one 
of those results corresponds to the loan type reported pursuant to 
Sec.  1003.4(a)(2), the financial institution complies with Sec.  
1003.4(a)(35) by reporting that AUS name and result, and provides an 
illustrative example. Comment 4(a)(35)-3.i also explains that if a 
financial institution obtains two or more AUS results and more than one 
of those AUS results is generated by a system that corresponds to the 
loan type reported pursuant to Sec.  1003.4(a)(2), the financial 
institution identifies which AUS result should be reported by following 
the principle set forth in comment 4(a)(35)-3.ii.
    Second, comment 4(a)(35)-3.ii explains that if a financial 
institution obtains two or more AUS results and the AUS generating one 
of those results corresponds to the purchaser, insurer, or guarantor, 
if any, the financial institution complies with Sec.  1003.4(a)(35) by 
reporting that AUS name and result, and provides an illustrative 
example. Comment 4(a)(35)-3.ii also explains that if a financial 
institution obtains two or more AUS results and more than one of those 
AUS results is generated by a system that corresponds to the purchaser, 
insurer, or guarantor, if any, the financial institution identifies 
which AUS result should be reported by following the principle set 
forth in comment 4(a)(35)-3.iii.
    Third, comment 4(a)(35)-3.iii explains that if a financial 
institution obtains two or more AUS results and none of the systems 
generating those results correspond to the purchaser, insurer, or 
guarantor, if any, or the financial institution is following this 
principle because more than one AUS result is generated by a system 
that corresponds to either the loan type or the purchaser, insurer, or 
guarantor, the financial institution complies with Sec.  1003.4(a)(35) 
by reporting the AUS result generated closest in time to the credit 
decision and the name of the AUS that generated that result, and 
provides illustrative examples.
    Lastly, comment 4(a)(35)-3.iv explains that if a financial 
institution obtains two or more AUS results at the same time and the 
principles in comment 4(a)(35)-3.i through .iii do not apply, the 
financial institution complies with Sec.  1003.4(a)(35) by reporting 
the name of all of the AUSs used by the financial institution to 
evaluate the application and the results generated by each of those 
systems, and provides an illustrative example. In any event, however, 
comment 4(a)(35)-3.iv explains that a financial institution does not 
report more than five AUSs and five results. If more than five AUSs and 
five results meet the criteria in the principle set forth in comment 
4(a)(35)-3.iv, the financial institution complies with Sec.  
1003.4(a)(35) by choosing any five among them to report. The Bureau 
believes that it is reasonable to limit the number of AUSs to five and 
the number of results to five when a financial institution meets the 
criteria in the principle set forth in comment 4(a)(35)-3.iv. The 
Bureau believes that the likelihood of a financial institution 
evaluating an application through more than five AUSs at the same time 
is low. Moreover, the Bureau believes that requiring financial 
institutions to report all AUSs and the results of each of those 
systems, with no limitation, would be unnecessarily burdensome. 
Accordingly, as discussed above, comment 4(a)(35)-3.iv limits the 
number of AUSs and results that financial institutions are required to 
report to five each.
    The Bureau is adopting proposed comment 4(a)(35)-3, with 
modifications, and renumbered as -4. Comment 4(a)(35)-4 addresses 
transactions for which an AUS was not used to evaluate the application 
and explains that Sec.  1003.4(a)(35) does not require a financial 
institution to evaluate an application using an AUS, as defined in 
Sec.  1003.4(a)(35)(ii). For example, if a financial institution only 
manually underwrites an application and does not use an AUS to evaluate 
the application, the financial institution complies with Sec.  
1003.4(a)(35) by reporting that the requirement is not applicable since 
an AUS was not used to evaluate the application.
    Proposed comment 4(a)(35)-3 also addressed transactions for which 
no credit decision was made by a financial institution by explaining 
that if a file was closed for incompleteness, or if an application was 
withdrawn before a credit decision was made, a financial institution 
complies with Sec.  1003.4(a)(35) by reporting that the requirement is 
not applicable. However, the Bureau has determined that it is not 
adopting this portion of proposed comment 4(a)(35)-3. The Bureau 
believes that if a financial institution uses an AUS to evaluate an 
application, regardless of whether the

[[Page 66236]]

file is closed for incompleteness or the application is withdrawn 
before a credit decision is made, the AUS data will assist in 
understanding the financial institution's underwriting decisionmaking 
and will provide information that will assist in identifying 
potentially discriminatory lending patterns and enforcing 
antidiscrimination statutes. Consequently, if a financial institution 
uses an AUS to evaluate an application and the file is closed for 
incompleteness and is so reported in accordance with Sec.  
1003.4(a)(8), a financial institution complies with Sec.  1003.4(a)(35) 
by reporting the AUS information. Similarly, if a financial institution 
uses an AUS to evaluate an application and the application was 
withdrawn by the applicant before a credit decision was made and is so 
reported in accordance with Sec.  1003.4(a)(8), the financial 
institution complies with Sec.  1003.4(a)(35) by reporting the AUS 
information.
    As discussed above, the Bureau is adopting new comment 4(a)(35)-5, 
which explains that a financial institution complies with Sec.  
1003.4(a)(35) by reporting that the requirement is not applicable when 
the covered loan is a purchased covered loan. Lastly, the Bureau is 
adopting new comment 4(a)(35)-6, which explains that a financial 
institution complies with Sec.  1003.4(a)(35) by reporting that the 
requirement is not applicable when the applicant and co-applicant, if 
applicable, are not natural persons. The Bureau believes that comments 
4(a)(35)-1 through -6 will provide clarity regarding the new reporting 
requirement adopted in Sec.  1003.4(a)(35) and will facilitate HMDA 
compliance.
    In response to the Bureau's solicitation for feedback regarding 
whether the proposed AUS requirements are appropriate, a few commenters 
expressed concern about potential privacy implications for applicants 
or borrowers if the Bureau were to release AUS data to the public. One 
commenter did not support the proposal to include AUS results because 
it opined that such disclosure is in direct conflict with laws and 
rules designed to protect a consumer's non-public personal information. 
This commenter suggested that if AUS results were available to the 
public, such disclosure would make it easier for hackers around the 
world to gain access to personal financial data and place the safety 
and welfare of citizens in jeopardy. A national trade association 
commented that unless the Bureau establishes the appropriate safeguards 
against the misuse of sensitive consumer financial data, adding more 
sensitive and non-public information to HMDA disclosure, such as 
creditworthiness, creates considerable privacy concerns. Lastly, 
another commenter stated that the release of AUS data, either alone or 
when combined with other publicly available sources (including loan-
level data associated with mortgage-backed securities issuances) could 
increase the risk to borrower privacy by facilitating re-identification 
of borrowers.
    A few commenters also expressed concern about the disclosure of 
confidential, proprietary information if the Bureau were to release AUS 
data to the public. One commenter did not support proposed Sec.  
1003.4(a)(35) because, it argued, lenders would be required to disclose 
proprietary information. Another commenter expressed concern that 
competitor financial institutions could use public HMDA data to reverse 
engineer its proprietary underwriting systems, thereby harming its 
competitive position in the mortgage marketplace. Similarly, another 
commenter stated that to the extent that AUS data are available to 
persons outside government, such disclosure may pose serious risks that 
persons would seek to reverse engineer proprietary and confidential 
information about how an AUS is designed and risks significant 
competitive disadvantages for such entities whose AUS information would 
be collected. The commenter explained that persons may seek to reverse 
engineer the decision-making and purchase-process used by an AUS by 
analyzing the recommendations in connection with the other HMDA data 
that is disclosed to the public. The commenter reasoned that as a 
result of the volume of loan-level data reported pursuant to HMDA, 
disclosure of AUS data may well enable competitors and other parties to 
seek to recreate the criteria used by an AUS to reach recommendations 
on loans. The commenter urged the Bureau to ensure that if AUS data are 
to be reported by financial institutions, that only regulators of 
financial institutions and other government agencies responsible for 
fair lending enforcement have access to such data, and that it not be 
made available to financial institutions or others. Lastly, another 
commenter also expressed concern that the release of AUS data could 
facilitate reverse engineering to reveal proprietary information about 
an AUS and the profile of loans sold to a particular entity. The 
commenter stated that this could have a significant impact on an entity 
that developed an AUS by revealing proprietary information about the 
design of the AUS as well as the entity's loan purchases, security 
performance, and portfolio management.
    On the other hand, several commenters recommended that AUS data be 
released to the public and supported the proposal primarily based on 
the argument that such data will assist in fair lending analyses as 
well as in understanding access to credit. For example, one consumer 
advocate commenter stated that the collection and public dissemination 
of AUS information will help regulators, policymakers, and the public 
to more precisely investigate discriminatory mortgage lending. Another 
consumer advocate commenter stated that AUS data will identify which 
lenders rely on AUSs heavily as opposed to which lenders use manual 
underwriting, which it argued, can result in responsible lending being 
more accessible to populations that may have thin credit files or less 
than perfect credit. Lastly, another commenter stated that AUS data 
provides important insight into the modern underwriting process that 
will help policymakers better understand credit constraints and the 
challenges to maintaining broad access to credit.
    The Bureau has considered this feedback. It anticipates that, 
because public disclosure of itemized AUS data may raise concerns, such 
release may not be warranted. However, at this time the Bureau is not 
making determinations about what HMDA data will be publicly disclosed 
or the forms of such disclosures.
4(a)(36)
    Currently, neither HMDA nor Regulation C requires a financial 
institution to report whether a reportable transaction is a reverse 
mortgage. Although reverse mortgages that are home purchase loans, home 
improvement loans, or refinancings are reported under Regulation C 
currently, financial institutions are not required to separately 
identify if a reported transaction is a reverse mortgage.\370\ Proposed 
Sec.  1003.4(a)(36) provided that a financial institution must record 
whether the covered loan is, or the application is for, a reverse 
mortgage, and whether the reverse mortgage is an open- or closed-end 
transaction. The

[[Page 66237]]

Bureau solicited feedback regarding whether this proposed requirement 
is appropriate, whether commentary would help clarify or illustrate the 
requirement, and any costs and burdens associated with the proposed 
requirement.\371\ For the reasons discussed below, the Bureau is 
finalizing in Sec.  1003.4(a)(36) a requirement to identify whether the 
covered loan is, or the application is for, a reverse mortgage.
---------------------------------------------------------------------------

    \370\ The Bureau received a number of comments from consumer 
advocacy groups and industry commenters about including a reverse 
mortgage transaction as a type of covered loan that must be 
reported. The Bureau addresses those comments in the section-by-
section analysis of Sec.  1003.2(q), which defines ``reverse 
mortgage.''
    \371\ Commenters did not address the cost of finalizing the 
requirement to identify whether a transaction involves a reverse 
mortgage. However, the costs and benefits of all of the new and 
revised data points are discussed elsewhere in the Supplementary 
Information.
---------------------------------------------------------------------------

    Industry commenters opposed the requirement to report whether a 
loan or application is for a reverse mortgage because reverse mortgages 
are a small portion of the market. Consumer advocates supported the 
requirement, noting that data users currently cannot identify the 
populations taking out reverse mortgages. Consumer advocates generally 
stated that identifying which reported loans and lines of credit are 
reverse mortgages will help illuminate patterns of equity extraction by 
older consumers.
    It is important that the public and regulators be able to identify 
easily which transactions covered by Regulation C involve reverse 
mortgages. Reverse mortgages are substantively different from other 
mortgages and are subject to different underwriting criteria.\372\ 
Including in the dataset an indicator that readily identifies the 
transaction as a reverse mortgage will provide necessary context on the 
other data reported for the same transaction. For example, 
identification of a transaction as a reverse mortgage may help explain 
why certain data points are reported as not applicable to the 
transaction. As a result, financial institutions will need to spend 
less time verifying submitted data and users will have a better context 
in which to consider the data submitted, both for that transaction and 
in comparison with other transactions.
---------------------------------------------------------------------------

    \372\ See generally CFPB Report to Congress on Reverse Mortgages 
(2012), available at https://files.consumerfinance.gov/a/assets/documents/201206_cfpb_Reverse_Mortgage_Report.pdf.
---------------------------------------------------------------------------

    Pursuant to its authority under sections 305(a) and 304(b)(6)(J) of 
HMDA, the Bureau is finalizing in Sec.  1003.4(a)(36) a requirement to 
identify whether the covered loan is, or the application is for, a 
reverse mortgage. However, because the Bureau is also adopting Sec.  
1003.4(a)(37), which will require financial institutions to identify 
whether the transaction involves an open-end line of credit, it is not 
necessary to require financial institutions to separately identify 
whether the reverse mortgage is a closed-end or open-end transaction. 
Instead, the final rule simplifies the reporting requirement in Sec.  
1003.4(a)(36) to indicate only whether the transaction involves a 
reverse mortgage. Data users can use the reverse mortgage and open-end 
line of credit indicators in combination to determine whether a 
transaction involves a reverse mortgage and, if so, the type of reverse 
mortgage. This simplification also addresses the request of one 
consumer group to clarify potentially confusing terminology used in the 
proposed rule for different types of open-end lines of credit.
4(a)(37)
    Currently, neither HMDA nor Regulation C requires a financial 
institution to identify whether a reportable transaction is an open-end 
line of credit. Although dwelling-secured lines of credit currently may 
be reported as home purchase loans or home improvement loans, users of 
the HMDA data cannot identify which reported transactions involve open-
end lines of credit. Proposed Sec.  1003.4(a)(37) provided that a 
financial institution must record whether the covered loan is, or the 
application is for, an open-end line of credit, and whether the covered 
loan is, or the application is for, a home-equity line of credit. The 
proposed rule defined ``open-end line of credit'' as a new term in 
Regulation C, and did not revise the current definition of home-equity 
line of credit. As discussed in the section-by-section analyses of 
Sec.  1003.2(h) and (o), the final rule deletes the definition of 
``home-equity line of credit'' and modifies the proposed definition of 
``open-end line of credit.'' The modified definition of open-end line 
of credit subsumes the current definition of home-equity line of 
credit. For the reasons discussed below, the Bureau is finalizing in 
Sec.  1003.4(a)(37) a requirement that financial institutions identify 
whether the covered loan is, or the application is for, an open-end 
line of credit, as that term is defined in the final rule.
    The Bureau solicited feedback regarding whether the proposed 
requirement to identify whether the transaction involved an open-end 
credit plan is appropriate and whether commentary would help clarify 
the requirement. Most commenters who addressed dwelling-secured open-
end credit plans did not address this solicitation for comment. A 
number of industry participants recommended modifying the proposal to 
identify the transaction as either involving a home-equity line of 
credit, or not.\373\ Similarly, a consumer advocacy group commented 
that distinguishing between open-end lines of credit that are home-
equity lines of credit and those that are not is confusing.
---------------------------------------------------------------------------

    \373\ These commenters generally also favored eliminating 
commercial loans from coverage under Regulation C, which they stated 
would eliminate reporting of most open-end lines of credit that are 
not home-equity lines of credit under the current definition in 
Regulation C. The coverage of commercial and business loans is 
discussed in the section-by-section analysis of Sec.  1003.3(c)(10).
---------------------------------------------------------------------------

    Some of the concerns that commenters raised about reporting HMDA 
data on dwelling-secured open-end credit plans will be mitigated by 
also requiring financial institutions to indicate whether the 
transaction being reported involves an open-end line of credit.\374\ 
Specifically, a number of industry commenters stated that a requirement 
to report data on open-end lines of credit would likely result in 
skewed data, including data that may create an inaccurate appearance of 
subprime lending. Industry trade groups stated that commingling data on 
open-end lines of credit with HMDA data on closed-end mortgage loans 
will produce misleading information. However, consumer advocates 
commented that having additional information about dwelling-secured 
open-end credit plans will enable communities to more fully understand 
the mortgage market and better serve vulnerable populations. One 
consumer advocate commented that open-end lines of credit should be 
identified in the data, given the difference in their underwriting 
relative to closed-end loans. Another consumer advocate commented that, 
without an indication that the transaction involves open-end credit, 
information on loan term and price is less meaningful.
---------------------------------------------------------------------------

    \374\ ``Open-end line of credit'' is defined in Sec.  1003.2(o) 
of the final rule.
---------------------------------------------------------------------------

    It is important that the public and public officials be able to 
identify easily which transactions covered by Regulation C involve 
open-end lines of credit. Open-end lines of credit are a different 
credit product than closed-end mortgage loans. Including in the dataset 
an indicator that readily identifies the transaction as an open-end 
line of credit will provide the public and public officials more 
context for the other data reported for the same transaction and will 
facilitate more-effective data analysis. For example, identification of 
a transaction as an open-end line of credit may help explain why the 
financial institution has reported certain data points as being not 
applicable to the transaction. As a result, financial

[[Page 66238]]

institutions will need to spend less time verifying submitted data and 
the public will have a better context in which to consider the data 
submitted, both for that transaction and in comparison with other 
transactions.
    Therefore, pursuant to its authority under sections 305(a) and 
304(b)(6)(J) of HMDA, the Bureau is finalizing Sec.  1003.4(a)(37), 
which requires that financial institutions identify whether covered 
loans are, or applications are for, an open-end line of credit. The 
Bureau, however, is not finalizing the proposal that financial 
institutions also identify whether the covered loan is, or the 
application is for, a home-equity line of credit. As discussed in the 
section-by-section analysis of Sec.  1003.4(a)(38), the final rule also 
requires financial institutions to identify whether the covered loan 
is, or the application is for, a covered loan that is, primarily for a 
business or commercial purpose. In combination, the open-end line of 
credit indicator and the business- or commercial-purpose indicator can 
be used to identify whether open-end credit is for a consumer or 
business purpose.\375\ Therefore, a separate indicator for a consumer-
purpose open-end credit plan secured by a dwelling is not 
necessary.\376\ The final rule simplifies the reporting requirement in 
Sec.  1003.4(a)(37) to indicate only whether the transaction involves 
an open-end line of credit. Simplifying the data point that indicates 
an open-end line of credit also addresses the request of one consumer 
group to clarify potentially confusing terminology used in the proposed 
rule for several types of open-end credit.
---------------------------------------------------------------------------

    \375\ See Sec.  1003.2(o) for additional discussion of consumer- 
and business-purpose open-end credit.
    \376\ In addition, because open-end line of credit is defined to 
be more comprehensive than home-equity line of credit, retaining 
both terms in Regulation C could result in inconsistencies in 
reporting the information.
---------------------------------------------------------------------------

    The Bureau did not propose any comment to accompany proposed Sec.  
1003.4(a)(37) and commenters did not request clarifying commentary. For 
consistency and convenience, however, the final rule adds new comment 
4(a)(37)-1, which references comments 2(o)-1 and -2 for guidance on 
determining whether a covered loan is, or an application is for, an 
open-end line of credit.
4(a)(38)

Qualified Mortgage Indicator

    Currently, neither HMDA nor Regulation C contains requirements 
related to whether a loan would be considered a qualified mortgage 
under Regulation Z. Proposed Sec.  1003.4(a)(38) provided that a 
financial institution must record whether the covered loan is subject 
to the ability-to-repay provisions of Regulation Z and whether the 
covered loan is a qualified mortgage, as described under Regulation 
Z.\377\ The proposed rule also specified that financial institutions 
report the qualified mortgage information using a code to indicate 
which type of qualified mortgage described the covered loan. The Bureau 
solicited feedback regarding whether the proposed requirement was 
appropriate, would result in more useful data, and would impose 
additional burdens or result in additional challenges that the Bureau 
had not considered in making the proposal. In addition, the Bureau 
requested feedback regarding whether modifications to the proposed 
requirement would minimize the burden of collecting information related 
to a covered loan's qualified mortgage status. For the reasons 
discussed below, the Bureau is not finalizing proposed Sec.  
1003.4(a)(38).
---------------------------------------------------------------------------

    \377\ The ability-to-repay provisions are in 12 CFR 1026.43. The 
proposed rule invoked the provisions on qualified mortgage in Sec.  
1026.43(e) and (f).
---------------------------------------------------------------------------

    The Bureau received a significant number of comments from consumer 
advocacy groups, researchers, financial institutions, State and 
national trade associations, and other industry participants concerning 
proposed Sec.  1003.4(a)(38). Consumer advocates and researchers 
supported reporting whether a covered loan is a qualified mortgage. 
Some of these commenters also noted that a covered loan may fit into 
more than one category of qualified mortgage and that, if finalized, 
the reporting requirements should be structured to accommodate changes 
in underlying regulations (such as sunsetting categories for qualified 
mortgages). Some also recommended that financial institutions should 
report all of the categories under which a loan can be characterized as 
a qualified mortgage. A consumer advocacy group stated that qualified 
mortgage status limits liability for lenders, so these loans should be 
monitored closely to determine if that status results in more 
sustainable loan terms and better loan performance. Several consumer 
advocacy and research organization commenters identified the qualified 
mortgage data as one of the most important additions proposed and 
stated that understanding exactly how the Bureau's qualified mortgage 
regulation is affecting mortgage credit is critical to ensuring that 
the Bureau's joint goals of access to credit and consumer protection 
are both achieved.
    Industry commenters recommended against requiring reporting of 
qualified mortgage status. Some noted the same issues as consumer 
advocates and researchers had noted. In addition, industry commenters 
questioned the HMDA purpose for this data point and asserted a 
potentially stigmatizing effect for loans that are not qualified 
mortgages that would be inconsistent with Federal banking agencies' 
joint guidance and oral statements preserving a role for non-qualified 
mortgage loans.\378\ Financial institutions and industry trade groups 
commented that whether a loan is a qualified mortgage is often not 
known at origination. For example, one industry commenter reported that 
it does not limit its lending to qualified mortgages, so it would be 
burdensome and expensive to implement systems to track and report 
qualified mortgage status. Other industry commenters stated that 
whether a loan could be a qualified mortgage may be revealed by other 
data points, when considered together, including points and fees; rate 
spread; existence of features such as negative amortization, balloon 
payments, and prepayment penalties; whether a loan is backed by a 
government-sponsored enterprise or Federal agency; automated 
underwriting system results; high-cost status; and debt-to-income 
ratio. A number of industry commenters expressed concern about the 
consequences of misreporting a loan as either a qualified mortgage or 
not a qualified mortgage. Industry commenters requested that if the 
Bureau requires reporting the qualified mortgage status of loans, it 
should also add options to indicate whether a loan is exempt from the 
ability-to-repay requirements and whether the qualified mortgage status 
was relevant to the credit decision, and clarify reporting 
responsibilities for repurchases of loans misreported as qualified 
mortgages and for small-creditor loans sold to a buyer that is not a 
small creditor.
---------------------------------------------------------------------------

    \378\ CFPB, OCC, Bd. of Governors of the Fed. Reserve System, 
FDIC, and NCUA, Interagency Statement on Fair Lending Compliance and 
the Ability-to-Repay and Qualified Mortgage Standards Rule at 2 
(2013), https://files.consumerfinance.gov/f/201310_cfpb_guidance_qualified-mortgage-fair-lending-risks.pdf. In 
part, the statement explains:
    [C]onsistent with the statutory framework, there are several 
ways to satisfy the Ability-to-Repay Rule, including making 
responsibly underwritten loans that are not Qualified Mortgages. The 
Bureau does not believe that it is possible to define by rule every 
instance in which a mortgage is affordable for the borrower.
---------------------------------------------------------------------------

    Coverage conditions and exemptions applicable to the ability-to-
repay requirements mean that the reporting requirements in the proposed 
rule did

[[Page 66239]]

not apply to applications or open-end lines of credit, reverse 
mortgages, extensions of credit pursuant to certain programs, 
multifamily loans, or business-purpose loans. At the time of the 
proposed rule, the Bureau believed that financial institutions would be 
in a position to report the qualified mortgage status of each covered 
loan in a manner that is consistent with the regular business practices 
of financial institutions, and that such a reporting requirement would 
not be unduly burdensome. The Bureau has been persuaded, however, that 
reporting the qualified mortgage status and, as applicable, the type of 
qualified mortgage for each loan will impose burdens identified by 
industry commenters that were not intended and would not be justified 
by the benefits of this additional reporting requirement in the HMDA 
data. The final rule includes other new data that might be used to 
approximate the borrower's ability to repay and the loan's qualified 
mortgage status with sufficient accuracy to serve HMDA's purposes. 
Financial institutions should be able to provide this other data 
readily, without having to develop new collection mechanisms as might 
be necessary to report qualified mortgage status. In addition, the 
Bureau has not changed its position that non-qualified mortgages can 
satisfy ability-to-repay standards. The Bureau had not intended that a 
financial institution reporting under HMDA its reasonable belief about 
the qualified mortgage status of its loans at a point in time should be 
susceptible to increased public or regulatory scrutiny based on that 
classification.
    Therefore, the Bureau is not finalizing proposed Sec.  
1003.4(a)(38).

Business- or Commercial-Purpose Indicator

    Currently, neither HMDA nor Regulation C requires a financial 
institution to report whether a reportable transaction has a business 
or commercial purpose. Although business- and commercial-purpose 
transactions that are home purchase loans, home improvement loans, or 
refinancings are reported under Regulation C currently, financial 
institutions are not required to separately identify if a reported 
transaction has a business or commercial purpose.\379\ In the proposed 
rule, the Bureau expanded coverage of business and commercial 
transactions, but it did not separately propose a specific requirement 
for financial institutions to differentiate those transactions in their 
reported HMDA data.\380\ As discussed in the section-by-section 
analysis of Sec.  1003.3(c)(10), the final rule maintains the current 
requirement that financial institutions must report business- and 
commercial-purpose transactions that are home purchase loans, home 
improvement loans, or refinancings. To make the data collected on 
business- and commercial-purpose transactions more useful, Sec.  
1003.4(a)(38) of the final rule requires financial institutions to 
report whether the covered loan or application is or will be made 
primarily for a business or commercial purpose.
---------------------------------------------------------------------------

    \379\ The Bureau received many comments about the coverage of 
business- and commercial-purpose loans in HMDA and Regulation C. The 
Bureau addresses those comments in the section-by-section analysis 
of Sec.  1003.3(c)(10), which provides an exclusion for some 
business- and commercial-purpose transactions.
    \380\ In the proposed rule, the Bureau invited feedback 
regarding whether, if commercial loans were not exempted in the 
final rule, it would be appropriate to add a loan purpose 
requirement applicable to commercial loans or some other method of 
uniquely identifying commercial loans in the HMDA data. 79 FR 51731, 
51767 (Aug. 29, 2014).
---------------------------------------------------------------------------

    Even though the final rule does not expand the scope of coverage of 
business- and commercial-purpose loans, some of the concerns that 
commenters raised about reporting HMDA data on all business- and 
commercial-purpose loans are relevant to the current, more limited 
reporting requirements.\381\ For example, some industry commenters 
stated that mixing data about dwelling-secured, commercial-purpose 
transactions with traditional mortgage loans would skew the HMDA 
dataset and impair its integrity for users of the data. These concerns 
will be mitigated by also requiring financial institutions to indicate 
whether the transaction being reported involves business- or 
commercial-purpose credit. Including in the dataset an indicator that 
readily identifies the transaction as business- or commercial-purpose 
credit will provide the public and public officials more context for 
the other data reported for the same transaction and will facilitate 
more-effective data analysis. The public and public officials will be 
able to use this information to improve their understanding of how 
financial institutions may be meeting the housing needs of their 
communities and public-sector funds are being distributed. These HMDA 
purposes are served by gathering data not only about transactions to 
individual consumers for consumer purposes, but also, for example, 
about the available stock of multifamily rental housing in particular 
communities.
---------------------------------------------------------------------------

    \381\ See section-by-section analysis of Sec.  1003.3(c)(10).
---------------------------------------------------------------------------

    For the reasons discussed above and pursuant to the Bureau's 
authority under sections 305(a) and 304(b)(6)(J) of HMDA, Sec.  
1003.4(a)(38) of the final rule provides that a financial institution 
must identify whether the covered loan or application is or will be 
made primarily for a business or commercial purpose.
Proposed 4(a)(39)
    Section 304(b) of HMDA permits the disclosure of such other 
information as the Bureau may require.\382\ Pursuant to HMDA sections 
305(a) and 304(b)(5)(D), the Bureau proposed to require financial 
institutions to report, for a home-equity line of credit and an open-
end reverse mortgage, the amount of the draw on the covered loan, if 
any, made at account opening. For the reasons given below, the Bureau 
is not finalizing proposed Sec.  1003.4(a)(39).
---------------------------------------------------------------------------

    \382\ Section 1094(3)(A)(iv) of the Dodd-Frank Act amended 
section 304(b) of HMDA.
---------------------------------------------------------------------------

    Several consumer advocates supported the proposed requirement to 
report the initial draw for an open-end line of credit. One consumer 
advocate said that such information would assist in identifying loans 
where the borrower draws an amount at or close to the maximum amount 
available for the line of credit. The commenter believed that these 
loans were more properly characterized as closed-end credit. Another 
consumer advocate stated that, for reverse mortgages, large initial 
draws may be predictive of future financial difficulties. Information 
regarding the initial draw on an open-end line of credit might provide 
important information about the behavior and degree of leverage of 
borrowers with such loans.
    Industry commenters, however, almost universally opposed the 
initial draw reporting requirement. Many of these commenters believed 
that the amount of the initial draw would provide no valuable data. A 
few commenters stated that the first draw played an insignificant role 
in underwriting or pricing decisions, and other commenters noted that 
the amount reflected the choice of the borrower. Several commenters 
were generally skeptical of the utility of the information or asserted 
that it offered little value for purposes of fair lending analysis or 
determining whether financial institutions were meeting the housing 
needs of their communities.
    The amount of the initial draw on a home-equity line of credit or 
an open-end reverse mortgage would provide

[[Page 66240]]

information about the leverage of borrowers with open-end lines of 
credit. The extent of leverage is important for evaluating the 
potential overextension of credit and the risk of default faced by 
borrowers in certain communities. Such information may also be used to 
detect structural problems in the mortgage market. However, the initial 
draw often consists only of an amount necessary to cover fees or 
charges associated with opening the account, or to satisfy the 
requirements of a particular promotion. The Bureau believes that these 
data would fail to provide the information about borrower leverage or 
use of open-end lines of credit that the proposal intended to capture. 
Industry commenters also stated that proposed Sec.  1003.4(a)(39) would 
distort the HMDA data. The Bureau understands that many initial draws 
do not occur at account opening for a variety of reasons. For example, 
consumers might wait days or even months before drawing on the line of 
credit. By requiring reporting of the draw at account opening, proposed 
Sec.  1003.4(a)(39) would omit these draws and therefore fail to serve 
its intended purpose.
    The Bureau could extend the reporting period applicable to proposed 
Sec.  1003.4(a)(39) in an attempt to capture information about these 
loans. However, the Bureau understands that the necessary information 
often exists in separate loan servicing systems rather than the loan 
origination system. As detailed in the section 1022 discussion below, 
the Bureau recognizes that mandatory open-end line of credit reporting 
will impose a significant operational burden on financial institutions, 
largely because open-end lines of credit are originated and maintained 
on different computer systems than traditional mortgages. Upgrading or 
integrating the separate systems used to originate and service open-end 
lines of credit would represent a similar operational burden. Forcing 
such a systems change for the purpose of collecting a single data point 
would impose an unjustified burden on financial institutions.
    For the reasons provided above, the Bureau is not finalizing 
proposed Sec.  1003.4(a)(39).
4(b) Collection of Data on Ethnicity, Race, Sex, Age, and Income
    Section 1003.4(b)(1) of current Regulation C requires that a 
financial institution collect data about the ethnicity, race, and sex 
of the applicant or borrower as prescribed in appendix B. Section 
1003.4(b)(2) provides that the ethnicity, race, sex, and income of an 
applicant or borrower may but need not be collected for loans purchased 
by the financial institution. The Bureau proposed to add age to Sec.  
1003.4(b)(1) and (b)(2), and proposed to amend Sec.  1003.4(b)(1) by 
requiring a financial institution to collect data about the ethnicity, 
race, sex, and age of the applicant or borrower as prescribed in both 
appendices A and B. The Bureau also proposed minor wording changes to 
Sec.  1003.4(b)(1) and (b)(2).
    Consistent with the current requirement under the regulation, 
proposed Sec.  1003.4(b)(2) provided that ethnicity, race, sex, and 
income data may but need not be collected for loans purchased by a 
financial institution. While the proposed reporting requirement does 
not require reporting of ethnicity, race, sex, age, and income for 
loans purchased by a financial institution, the Bureau solicited 
feedback on whether this exclusion is appropriate. In particular, the 
Bureau specifically solicited feedback on the general utility of 
ethnicity, race, sex, age, and income data on purchased loans and on 
the unique costs and burdens associated with collecting and reporting 
the data that financial institutions may face if the reporting 
requirement were modified to no longer permit optional reporting but 
instead require reporting of this applicant and borrower information 
for purchased loans.
    A few commenters opposed the proposed optional reporting of 
ethnicity, race, sex, age, and income for loans purchased by a 
financial institution. For example, one consumer advocate stated that 
the proposal creates a significant gap in the data that is reported 
under HMDA and such data is important to achieving HMDA's goals. The 
commenter noted that while it may be possible to close this gap by 
using the proposed ULI to match a purchased loan with the data on the 
ethnicity, race, sex, age, and income reported by the originating 
financial institution, doing so will be time consuming and would 
require a significant effort from users of the data. The commenter 
recommended that the Bureau clarify in commentary that the Bureau 
considers it reasonable for any institution purchasing covered loans to 
negotiate a contractual agreement requiring the seller institution to 
provide all data required by HMDA. The commenter also suggested that if 
the optional reporting of the ethnicity, race, sex, age, and income for 
purchased loans under proposed Sec.  1003.4(b)(2) remains, it should be 
limited only to instances where the financial institution does not have 
and cannot reasonably obtain the information. Another consumer advocate 
suggested that reporting of demographic information on purchased loans 
be required to enhance its understanding of trends in the mortgage 
market and how well financial institutions are or are not serving the 
communities which it represents. Similarly, another commenter expressed 
concern that an increase in the depository institution threshold and 
any delay in establishing a unique ULI will enable the nonreporting of 
critical demographic data with respect to large numbers of purchased 
loans and as such, recommended that the Bureau extend the mandatory 
reporting of ethnicity, race, sex, age, and income to purchased loans. 
Lastly, another commenter recommended that unless and until the ULI is 
successfully implemented, purchased loans should not be excluded from 
this reporting requirement.
    On the other hand, the industry commenters who addressed this 
aspect of the proposal supported the current optional reporting of 
ethnicity, race, sex, age, and income data on purchased loans. For 
example, one industry commenter recommended that reporting of this data 
should only be optional because it would be an enormous regulatory 
burden for community banks to collect and report. Another commenter 
stated that purchased loans should not be subject to HMDA reporting 
overall.
    The Bureau is adopting Sec.  1003.4(b)(1) as proposed, with a few 
changes. First, the Bureau deleted reference to appendix A in Sec.  
1003.4(b)(1) since the instructions in the final rule requiring a 
financial institution to collect data about the ethnicity, race, and 
sex of the applicant or borrower are located in appendix B. Second, the 
Bureau removed age from Sec.  1003.4(b)(1) since, as discussed above, 
the instructions in the final rule requiring a financial institution to 
collect the age of an applicant or borrower are found in comments 
4(a)(10)(ii)-1, -2, -3, -4, and -5.
    The Bureau has considered the feedback and determined that the 
final rule will continue to allow for optional reporting of ethnicity, 
race, sex, and income for loans purchased by a financial institution. 
In addition, as proposed, the final rule will also allow optional 
reporting of age for loans purchased by a financial institution. While 
the Bureau recognizes the potential utility of ethnicity, race, sex, 
age, and income data on purchased loans, it is concerned with the costs 
and burdens associated with collecting and reporting the data that 
financial institutions will face if the reporting

[[Page 66241]]

requirement is mandatory. Consequently, the Bureau is adopting Sec.  
1003.4(b)(2) as proposed, which provides a financial institution with 
the option to collect the ethnicity, race, sex, age, and income data 
for covered loans it purchased.
4(c) Optional Data
4(c)(1)
    Current Sec.  1003.4(c)(1) provides that a financial institution 
may report the reasons it denied a loan application but is not required 
to do so. As discussed in the section-by-section analysis of Sec.  
1003.4(a)(16), the final rule makes reporting of denial reasons 
mandatory instead of optional. To conform to that requirement, the 
final rule deletes Sec.  1003.4(c)(1).
4(c)(2)
    Current Sec.  1003.4(c)(2) provides that a financial institution 
may report requests for preapproval that are approved by the 
institution but not accepted by the applicant but is not required to do 
so. The Bureau proposed to make reporting of requests for preapprovals 
approved by the financial institution but not accepted by the applicant 
mandatory under Sec.  1003.4(a) instead of optional under Sec.  
1003.4(c)(2). Few commenters addressed this proposal specifically, 
though as discussed above in the section-by-section analysis of section 
2(b)(2) some commenters addressed other aspects of preapproval 
programs. A few commenters questioned the value of mandatory reporting 
for preapprovals approved but not accepted. The Bureau is finalizing 
the requirement to report preapprovals approved by the financial 
institution but not accepted by the applicant because it believes that 
reporting of preapprovals approved by the financial institution but not 
accepted by the applicant provides context for denials of preapproval 
requests, and improves fair lending analysis because it allows denials 
to be compared to a more complete set of approved preapproval 
requests.\383\ To conform to that requirement, the final rule deletes 
Sec.  1003.4(c)(2).
---------------------------------------------------------------------------

    \383\ The Bureau incorporates and relies on its prior 
description of the importance and usefulness of this data. See 79 FR 
51731, 51809-10 (Aug. 29, 2014).
---------------------------------------------------------------------------

4(c)(3)
    Section 1003.4(c)(3) of Regulation C currently provides that a 
financial institution may report, but is not required to report, home-
equity lines of credit made in whole or in part for the purpose of home 
improvement or home purchase. As discussed in the section-by-section 
analysis of Sec.  1003.2(o), the final rule makes reporting of open-end 
lines of credit (which include home-equity lines of credit) mandatory, 
rather than optional. To conform to that modification, the final rule 
deletes Sec.  1003.4(c)(3) and comment 4(c)(3)-1.
4(d)
    Section 1003.4(d) of Regulation C currently provides exclusions for 
certain data. As discussed in the section-by-section analysis of Sec.  
1003.3(c), the Bureau is moving those exclusions to Sec.  1003.3(c). To 
conform to this modification, the final rule removes and reserves Sec.  
1003.4(d).
4(e)
    For ease of reference, the Bureau is republishing Sec.  1003.4(e) 
and making technical modifications. No substantive change is intended.
4(f) Quarterly Recording of Data
    The Bureau proposed to move the data recording requirement in Sec.  
1003.4(a) to proposed Sec.  1003.4(f) and to make technical 
modifications to the requirement. Proposed Sec.  1003.4(f) provided 
that a financial institution was required to record \384\ the data 
collected pursuant to Sec.  1003.4 on a loan/application register 
within 30 calendar days after the end of the calendar quarter in which 
final action was taken (such as origination or purchase of a covered 
loan, or denial or withdrawal of an application). The Bureau received 
no comments on proposed Sec.  1003.4(f) and is finalizing it with 
technical amendments. The Bureau is renumbering proposed comment 4(a)-
1.iv as comment 4(f)-1 and existing comments 4(a)-2 and -3 as comments 
4(f)-2 and -3, respectively. The Bureau is also making technical 
modifications to these comments to clarify a financial institution's 
obligation to record data on a quarterly basis.
---------------------------------------------------------------------------

    \384\ A financial institution's obligation to report data is 
addressed below in the section-by-section analysis of Sec.  
1003.5(a).
---------------------------------------------------------------------------

Section 1003.5 Disclosure and Reporting
5(a) Reporting to Agency
5(a)(1)
    HMDA section 304(h)(1) provides that a financial institution shall 
submit its HMDA data to the Bureau or to the appropriate agency for the 
institution in accordance with rules prescribed by the Bureau. HMDA 
section 304(h)(1) also directs the Bureau to develop regulations, in 
consultation with other appropriate agencies, that prescribe the format 
for disclosures required under HMDA section 304(b), the method for 
submission of the data to the appropriate agency, and the procedures 
for disclosing the information to the public. HMDA section 304(n) also 
requires that the data required to be disclosed under HMDA section 
304(b) shall be submitted to the Bureau or to the appropriate agency 
for any institution reporting under HMDA, in accordance with 
regulations prescribed by the Bureau. HMDA section 304(c) requires that 
information required to be compiled and made available under HMDA 
section 304, other than loan/application register information under 
section 304(j), must be maintained and made available for a period of 
five years.\385\
---------------------------------------------------------------------------

    \385\ HMDA section 304(j)(6) requires that loan/application 
register information described in HMDA section 304(j)(1) for any 
year shall be maintained and made available, upon request, for three 
years.
---------------------------------------------------------------------------

    Currently, Sec.  1003.5(a)(1) of Regulation C requires that, by 
March 1 following the calendar year for which data are compiled, a 
financial institution must submit its complete loan/application 
register to the agency office specified in appendix A. Section 
1003.5(a)(1) also provides that a financial institution shall retain a 
copy of its complete loan/application register for its records for at 
least three years. Part II of appendix A to Regulation C provides 
information concerning where financial institutions should submit their 
complete loan/application registers. Additional information concerning 
submission of the loan/application register is found in comments 4(a)-
1.vi and -1.vii, 5(a)-1 and -2, and 5(a)-5 through -8. Comment 5(a)-2 
provides that a financial institution that reports 25 or fewer entries 
on its loan/application register may submit the register in paper form. 
The Bureau proposed several changes to Sec.  1003.5(a)(1).

Quarterly Reporting

    The Bureau proposed that a financial institution with a high 
transaction volume report its HMDA data to the Bureau or appropriate 
agency on a quarterly, rather than an annual, basis. Proposed Sec.  
1003.5(a)(1)(ii) required that, within 60 calendar days after the end 
of each calendar quarter, a financial institution that reported at 
least 75,000 covered loans, applications, and purchased covered loans, 
combined, for the preceding calendar year would submit its loan/
application register containing all data required to be recorded 
pursuant to Sec.  1003.4(f).\386\ The

[[Page 66242]]

Bureau's proposal allowed for a delay in the effective date of proposed 
Sec.  1003.5(a)(1)(ii) and stated that the Bureau was considering a 
delay of at least one year from the effective date of the other 
proposed amendments to Regulation C.
---------------------------------------------------------------------------

    \386\ Currently, Sec.  1003.4(a) requires that ``all reportable 
transactions shall be recorded, within thirty calendar days after 
the end of the calendar quarter in which final action is taken (such 
as origination or purchase of a loan, or denial or withdrawal of an 
application), on a register in the format prescribed in Appendix A 
of this part.'' The Bureau's proposal moved this requirement, with 
some revisions, to proposed Sec.  1003.4(f). The Bureau is 
finalizing Sec.  1003.4(f) as proposed with technical amendments.
---------------------------------------------------------------------------

    The Bureau received several comments on proposed Sec.  
1003.5(a)(1)(ii), including comments on the threshold for coverage 
under the provision and its effective date. For the reasons discussed 
below, the Bureau is adopting Sec.  1003.5(a)(1)(ii) as proposed with 
several modifications and with an effective date of January 1, 2020. 
The Bureau also is adopting new Sec.  1003.6(c)(2) to provide a safe 
harbor to protect financial institutions that satisfy certain 
conditions from liability for HMDA and Regulation C violations for 
errors and omissions in data submitted pursuant to Sec.  
1003.5(a)(1)(ii).
    The requirement to submit data on a quarterly basis. Consumer 
advocate and researcher commenters supported the proposal to require 
quarterly reporting insofar as quarterly reporting would not adversely 
impact the accuracy of annual HMDA data released to the public and 
would expedite the FFIEC's annual release of HMDA data.\387\ All but a 
few industry commenters opposed the proposal, with most comments 
questioning the benefits of quarterly reporting and raising concerns 
about burdens on financial institutions subject to the proposed 
quarterly reporting requirement, the accuracy of data submitted on a 
quarterly basis, and error thresholds applicable to quarterly 
submissions.
---------------------------------------------------------------------------

    \387\ As discussed above in part II.B, the FFIEC currently makes 
available on its Web site aggregate and loan-level HMDA data. 
Currently, these data are made available in September of the year 
following the calendar year in which the data were collected.
---------------------------------------------------------------------------

    Most industry commenters asserted that institutions subject to the 
proposed quarterly reporting requirement would expend significant 
additional resources to comply with the requirement. These comments 
clearly conveyed that the need to ``clean'' HMDA data to maximize its 
accuracy before submission to regulators would be a significant driver 
of the increased operational burden associated with quarterly 
reporting. Although commenters suggested that most financial 
institutions currently review and correct their HMDA data throughout 
the year the data are collected, several stated that rigorous scrubbing 
typically is performed before the data are submitted to regulators by 
March 1 of the following year. A few commenters stated that performing 
this level of review four times each year instead of one would 
significantly increase costs to financial institutions and noted that 
these costs could change from quarter to quarter, depending on volume.
    Several industry commenters also stated that HMDA data reported on 
a quarterly basis would be less accurate than data reported on an 
annual basis. A few commenters argued that systemic errors can take 
months to resolve and that the current annual reporting cycle maximizes 
opportunities to address systemic issues before the HMDA data are 
submitted to regulators. A few commenters noted that the need to 
``update'' quarterly data previously submitted, whether to reflect the 
sale of a loan or to correct errors or omissions, would complicate 
submission for quarterly reporters and would introduce inaccuracies. 
Several commenters stated that, even with increased resources devoted 
to preparing quarterly submissions, 60 days after the close of the 
quarter would not provide sufficient time to properly scrub quarterly 
data prior to submission, especially if the Bureau were to finalize its 
proposal to require reporting of additional transactions and data. A 
few commenters expressed concern that errors or omissions in quarterly 
submissions would expose financial institutions subject to proposed 
Sec.  1003.5(a)(1)(ii) to increased risk of violations under the 
agencies' accuracy requirements in determining HMDA compliance.
    Industry commenters also argued that the significant burden of 
quarterly reporting would outweigh any benefits it might provide. 
Several commenters stated that annual reporting of HMDA data is 
sufficient to satisfy the purposes of HMDA. A few commenters stated 
that useful analyses cannot be performed with quarterly data, 
especially for purposes of fair lending enforcement. One commenter 
argued that, because only the largest lenders would be reporting 
quarterly, quarterly data would not provide a good ``community 
lending'' picture. One commenter noted that, with each quarter, the 
reduction in delay between a reportable event and the date it is 
reported that exists under the annual reporting scheme is decreased, 
and so the corresponding benefit of quarterly reporting is decreased. 
As discussed above, several commenters stated that quarterly reporting 
would decrease the accuracy of HMDA data submitted, not improve it as 
the Bureau suggested in the proposal. A few commenters expressed 
skepticism that quarterly reporting would significantly hasten the 
FFIEC's release of annual HMDA data, and several commenters asserted 
that quarterly reporting would provide limited or no benefit to the 
public and public officials, who would continue to have access to HMDA 
data on an annual basis only under the proposal.
    The Bureau has considered the comments received and has determined 
that the benefits of quarterly reporting by large-volume financial 
institutions justify some degree of additional burden on these 
financial institutions. Quarterly reporting will provide regulators 
with more timely data, which will be of significant value for HMDA and 
market monitoring purposes. Currently, HMDA data may be reported as 
many as 14 months after final action is taken on an application or 
loan.\388\ Although this delay decreases as the year progresses (e.g., 
a loan originated in December is currently reported by March 1 of the 
following year), increasing the timeliness of HMDA data will provide 
meaningful benefits to various analyses by regulators. Timelier data 
will allow regulators to determine, in much closer to ``real time,'' 
whether financial institutions are fulfilling their obligations to 
serve the housing needs of communities in which they are located. 
Timelier identification of risks to local housing markets and 
troublesome trends by regulators will allow for more effective 
interventions or other actions by the agencies and other public 
officials. Quarterly data will allow for deeper and timelier analyses 
of the lending activities of large volume lenders. For example, in fair 
lending examinations, quarterly reporting will permit comparisons of 
recent data from the subjects of examinations and similar lenders. 
Further, timelier HMDA data will allow the agencies to not only better 
understand the market and identify trends and shifts that may warrant 
interventions, but also will provide data that will allow the agencies 
to sooner understand the impacts of prior interventions. For example, 
although the Bureau's Ability-to-Repay and Qualified Mortgage 
provisions went into effect in January 2014, data on loans subject to 
these provisions were not reported until March 2015. Timelier HMDA data 
would have enhanced the Bureau's understanding of the effects of those 
protections.
---------------------------------------------------------------------------

    \388\ A loan originated on January 2, 2015 may not be reported 
until March 1, 2016.

---------------------------------------------------------------------------

[[Page 66243]]

    Further, quarterly reporting would allow for the release of 
timelier data and analysis to the public. In its proposal, the Bureau 
noted that, although based on its analysis to date it believed that 
releasing HMDA data to the public on a quarterly basis may create risks 
to applicant and borrower privacy that would not be justified by the 
benefits of such release, it would evaluate options for the agencies' 
release of data or analysis more frequently than annually. Upon further 
consideration, the Bureau has determined that useful analyses of data 
submitted on a quarterly basis, or aggregated data, could be provided 
to the public in a manner that appropriately protects applicant and 
borrower privacy.\389\ The Bureau intends to release analyses of HMDA 
data or aggregated HMDA data to the public more frequently than 
annually in such a privacy-protective manner. As aggregates of HMDA 
data collected by all reporting institutions during a given calendar 
year currently are not publicly available until September of the 
following year, the release of aggregate quarterly data or analysis 
would further the statute's purposes and deliver a direct disclosure 
benefit to the public.
---------------------------------------------------------------------------

    \389\ At this time, the Bureau believes that loan-level data 
should not be released to the public more frequently than annually 
due to privacy concerns. Currently, dates are redacted from the 
modified loan/application register and the agencies' annual loan-
level data release to reduce re-identification risk created by the 
disclosure of loan-level data. See 55 FR 27886, 27888 (July 6, 1990) 
(concerning the agencies' decision to release loan-level data to the 
public and stating that ``[a]n unedited form of the data would 
contain information that could be used to identify individual loan 
applicants'' and that the data would be edited prior to public 
release to remove the application identification number, the date of 
application, and the date of final action). Based on its analysis to 
date, the Bureau believes that disclosure of loan-level data with 
more granular date information than year of final action would 
create risks to applicant and borrower privacy that are not 
outweighed by the benefits of such disclosure.
---------------------------------------------------------------------------

    The Bureau acknowledges the concerns industry commenters raised 
about burdens that could be imposed by the proposed quarterly reporting 
requirement. Based on the comments, the Bureau understands that these 
burdens would result mainly from a requirement that quarterly 
submissions achieve the degree of data accuracy the regulators 
currently require in annual submissions. To address this concern, the 
Bureau is adopting a quarterly reporting requirement, but is finalizing 
Sec.  1003.5(a)(1)(i) and Sec.  1003.5(a)(1)(ii) with modifications and 
adopting new Sec.  1003.6(c)(2) to provide that quarterly submissions 
are considered preliminary submissions and to provide a safe harbor 
that protects a financial institution that satisfies certain conditions 
from being cited for violations of HMDA or Regulation C for errors and 
omissions in its quarterly submissions.
    Under the final rule, within 60 calendar days after the end of each 
calendar quarter except the fourth quarter,\390\ financial institutions 
subject to Sec.  1003.5(a)(1)(ii) will submit the HMDA data that they 
are already required to record on their loan/application registers 
within 30 days after the end of each calendar quarter. Pursuant to new 
Sec.  1003.6(c)(2), errors and omissions in the data submitted pursuant 
to Sec.  1003.5(a)(1)(ii) will not be considered HMDA or Regulation C 
violations assuming the conditions that currently provide a safe harbor 
for errors and omissions in quarterly recorded data are satisfied.\391\ 
By March 1 of the following year, quarterly reporters will submit their 
final annual HMDA data pursuant to Sec.  1003.5(a)(1)(i), which will be 
subject to examination for HMDA and Regulation C compliance and 
required to satisfy the agencies' error thresholds. This annual 
submission will contain all reportable data for the preceding calendar 
year.
---------------------------------------------------------------------------

    \390\ Sixty days after end of the fourth calendar quarter 
coincides with March 1, the date by which all financial institutions 
must submit their annual HMDA data pursuant to Sec.  1003.5(a)(1)(i) 
as finalized. Financial institutions subject to Sec.  
1003.5(a)(1)(ii) will report their fourth quarter data as part of 
their annual submission. In its annual submission, a quarterly 
reporter will resubmit the data previously submitted for the first 
three calendar quarters of the year, including any corrections to 
the data, as well as its fourth quarter data.
    \391\ Currently, Sec.  1003.6(b)(3) provides that ``[i]f an 
institution makes a good-faith effort to record all data concerning 
covered transactions fully and accurately within thirty calendar 
days after the end of each calendar quarter, and some data are 
nevertheless inaccurate or incomplete, the error or omission is not 
a violation of the act or this part provided that the institution 
corrects or completes the information prior to submitting the loan/
application register to its regulatory agency.'' Modifications to 
this provision and new Sec.  1003.6(c)(2) are discussed below in the 
section-by-section analysis of Sec.  1003.6(c).
---------------------------------------------------------------------------

    The Bureau is moving the certification requirement from proposed 
Sec.  1003.5(a)(1)(iii) into adopted Sec.  1003.5(a)(1)(i) to clarify 
that such certification is only required in connection with a financial 
institution's annual data submission, and is making other technical and 
conforming changes to Sec.  1003.5(a)(1)(i) and Sec.  
1003.5(a)(1)(ii).\392\ The final rule thus preserves the annual 
reporting structure of current Regulation C for all financial 
institutions reporting under HMDA and imposes an additional, quarterly 
submission requirement on large-volume institutions only. These 
additional submissions need only consist of the data a large-volume 
institution is already required to maintain, however, significantly 
limiting the burden imposed by the quarterly reporting 
requirement.\393\
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    \392\ As discussed below, the Bureau also is modifying the 
certification provision in the final rule to clarify who may certify 
on behalf of a financial institution and to provide that the 
institution must certify to the completeness of the submission as 
well as to its accuracy.
    \393\ This approach also addresses concerns raised by a few 
industry commenters that sixty days is insufficient time after the 
close of the quarter for a financial institution to submit its 
quarterly data. Financial institutions must already record the data 
to be submitted under Sec.  1003.5(a)(1)(ii) within thirty days 
after the calendar quarter.
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    The final rule provides the benefits of timelier data to the 
regulators without requiring quarterly reporters to apply to each 
quarterly submission the rigorous scrubbing typically performed on 
annual HMDA submissions. The Bureau has considered that potential 
inaccuracies in quarterly data submitted under the final rule may 
decrease the data's utility and reliability. Although a quarterly 
reporting requirement would ideally yield timelier and highly accurate 
data, the Bureau recognizes that minimizing burdens to financial 
institutions associated with quarterly reporting may require a tradeoff 
between these goals. Based on its examination experience, the Bureau 
believes that the typical degree of accuracy in quarterly recorded HMDA 
data maintained by most financial institutions will be sufficient for 
the kinds of analyses for which the Bureau anticipates quarterly data 
may be used.\394\ The Bureau further believes that edit checks it is 
building into the HMDA data submission tool it is developing will 
decrease some types of inaccuracies in submissions.
---------------------------------------------------------------------------

    \394\ The Bureau believes that the accuracy levels typically 
found in quarterly recorded data likely result from the good-faith 
requirement set forth in current Sec.  1003.6(b)(3) and the data 
review that many financial institutions perform year-round.
---------------------------------------------------------------------------

    As an alternative to the adopted approach, the Bureau considered 
requiring semiannual reporting rather than quarterly reporting. Under 
this approach, large volume reporters would submit their final HMDA 
data for the first and second quarters of the calendar year within 60 
days after the end of the second quarter, and their final HMDA data for 
the third and fourth quarters by March 1 of the following year. These 
submissions would be subject to examination for HMDA compliance and the 
agencies' error thresholds. This approach would require financial 
institutions subject to Sec.  1003.5(a)(1)(ii) to perform the more 
rigorous data review described by industry commenters only twice each 
year, rather than four times, reducing burden on

[[Page 66244]]

these institutions compared to the Bureau's proposal. Further, industry 
comments suggest that data submitted on a semiannual basis may contain 
fewer inaccuracies than data submitted on a quarterly basis. This 
alternative approach would not provide as timely data to the agencies 
as the quarterly reporting approach discussed above, however, reducing 
the utility of the data to the agencies as well as the disclosure 
benefit to the public.
    To the extent that quarterly data contain errors and omissions, the 
Bureau believes these inaccuracies are unlikely to be significant 
enough to have a negative impact on the analyses the data will allow 
and that the risks of inaccurate data are outweighed by the benefits of 
timelier data. Although the approach adopted in the final rule reduces 
the likelihood that the quarterly reporting requirement will expedite 
the agencies' release of annual HMDA data as compared to the 
proposal,\395\ it will nonetheless allow the Bureau to provide a direct 
disclosure benefit to the public in the form of periodic aggregate data 
or analysis, as described above. Based on the comments received, the 
Bureau has determined that the approach adopted in the final rule would 
limit burden on financial institutions subject to Sec.  
1003.5(a)(1)(ii) and that it best balances any burden with the benefits 
of more frequent HMDA reporting.
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    \395\ As explained in the proposal, the Bureau believed that the 
proposed quarterly reporting requirement would reduce reporting 
errors and allow it to process data throughout the year. See 79 FR 
51731, 51811 (Aug. 29, 2014). The Bureau believed that these 
benefits of quarterly reporting would reduce the time currently 
required to edit and process annual HMDA data, which would expedite 
the release of the annual data to the public. Because the final rule 
provides that data submitted quarterly need only be preliminary data 
and a quarterly reporter will resubmit all previously submitted 
quarterly data with its annual submission, the Bureau now believes 
that the quarterly reporting requirement may not significantly 
reduce the time needed to process the annual data. The Bureau notes, 
however, that it believes improvements to the submission process, 
including a requirement that edit checks currently performed by the 
processor after submission are performed by the financial 
institution prior to submission, will reduce the time needed to 
process the annual HMDA data and will thus expedite the release of 
the annual data to the public.
---------------------------------------------------------------------------

    A few commenters raised operational questions concerning quarterly 
reporting, including how financial institutions reporting on a 
quarterly basis would report updates and corrections to previously-
submitted quarterly data and whether they would be required to update 
and correct previously-submitted data with each quarterly submission. 
For example, these commenters suggested that quarterly reporters may be 
required to report the same loan repeatedly throughout the calendar 
year in order to correct errors in a previous quarterly submission or 
reflect the sale or repurchase of the loan.
    A quarterly reporter is required to update a previously reported 
transaction in a subsequent quarterly submission if the new information 
is required to be recorded on the loan/application register pursuant to 
Sec.  1003.4(f). Under the final rule, a financial institution required 
to comply with Sec.  1003.5(a)(1)(ii) must submit, within 60 calendar 
days after the end of each calendar quarter except the fourth quarter, 
its quarterly loan/application register containing all data required to 
be recorded for that quarter pursuant to Sec.  1003.4(f). Pursuant to 
Sec.  1003.4(f), data must be recorded on the quarterly loan/
application register within 30 calendar days after the end of the 
calendar quarter in which final action is taken (such as origination or 
purchase of a covered loan, sale of a covered loan in the same calendar 
year it is originated or purchased, or denial or withdrawal of an 
application). The sale or repurchase of a loan, if occurring in the 
first three quarters of the calendar year, must be reflected in the 
quarterly submission for the quarter in which the action was taken 
because it must be recorded on the quarterly loan/application register 
for that quarter pursuant to Sec.  1003.4(f).\396\
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    \396\ See Sec.  1003.4(f); comment 4(a)(11)-9 (where a financial 
institution originates a covered loan in one quarter and sells it in 
a subsequent quarter of the same calendar year, the institution must 
record the purchaser on the loan/application register for the 
quarter in which the covered loan was sold); comment 4(a)-6 
(clarifying that a repurchase is reported as a purchase).
---------------------------------------------------------------------------

    Final Sec.  1003.6(c)(2) provides that, if a quarterly reporter 
makes a good faith effort to report all data required to be reported 
pursuant to Sec.  1003.5(a)(1)(ii) fully and accurately within 60 
calendar days after the end of each calendar quarter, inaccuracies or 
omissions in quarterly data submitted need not be corrected or 
completed until the financial institution submits it annual loan/
application register pursuant to Sec.  1003.5(a)(1)(i). Thus, for 
example, if a quarterly reporter makes a good faith effort to report 
income for a particular transaction accurately in its quarterly 
submission and discovers in a subsequent quarter that the reported 
amount was incorrect, it is not required to update the record for the 
transaction until it submits its annual loan/application register 
pursuant to Sec.  1003.5(a)(1)(i).
    The Bureau received no comments on proposed comment 5(a)-1. The 
Bureau is adopting comment 5(a)-1 as proposed, modified to conform to 
Sec.  1003.5(a)(1)(ii) as finalized and to add two new subsections 
clarifying how a surviving or newly formed financial institution's 
obligation to report on a quarterly basis under Sec.  1003.5(a)(1)(ii) 
is determined for the calendar year of the merger or acquisition and 
the calendar year after the merger or acquisition.
    The Bureau received no comments on proposed comment 5(a)-2. The 
Bureau is adopting proposed comment 5(a)-2 as modified in two ways. 
First, comment 5(a)-2 as adopted requires that, if the appropriate 
Federal agency for a financial institution subject to Sec.  
1003.5(a)(1)(ii) changes, the financial institution must identify the 
new appropriate Federal agency in its quarterly submission pursuant to 
Sec.  1003.5(a)(1)(ii) beginning with its submission for the quarter of 
the change, unless the change occurs during the fourth quarter, in 
which case the financial institution must identify the new agency in 
its annual submission pursuant to Sec.  1003.5(a)(1)(i). This change 
aligns the requirement for quarterly submissions with the requirement 
for annual submissions and conforms to Sec.  1003.5(a)(1)(ii) as 
adopted. The Bureau has also modified comment 5(a)-2 to provide 
illustrative examples.
    The threshold for coverage under Sec.  1003.5(a)(1)(ii). The Bureau 
proposed that the quarterly reporting requirement under proposed Sec.  
1003.5(a)(1)(ii) apply to a financial institution that reported at 
least 75,000 covered loans, applications, and purchased covered loans, 
combined, for the preceding calendar year. The Bureau received no 
comments from consumer advocates on the proposed threshold for 
quarterly reporting.
    The Bureau received a few industry comments on the proposed 
threshold. One industry commenter suggested that the Bureau should 
impose a $10 billion asset threshold, instead of a transaction-based 
threshold, to align the quarterly reporting requirement with the 
Bureau's supervisory authority. Another industry commenter suggested 
that the threshold should be lowered to 50,000 transactions in the 
preceding calendar year so as to increase the amount of quarterly data 
available for analysis, and yet another suggested that all HMDA 
reporters should be required to report on a quarterly basis to 
facilitate the earlier release of the annual HMDA data by the agencies. 
One industry commenter suggested that the threshold should include 
originated covered loans only (not applications or purchased loans), 
though offered no rationale for

[[Page 66245]]

this recommendation. Two industry comments stated that the Bureau's 
estimate of the number of institutions that would be covered by the 
proposed threshold was inaccurate because it did not take into account 
the Bureau's proposal to expand transactional coverage to include open-
end lines of credit and commercial-purpose loans. One of these 
comments, submitted by several national trade associations, stated that 
the associations' members reported that mandatory open-end line of 
credit reporting would double or triple the number of reportable 
transactions.
    For the reasons described below, the Bureau is adopting Sec.  
1003.5(a)(1)(ii) with modifications to the proposed threshold to 
exclude purchased covered loans from the threshold calculation and to 
lower the threshold from at least 75,000 transactions in the preceding 
calendar year to at least 60,000 transactions in the preceding calendar 
year. The Bureau has determined that it is appropriate to exclude 
purchased covered loans from the quarterly reporting threshold due to 
changes to the currently-applicable FFIEC guidance concerning reporting 
of repurchased loans that it is adopting herein.\397\ The Bureau 
understands that loans are repurchased under a variety of circumstances 
and arrangements, some of which are very common. The Bureau lacks data 
concerning repurchase activity sufficient to allow it to estimate the 
impact of a quarterly reporting threshold that takes repurchases into 
consideration, however, and is concerned that inclusion of repurchases 
in the quarterly reporting threshold calculation could conceivably 
significantly increase the number of financial institutions that would 
be required to comply with Sec.  1003.5(a)(1)(ii). Rather than 
excluding only repurchased loans from the threshold calculation, which 
would require financial institutions to identify repurchased loans in 
their HMDA data and would thus add burden, the final rule excludes all 
purchases from the threshold. Institutions that are required to submit 
their HMDA data on a quarterly basis under Sec.  1003.5(a)(1)(ii) will 
include purchased covered loans in the quarterly data they submit, but 
purchased covered loans will not be considered in determining whether a 
financial institution must comply with Sec.  1003.5(a)(1)(ii).
---------------------------------------------------------------------------

    \397\ The Bureau is adopting comment 4(a)-6 to require the 
reporting of most repurchases as purchased loans regardless of when 
the repurchase occurs. As adopted, comment 4(a)-6 eliminates the 
exception for reporting repurchases occurring in the same calendar 
year as origination that currently exists under FFIEC guidance.
---------------------------------------------------------------------------

    Based on 2013 HMDA data, a threshold of at least 60,000 
transactions, excluding purchases, would have required 29 financial 
institutions to report on a quarterly basis in 2014. In 2013, these 29 
institutions reported approximately 49 percent of all transactions 
reported under HMDA.\398\ The Bureau notes that market fluctuations may 
influence the number of financial institutions that are required to 
comply with Sec.  1003.5(a)(1)(ii) from year to year. For example, 
based on preliminary HMDA data submitted for 2014, a threshold of at 
least 60,000 transactions, excluding purchases, would have required 
only approximately 19 financial institutions to report on a quarterly 
basis in 2015. The preliminary data suggest that these institutions 
reported approximately 37 percent of all transactions reported under 
HMDA for 2014. The Bureau recognizes that the percentage of the market 
reflected in quarterly reported data may vary from year to year and has 
determined that a 60,000 transaction volume threshold should result in 
data sufficient to realize the benefits of a quarterly reporting 
requirement.
---------------------------------------------------------------------------

    \398\ These numbers align with those based on 2012 HMDA data and 
the proposed 75,000 transaction threshold included in the Bureau's 
proposal. See 79 FR 51731, 51811 (Aug. 29, 2014) (noting that, based 
on 2012 HMDA data, the 75,000 transaction threshold proposed would 
have required 28 financial institutions to report on a quarterly 
basis in 2013 and that, in 2012, these 28 institutions reported 
approximately 50 percent of all transactions reported under HMDA).
---------------------------------------------------------------------------

    The Bureau believes that the requirement to report open-end lines 
of credit under the final rule is unlikely to have a significant impact 
on the number of financial institutions that must comply with Sec.  
1003.5(a)(1)(ii). As discussed elsewhere in this document, the Bureau 
has faced challenges in analyzing the impact of the mandatory reporting 
of open-end lines of credit required under the final rule on financial 
institutions' HMDA-reportable transaction volume.\399\ Using estimates 
of the number of consumer-purpose open-end line of credit originations 
and applications in 2013,\400\ the Bureau's analysis suggests that, had 
these originations and applications been required to be reported for 
2013, one additional financial institution would have become a 
quarterly reporter in 2014, as compared to the number of institutions 
that would have become quarterly reporters without mandatory reporting 
of open-end line of credit originations and applications.\401\ Based on 
these estimates as applied to 2013 HMDA data, the Bureau believes that, 
although mandatory reporting of consumer-purpose open-end lines of 
credit and applications will increase HMDA-reportable transaction 
volumes for many financial institutions, and may increase these volumes 
significantly for some financial institutions, this increase is 
unlikely to significantly increase the number of financial institutions 
required to comply with Sec.  1003.5(a)(1)(ii). Further, the Bureau 
believes that relatively few dwelling-secured, commercial-purpose open-
end lines of credit are used for home purchase, home improvement, or 
refinancing purposes.\402\ The Bureau thus expects that reporting these 
transactions will not significantly increase the number of transactions 
reported by financial institutions and, accordingly, will not 
significantly increase the number of financial institutions that must 
comply with Sec.  1003.5(a)(1)(ii).
---------------------------------------------------------------------------

    \399\ See section-by-section analyses for Sec.  1003.2(g), (o), 
Sec.  1003.3(c)(10), and part VII.
    \400\ As discussed in part VII, these estimates are based on 
2013 HMDA data, 2013 Call Report data, and Consumer Credit Panel 
data. Due to the limited data available, these estimates rely on 
several assumptions.
    \401\ This analysis assumes that these institutions did not 
voluntarily report open-end line of credit originations and 
applications in 2013.
    \402\ As discussed in the section-by-section analysis of Sec.  
1003.3(c)(10), the final rule maintains coverage of commercial-
purpose transactions generally at its existing level. Section 
1003.3(c)(10) does expand coverage of dwelling-secured commercial-
purpose lines of credit, which are not currently reported, by 
requiring them to be reported if they primarily are for home 
purchase, home improvement, or refinancing purposes, however. As 
discussed above, the Bureau has faced challenges estimating 
institutions' open-end lending volume given limitations in publicly 
available data sources. For example, it is difficult to estimate 
commercial-purpose open-end lending volume because available data 
sources do not distinguish between consumer- and commercial-purpose 
lines of credit.
---------------------------------------------------------------------------

    The final rule does not base the threshold for quarterly reporting 
on a financial institution's asset size, as recommended by a commenter. 
The central goal of the quarterly reporting requirement is to provide 
the agencies with timelier HMDA data in a quantity sufficient to 
perform meaningful analyses. A transaction-based threshold limits the 
imposition of costs associated with quarterly reporting to those 
institutions with the largest transaction volumes in order to minimize 
the number of financial institutions subject to the requirement while 
maximizing the volume of data reported on a quarterly basis. An asset-
based threshold cannot guarantee such a relationship between the number 
of affected institutions and the quantity of data submitted on a 
quarterly basis.

[[Page 66246]]

    Effective date of Sec.  1003.5(a)(1)(ii). The Bureau received no 
consumer advocate comments and very few industry comments on its 
request for comment as to whether and how long it should delay the 
effective date of proposed Sec.  1003.5(a)(1)(ii). Industry commenters 
recommended a delay of either one or two years from the effective date 
of the other amendments to Regulation C.
    The Bureau is adopting an effective date of January 1, 2020 for 
Sec.  1003.5(a)(1)(ii). This delay is to permit financial institutions 
subject to the quarterly reporting requirement time to implement 
amended Regulation C and to allow for two annual reporting cycles under 
the amended rule before quarterly submissions are required. Financial 
institutions that report for 2019 at least 60,000 covered loans and 
applications, combined, excluding purchased covered loans, must comply 
with Sec.  1003.5(a)(1)(ii) in 2020. Financial institutions subject to 
Sec.  1003.5(a)(1)(ii) in 2020 will first report quarterly data under 
this provision by May 30, 2020.

Elimination of Paper Reporting

    The Bureau proposed to delete comment 5(a)-2, which allows a 
financial institution that reports 25 or fewer entries on its loan/
application register to submit the register in paper form, and to 
clarify in proposed Sec.  1003.5(a)(1) that the register must be 
submitted in electronic format in accordance with instructions in 
appendix A. The Bureau received no comments from consumer advocates on 
this proposal and very few comments from industry. One industry 
commenter supported the proposal. A few industry commenters opposed the 
proposal. The majority of these commenters suggested that the option to 
report on paper should be available until the Bureau builds an improved 
data submission tool. One industry commenter argued that it would be 
cost prohibitive for a financial institution to purchase new software 
to report a few transactions per month.
    For the reasons described below, the Bureau is finalizing its 
proposal to delete comment 5(a)-2. In recent years, very few financial 
institutions have submitted their loan/application registers in paper 
form. Further, the Bureau is finalizing its proposal to exclude from 
the definition of financial institution any institution that originated 
less than 25 closed-end mortgages loans and less than 100 open-end 
lines of credit,\403\ so only a financial institution that originated 
exactly 25 closed-end mortgage loans and received no other applications 
would be eligible to submit its register in paper form under amended 
Regulation C were this option to remain available. The Bureau is 
developing an improved HMDA data submission system and tools to assist 
smaller financial institutions with data entry. The Bureau is confident 
that these developments will reduce even further any need for a 
financial institution to submit its HMDA data in paper form.
---------------------------------------------------------------------------

    \403\ See Sec.  1003.2(g).
---------------------------------------------------------------------------

    As discussed in part VI below, most of Sec.  1003.5(a) is effective 
January 1, 2019 and applies to data collected and recorded in 2018 
pursuant to this final rule.\404\ However, the Bureau will intake and 
process HMDA data on behalf of the agencies using the improved web-
based submission tool it is developing beginning with financial 
institutions' 2017 HMDA data submission. Data collected and recorded in 
2017 pursuant to current Regulation C will be reported by March 1, 2018 
pursuant to current Sec.  1003.5(a). The final rule's amendments to 
supplement I effective January 1, 2018 generally maintain the current 
commentary to Sec.  1003.5(a) with respect to the reporting of data 
collected in 2017 and reported in 2018 but, because the improved 
submission tool that financial institutions will use to submit their 
2017 HMDA data will not accept loan/application registers in paper 
form, the Bureau is deleting comment 5(a)-2 effective January 1, 2018.
---------------------------------------------------------------------------

    \404\ Section 1003.5(a)(1)(ii) is effective January 1, 2020.
---------------------------------------------------------------------------

Retention of Annual Loan/Application Register in Electronic Format

    Section 1003.5(a)(1) requires that a financial institution shall 
retain a copy of its complete loan/application register for three 
years, but current Regulation C is silent concerning the formats in 
which the complete loan/application register may be retained. The 
Bureau proposed comment 5(a)-4 to clarify that retention of the loan/
application register in electronic format is sufficient to satisfy the 
requirements of Sec.  1003.5(a)(1).
    The Bureau received no consumer advocate comments concerning 
proposed comment 5(a)-4. The Bureau received very few industry comments 
concerning proposed comment 5(a)-4, but all supported the proposal. The 
Bureau adopts comment 5(a)-4 as proposed, modified to clarify that the 
obligation to retain the loan/application register applies only to a 
financial institution's annual data submitted pursuant to Sec.  
1003.5(a)(1)(i).

Submission Procedures

    As stated in its proposal, as part of its efforts to improve and 
modernize HMDA operations, the Bureau is developing improvements to the 
HMDA data submission process. The Bureau proposed to reorganize parts I 
and II of appendix A and portions of the commentary so that 
instructions relating to data submission are found in one place in the 
regulation. Specifically, the Bureau proposed to: Delete the content of 
part II of appendix A and comment 5(a)-1; move the portion of comment 
4(a)-1.vi concerning certification to proposed Sec.  1003.5(a)(1)(iii); 
and incorporate the pertinent remaining portion of comment 4(a)-1.vi 
and comments 4(a)-1.vii and 5(a)-7 and -8 into proposed instructions 
5(a)-2 and -3 in appendix A and delete the remaining portions of these 
comments. The Bureau proposed new instruction 5(a)-1 in appendix A to 
provide procedural and technical information concerning data 
submission. The Bureau did not receive comment on these proposals.
    The Bureau noted in its proposal that, as part of its efforts to 
improve and modernize HMDA operations, it was considering various 
improvements to the HMDA data submission process. The Bureau received a 
few industry comments concerning data submission. A few commenters 
urged the Bureau to adopt a web-based submission tool that is 
accessible by multiple work stations and users within a financial 
institution, rather than a downloadable tool that would reside on a 
single work station. Commenters also suggested that the tool 
automatically identify and code inapplicable fields so that, for 
example, if a loan is identified on the loan/application register as a 
commercial-purpose loan, all data fields not required to be reported 
for commercial-purpose loans would automatically be populated with the 
code for ``not applicable.'' Finally, a few commenters stated that the 
tool should be secure and should not allow regulators access to any 
data until the data is submitted by the financial institution.
    As will be described in more detail in separately published 
procedures, the Bureau is developing a Web-based submission tool that 
financial institutions will use to submit their HMDA data to their 
regulators. The Bureau anticipates that this submission tool will be 
accessible from multiple work stations and will perform edit checks on 
HMDA data prior to submission. The Bureau believes that this submission 
tool will significantly improve the data submission process. The Bureau 
does not anticipate that this

[[Page 66247]]

submission tool will include a data entry function, and therefore it 
would not have capacity to automatically identify and code inapplicable 
fields, as recommended by some commenters. The Bureau believes that, at 
this time, the costs of a Web-based data entry tool outweigh the 
benefits such a tool could provide. The Bureau is developing a tool to 
assist smaller financial institutions with data entry, but the Bureau 
anticipates that it will not be Web-based.
    Effective January 1, 2019, the Bureau is deleting appendix A from 
Regulation C and is instead separately publishing procedures for the 
submission of HMDA data.\405\ The Bureau is adopting modifications to 
Sec.  1003.5(a)(1)(i) and (ii) and new Sec.  1003.5(a)(4) to clarify 
that financial institutions submit HMDA data to the appropriate Federal 
agency for the financial institution. The Bureau is also adopting 
modifications to the certification requirement in Sec.  
1003.5(a)(1)(i).\406\ These modifications require that a financial 
institution certify to the completeness of the HMDA data submitted as 
well as to their accuracy in order to reflect the obligation to report 
both accurate and complete data, and clarify who may certify on behalf 
of a financial institution in order to align the requirement with 
current practice.
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    \405\ See final Sec.  1003.5(a)(5) (providing that procedures 
for the submission of data pursuant to Sec.  1003.5(a) are published 
on the Bureau's Web site).
    \406\ The Bureau proposed to move the certification requirement 
from the transmittal sheet to proposed Sec.  1003.5(a)(1)(iii). As 
discussed above, in the final rule, the Bureau is moving the 
certification requirement to Sec.  1003.5(a)(1)(i) to clarify that 
the certification is only required in connection with a financial 
institution's annual data submission pursuant to that paragraph.
---------------------------------------------------------------------------

    As discussed in part VI below, most of Sec.  1003.5(a) is effective 
January 1, 2019 and applies to data collected and recorded in 2018 
pursuant to this final rule.\407\ However, the Bureau will intake and 
process HMDA data on behalf of the agencies using the improved Web-
based submission tool it is developing beginning with financial 
institutions' 2017 HMDA data submission. Data collected and recorded in 
2017 pursuant to current Regulation C will be reported by March 1, 2018 
pursuant to current Sec.  1003.5(a). The final rule's amendments to 
supplement I effective January 1, 2018 generally maintain the current 
commentary to Sec.  1003.5(a) with respect to the reporting of data 
collected in 2017 and reported in 2018, but operation of this improved 
submission tool requires that current comment 5(a)-1 is deleted 
effective January 1, 2018.\408\ Current comments 5(a)-3 and -4 have 
been incorporated elsewhere in the final rule as appropriate and are 
also deleted from supplement I effective January 1, 2018. In addition, 
part II of appendix A to current Regulation C is revised effective 
January 1, 2018 to provide updated instructions relating to the 
reporting of 2017 HMDA data.
---------------------------------------------------------------------------

    \407\ Section 1003.5(a)(1)(ii) is effective January 1, 2020.
    \408\ As discussed above, comment 5(a)-2 also is deleted 
effective January 1, 2018.
---------------------------------------------------------------------------

    Finally, the Bureau received several identical comments from 
employees of one financial institution suggesting that the Bureau 
change the date by which annual HMDA data must be submitted pursuant to 
Sec.  1003.5(a)(1)(i) to allow financial institutions additional time 
to prepare HMDA data for submission. The final rule retains the March 1 
deadline for submitting annual HMDA data pursuant to Sec.  
1003.5(a)(1)(i). Postponing this deadline would necessarily delay the 
release of annual HMDA data to the public. The Bureau has determined 
that any benefits to financial institutions that would result from 
additional time to prepare HMDA data for submission are outweighed by 
the costs of such an approach to the public disclosure goals of the 
statute.
5(a)(1)(iii)
    The Bureau is adopting new Sec.  1003.5(a)(1)(iii) to provide that, 
when the last day for submission of data prescribed under Sec.  
1003.5(a)(1) falls on a Saturday or Sunday, a submission shall be 
considered timely if it is submitted on the next succeeding 
Monday.\409\ This is consistent with the approach taken by the agencies 
when this situation has arisen in the past.\410\
---------------------------------------------------------------------------

    \409\ As discussed above, the certification requirement set 
forth in proposed Sec.  1003.5(a)(1)(iii) is moved into final Sec.  
1003.5(a)(1)(i).
    \410\ For example, in 2015, March 1 fell on a Sunday and the 
reporting deadline for 2014 HMDA data was moved to March 2. Fed. 
Fin. Insts. Examination Council, CRA/HMDA Reporter, Calendar Year 
2014 Initial Submission Deadline, at 1 (Jan. 2015), available at 
https://www.ffiec.gov/hmda/pdf/15news.pdf.
---------------------------------------------------------------------------

5(a)(2)
    The Bureau did not propose changes or solicit feedback regarding 
Sec.  1003.5(a)(2) in the proposal. Current Sec.  1003.5(a)(2) provides 
that a subsidiary of a bank or savings association shall complete a 
separate loan/application register and submit it directly or through 
its parent to the agency of its parent. The Bureau is making non-
substantive changes to Sec.  1003.5(a)(2) to clarify that a financial 
institution that is a subsidiary of a bank or savings association shall 
complete a separate loan/application register and submit it directly or 
through its parent to the appropriate Federal agency for its parent at 
the address identified by the agency.
5(a)(3)
    The Bureau proposed Sec.  1003.5(a)(3) to require that when an 
institution reports its data, the institution shall provide with each 
covered loan or application its Legal Entity Identifier (LEI) issued by 
a utility endorsed by the LEI Regulatory Oversight Committee or a 
utility endorsed or otherwise governed by the Global LEI Foundation 
(GLEIF) (or any successor of the GLEIF) after the GLEIF assumes 
operational governance of the global LEI system. Regulation C currently 
requires financial institutions to provide a Reporter's Identification 
Number (HMDA RID) in their transmittal sheet and loan/application 
register. The HMDA RID consists of an entity identifier specified by 
the financial institution's appropriate Federal agency combined with a 
code that designates the agency. Each Federal agency chooses the entity 
identifier that its financial institutions would use in reporting their 
HMDA data. Currently, the Research Statistics Supervision and Discount 
(RSSD) number is used by institutions supervised by the Board and 
depository institutions supervised by the Bureau; the Federal Tax 
Identification number is used by nondepository institutions supervised 
by agencies other than the Board; the charter number is used by 
depository institutions supervised by the National Credit Union 
Administration (NCUA) and the OCC; and the certificate number is used 
by depository institutions supervised by the FDIC. For the reasons 
discussed below, the Bureau is adopting Sec.  1003.5(a)(3) as proposed. 
The Bureau is also incorporating material from proposed Sec.  
1003.5(a)(2) in appendix A, as discussed below.
    The Bureau solicited feedback on whether the LEI would be a more 
appropriate entity identifier than the current HMDA RID and also 
whether other identifiers, such as the RSSD number or Nationwide 
Mortgage Licensing System & Registry identifier (NMLSR ID), would be an 
appropriate alternative to the proposed LEI. Several commenters opposed 
the requirement for financial institutions to obtain an LEI, mostly 
citing the cost associated with obtaining an LEI and the availability 
of alternative identifiers. The Bureau acknowledged in the proposal 
that requiring financial institutions to obtain an LEI would impose 
some costs. However, because the LEI system is based on a cost-recovery 
model, the cost associated with obtaining an LEI could decrease as the

[[Page 66248]]

LEI identifier is used more widely. Despite the cost, the Bureau 
believes that the benefit of all HMDA reporters using an LEI may 
justify the associated costs. An LEI could improve the ability to 
identify financial institution reporting the data and link it to its 
corporate family. Facilitating identification of a financial 
institution's corporate family could help data users identify possible 
discriminatory lending patterns and assist in identifying market 
activity and risks by related companies.
    Some commenters suggested that instead of the proposed LEI, the 
Bureau should consider requiring either the current HMDA RID, NMLSR ID, 
Federal Tax Identification number, or a Bureau-created unique 
identifier for entities. These suggested alternatives may have some 
merit, but they pose concerns that would make data aggregation, 
validation, and analyses difficult for users. The current HMDA RID 
varies across each Federal agency and there is a lack of consistency in 
the availability of the financial institutions corporate information 
when researching a financial institution's corporate information using 
the HMDA RID. For example, a search using the FDIC certificate number 
may only provide the bank holding company and financial institution 
affiliates, but may not provide other corporate information. The NMLSR 
ID would not pose much additional burden on industry because most 
institutions that originate loans are already assigned unique 
identifier by the NMLS. However, the NMLSR does not contain consistent 
information regarding corporate information. For example, parent 
company and affiliate information are not readily available in the 
NMLS. The Federal Tax Identification Number would also not pose 
additional burden on industry because financial institutions would 
already have one. However, as the Bureau explained in the proposal, 
there is no mechanism to link nondepository institutions identified by 
a Federal Tax Identification Number to related companies. All of the 
suggested alternatives above would still result in a lack of 
information to enable users to link corporate information to the 
financial institution reporting HMDA data. Accordingly, the Bureau is 
adopting Sec.  1003.5(a)(3) to require an institution to provide its 
LEI with its submission. As mentioned in the section-by-section 
analysis of Sec.  1003.4(a)(1)(i), the Bureau is making a technical 
change and moving proposed Sec.  1003.5(a)(3)(i) and (ii) to Sec.  
1003.4(a)(1)(i)(A)(1) and (2) for ease of reference.
    The Bureau concludes that requiring use of the LEI will improve the 
ability to identify the legal entity that is reporting data and to link 
it to its corporate family. For these reasons, pursuant to HMDA section 
305(a), the Bureau is adopting Sec.  1003.5(a)(3) as proposed. This 
requirement is necessary and proper to effectuate HMDA's purposes and 
facilitate compliance therewith. By facilitating identification, this 
requirement will help data users achieve HMDA's objectives of 
identifying whether financial institutions are serving the housing 
needs of their communities, as well as identifying possible 
discriminatory lending patterns. This requirement could also assist in 
identifying market activity and risks by related companies.
    The Bureau proposed Sec.  1003.5(a)(4) to require a financial 
institution to report its parent company, if any, when reporting its 
data. Currently, Regulation C requires financial institutions to report 
their parent company, if any, in the transmittal sheet as provided in 
appendix A. Information about a financial institution's parent company 
helps ensure that the financial institution's submission can be linked 
with that of its corporate parent. One commenter suggested that the 
name and LEI of the parent company should be provided by the financial 
institution reporting data because financial institutions that submit 
HMDA data may be affiliated with large financial institutions. This 
commenter stated that the lack of information around parent company 
affiliations can make it difficult to accurately analyze lending 
patterns. The Bureau has determined that requiring the parent company 
of a financial institution to obtain an LEI would not be appropriate. 
Requiring the parent company to obtain an LEI specifically for HMDA 
purposes, except if the parent company is also HMDA reporter, and 
requiring the financial institution to submit its parent company's LEI 
with its HMDA data submission would be an unnecessary additional burden 
because, once the LEI is fully implemented, information regarding 
parent company is expected to become available.\411\ Therefore, the 
Bureau does not believe that the benefit of requiring parent 
information justifies the burden since information about parent company 
most likely will be available through an alternative source. 
Accordingly, the Bureau will not require a financial institution to 
provide its parent information, including the parent's LEI, and 
therefore is withdrawing the requirement in proposed Sec.  1003.5(a)(4) 
that a financial institution shall identify its parent company, if any.
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    \411\ See generally Fin. Stability Bd., A Global Legal Entity 
Identifier for Financial Markets 38-39 (June 8, 2012), https://www.financialstabilityboard.org/wp-content/uploads/r_120608.pdf?page_moved=1 (including a recommendation on LEI 
reference data relating to ownership; Fin. Stability Bd., LEI 
Implementation Group, Fourth Progress Notes on the Global LEI 
Initiative 4 (Dec. 11, 2012), https://www.financialstabilityboard.org/wp-content/uploads/r_121211.pdf?page_moved=1 (noting that the LEI Implementation Group 
is developing proposals for additional reference data on the direct 
and ultimate parent(s) of legal entities and on relationship data 
more generally).
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    The Bureau also proposed comment 5(a)-3 to explain that the parent 
company to be identified by the financial institution pursuant to Sec.  
1003.5(a)(3) is the entity that holds or controls an ownership interest 
in the financial institution that is greater than 50 percent. One 
industry commenter suggested that the Bureau should explain which 
parent should be identified by the financial institution. This 
commenter added, however, that they do not see the benefit that 
information about the parent company would provide. As mentioned above, 
once the LEI is fully implemented, information about parent company is 
expected to become available and therefore, the Bureau will not require 
a financial institution to identify its parent. Consequently, the 
Bureau is modifying comment 5(a)-3 to remove parent company.
    Additionally, the Bureau is moving the instructions to 5(a)(2) in 
proposed appendix A and is incorporating it into Sec.  1003.5(a)(3) 
because of the removal of appendix A from the final rule, as explained 
in the section-by-section analysis of appendix A below. Pursuant to its 
authority under section HMDA 305(a), the Bureau is also adding certain 
information related to the data submission that is currently provided 
on an institution's transmittal sheet, as illustrated in current 
appendix A, to Sec.  1003.5(a)(3). The Bureau believes this will aid in 
the analyses of HMDA data and assist agencies in the supervision of 
financial institutions.
5(a)(4)
    As discussed in the section-by-section analysis of Sec.  
1003.5(a)(3) above, the Bureau is withdrawing proposed Sec.  
1003.5(a)(4). In its place, the Bureau is adopting new Sec.  
1003.5(a)(4) to clarify that, for purposes of Sec.  1003.5(a), 
``appropriate Federal agency'' means the appropriate agency for the 
financial institution as determined pursuant to HMDA section 304(h)(2) 
or, with respect to a financial institution subject to the

[[Page 66249]]

Bureau's supervisory authority under section 1025(a) of the Consumer 
Financial Protection Act of 2010 (12 U.S.C. 5515(a)), the Bureau. This 
paragraph reflects the regulatory structure in place since the Dodd-
Frank Act became effective, as first described in the FFIEC's January 
2012 CRA/HMDA Bulletin.\412\
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    \412\ Fed. Fin. Insts. Examination Council, CRA/HMDA Reporter, 
2011 HMDA Panel Changes Resulting from Dodd-Frank Act, at 1-3 (Jan. 
2012), available at https://www.ffiec.gov/hmda/pdf/11news.pdf.
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5(a)(5)
    As described above,\413\ effective January 1, 2019, the Bureau is 
deleting appendix A from Regulation C and is instead separately 
publishing procedures for the submission of HMDA data. The Bureau is 
adopting new Sec.  1003.5(a)(5) to identify where these procedures will 
be published.
---------------------------------------------------------------------------

    \413\ See section-by-section analysis of Sec.  1003.5(a)(1). See 
also section-by-section analysis of appendix A.
---------------------------------------------------------------------------

5(b) Public Disclosure of Statement
    Under Regulation C as originally promulgated, the disclosure 
statement was the means by which financial institutions made available 
to the public the aggregate data required to be disclosed under HMDA 
section 304.\414\ At present, the FFIEC prepares an individual 
disclosure statement for each financial institution using the HMDA data 
submitted by the institution for the preceding calendar year.
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    \414\ 41 FR 23931, 23937-38 (June 14, 1976).
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5(b)(1)
    HMDA section 304(k) requires the FFIEC to make available a 
disclosure statement for each financial institution required to make 
disclosures under HMDA section 304.\415\ Section 1003.5(b)(1) of 
Regulation C requires that the FFIEC prepare a disclosure statement for 
each financial institution based on the data each financial institution 
submits on its loan/application register. The Bureau proposed to modify 
Sec.  1003.5(b)(1) to clarify that, although some financial 
institutions would report on a quarterly basis under proposed Sec.  
1003.5(a)(1)(ii), disclosure statements for these financial 
institutions would be based on all data submitted by each institution 
for the preceding calendar year. The Bureau also proposed to replace 
the word ``prepare'' with ``make available'' in Sec.  1003.5(b)(1).
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    \415\ HMDA section 304(k)(1)(A) provides that a financial 
institution ``shall make a disclosure statement available, upon 
request, to the public no later than 3 business days after the 
institution receives the statement from the Federal Financial 
Institutions Examination Council.''
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    The Bureau received no comments on proposed Sec.  1003.5(b)(1). 
Therefore, the Bureau adopts this provision generally as proposed, with 
one modification to clarify that disclosure statements made available 
in 2018 are based on a financial institution's annual 2017 data 
submitted pursuant to current Sec.  1003.5(a), and that disclosure 
statements made available beginning in 2019 are based on a financial 
institution's annual data submitted pursuant to Sec.  1003.5(a)(1)(i), 
not data submitted on a quarterly basis pursuant to Sec.  
1003.5(a)(1)(ii).
    As discussed in its proposal,\416\ the Bureau believes that 
advances in technology may permit, for example, the FFIEC to produce an 
online tool that would allow users of the tool to generate disclosure 
statements. It is the Bureau's interpretation that the FFIEC's 
obligation under HMDA section 304(k) would be satisfied if the FFIEC 
produced such a tool, which in turn would produce disclosure statements 
upon request. Further, pursuant to its authority under HMDA section 
305(a), the Bureau believes that permitting the FFIEC to produce a tool 
that allows members of the public to generate disclosure statements is 
necessary and proper to effectuate the purposes of HMDA and to 
facilitate compliance therewith.
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    \416\ 79 FR 51731, 51841 (Aug. 29, 2014).
---------------------------------------------------------------------------

5(b)(2)
    HMDA section 304(k)(1) requires that, in accordance with procedures 
established by the Bureau, a financial institution shall make its 
disclosure statement available to the public upon request no later than 
three business days after it receives the statement from the FFIEC. 
HMDA section 304(m) provides that a financial institution shall be 
deemed to have satisfied the public availability requirements of 
section 304(a) if it compiles the information required at the home 
office of the institution and provides notice at the branch locations 
specified in HMDA section 304(a) that such information is available 
from the home office upon written request. Section 1003.5(b)(2) of 
Regulation C requires that each financial institution make its 
disclosure statement available to the public in its home office within 
three business days of receiving it. In addition, Sec.  1003.5(b)(3) 
requires that a financial institution must either (1) make the 
statement available to the public in at least one branch office in each 
other MSA and each other MD where the institution has offices or (2) 
post the address for sending written requests for the disclosure 
statement in the lobby of each branch office in each other MSA and each 
other MD and provide a copy of the disclosure statement within 15 
calendar days of receiving a written request.
    The Bureau proposed to require a financial institution to make its 
disclosure statement available to the public by making available a 
notice that clearly conveys that the disclosure statement may be 
obtained on the FFIEC Web site and that includes the FFIEC's Web site 
address. The Bureau proposed a new comment 5(b)-3 to provide an example 
of notice content that would satisfy the requirements of proposed Sec.  
1003.5(b)(2). The Bureau also proposed to modify comment 5(b)-2 to 
conform to proposed Sec.  1003.5(b)(2) and to allow a financial 
institution to provide the proposed notice in paper or electronic form. 
For the reasons discussed below, the Bureau is adopting Sec.  
1003.5(b)(2) as proposed with clarifying modifications.
    The Bureau received several comments from industry concerning 
proposed Sec.  1003.5(b)(2). Most of these comments supported the 
proposal. Many industry commenters stated that they had never or rarely 
received a request for their disclosure statements. The one consumer 
advocate that commented on proposed Sec.  1003.5(b)(2) also supported 
the proposal.
    Two industry commenters suggested that, because disclosure 
statements are available on the FFIEC Web site, requiring financial 
institutions to provide members of the public seeking HMDA data with 
the notice under proposed Sec.  1003.5(b)(2) was unnecessary and 
duplicative. One of these commenters suggested that, as an alternative 
to the notice required under proposed Sec.  1003.5(b)(2), the Bureau 
should revise the posted lobby notice required pursuant to Sec.  
1003.5(e) to include text referring members of the public to the FFIEC 
Web site to obtain the institution's HMDA data. Although the final rule 
relieves financial institutions of the obligation to provide the 
disclosure statement directly to the public, the Bureau has determined 
that provision of the notice required under Sec.  1003.5(b)(2) to a 
member of the public seeking a financial institution's disclosure 
statement is necessary to ensure that she is clearly informed of where 
to obtain it. Currently, a member of the public seeking a disclosure 
statement from a financial institution would leave the institution with 
the data in hand. As amended, Sec.  1003.5(b)(2) requires that the 
individual take an additional step to

[[Page 66250]]

obtain the data--visit the Bureau's Web site--but provides that she 
leaves the institution with the specific information needed to do so.
    Another industry commenter opposed the maintenance of disclosure 
statements on a government Web site, stating that it is an inefficient 
use of government resources. The Bureau disagrees. The government has 
played a critical role in disseminating HMDA data to fulfill the 
purposes of the statute since 1980, when Congress amended HMDA to 
require the FFIEC to implement a system to facilitate access to HMDA 
data required to be disclosed under HMDA section 304.\417\ For the 
reasons given in the proposal, the Bureau concludes that the FFIEC's 
use of a Web site to publish HMDA data satisfies this statutory 
obligation and that this means of providing access to HMDA data is 
necessary and proper to effectuate HMDA's purposes and facilitate 
compliance therewith.\418\ The Bureau believes that a significant 
portion of HMDA data used by the public and public officials is 
obtained from the FFIEC's Web site, rather than directly from financial 
institutions.
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    \417\ HMDA section 304(f), added by Housing and Community 
Development Act of 1980, Public Law 96-399, section 340, 94 Stat. 
1614, 1657-58 (1980).
    \418\ 79 FR 51731, 51818 (Aug. 29, 2014).
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    One other industry commenter opposed the proposal, arguing that 
eliminating the option to obtain data directly from a financial 
institution, and instead requiring a member of the public seeking a 
financial institution's disclosure statement to obtain it online, would 
impose undue burden on some members of the public. This commenter 
argued that a substantial portion of the public does not have access to 
the internet or does not know how to use it. The commenter suggested 
that this population is likely largely comprised of low-income 
minorities, some middle-aged women, and seniors, with the result that 
the Bureau's proposal may disproportionately impact vulnerable groups. 
The commenter also asserted that it is significantly more inconvenient 
and expensive for a member of the public seeking a disclosure statement 
to locate it online, download it, and print it than it is to obtain a 
copy of a printed disclosure statement at a financial institution's 
home or branch office.
    Available data suggests that approximately 99 percent of Americans 
have access to broadband internet.\419\ Although the Bureau recognizes 
that accessing data online is not without barriers for some members of 
the public and that broadband speeds vary,\420\ the Bureau believes 
that the vast majority of members of the public seeking HMDA data 
should be able to readily access HMDA disclosure statements online with 
minimum inconvenience, if any. As discussed in the Bureau's proposal, 
such inconvenience is not greater than, and is likely less than, the 
potential inconvenience of receiving a disclosure statement on a floppy 
disc or other electronic data storage medium which may be used with a 
personal computer, as is expressly contemplated by HMDA section 
304(k)(1)(b). In fact, the Bureau believes that, for most HMDA users, 
accessing disclosure statements online will be much more convenient 
than contacting individual financial institutions to request the data. 
Further, because members of the public are not currently entitled to 
printed disclosure statements free of charge, Sec.  1003.5(b)(2) as 
adopted should not increase monetary costs to members of the public 
desiring a disclosure statement in printed form.\421\ Although there 
may be members of the public that are adversely affected by the 
elimination of the right to obtain a disclosure statement directly from 
a financial institution,\422\ the Bureau has determined that the burden 
to financial institutions associated with the provision of disclosure 
statements directly to members of the public upon request is not 
justified by any benefit to the current disclosure statement 
dissemination scheme.
---------------------------------------------------------------------------

    \419\ Anne Neville, Nat'l. Broadband Map has Helped Chart 
Broadband Evolution, Nat'l. Telecomms. & Info. Admin. Blog (Mar. 23, 
2015), https://www.ntia.doc.gov/blog/2015/national-broadband-map-has-helped-chart-broadband-evolution.
    \420\ Id. (noting the gap between urban and rural areas with 
respect to broadband at higher speeds).
    \421\ Under current Sec.  1003.5(d), financial institutions may 
charge a reasonable fee for any costs incurred in providing or 
reproducing their HMDA data. This provision is retained in the final 
rule.
    \422\ The Bureau notes that, under final Sec.  1003.5(d)(2), a 
financial institution may make its disclosure statement available to 
the public in addition to, but not in lieu of, the notice required 
by Sec.  1003.5(b)(2).
---------------------------------------------------------------------------

    The Bureau is adopting Sec.  1003.5(b)(2) as proposed with three 
modifications. Reference to making the disclosure statement available 
to the public is eliminated in order to clarify that a financial 
institution must only make the notice described available to the 
public. This paragraph is also modified to clarify that the notice must 
only be made available in branch offices physically located in a MSA or 
MD. Finally, this paragraph is modified to reflect that the Bureau will 
publish the disclosure statements on the Bureau's Web site. The Bureau 
believes it is reasonable to deem that financial institutions make 
disclosure statements available, pursuant to HMDA sections 304(k)(1) 
and 304(m), by referring members of the public seeking disclosure 
statements to the Bureau's Web site, as provided under Sec.  
1003.5(b)(2) as adopted. Section 1003.5(b)(2) is also adopted pursuant 
to the Bureau's authority under HMDA 305(a); Sec.  1003.5(b)(2) is 
necessary and proper to effectuate the purposes of HMDA and facilitate 
compliance therewith.
    The Bureau received no comments on proposed comment 5(b)-2. 
Therefore, the Bureau adopts this comment as proposed. The Bureau 
received no comments on proposed comment 5(b)-3, and adopts this 
comment as proposed with modifications to reflect that HMDA data will 
be made available on the Bureau's Web site and that HMDA data for other 
financial institutions is also available. The Bureau did not propose 
changes to current comment 5(b)-1, but is adopting a modification to 
this requirement to clarify the paragraph to which it applies. Finally, 
the Bureau adopts new comment 5(b)-4 to clarify that a financial 
institution may use the same notice to satisfy the requirements of both 
Sec.  1003.5(b)(2) and Sec.  1003.5(c).\423\
---------------------------------------------------------------------------

    \423\ As discussed below, the Bureau is adopting modifications 
to proposed Sec.  1003.5(c) to require that a financial institution 
make available to the public a notice that clearly conveys that its 
modified loan/application register may be obtained on the Bureau's 
Web site and that includes the Bureau's Web site address.
---------------------------------------------------------------------------

    The Bureau notes that Sec.  1003.5(b) is effective January 1, 2018 
and thus applies to the disclosure of 2017 HMDA data. Current 
Regulation C applies to requests received by financial institutions for 
HMDA data for calendar years prior to 2017.
5(c) Modified Loan/Application Register
    HMDA section 304(j)(1) requires that financial institutions make 
available to the public, upon request, ``loan application register 
information'' as defined by the Bureau and in the form required under 
regulations prescribed by the Bureau. HMDA section 304(j)(2) provides 
that the Bureau shall require such deletions from the loan application 
register information made available to the public as the Bureau may 
determine to be appropriate to protect any privacy interest of any 
applicant and to protect financial institutions from liability under 
any Federal or State privacy law, and identifies three fields in 
particular as appropriate for deletion.\424\ HMDA

[[Page 66251]]

section 304(j)(5) requires that the loan application register 
information described in section 304(j)(1) must be made available as 
early as March 31 following the calendar year for which the information 
was compiled. HMDA section 304(j)(7) provides that the Bureau shall 
make every effort to minimize costs incurred by financial institutions 
in complying with section 304(j).
---------------------------------------------------------------------------

    \424\ The fields identified in the statute as appropriate for 
deletion are ``the applicant's name and identification number, the 
date of the application, and the date of any determination by the 
institution with respect to such application.'' HMDA section 
304(j)(2)(B).
---------------------------------------------------------------------------

    Section 1003.5(c) of Regulation C requires a financial institution 
to make its loan/application register available to the public after 
removing three fields to protect applicant and borrower privacy: the 
application or loan number, the date that the application was received, 
and the date action was taken. An institution must make this 
``modified'' loan/application register publicly available following the 
calendar year for which the data are compiled by March 31 for a request 
received on or before March 1, and within 30 calendar days for a 
request received after March 1.
    The Bureau proposed to modify Sec.  1003.5(c) to require that a 
financial institution make available to the public a modified loan/
application register showing only the data fields that currently are 
released on the modified loan/application register. For the reasons 
described below, the Bureau is not finalizing Sec.  1003.5(c) as 
proposed, and instead is adopting a requirement that a financial 
institution shall make available to the public at its home office, and 
each branch office physically located in each MSA and each MD, a notice 
that clearly conveys that the institution's modified loan/application 
register may be obtained on the Bureau's Web site.
    The Bureau received several comments concerning proposed Sec.  
1003.5(c). A large majority of industry commenters recommended that the 
agencies make the modified loan/application register available to the 
public on a public Web site, such as the FFIEC's Web site. Many 
industry commenters specifically suggested that Regulation C require 
financial institutions to make their modified loan/application 
registers available in the same way the Bureau proposed to require 
institutions to make their disclosure statements available, i.e., by 
making available a notice that clearly conveys that the modified loan/
application register may be obtained on the FFIEC Web site and that 
includes the FFIEC's Web site address. Commenters argued that this 
approach would reduce burden to financial institutions, eliminate risk 
to financial institutions associated with deadlines by which they must 
make available their modified loan/application registers, increase 
public access to modified loan/application registers, and allow the 
Bureau to modify or redact the data as it determines necessary to 
protect applicant and borrower privacy. One industry commenter stated 
that, because the modified loan/application register is already 
available on the FFIEC Web site, the requirement that financial 
institutions make their modified loan/application registers available 
should be eliminated as duplicative. A few other industry commenters 
stated that financial institutions should be permitted to post their 
modified loan/application registers on their own Web sites instead of 
providing them to members of the public upon request.
    With respect to the content of the modified loan/application 
register, a few industry commenters stated that some data currently 
disclosed on the modified loan/application register create risk that 
individual applicants and borrowers could be identified in the data. A 
few other industry commenters stated that public disclosure of many of 
the proposed new data fields would create risks of potential harm to 
applicant and borrower privacy. A handful of industry commenters 
misunderstood the Bureau's proposal concerning the modified loan/
application register to provide that the proposed new data points would 
never be disclosed to the public, and some of these commenters 
supported such an approach.
    Virtually all of the consumer advocate and researcher commenters 
opposed the proposal to exclude the proposed new data fields from the 
modified loan/application register. These commenters stated that many 
or most of the new data fields proposed were not likely to create risks 
to applicant or borrower privacy and should be released by March 31, 
not delayed until the agencies' later release of loan-level data.\425\ 
Most of these commenters also argued that, at a minimum, the currently-
released data fields should continue to be released. Several consumer 
advocate and researcher commenters articulated the benefits to HMDA 
purposes of many currently-released and proposed new data fields in 
arguing for the disclosure of these data on the modified loan/
application register.
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    \425\ The Bureau's proposal provided that the Bureau would 
include the proposed new data fields, modified as appropriate to 
protect applicant and borrower privacy, in the loan-level data 
release that the FFIEC makes available on its Web site on behalf of 
the agencies. See 79 FR 51731, 51816 (Aug. 29, 2014). As explained 
in the proposal, whereas a financial institution must make available 
its modified loan/application register as early as March 31, the 
regulators' loan-level HMDA data currently are not released until 
almost six months later, in September. Id.
---------------------------------------------------------------------------

    For the reasons described below, final Sec.  1003.5(c) requires 
that a financial institution shall make available to the public at its 
home office, and each branch office physically located in each MSA and 
each MD, a notice that clearly conveys that the institution's modified 
loan/application register may be obtained on the Bureau's Web site. 
This approach fulfills the goals of the Bureau's proposal \426\ and has 
several additional advantages. The final rule reduces costs to 
financial institutions associated with preparing and making available 
to the public the modified loan/application register, including costs 
associated with the application of privacy protections to the data 
before disclosure, and eliminates a financial institution's risk of 
missing the deadline to make the modified loan/application register 
available. It also eliminates the risks to financial institutions 
associated with errors in preparing the modified loan/application 
register that could result in the unintended disclosure of data. In 
addition, this approach aligns Regulation C's treatment of the modified 
loan/application register and the disclosure statement, which are the 
only HMDA data that the statute and Regulation C require financial 
institutions to make available to the public.
---------------------------------------------------------------------------

    \426\ As explained in its proposal, the Bureau believed that its 
proposed approach ``would avoid creating new privacy risks or 
liabilities for financial institutions in connection with the 
release of loan-level data via the modified loan/application 
register. It would also minimize the burden to institutions 
associated with preparing their modified loan/application registers 
to implement amendments to Regulation C. The proposed approach would 
allow the Bureau and the other agencies flexibility in disclosing 
new data points in the agencies' data release, including flexibility 
to adjust any privacy protections as risks evolve, without unduly 
burdening financial institutions or creating opportunities for the 
modified loan/application register and the agencies' data release to 
interact in ways that might increase privacy risk.'' Id.
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    The approach adopted in the final rule also increases the 
availability of the modified loan/application register. The Bureau's 
Web site provides one, easily accessible location where members of the 
public will be able to access all modified loan/application registers 
for all financial institutions required to report under the statute, 
which furthers the disclosure goals of the statute.\427\ As

[[Page 66252]]

discussed above with respect to the disclosure statement,\428\ although 
there may be members of the public that are adversely affected by the 
elimination of the right to obtain a modified loan/application register 
directly from a financial institution, the Bureau has determined that 
the burden to financial institutions associated with the provision of 
these data directly to members of the public upon request is not 
justified by any benefit to the current dissemination scheme.
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    \427\ Under proposed Sec.  1003.5(c), as under current Sec.  
1003.5(c), for example, a member of the public that requests a 
financial institution's modified loan/application register need only 
be provided with a modified loan/application register containing 
data relating to the MSA or MD for which the request is made. 
Referral to the Bureau Web site would allow that member of the 
public to easily view the financial institution's modified loan/
application registers for all available MSAs and MDs. Also, to the 
extent a member of the public wanted to compare the lending 
activities of financial institutions in a particular MSA or MD, the 
Bureau Web site allows her to do so all in one place, rather than 
requiring her to obtain a modified loan/application register from 
multiple institutions.
    \428\ See section-by-section analysis of Sec.  1003.5(b)(2).
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    Finally, the approach in the final rule allows the Bureau and the 
other agencies increased flexibility in disclosing new data fields in a 
manner that appropriately protects applicant and borrower privacy. As 
discussed above,\429\ the Bureau's assessment under its balancing test 
of the risks to privacy interests created by the disclosure of HMDA 
data and the benefits of such disclosure is ongoing and includes 
consideration of currently-released data points. Section 1003.5(c) as 
adopted will allow decisions with respect to what to include on the 
modified loan/application register to be made in conjunction with 
decisions regarding the agencies' loan-level data release, providing 
flexibility with respect to the agencies' release and flexibility to 
include on the modified loan/application register the new data fields 
that do not raise privacy concerns. This approach also will allow for 
easier adjustment of privacy protections applied to disclosures of HMDA 
data as risks evolve. The Bureau plans to provide a process for the 
public to provide input on the application of the balancing test to 
determine the HMDA data to be publicly disclosed both on the modified 
loan/application register and in the agencies' release.
---------------------------------------------------------------------------

    \429\ See part II.B above.
---------------------------------------------------------------------------

    The final rule imposes fewer burdens on financial institutions than 
a requirement that the modified loan/application register be made 
available on financial institutions' Web sites, as suggested by some 
industry commenters.\430\ The Bureau also declines to eliminate Sec.  
1003.5(c) altogether. As discussed above with respect to the disclosure 
statement,\431\ although the final rule relieves financial institutions 
of the obligation to provide the modified loan/application register 
directly to the public, the Bureau has determined that provision of the 
notice required under Sec.  1003.5(c) to members of the public seeking 
a financial institution's modified loan/application register is 
necessary to ensure that they are clearly informed of where to obtain 
it.
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    \430\ The Bureau notes that the final rule permits a financial 
institution to make available on its Web site a copy of the 
institution's modified loan/application register obtained from the 
Bureau's Web site. See Sec.  1003.5(d)(2).
    \431\ See section-by-section analysis of Sec.  1003.5(b)(2).
---------------------------------------------------------------------------

    The final rule eliminates the 30-day period between a financial 
institution's receipt of a request for its modified loan/application 
register and its obligation to provide in response the notice required 
pursuant to Sec.  1003.5(c). Rather than preparing a modified loan/
application register in response to a request, as required under the 
current regulation, under the final rule a financial institution will 
only need to provide a member of the public seeking a modified loan/
application register with a simple notice. The Bureau has determined 
that 30 days to provide such a notice is unnecessary and conflicts with 
the disclosure purposes of the statute. Further, as a financial 
institution's ability to provide the notice required under the final 
rule in response to a request is not dependent on the financial 
institution's possession of the data, as is its ability to provide the 
modified loan/application register under the current regulation, a 
financial institution does not need to wait until March 31 to provide a 
notice in response to a request for its modified loan/application 
register.
    The Bureau believes it is reasonable to deem that financial 
institutions make available to the public loan application register 
information, pursuant to HMDA section 304(j), by referring members of 
the public seeking loan application register information to the Bureau 
Web site, as provided under Sec.  1003.5(c). Section 1003.5(c) is also 
authorized pursuant to the Bureau's authority under HMDA section 
305(a). For the reasons given above, the Bureau concludes that Sec.  
1003.5(c) as adopted is necessary and proper to effectuate HMDA's 
purposes and facilitate compliance therewith.
    The Bureau did not propose changes to current comment 5(c)-1 but is 
adopting modifications to this comment to conform to Sec.  1003.5(c) as 
finalized. Proposed comment 5(c)-2 is adopted as modified to provide an 
example of notice content that would satisfy the requirements of Sec.  
1003.5(c). Proposed comment 5(c)-3 is adopted as modified to clarify 
that a financial institution may use the same notice to satisfy the 
requirements of both Sec.  1003.5(b)(2) and Sec.  1003.5(c).
    The Bureau notes that Sec.  1003.5(c) is effective January 1, 2018 
and thus applies to the disclosure of 2017 HMDA data. Current 
Regulation C applies to requests received by financial institutions for 
HMDA data for calendar years prior to 2017.
5(d) Availability of Written Notice
    HMDA sections 304(c) and 304(j)(6) set forth the time periods for 
which financial institutions must maintain and make available 
information required to be disclosed under the statute. HMDA sections 
304(j)(4) and 304(k)(3) permit a financial institution that provides 
its loan/application register information or its disclosure statement 
to a member of the public to impose a reasonable fee for any cost 
incurred in reproducing the information or statement. Section 1003.5(d) 
of Regulation C requires that a financial institution must make its 
modified loan/application register available to the public for a period 
of three years and its disclosure statement available to the public for 
a period of five years. This section also provides that an institution 
must make these disclosures available to the public for inspection and 
copying during the hours the office is normally open to the public for 
business and may impose a reasonable fee for any cost incurred in 
providing or reproducing the data.
    The Bureau proposed to delete the requirement that a financial 
institution make its HMDA data available for inspection and copying and 
to make additional technical modifications to Sec.  1003.5(d). The 
Bureau is adopting Sec.  1003.5(d) as proposed with clarifying 
modifications.
    The Bureau received very few comments on proposed Sec.  1003.5(d). 
One industry commenter supported the proposal to delete the requirement 
that a financial institution make its data available for inspection and 
copying. Another industry commenter misunderstood the proposal to 
require that financial institutions retain their disclosure statements 
and modified loan/application registers for the requisite periods, and 
stated that the availability of these data on the FFIEC Web site made 
these requirements duplicative and unnecessary.
    The Bureau is adopting Sec.  1003.5(d)(1) generally as proposed, 
with modifications to clarify that it requires

[[Page 66253]]

a financial institution to retain the notices concerning its disclosure 
statements and modified loan/application registers required pursuant to 
Sec.  1003.5(b)(2) and (c), not the disclosure statements and modified 
loan/application registers themselves. The Bureau adopts Sec.  
1003.5(d)(2) as modified to clarify that a financial institution may 
make its disclosure statement and its modified loan/application 
register available to the public in addition to, but not in lieu of, 
the notices required by Sec.  1003.5(b)(2) and (c), and may impose a 
reasonable fee for any cost associated with providing or reproducing 
its disclosure statement or modified loan/application register.
    The Bureau notes that Sec.  1003.5(d) is effective January 1, 2018 
and thus applies to the disclosure of 2017 HMDA data. Current 
Regulation C applies to requests received by financial institutions for 
HMDA data for calendar years prior to 2017.
5(e) Posted Notice of Availability of Data
    HMDA section 304(m) provides that a financial institution shall be 
deemed to have satisfied the public availability requirements of HMDA 
section 304(a) if it compiles its HMDA data at its home office and 
provides notice at certain branch locations that its information is 
available upon written request. Section 1003.5(e) of Regulation C 
requires that a financial institution post a notice concerning the 
availability of its HMDA data in the lobby of its home office and of 
each branch office located in an MSA and MD. Section 1003.5(e) also 
requires that a financial institution must provide, or the posted 
notice must include, the location of the institution's office where its 
disclosure statement is available for inspection and copying. Comment 
5(e)-1 suggests text for the posted notice required under Sec.  
1003.5(e). Comment 5(e)-2 suggests text concerning disclosure 
statements that may be included in the posted notice to satisfy Sec.  
1003.5(b)(3)(ii). The Bureau proposed clarifying and technical 
modifications to Sec.  1003.5(e) and related comments and modifications 
to conform to proposed Sec.  1003.5(b)(2).
    The Bureau received very few comments on proposed Sec.  1003.5(e). 
One industry commenter supported deleting language from Sec.  1003.5(e) 
concerning the location of the institution's office where its 
disclosure statement is available for inspection and copying. The 
Bureau adopts Sec.  1003.5(e) as proposed with one modification to 
clarify that the required lobby notice must clearly convey that the 
institution's HMDA data may be obtained on the Bureau's Web site.
    One industry commenter opposed the proposed changes to comment 
5(e)-1 concerning the suggested notice text, stating that it was a 
waste of financial institution resources to update the posted notice to 
reflect that the HMDA data include age. The addition of language 
concerning age was not the only proposed change to the suggested notice 
text, however. The proposed suggested text also updated the posted 
notice to provide information about where HMDA data could be found 
online. The Bureau has determined that inclusion of information 
concerning where HMDA data can be found online is necessary to ensure 
access to HMDA data, especially as financial institutions will no 
longer be required to provide either their disclosure statements or 
their modified loan/application registers directly to the public under 
amended Regulation C. The Bureau adopts comment 5(e)-1 as proposed with 
technical modifications.
5(f) Aggregation
    HMDA section 310 requires the FFIEC to compile aggregate data by 
census tract for all financial institutions reporting under HMDA and to 
produce tables indicating aggregate lending patterns for various 
categories of census tracts grouped according to location, age of 
housing stock, income level, and racial characteristics. HMDA section 
304(f) requires the FFIEC to implement a system to facilitate access to 
data required to be disclosed under HMDA section 304, including 
arrangements for central depositories where such data are made 
available for inspection and copying. Section 1003.5(f) of Regulation C 
provides that the FFIEC will produce reports for individual 
institutions and reports of aggregate data for each MSA and MD, showing 
lending patterns by property location, age of housing stock, and income 
level, sex, ethnicity, and race, and will make these reports available 
at central depositories. Section 1003.5(f) also contains information 
concerning how to obtain a list of central depositories from the FFIEC. 
The Bureau proposed to modify Sec.  1003.5(f) to replace the word 
``produce'' with ``make available'' for clarity and to delete reference 
to central depositories. The Bureau is adopting Sec.  1003.5(f) as 
proposed with minor modifications.
    The Bureau received one comment concerning proposed Sec.  
1003.5(f). This commenter stated that disclosure of automated 
underwriting system name and result in the aggregated data, could 
reveal proprietary information concerning these systems. As discussed 
above,\432\ at this time the Bureau is not making determinations about 
what HMDA data will be publicly disclosed or the forms of such 
disclosures.
---------------------------------------------------------------------------

    \432\ See section-by-section analysis of Sec.  1003.4(a)(35).
---------------------------------------------------------------------------

    The Bureau is adopting proposed Sec.  1003.5(f) with three 
modifications. The final rule clarifies that the aggregates described 
in this paragraph and made available in 2018 are based on 2017 data 
submitted pursuant to current Sec.  1003.5(a), and that the aggregates 
made available beginning in 2019 are based on data submitted on an 
annual basis pursuant to Sec.  1003.5(a)(1)(i), not data submitted on a 
quarterly basis pursuant to Sec.  1003.5(a)(1)(ii). The Bureau has 
determined that reference to reports for individual institutions in 
this paragraph is no longer necessary \433\ and is eliminating this 
reference in the final rule. Finally, the Bureau has determined that 
reference to the location where the aggregate data described in this 
paragraph will be made available is unnecessary and is eliminating this 
reference in the final rule.
---------------------------------------------------------------------------

    \433\ The FFIEC's obligation to make available the disclosure 
statements is set forth in final Sec.  1003.5(b)(1).
---------------------------------------------------------------------------

    As discussed in its proposal,\434\ the Bureau believes that 
advances in technology may permit, for example, the FFIEC to produce an 
online tool, such as a tabular engine, that would allow public 
officials and members of the public to generate the tables described in 
HMDA section 310. It is the Bureau's interpretation that the obligation 
to ``produce tables'' set forth in HMDA section 310 would be satisfied 
if the FFIEC produced such a tool, which in turn would produce the 
tables described in HMDA section 310 on request. Further, pursuant to 
HMDA section 305(a), the Bureau believes that permitting the FFIEC to 
produce a tool that allows members of the public to generate tables 
described in HMDA section 310 is necessary and proper to effectuate the 
purposes of HMDA and facilitate compliance therewith.
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    \434\ 79 FR 51731, 51818 (Aug. 29, 2014).
---------------------------------------------------------------------------

Section 1003.6 Enforcement

6(b) Bona Fide Errors
    The Bureau did not propose to amend Sec.  1003.6. HMDA section 
305(b) provides that compliance with HMDA is enforced by the Board, 
FDIC, OCC, the Bureau, NCUA, and HUD.\435\ Each of these Federal 
agencies can rely on its own authorities to enforce compliance with

[[Page 66254]]

HMDA, including the authority conferred in HMDA section 305(b).\436\ 
Section 1003.6(a) of Regulation C provides that a violation of HMDA or 
Regulation C is subject to administrative sanctions as provided in HMDA 
section 305, including the imposition of civil money penalties.\437\ 
Regulation C Sec.  1003.6(b) provides authority to find that ``bona 
fide errors'' are not violations of HMDA and Regulation C. Section 
1003.6(b)(1) provides that an error in compiling or recording loan data 
is not a violation if the error was unintentional and occurred despite 
the maintenance of procedures reasonably adapted to avoid such errors. 
Section 1003.6(b)(2) provides that an incorrect entry for a census 
tract number is deemed a bona fide error, and is not a violation of 
HMDA or Regulation C, if the financial institution maintains procedures 
reasonably adapted to avoid such errors. Currently, Sec.  1003.6(b)(3) 
addresses and provides some latitude for inaccurate or incomplete 
quarterly recording of data.
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    \435\ 12 U.S.C. 2804(b). Most commenters who addressed the 
enforcement and examination practices of the Federal agencies did 
not specify the particular agency to which the commenters submit 
their data.
    \436\ HMDA section 305(c); 12 U.S.C. 2804(c).
    \437\ See CFPB Bulletin 2013-11 (2013), https://files.consumerfinance.gov/f/201310_cfpb_hmda_compliance-bulletin_fair-lending.pdf, which, among other things, sets out 
factors the Bureau will consider in determining any civil money 
penalty for violations of HMDA and Regulation C.
---------------------------------------------------------------------------

    Although the Bureau did not propose specific changes to Sec.  
1003.6, it sought feedback generally about concerns raised by the small 
entity representatives during the Small Business Review Panel process 
regarding whether, in light of new reporting requirements, it would be 
appropriate to add new provisions to Sec.  1003.6 to clarify compliance 
expectations and address compliance burdens or operational 
challenges.\438\ The Bureau specifically sought feedback on whether a 
more precise definition of what constitutes an error would be helpful, 
whether there are ways to improve the current methods of calculating 
error rates, and whether tolerance levels for error rates would be 
appropriate. For the reasons discussed below, the Bureau is revising 
current Sec.  1003.6(a), (b)(1), and (b)(2), and comment 6(b)-1, only 
by making technical, nonsubstantive edits. The Bureau is moving Sec.  
1003.6(b)(3) to new Sec.  1003.6(c)(1), as discussed below.
---------------------------------------------------------------------------

    \438\ The comments of the small entity representatives were 
summarized in the proposed rule. See 79 FR 51731, 51818 (Aug. 29, 
2014).
---------------------------------------------------------------------------

Comments on Enforcement

    Approximately one-third of the commenters addressed enforcement, 
data errors, and administrative resubmission requirements related to 
Regulation C. Nonindustry commenters generally did not comment on 
enforcement policies and error rates. Most industry commenters that 
addressed the topic identified what they viewed as unrealistic 
tolerance levels as being an issue with Regulation C compliance and 
enforcement. Many industry commenters stated that the compliance and 
enforcement concerns would likely be exacerbated by additional data 
points in the final rule.
    Some industry commenters expressly recognized the importance of the 
submission of accurate data, affirmed that reporting entities are 
concerned with the integrity of their data, and acknowledged that they 
would understand reasonable and fair requirements relating to errors. 
Many of the commenters stated that despite the implementation of 
appropriate systems and controls and efforts to comply with the spirit 
of Regulation C, innocent errors and human judgment errors in 
interpretation and data input are impossible to eliminate completely. A 
common theme among industry commenters was that additional data 
collection and reporting requirements mean there is a greater 
likelihood of errors. A number of commenters echoed a request that the 
Bureau reconsider examination procedures and guidelines and make 
adjustments to acceptable error rates, especially in light of the 
significant increase in the amount of data that reporting entities will 
be required to compile, audit, and report.
    Many commenters suggested that tolerances for errors be increased 
if the final rule includes additional data points in Regulation C. One 
commenter urged the Bureau not to discount the burden of reporting 
accurate data. Others stated that data is not easy to get right because 
of the number of people involved in loan production, and that manual 
audits conducted on the additional data by compliance staff will take 
significantly more time and force reporting institutions to shift 
resources or add staff. A few commenters noted exposure to reputational 
risks, as well as to administrative enforcement, that could be 
associated with increased reporting errors. A trade association 
commented that reasonable tolerances are necessary to minimize 
compliance costs. A few commenters observed that a demonstrated pattern 
of these types of errors could suggest that the errors are not 
inadvertent. A number of commenters requested relief from 
responsibility for errors based on: good faith efforts; technical, de 
minimis errors; distinguishing critical and noncritical errors; 
inadvertent errors; bona fide errors; immaterial errors; distinguishing 
random and systemic errors; and distinguishing key and non-key errors.
    Multiple commenters suggested specific data points that, in 
addition to institutional and transaction coverage changes, might 
contribute to a need for increasing the current error tolerances, 
including: age; income, as proposed; denial reasons; universal loan 
identifier; debt-to-income ratio; loan-to-value ratio; AUS information; 
points and fees; and data points that contain dates, dollar amounts, 
and percentages. Similarly, some commenters advocated that the Bureau 
establish acceptable ranges for the values reported for certain data 
points, for reasons that include the potential for rounding numbers 
incorrectly and making errors in calculations, and allow latitude for 
entering the wrong text in data fields, such as ``N/A'' instead of 
``none.'' Other specific recommendations included: preclude 
resubmissions of data on loans that do not constitute a material 
percentage of all loans in a reporting year in the associated 
metropolitan statistical area; limit punitive actions for reporting 
errors that do not lead to findings of discrimination; adopt a tiered 
evaluation of errors that is dependent on the reasons for the errors; 
excuse errors resulting from reliance on third-party information; apply 
more-lenient standards to new data points initially; develop guidance 
and interagency exam procedures that support compliance; and provide a 
sufficient implementation period to adjust to new requirements.
    One industry commenter acknowledged that the Bureau may not want to 
address clarifications of error rates and tolerances through 
rulemaking, at the same time expressing concern about potential 
compliance burdens for accuracy in a significantly larger data 
submission. Another commenter suggested that Regulation C include a 
statement that a bona fide unintentional error is not a violation. A 
few commenters predicted that the proposed reporting changes would 
cause more financial institutions to exit mortgage lending, with the 
exiting institutions skewing small, and would discourage new entrants 
to the market, significantly decreasing the availability of credit.

Final Rule

    After considering the comments, the Bureau has concluded that there 
are more effective ways to address the issues raised by the commenters 
than by making substantive changes to Sec.  1003.6(b). In reaching this 
conclusion, the Bureau accepts that some errors in data compilation and 
reporting are

[[Page 66255]]

difficult to avoid altogether. HMDA data are important for the public 
and public officials, therefore the final rule seeks to balance the 
need for accurate data and the challenge of generating that data.
    The Bureau believes that many of the error-related issues raised by 
commenters would be best addressed through supervisory policy, rather 
than regulatory language. Most of the comments specifically or 
implicitly addressed current administrative examination procedures and 
guidelines for required resubmission of data when error levels exceed 
established thresholds. Decisions regarding when to pursue an 
enforcement action or other solution for noncompliance with HMDA or 
Regulation C are a matter of agency discretion. Each of the agencies 
that has authority to enforce HMDA can develop internal procedures and 
guidelines for citing a financial institution for inaccurate data. For 
example, the Bureau makes its HMDA examination guidelines available 
publicly, so that financial institutions understand, and can develop 
internal processes to meet, expectations for HMDA data accuracy.\439\ 
The use of guidelines, which provide a measure for application of 
enforcement principles, coupled with language in Sec.  1003.6(b) that 
deems certain errors to be excused, benefits examiners and financial 
institutions, alike. In particular, as the agencies and financial 
institutions gain experience with the new definitions, requirements, 
increased number of data points, reporting instructions, and 
technology, the guidelines can be tailored, adjusted, and applied as 
appropriate.
---------------------------------------------------------------------------

    \439\ See CFPB Supervision and Examination Manual, HMDA 
Resubmission Schedule and Guidelines (2013), https://files.consumerfinance.gov/f/201310_cfpb_hmda_resubmission-guidelines_fair-lending.pdf.
---------------------------------------------------------------------------

    In addition, however, the final rule addresses some of the 
commenters' particular areas of concern in stating the requirements and 
providing commentary for individual data points. For example, financial 
institutions are permitted to report the information they relied on for 
several data points and have some flexibility in the format they use to 
report certain data points. The final rule provides further guidance 
and examples of acceptable values in commentary and, more generally, 
addresses many common issues with the current regulation by clarifying 
various provisions in the regulations and commentary. The Bureau also 
plans to expand data submission edit checks to improve the ability of 
financial institutions to identify and fix mistaken data before final 
submission to the agencies, which could also benefit the financial 
institutions in their internal audit processes. Finally, the Bureau 
will develop additional guidance materials to help financial 
institutions understand the final rule and avoid errors in interpreting 
its requirements.
    Public officials rely on the data reported by financial 
institutions to further HMDA's purposes. In addition, the data 
disclosed under HMDA provide the public with information on the 
mortgage activities of particular reporting financial institutions and 
in communities. Because HMDA data serve these important purposes, 
accurate data is essential.
    The accuracy of HMDA data depends on good operational and 
validation processes. Financial institutions have primary 
responsibility for these processes; the institutions must develop and 
maintain appropriate compliance management systems that are reasonably 
designed to ensure the accuracy of the data. Examination procedures 
used by the Federal regulators further assure appropriate validation of 
the HMDA data, by assessing a financial institution's policies, 
procedures, monitoring, and corrective-action processes.
    The Bureau has concluded that it should not establish in Regulation 
C global thresholds for the number or percentage of errors in a 
financial institution's data submission that would trigger compliance 
or enforcement action. Establishing regulatory thresholds for errors or 
adding resubmission requirements to the regulation are not likely to 
lead to a satisfactory outcome for industry or the regulators. The 
current provision on bona fide errors in Sec.  1003.6(b), in 
conjunction with agency guidelines, provides appropriate flexibility 
for regulators to exercise judgment in assessing compliance violations.
    The Bureau anticipates that the Federal agencies enforcing HMDA 
will review their enforcement approaches in light of the significant 
regulatory changes included in the final rule and consult on any 
appropriate adjustments to their policies, both during the final rule's 
implementation period and beyond. Currently, some errors are found and 
addressed in the data submission process, using edits developed through 
the FFIEC coordination agreement, while other errors can be identified 
only in subsequent audits or examinations by comparing HMDA data 
submitted to loan files. As the Bureau collaborates with the other HMDA 
enforcement agencies on future administrative examination and review 
procedures, it will consider, and bring to the attention of those 
agencies, the numerous comments and suggestions received on this topic 
during the public comment process on the proposed rule.
    The final rule makes technical, nonsubstantive edits to current 
Sec.  1003.6(a), (b)(1), and (b)(2) and comment 6(b)-1, for purposes of 
clarity and consistency.
6(c) Quarterly Recording and Reporting
    The Bureau did not propose changes to Sec.  1003.6(b)(3), but is 
adopting changes to this provision in connection with the quarterly 
reporting requirement finalized in Sec.  1003.5(a)(1)(ii). Under Sec.  
1003.5(a)(1)(ii) as adopted, within 60 calendar days after the end of 
each calendar quarter except the fourth quarter, financial institutions 
subject to Sec.  1003.5(a)(1)(ii) will submit the HMDA data that they 
are required to record on their loan/application registers for that 
calendar quarter pursuant to Sec.  1003.4(f). Pursuant to new Sec.  
1003.6(c)(2), errors and omissions in the data submitted pursuant to 
Sec.  1003.5(a)(1)(ii) will not be considered HMDA or Regulation C 
violations assuming the conditions that currently provide a safe harbor 
for errors and omissions in quarterly recorded data are satisfied.
    Currently, Sec.  1003.6(b)(3) provides that errors and omissions in 
data that a financial institution records on its loan/application 
register on a quarterly basis as required under Sec.  1003.4(a) are not 
violations of HMDA or Regulation C if the institution makes a good-
faith effort to record all required data fully and accurately within 
thirty calendar days after the end of each calendar quarter and 
corrects or completes the data prior to reporting the data to its 
regulator. That is, Sec.  1003.6(b)(3) provides a safe harbor that 
protects a financial institution that satisfies certain conditions from 
being cited for violations of HMDA or Regulation C for errors and 
omissions on its quarterly recorded loan/application register. The 
Bureau is moving Sec.  1003.6(b)(3) to new paragraph Sec.  1003.6(c)(1) 
and adding paragraph (c)(2) to provide that a similar safe harbor 
applies to data reported on a quarterly basis pursuant to Sec.  
1003.5(a)(1)(ii).
    The Bureau adopts Sec.  1003.6(c). Section 1003.6(c)(1) applies to 
data that an institution records on its loan/application register on a 
quarterly basis as required under Sec.  1003.4(f), as finalized herein. 
It provides that, if a financial institution makes a good-faith effort 
to record all data required to be recorded pursuant to Sec.  1003.4(f) 
fully and accurately within 30 calendar days after the end of each 
calendar quarter, and some data are nevertheless

[[Page 66256]]

inaccurate or incomplete, the inaccuracy or omission is not a violation 
of HMDA or Regulation C provided that the institution corrects or 
completes the data prior to submitting its annual loan/application 
register pursuant to Sec.  1003.5(a)(1)(i). Section 1003.6(c)(2) 
applies to data that an institution reports on a quarterly basis 
pursuant to Sec.  1003.5(a)(1)(ii). It provides that, if an institution 
subject to Sec.  1003.5(a)(1)(ii) makes a good-faith effort to report 
all data required to be reported pursuant to Sec.  1003.5(a)(1)(ii) 
fully and accurately within 60 calendar days after the end of each 
calendar quarter, and some data are nevertheless inaccurate or 
incomplete, the inaccuracy or omission is not a violation of HMDA or 
Regulation C provided that the institution corrects or completes the 
data prior to submitting its annual loan/application register pursuant 
to Sec.  1003.5(a)(1)(i).
    The Bureau is adopting an effective date of January 1, 2019 for 
Sec.  1003.6. Accordingly, this section applies to HMDA data reported 
beginning in 2019. For example, compliance is enforced pursuant to this 
final rule with respect to 2018 data reported in 2019. Section 1003.6 
of current Regulation C applies to the collection and recording of HMDA 
data in 2018.
Appendix A to Part 1003 Form and Instructions for Completion of HMDA 
Loan/Application Register
    Part I of appendix A to Regulation C currently provides 
instructions for the Loan/Application Register. Part II of appendix A 
contains instructions related to reporting HMDA data, including 
instructions for sending HMDA data via U.S. mail. Appendix A also 
contains a form for the transmittal sheet, a form for the loan/
application register, and a technical code sheet for completing the 
loan/application register. As discussed in many of the section-by-
section analyses above, the Bureau is expanding the regulation text and 
commentary to address the requirements currently provided in part I of 
appendix A and in the form for the transmittal sheet. As discussed in 
the section-by-section analysis of Sec.  1003.5(a)(1) above, the Bureau 
is eliminating paper reporting. Furthermore, the Bureau intends to 
publish procedures related to the submission of the data required to be 
reported under Regulation C, which will replace the existing form for 
the loan/application register and technical code sheet for completing 
it. Thus, the requirements and other information currently provided in 
appendix A are no longer necessary, and the final rule deletes appendix 
A.
    To accomplish the transition from reporting current to amended 
data, the final rule deletes appendix A in two stages. First, effective 
January 1, 2018, the final rule adds to appendix A a new paragraph 
explaining the transition requirements for data collected in 2017 and 
reported in 2018. Also effective January 1, 2018, part II of appendix A 
is revised to provide updated instructions relating to the reporting of 
2017 HMDA data. Then, effective January 1, 2019, appendix A is deleted 
in its entirety, when instructions relating to the reporting of 2017 
HMDA data will no longer be necessary.

I. Effective Date

A. Comments

    In response to the proposed rule, the Bureau received roughly a few 
dozen comments concerning effective date and implementation period. 
Industry commenters, including banks and credit unions; software 
providers; and trade associations provided recommendations on the 
timing for implementation. The recommendations for the implementation 
period ranged from a minimum of at least one full calendar year to 
several years. Most commenters recommended 18 to 24 months while 
several other commenters advocated for 24 to 36 months. A couple of 
commenters did not suggest a specific timing period but urged the 
Bureau to allow as much time as possible.
    Many commenters cited operational challenges as a reason why ample 
time is needed for implementation. These commenters stated that systems 
will need to be redesigned or replaced to accommodate the new rules. A 
couple of commenters pointed out that not all business areas of a bank 
use the same system to capture HMDA data. One commenter, in particular, 
stated that if all the proposed data fields are finalized, then it may 
require data from two or more systems. This commenter cited the 
possibility of the need to integrate data from several systems designed 
for origination and servicing for consumer, real estate, and business 
transactions. One software provider that advocated for a 36 month 
implementation period stated that software providers need time to 
design, develop, and distribute software to financial institution 
clients. These clients will then need to test need the software, 
implement procedural changes, and train staff. Several commenters 
indicated that policies and procedures will need to be developed and 
staff will need to be trained on those policies and procedures. One 
commenter asked that the Bureau consider the time it takes to interpret 
the final regulation.
    Several commenters pointed out that the industry is currently 
focusing on implementing the TILA-RESPA and other mortgage rules and 
staff is fully engaged in implementing those rules or enhancing 
compliance programs. One commenter stated that forcing industry to 
shift or split resources between TILA-RESPA and HMDA may affect the 
ability to implement one or both rules by their effective date.
    While many commenters suggested a specific number of months or 
years, a few commenters specified January 1 as the day that data 
collection should begin regardless of the year of the effective date. 
One commenter suggested that the Bureau specify that the effective date 
applies to applications taken on or after the date the Bureau 
designates. Another commenter argued that implementing the final rule 
any day of the year other than January 1 would cause confusion for 
financial institutions collection and reporting the data, and may even 
possibly affect data quality.
    Several commenters noted that the Dodd-Frank Act does not provide a 
deadline for implementing amendments to the HMDA rule, so they urged 
the Bureau to use its discretionary authority to provide adequate 
additional time for compliance. One trade association suggested that 
the Bureau should use its discretionary authority and consider the 
burden on small entities by providing an extended effective date for 
certain groups of entities
    One trade association asked the Bureau to provide transition rules 
for applications received before the effective date but where final 
action is taken on the application after the effective date.
    The Bureau has considered the comments, including the potential 
issues that could arise as a result of an inadequate implementation 
period and industry's focus on other recent mortgage rulemakings, and 
believes that the effective date described below achieves the right 
balance between ample time for implementation and the need for useful 
HMDA data that reflects the current housing finance market.

B. The Effective Date and Implementation Period

    In consideration of the comments and recommendations suggested by 
commenters, the final rule is effective

[[Page 66257]]

January 1, 2018,\440\ except that: Sec.  1003.2(g)(1)(v)(A) is 
effective January 1, 2017; Sec.  1003.5(a)(1)(i), (a)(1)(iii), and 
(a)(2) through (5) are effective January 1, 2019; Sec.  1003.6 is 
effective January 1, 2019; and Sec.  1003.5(a)(1)(ii) is effective 
January 1, 2020. Section 1003.5(b) and (f), as revised effective 
January 1, 2018, are revised again on January 1, 2019. Appendix A is 
revised effective January 1, 2018 and then deleted effective January 1, 
2019. Commentary to Sec.  1003.5(a) and Sec.  1003.6 in supplement I, 
as revised effective January 1, 2018, are revised again effective 
January 1, 2019. These exceptions to the general effective date of 
January 1, 2018 are described in further detail below.
---------------------------------------------------------------------------

    \440\ HMDA section 304(n) provides that institutions shall not 
be required to report new data under HMDA section 304(b)(5) and (6) 
before the first January 1 that occurs after the end of the 9-month 
period beginning on the date on which regulations are issued by the 
Bureau in final form with respect to such disclosures. Although the 
statute permits a shorter period than the effective date the Bureau 
is finalizing, the Bureau believes that a longer period will help 
reduce implementation burden on industry.
---------------------------------------------------------------------------

    This final rule applies to covered loans and applications with 
respect to which final action is taken beginning on January 1, 2018. 
Data on these covered loans and applications are submitted to the 
appropriate Federal agency pursuant to Sec.  1003.5(a) beginning on 
January 1, 2019. For example, if a financial institution described in 
2(g) of this part receives an application on January 1, 2018 and takes 
final action on that application on March 1, 2018, data about that 
application will be collected and recorded pursuant to Sec.  1003.4, 
and submitted to the appropriate Federal agency by March 1, 2019 
pursuant to Sec.  1003.5(a). Similarly, if a financial institution 
described in 2(g) of this part receives an application on December 1, 
2017 and does not take final action on that application until January 
1, 2018, data about that application would be collected and recorded 
pursuant to Sec.  1003.4 and submitted to the appropriate Federal 
agency by March 1, 2019 pursuant to Sec.  1003.5(a).\441\ The final 
rule also applies to purchases that occur on or after January 1, 2018. 
For example, a financial institution described in 2(g) of this part 
that purchases a HMDA reportable loan on February 1, 2018 would collect 
and record data about that purchase pursuant to Sec.  1003.4, and 
submit the data to the appropriate Federal agency by March 1, 2019 
pursuant to Sec.  1003.5(a).
---------------------------------------------------------------------------

    \441\ The Bureau understands that final action taken on an 
application may not occur until a few months after the application 
date. A financial institution may receive an application at the end 
of a calendar year but may not determine the final disposition of 
the application until the following calendar year.
---------------------------------------------------------------------------

Lower-Volume Depository Institutions
    The Bureau is adopting an effective date of January 1, 2017 for 
Sec.  1003.2(g)(1)(v)(A), which is one of the prongs of the 
institutional coverage test for depository institutions. Specifically, 
this prong provides that a depository institution must originate at 
least 25 closed-end mortgage loans in each of the preceding two 
calendar years. Therefore, a depository institution that originates at 
least 25 closed-end mortgage loans in each of two calendars years and 
that otherwise meets all the other criteria specified in Sec.  
1003.2(g)(1) would be required to report HMDA data for 2017. However, 
if the depository institution originated less than 25 closed-end 
mortgage loans in each of two calendars years, then it would not be 
required to report HMDA data even if it meets all other reporting 
criteria specified in Sec.  1003.2(g)(1). Similarly, if the depository 
institution originated 25 closed-end mortgage loans in one calendar 
year and then originated less than 25 closed-end mortgage loans in the 
subsequent calendar year, the depository institution would not be 
required to report HMDA data for 2017.
Reporting Data to the Appropriate Federal Agency and Disclosing Data to 
the Public
    The Bureau is adopting an effective date of January 1, 2019 for 
Sec.  1003.5(a)(1)(i), (a)(1)(iii), and (a)(2) through (a)(5), and 
related commentary, which concern the submission of data collected and 
recorded pursuant to this final rule. Financial institutions will 
submit data on covered loans and applications with respect to which 
final action is taken in 2018 to the appropriate Federal agency 
pursuant to these provisions by March 1, 2019.\442\
---------------------------------------------------------------------------

    \442\ Appendix A is deleted effective January 1, 2019, so will 
not apply to the submission of data on covered loans and 
applications with respect to which final action is taken in 2018.
---------------------------------------------------------------------------

    Data collected and recorded in 2017 pursuant to current Regulation 
C will be reported by March 1, 2018 pursuant to current Sec.  
1003.5(a). The final rule's amendments to supplement I effective 
January 1, 2018 generally maintain the current commentary to Sec.  
1003.5(a) with respect to the reporting of data collected in 2017 and 
reported in 2018.\443\ Effective January 1, 2019, commentary to Sec.  
1003.5(a) is revised to address the reporting of data beginning in 
2019. The final rule adds to appendix A a new paragraph explaining the 
transition requirements for data collected in 2017 and reported in 
2018, effective January 1, 2018. On that date, part II of appendix A is 
also revised to provide updated instructions relating to the reporting 
of 2017 HMDA data. Then, effective January 1, 2019, appendix A is 
deleted in its entirety, when instructions relating to the reporting of 
2017 HMDA data will no longer be necessary.
---------------------------------------------------------------------------

    \443\ As discussed further above in the section-by-section 
analysis of Sec.  1003.5(a), some of the current comments to Sec.  
1003.5(a) are removed and reserved effective January 1, 2018.
---------------------------------------------------------------------------

    Financial institutions will make available to the public their 2017 
HMDA data pursuant to Sec.  1003.5(b) through (e) of this final rule. 
Financial institutions make available to the public their HMDA data for 
calendar years prior to 2017 pursuant to current Regulation C.
Quarterly Reporting
    The Bureau is adopting an effective date of January 1, 2020 for 
Sec.  1003.5(a)(1)(ii), which concerns quarterly reporting. This delay 
is to permit financial institutions subject to the quarterly reporting 
requirement time to implement the final rule and complete two annual 
reporting cycles under the final rule before being required to submit 
quarterly data. A financial institution required to comply with Sec.  
1003.5(a)(1)(ii) will submit its first quarterly data to the 
appropriate Federal agency by May 30, 2020. For example, a financial 
institution that reports at least 60,000 covered loans and 
applications, not including purchased covered loans, in its 2019 HMDA 
data submission is required to report its 2020 HMDA data on a quarterly 
basis pursuant to Sec.  1003.5(a)(1)(ii), beginning with the first 
quarterly submission due on May 30, 2020.
Enforcement
    The Bureau is adopting an effective date of January 1, 2019 for 
Sec.  1003.6, which concerns enforcement of HMDA and Regulation C. The 
amendments to Sec.  1003.6 adopted in this final rule apply to HMDA 
data reported beginning in 2019. Thus, current Sec.  1003.6 applies to 
data collected in 2017 and reported in 2018, and amended Sec.  1003.6 
applies to 2018 data reported in 2019.
Implementation Period
    The Bureau believes that these effective dates, which provide an 
extended implementation period of over two years, is appropriate and 
will provide industry with sufficient time to revise and update 
policies and procedures; implement comprehensive systems change; and 
train staff. In addition, the implementation period will assist in 
facilitating updates to the processes of the Federal regulatory

[[Page 66258]]

agencies responsible for supervising financial institutions for 
compliance with the HMDA rule.
    In order to assist industry with an efficient and effective 
implementation of the rule, the Bureau intends to provide guidance in 
the form of plain language compliance guides and aids, such as videos 
and reference charts; technical specifications and documentation; and 
in conducting meetings with stakeholders to discuss the rule and 
implementation issues.

VII. Section 1022(b)(2) of the Dodd-Frank Act

    The Bureau has considered the potential benefits, costs, and 
impacts of the final rule.\444\ In developing the final rule, the 
Bureau has consulted with or offered to consult with the prudential 
regulators (the Board of Governors of the Federal Reserve System, the 
Federal Deposit Insurance Corporation, the National Credit Union 
Administration, and the Office of the Comptroller of the Currency), the 
Department of Justice, the Department of Housing and Urban Development, 
the Federal Housing Finance Agency, the Securities and Exchange 
Commission, and the Federal Trade Commission regarding, among other 
things, consistency with any prudential, market, or systemic objectives 
administered by such agencies.
---------------------------------------------------------------------------

    \444\ Specifically, section 1022(b)(2)(A) of the Dodd-Frank Act 
calls for the Bureau to consider the potential benefits and costs of 
a regulation to consumers and covered persons, including the 
potential reduction of access by consumers to consumer financial 
products or services; the impact on depository institutions and 
credit unions with $10 billion or less in total assets as described 
in section 1026 of the Dodd-Frank Act; and the impact on consumers 
in rural areas.
---------------------------------------------------------------------------

    As discussed in greater detail elsewhere throughout this 
supplementary information, in this rulemaking the Bureau is amending 
Regulation C, which implements HMDA, and the official commentary to the 
regulation, as part of the Bureau's implementation of the Dodd-Frank 
Act amendments to HMDA regarding the reporting and disclosure of 
mortgage loan information. The amendments to Regulation C implement 
section 1094 of the Dodd-Frank Act, which made certain amendments to 
HMDA.\445\
---------------------------------------------------------------------------

    \445\ These amendments, among other things, require financial 
institutions to itemize their HMDA data by: The age of mortgagors 
and mortgage applicants; points and fees payable at origination in 
connection with a mortgage; the difference between the annual 
percentage rate associated with a loan and a benchmark rate or rates 
for all loans; the term in months of any prepayment penalty or other 
fee or charge payable on repayment of some portion of principal or 
the entire principal in advance of scheduled payments; the value of 
the real property pledged or proposed to be pledged as collateral; 
the actual or proposed term in months of any introductory period 
after which the rates of interest may change; the presence of 
contractual terms or proposed contractual terms that would allow the 
applicant or borrower to make payments other than fully amortizing 
payments during any portion of the loan term; the actual or proposed 
term in months of the mortgage; the channel through which the 
mortgage application was made, including retail, broker, and other 
relevant categories; and the credit score of mortgage applicants and 
borrowers.
---------------------------------------------------------------------------

    The final rule includes additional amendments to Regulation C to 
implement the Dodd-Frank Act's provisions permitting reporting of, as 
the Bureau may determine to be appropriate, a unique identifier that 
identifies the loan originator, a universal loan identifier, and the 
parcel number that corresponds to the property pledged or proposed to 
be pledged as collateral. The final rule also requires financial 
institutions to report additional information pursuant to authority 
under sections 304(b)(5)(D) and 304(b)(6)(J) of HMDA, which permit the 
disclosure of such other information as the Bureau may require, and 
section 305(a) of HMDA, which, among other things, broadly authorizes 
the Bureau to prescribe such regulations as may be necessary to carry 
out HMDA's purposes. Certain additional data points included in the 
final rule are not specifically identified by the Dodd-Frank Act 
amendments to HMDA.\446\
---------------------------------------------------------------------------

    \446\ These additional data include: The construction method for 
the dwelling related to the subject property; mandatory reporting of 
the reasons for denial of a loan application; the total origination 
charges associated with the loan; the total points paid to the 
lender to reduce the interest rate of the loan; the total amount of 
any general credits provided to the borrower by the lender; the 
interest rate applicable at closing or account opening; the 
applicant's or borrower's debt-to-income ratio; the ratio of the 
total amount of debt secured by the property to the value of the 
property; for transactions involving manufactured homes, whether the 
loan or application is or would have been secured by a manufactured 
home and land, or by a manufactured home and not land; the land 
property interest for loans or applications related to manufactured 
housing; the total number of individual dwelling units contained in 
the dwelling related to the loan; the number of individual dwellings 
units that are income-restricted pursuant to Federal, State, or 
local affordable housing programs; information related to the 
automated underwriting system used in evaluating an application; 
whether the loan is a reverse mortgage; whether the loan is an open-
end line of credit; and whether the loan is primarily for a business 
or commercial purpose.
---------------------------------------------------------------------------

    The final rule also modifies the regulation's transactional and 
institutional coverage. Regarding transactional coverage, the final 
rule requires financial institutions to report activity for consumer-
purpose dwelling-secured loans and lines of credit, regardless of 
whether the loans or credit lines are for home purchase, home 
improvement, or refinancing.\447\ The final rule adjusts institutional 
coverage to adopt loan-volume thresholds of 25 closed-end mortgage 
loans or 100 open-end lines of credit for all financial institutions.
---------------------------------------------------------------------------

    \447\ The final rule retains reporting of commercial-purpose 
transactions only if they are for the purpose of home improvement, 
home purchase, or refinancing.
---------------------------------------------------------------------------

    Furthermore, the Bureau is modifying the frequency of reporting for 
certain financial institutions with large numbers of transactions, and 
the requirements regarding the public availability of the HMDA 
disclosure statement and the modified loan/application register. 
Financial institutions that reported at least 60,000 covered loans and 
applications, excluding purchased covered loans, for the preceding 
calendar year, are required to report data quarterly to the appropriate 
Federal agency for the first three quarters of each calendar year. 
Financial institutions are required to make available to the public 
notices that clearly convey that the institution's disclosure statement 
and modified loan/application register may be obtained on the Bureau's 
Web site and that includes the Web site address.
    The Bureau is also separately implementing several operational 
enhancements and modifications designed to reduce the burden of 
reporting HMDA data. The Bureau is working to improve the geocoding 
process, creating a web-based HMDA data submission and edit-check 
system, developing a data-entry tool for small financial institutions 
that currently use Data Entry Software, and otherwise streamlining the 
submission and editing process to make it more efficient. The Bureau is 
also adopting definitions of many data points that are consistent with 
existing regulations and with the MISMO data standards for residential 
mortgages.

A. Provisions To Be Analyzed

    The discussion below considers the benefits, costs, and impacts of 
the following major provisions of the final rule:
    1. The scope of the institutional coverage of the final rule.
    2. The scope of the transactional coverage of the final rule.
    3. The data that financial institutions are required to report 
about each covered loan or application.
    4. The modifications to disclosure and reporting requirements.
    For each major provision in the final rule, the discussion 
considers the benefits, costs, and impacts to consumers and covered 
persons, and addresses certain alternative provisions that the Bureau 
considered. The

[[Page 66259]]

discussion also addresses comments the Bureau received on the proposed 
Dodd-Frank Act section 1022 analysis as well as certain other comments 
on the benefits or costs of provisions of the proposed rule when doing 
so is helpful to understanding the Dodd-Frank Act section 1022 
analysis. Comments that mentioned the benefits or costs of a provision 
of the proposed rule in the context of commenting on the merits of that 
provision are addressed in the relevant section-by-section analysis, 
above. In this respect, the Bureau's discussion under Dodd-Frank Act 
section 1022 is not limited to this discussion in part VII of the final 
notice.

B. Statement of Need

1. HMDA's Purposes and the Current Deficiencies in Regulation C
    Congress intended HMDA to provide the public and public officials 
with information to help determine whether financial institutions are 
serving the housing needs of their communities, to target public 
investment to attract private investment in communities, and to 
identify possible discriminatory lending patterns and enforce 
antidiscrimination statutes. Today, HMDA data are the preeminent data 
source for regulators, researchers, economists, industry, and advocates 
analyzing the mortgage market both for the three stated purposes of 
HMDA and for general market monitoring. For example, HMDA data are used 
by bank supervisors to evaluate depository institutions for purposes of 
the Community Reinvestment Act (CRA); by local community groups as the 
basis for discussions with lenders about local community needs; and by 
regulators, community groups, and researchers to identify disparities 
in mortgage lending that may provide evidence of prohibited 
discrimination. In addition, HMDA data provide a broadly 
representative, national picture of home lending that is unavailable 
from any other data source. This information permits users to monitor 
market conditions and trends, such as the supply and demand of 
applications and originations. For example, industry uses HMDA data to 
identify and meet the needs of underserved markets through potentially 
profitable lending and investment opportunities.
    HMDA data include records regarding both applications by mortgage 
borrowers and the flow of funding from lenders to borrowers. Together, 
these records form a near-census of the home mortgage market for 
covered loans and applications, with rich geographical detail (down to 
census tract level) and identification of the specific financial 
institution for each transaction. Therefore, HMDA allows users to draw 
a detailed picture of the supply and demand of mortgage credit at 
various levels of geography and lender aggregation.
    Despite its extensive benefits, serious inadequacies exist in the 
information currently collected under Regulation C. Although HMDA data 
can generally be used to calculate underwriting and pricing disparities 
across various protected classes and at various levels of analysis, the 
data lack key fields that explain legitimate underwriting and pricing 
decisions for mortgage loans. Therefore, in most cases, HMDA data alone 
cannot demonstrate whether borrowers and applicants have received 
nondiscriminatory treatment by financial institutions. Additional data 
points, such as credit score, AUS results, combined loan to value ratio 
(CLTV), and debt-to-income ratio (DTI), will help users better 
understand the reasons for approvals and denials of applications and 
for pricing decisions regarding originations. Similarly, current HMDA 
data provide certain information about borrowers (race, ethnicity, sex, 
and income) and loans (loan amount, purpose, loan type, occupancy, lien 
status, and property type), but they do not fully characterize the 
types of loans for which consumers are applying and do not explain why 
some applications are denied. The additional data points, such as non-
amortizing features, prepayment penalties, and loan terms, will help 
fill these important information gaps.
    Additionally, analysis of the cost of credit to mortgage borrowers 
is incomplete without the inclusion of key pricing information. The 
current rate spread data point requires financial institutions to 
report rate spread only for higher-priced mortgage loans. Currently, 
such loans comprise roughly 5 percent of total originations. These 
limited data restrict analysis of the cost of credit to a small segment 
of total mortgage originations and create severe selection bias as 
changes in the market lead to shifts in the average spread between APR 
values and APOR. Adding new pricing data fields, such as discount 
points, lender credits, origination charges, interest rate, and total 
loan costs will allow users to better understand the price that 
consumers pay for mortgages and more effectively analyze the tradeoffs 
between rates, points, and fees.
    HMDA also currently provides limited information about the property 
that secures or will secure the loan. Despite being one of the most 
important characteristics for underwriting and pricing decisions, the 
value of the property securing the loan has not been collected under 
the current HMDA reporting requirements. The final rule addresses this 
deficiency by providing for reporting of the value of the property 
securing the covered loan or application. Current HMDA data also lack 
certain information about the manufactured housing segment of the 
mortgage market. Manufactured housing is an important source of housing 
for many borrowers, such as low-income and elderly borrowers, that are 
often financially fragile and possibly more vulnerable to unfair and 
predatory practices.\448\ Multifamily financing for both institutional 
and individual borrowers serves the housing needs of multifamily unit 
dwellers who are mostly renters and many of whom face challenges 
related to housing affordability. The Bureau's final rule provides for 
reporting of the construction method, number of multifamily affordable 
units, whether a loan is or would have been secured by a manufactured 
home and land or by a manufactured home and not land, and the land 
property interest for loans or applications for manufactured housing. 
The improved data will help users to better understand the properties 
for which borrowers are receiving or being denied credit or receiving 
different loan pricing.
---------------------------------------------------------------------------

    \448\ See Mark Duda & Eric S. Belsky, The Anatomy of the Low-
Income Homeownership Boom in the 1990s (Joint Ctr. for Hous. Studies 
of Harvard Univ., Low-Income Homeownership Working Paper Series 01-
1, 2001) (providing evidence that manufactured housing was an 
important driver of the homeownership boom for the low-income 
population in the 1990s). Manufactured housing is also an important 
source of housing for the elderly. See Robert W. Wilden, Comment on 
Affordable Housing and Health Facility Needs for Seniors in the 21st 
Century, Manufactured Housing and Its Impact on Seniors (2002). For 
additional information on manufactured housing, including the market 
and regulatory environment, see the Bureau's 2014 white paper, 
Manufactured-housing Consumer Finance in the U.S, available at 
https://files.consumerfinance.gov/f/201409_cfpb_report_manufactured-housing.pdf.
---------------------------------------------------------------------------

    Finally, Regulation C's current transactional coverage criteria 
omit a large proportion of dwelling-secured loan products, including 
large segments of the home-equity line of credit market. In the lead-up 
to the financial crisis between 2000 and 2008, the total balance of 
closed- and open-end home-equity loans and lines of credit increased by 
approximately 16.8 percent annually, growing from a total of $275.5 
billion to $953.5 billion. Recent research has shown that this growth 
in home-equity lending was correlated with subsequent home price 
depreciation, as

[[Page 66260]]

well as high default and foreclosure rates among first mortgages.\449\ 
These correlations were driven in part by borrowers using home-equity 
lines of credit to fund investment properties, which impacted default 
rates when housing prices began to fall. By identifying home-equity 
lines of credit and loan purposes, industry, members of the public, and 
public officials will be better able to identify and respond to similar 
patterns in the future.
---------------------------------------------------------------------------

    \449\ Michael LaCour-Little et al., The Role of Home Equity 
Lending in the Recent Mortgage Crisis, 42 Real Estate Economics 153 
(2014).
---------------------------------------------------------------------------

    Congress recognized current deficiencies in HMDA and responded with 
the Dodd-Frank Act, which amended HMDA and provided broader reforms to 
the financial system. The Dodd-Frank Act's amendments to HMDA require 
the collection and reporting of several new data points, including 
information about borrowers (age and credit score), information about 
loan features and pricing, and, as the Bureau may determine to be 
appropriate, unique identifiers for loans, properties, and loan 
originators. It also authorizes the Bureau to require financial 
institutions to collect and report ``such other information as the 
Bureau may require.'' In doing so, Congress sought to ensure that HMDA 
data continue to be useful for determining whether institutions are 
serving the housing needs of their communities, for identifying 
potentially discriminatory lending patterns, and for helping public 
officials target public investment to attract private investment where 
it is needed.
2. Improving HMDA Data To Address Market Failures
    HMDA is not principally focused on regulating the interactions 
between lenders and borrowers. Instead, HMDA requires financial 
institutions to report detailed information to their Federal 
supervisory agencies and to the public about mortgage applications, 
originations, and purchases at the transaction level. Such information 
provides an important public good that illuminates the lending 
activities of financial institutions and the mortgage market in 
general. This increased transparency allows members of the public, 
community groups, and public officials to better assess compliance with 
various Federal laws and regulations. In doing so, HMDA data help 
correct the potential market failures that those laws and regulations 
were designed to address.
    From an economics perspective, the final rule's improvements to 
HMDA data address two market failures: (1) The under-production of 
public mortgage data by the private sector, and (2) the information 
asymmetries in credit markets.
    First, HMDA data is a public good in that it is both non-rival, 
meaning that it may be used without reducing the amount available for 
others, and non-excludable, meaning that it cannot be withheld from 
consumers who do not pay for it. As with other public goods, standard 
microeconomic principles dictate that public mortgage data will be 
under-produced by the private sector, creating an outcome that is not 
socially optimal. Not surprisingly, no privately produced loan-level 
mortgage databases with comprehensive national coverage exist that are 
easily accessible by the public. Private data vendors offer a few large 
databases for sale that typically contain data collected from either 
the largest servicers or securitizers. However, none of these databases 
match the near-universal coverage of the HMDA data.\450\ Furthermore, 
commercial datasets are costly for subscribers, creating a substantial 
hurdle for community groups, government agencies, and researchers that 
wish to obtain access. Importantly, these commercially available 
datasets typically do not identify individual lenders and therefore 
cannot be used to study whether specific lenders are meeting community 
needs or making nondiscriminatory credit decisions. In addition, all of 
the privately produced, commercially available mortgage databases that 
the Bureau is aware of cover only originated loans and exclude 
applications that do not result in originations. A crucial feature of 
the HMDA data is that they include information about applications in 
addition to originations and purchases. In other words, in economic 
terms, private mortgage databases only provide information about the 
market outcome resulting from the intersection of supply and demand, 
while HMDA data provide information about both the market outcome and 
the demand for credit. Thus, users can examine both supply and demand 
regarding mortgage credit and understand the reasons for discrepancies 
between supply and demand at various levels of analysis, including by 
lender, geographic region, type of product or feature, credit risk, 
income, and race or ethnicity.
---------------------------------------------------------------------------

    \450\ Although limited transactions and institutions are 
excluded from HMDA, these are also typically excluded from 
commercial datasets.
---------------------------------------------------------------------------

    Second, it is well-accepted that credit markets are characterized 
by information asymmetries. Mortgage products and transactions are 
highly complex, and lenders have a significant information advantage. 
Such information asymmetry affects price and quantity allocations and 
can contribute to types of lender behavior, such as discrimination or 
predatory lending, that conflict with the best interests of borrowers. 
In addition to disadvantaging individual consumers, information failure 
may also lead to herding behavior by both lenders and consumers, 
creating substantial systemic risk to the mortgage market and the 
nation's overall financial system. The recent mortgage crisis provides 
a vivid demonstration of such a threat to the overall safety and 
stability of the housing market.
    These market failures are intertwined. Following the financial 
crisis, the Bureau and other government regulators have attempted to 
address misallocation of credit, enhance consumer protection, and stem 
systemic risk in the mortgage market through rules that regulate the 
business practices of financial institutions. The final rule provides 
an additional approach to solving failures in the mortgage market: 
Correcting the informational market failure. Enhanced mortgage data 
provide greater transparency about the mortgage market, weakening the 
information advantage that lenders possess relative to borrowers, 
community groups, and public officials. Greater information enables 
these groups to advocate for financial institutions to adopt fairer 
practices and increases the prospect that self-correction by financial 
institutions will be rewarded. Additional information also helps to 
reduce the herding behavior of both lenders and borrowers, reducing the 
systemic risk that has been so detrimental to the nation. In general, 
more information leads to more efficient outcomes. Thus, as a public 
good that reduces information asymmetry in the mortgage market, HMDA 
data are irreplaceable.
    In addition to addressing the two market failures, the final rule 
also meets the compelling public need for improved efficiency in 
government operations. The new data will allow government agencies to 
more effectively assess financial institutions' compliance with 
antidiscrimination statutes, including the Equal Credit Opportunity Act 
and the Fair Housing Act. The new data will also help to assess certain 
financial institutions' performance under the CRA. Improved HMDA data 
will also provide valuable information that supports future market 
analyses and optimal policy-making.

[[Page 66261]]

C. Baseline for Consideration of Costs and Benefits

    As stated in the proposal, the Bureau has discretion in any 
rulemaking to choose an appropriate scope of consideration for 
potential benefits and costs and an appropriate baseline. The Bureau 
does not believe the amendments to HMDA in section 1094 of the Dodd-
Frank Act would take effect automatically without implementing rules. 
Financial institutions are not required to report additional data 
required by section 304(b)(5) and (6) of HMDA, as amended, ``before the 
first January 1 that occurs after the end of the 9-month period 
beginning on the date on which regulations are issued by the Bureau in 
final form with respect to such disclosures.'' \451\ Therefore, the 
Bureau believes that the requirements to report all of the new data 
elements under HMDA section 304(b)(4)-(6) cannot become effective until 
the Bureau completes a rulemaking with respect to the reporting of such 
data. Accordingly, this analysis considers the benefits, costs, and 
impacts of the major provisions of the final rule against a pre-Dodd-
Frank Act baseline, i.e., the current state of the world before the 
provisions of the Dodd-Frank Act that amended HMDA are implemented by 
an amended Regulation C. The Bureau believes that such a baseline will 
also provide the public with better information about the benefits and 
costs of the statutory amendments to HMDA. The Bureau did not receive 
any comments on the baseline used.
---------------------------------------------------------------------------

    \451\ HMDA section 304(n).
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D. Coverage of the Final Rule

    Each provision of the final rule applies to certain financial 
institutions and requires them to report data regarding covered loans 
secured by a dwelling that they originate or purchase, or for which 
they receive applications. The final rule also requires financial 
institutions to make these data available to the public by making 
available brief notices referring members of the public seeking these 
data to the Bureau's Web site to obtain them. The provisions for which 
financial institutions must report, and what information they must 
report, are described further in each section below.

E. Basic Approach of the Bureau's Consideration of Benefits and Costs 
and Data Limitations

    This discussion relies on data that the Bureau obtained from 
industry, other regulatory agencies, and publicly available sources, as 
well as public comments contained in the record established by the 
proposed rule. As discussed in detail below, the Bureau's ability to 
fully quantify the potential costs, benefits, and impacts of the final 
rule is limited in some instances by a scarcity of necessary data.
1. Costs to Covered Persons
    The final rule generally establishes which financial institutions, 
transactions, and data points are covered under HMDA's reporting 
requirements. In order to precisely quantify the costs to covered 
persons, the Bureau would need, for both current and future HMDA 
reporters, representative data on: (1) The ongoing operational costs 
that financial institutions incur to gather and report HMDA data; (2) 
one-time costs for financial institutions to update reporting 
infrastructure in response to the final rule; and (3) the level of 
complexity of financial institutions' business models and compliance 
systems. As stated in the proposal, the Bureau does not believe that 
data on HMDA reporting costs with this level of granularity is 
systematically available from any source. However, the Bureau has made 
reasonable efforts to gather as much relevant data on HMDA reporting 
costs as possible. Through review of the public comments and outreach 
efforts with industry, community groups, and other regulatory agencies, 
the Bureau has obtained some information about ongoing operational and 
one-time compliance costs, and the discussion below uses this 
information to quantify certain costs of the final rule. The Bureau 
believes that the discussion constitutes the most comprehensive 
assessment to date of the costs of HMDA reporting by financial 
institutions. However, the Bureau recognizes that these calculations 
may not fully quantify all costs to covered persons. The Bureau also 
recognizes that these calculations may not accurately represent the 
costs of each specific reporter, especially given the wide variation of 
HMDA reporting costs across financial institutions.
    The Bureau's process for estimating the impact of the final rule on 
the cost of compliance to covered persons proceeds in three general 
stages. First, the Bureau attempted to understand and estimate the 
current cost of reporting for financial institutions, i.e., the 
baseline cost at the institution level. Second, the Bureau evaluated 
the one-time costs and ongoing operational costs that financial 
institutions would incur in response to the final rule. Part VII.F.2, 
below, provides details on the Bureau's approach in performing these 
institution-level analyses.
    The Bureau realizes that costs vary by institution due to many 
factors, such as size, operational structure, and product complexity, 
and that this variance exists on a continuum that is impossible to 
fully represent. To conduct a cost consideration that is both practical 
and meaningful, the Bureau chose an approach that focuses on three 
representative tiers of financial institutions: Low-complexity, 
moderate-complexity, and high-complexity. For each tier, the Bureau 
produced a reasonable estimate of the cost of compliance given the 
limitations of the available data. Part VII.F.2, below, provides 
additional details on this approach. More elaboration of the Bureau's 
basic approach is available in the notice accompanying the proposal, 
the Small Business Review Panel Outline of Proposals, and the Small 
Business Review Panel Report.\452\
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    \452\ See 79 FR 51731 (Aug. 29, 2014); Bureau of Consumer Fin. 
Prot., Small Business Review Panel for Home Mortgage Disclosure Act 
Rulemaking: Outline of Proposals Under Consideration and Alternative 
Considered (Feb. 7, 2014) (Outline of Proposals), available at 
https://files.consumerfinance.gov/f/201402_cfpb_hmda_outline-of-proposals.pdf. Certain basic assumptions, such as wage rate and 
number of data fields, were updated after the proposed rule to 
reflect changes adopted by the final rule and more recent wage data. 
The Bureau also modified the tier designations for the estimated 
open-end reporters as a result of a separate open-end reporting 
threshold that was not in the proposal.
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    The third stage of the Bureau's consideration of costs involved 
aggregating up to the market-level the institution-level cost estimates 
from the first two stages. This aggregation required an estimate of the 
total number of potentially impacted financial institutions and a 
mapping of these institutions to the three tiers described above. The 
Bureau used a wide range of data in conducting these tasks, including 
current HMDA data, Call Reports, NMLSR data and Consumer Credit Panel 
data.\453\ These analyses were challenging, because no single data 
source provided complete coverage of all the financial institutions 
that could be impacted, and the data quality of some sources was less 
than perfect. For example, estimating the number of HMDA reporters of 
closed-end mortgage loans that will be removed from coverage under the 
final rule was relatively easier than estimating the number of HMDA 
reporters that will be added. Similarly, the Bureau faced certain 
challenges in mapping the financial institutions to the three 
representative tiers, because data on the operational complexity of 
each financial

[[Page 66262]]

institution was very limited. Where the Bureau is uncertain about the 
aggregate impacts, it has generally provided range estimates.
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    \453\ NMLSR is a national registry of nondepository financial 
institutions, including mortgage loan originators.
---------------------------------------------------------------------------

    As described in greater detail below, the Bureau received many 
public comments on estimating the costs of certain components of the 
HMDA reporting process for individual financial institutions. These 
comments have been considered in revising the estimates contained in 
this part. In general, however, the comments did not provide 
representative data for all current and future HMDA reporters.
2. Costs to Consumers
    In addition to estimating the cost impact on covered persons, the 
Bureau also estimated the costs to consumers. Following standard 
economic theory, in a perfectly competitive market where financial 
institutions are profit maximizers, the affected financial institutions 
would pass on to consumers the marginal, i.e., variable, cost per 
application or origination, and absorb the one-time and increased fixed 
costs of complying with the rule. Based on this theory, the Bureau used 
estimates of changes in variable costs to assess the impact of the rule 
on consumers.
    The Bureau received feedback through the Small Business Review 
Panel process and public comments that, if the market permitted, some 
lenders would attempt to pass on to consumers the entire amount of the 
increased cost of compliance and not just the increase in variable 
costs. To the extent that this were to occur, the impact of the rule on 
consumers would be higher than the Bureau's estimates based on variable 
costs. No data were available to determine whether lenders would pass 
on the entire increase in compliance costs.
3. Benefits to Consumers and Covered Persons
    The Bureau also assessed the benefits of the final rule both to 
consumers and covered persons. In general, the Bureau relied on 
qualitative discussions of benefits as opposed to quantitative 
estimates. The Bureau cannot readily quantify many of the benefits to 
consumers and covered persons with precision, both because the Bureau 
does not have the data to quantify all benefits and because the Bureau 
is not able to assess completely how effective the Dodd-Frank 
amendments to HMDA will be in achieving those benefits.
    Congress intended for HMDA, including the Dodd-Frank Act amendments 
to the Act and the Bureau's rules implementing HMDA, to achieve 
compelling social benefits. As explained elsewhere in this 
supplementary information, the Bureau believes that the final rule 
appropriately implements the statutory amendments and is necessary and 
proper to effectuate HMDA's purposes. For consumers, the Bureau 
believes that the benefit of enhanced transparency will be substantial. 
For example, the final rule will facilitate the detection and 
remediation of discrimination; promote public and private investment in 
certain under-served markets, potentially increasing access to mortgage 
credit; and promote more stable and competitive markets. As a sunshine 
rule regarding data reporting and disclosure, most of the benefits of 
the enhanced rule on consumers will be realized indirectly. Quantifying 
and monetizing these benefits, however, would require identifying all 
possible uses of HMDA data, establishing causal links to the resulting 
public benefits, and then quantifying the magnitude of these benefits. 
For instance, quantification would require measuring the impact of 
increased transparency on financial institution behavior, the need for 
public and private investment, the housing needs of communities, the 
number of lenders potentially engaging in discriminatory or predatory 
behavior, and the number of consumers currently being unfairly 
disadvantaged and the level of quantifiable damage from such 
disadvantage. The Bureau is unaware of data that would enable reliable 
quantitative estimates of all of these effects.
    Similar issues arose in attempting to quantify the benefits to 
covered persons. For example, the Bureau believes that the enhanced 
HMDA data will facilitate improved monitoring of mortgage markets in 
order to prevent major disruptions to the financial system, which in 
turn will benefit financial institutions over the long run. Such 
effects, however, are hard to quantify because they are largely related 
to future events that the final rule itself is designed to prevent. 
Similarly, the Bureau believes that the enhanced HMDA data will provide 
a better analytical basis for financial regulators and community groups 
to screen and monitor lenders for possible discrimination. Because of 
limitations in the current HMDA data fields, the potential for false 
positives has been widely cited by financial institutions in various 
HMDA-related fair lending examinations, complaints, and lawsuits. The 
final rule will greatly reduce the rate of false positives and the 
associated compliance burden on financial institutions. The Bureau 
believes that such benefits to financial institutions could be 
substantial. Nevertheless, quantifying them would require data that are 
currently unavailable.
    In light of these data limitations, the discussion below generally 
provides a qualitative consideration of the benefits, costs, and 
impacts of the final rule. These qualitative insights into the benefits 
are based on general economic principles, together with the limited 
data available. The Bureau has made quantitative estimates where 
possible.

F. Potential Benefits and Costs to Consumers and Covered Persons

1. Overall Summary
    In this part VII.F.1, the Bureau presents a concise, high-level 
overview of the benefits and costs of the final rule. This is not 
intended to capture all details and nuances that are provided both in 
the rest of the analysis and in the section-by-section analyses above 
but rather to provide an overview.
    Major benefits of the rule. The final rule has a number of major 
benefits. First, the amendments will improve the usefulness of HMDA 
data in identifying possible discriminatory lending patterns and 
enforcing antidiscrimination statutes. By expanding the institutional 
and transactional coverage, the final rule expands the scope of the 
market that community groups and government agencies can include in 
fair lending analyses. The addition of pricing data fields such as 
interest rate, discount points, lender credits, and origination charges 
improves understanding of disparities in pricing outcomes beyond that 
permitted by the current rate spread data field. The addition of data 
fields such as CLTV, credit score, DTI, and AUS results allows for a 
more refined analysis and understanding of disparities in both 
underwriting and pricing outcomes. Overall, the changes adopted make 
fair lending analyses more comprehensive and accurate. This is 
especially important for the prioritization and peer analysis or 
redlining reviews that regulatory agencies conduct for fair lending 
supervision and enforcement purposes because a consistent and clean 
dataset will be available for all financial institutions subject to 
HMDA reporting.
    Second, the final rule will help determine whether financial 
institutions are serving the housing needs of their communities and 
help public officials target public investment to better attract 
private investment, two of HMDA's stated purposes. The expansion of 
institutional and transactional coverage will provide additional data 
helpful to the public, industry, and government in

[[Page 66263]]

identifying profitable lending and investment opportunities in 
underserved communities. Similarly, the data points related to 
multifamily dwellings and manufactured housing will reveal more 
information about these segments of the market. Borrowers who seek 
financing for manufactured housing are typically more financially 
vulnerable than borrowers financing site-built homes, and may deserve 
closer attention from government agencies and community groups. 
Although financing involving multifamily dwellings reported under HMDA 
is typically offered to institutional borrowers, the ultimate 
constituents these loans serve are mostly low- to mid-income renters 
who live in these financed units. Advocacy groups and government 
agencies have raised concerns over affordability issues faced by 
individuals living in multifamily dwellings, who also tend to be more 
financially vulnerable than individuals living in single-family 
dwellings. Overall, by permitting a better and more comprehensive 
understanding of these markets, the rule will improve the usefulness of 
HMDA data for assessing the supply and demand of credit, and financial 
institutions' treatment of applicants and borrowers, in these 
communities.
    Third, the final rule will assist in earlier identification of 
trends in the mortgage market, including the cyclical loosening and 
tightening of credit. Expanded transactional coverage, principally 
through reporting of most dwelling-secured consumer-purpose 
transactions, including open-end lines of credit, closed-end home-
equity loans, and reverse mortgages, and additional data fields, such 
as amortization type, prepayment penalty, and occupancy type, will 
improve understanding of the types of products and product 
characteristics received by consumers. Recent research has indicated 
that certain product types and characteristics may have increased the 
likelihood of default and exacerbated declines in housing values during 
the recent financial crisis. These risk factors could similarly play 
important roles in future credit cycles. Therefore, the additional 
transactions and data points will improve research efforts to 
understand mortgage markets, help identify new risk factors that might 
increase systemic risk to the overall economy, and provide early 
warning signals of worrisome market trends. In particular, quarterly 
reporting will provide regulators with more timely data, which will be 
of significant value for HMDA and market monitoring purposes. Timelier 
data will improve the identification of risks to local housing markets, 
the analyses of the lending activities of large volume lenders, and the 
effectiveness of interventions or other actions by the agencies and 
other public officials.
    Fourth, the rule will improve the effectiveness of policy-making 
efforts. In response to the recent financial crisis, the government has 
generated a number of rules and implemented a wide array of public 
policy measures to address market failures and protect consumers. 
Additional data, timelier data, and increased institutional and 
transactional coverage will allow for more informed decisions by policy 
makers and will improve the consideration of benefits, costs, and 
impacts for future policy efforts, resulting in more effective policy.
    Quantifying these benefits is difficult because the size of each 
particular effect cannot be known in advance. Given the number of 
mortgage transactions and the size of the mortgage market, however, 
small changes in behavior can have substantial aggregate effects.
    Major costs of the rule. The final rule will increase ongoing 
operational costs and impose one-time costs on financial institutions. 
Financial institutions conduct a variety of operational tasks to 
collect the necessary data, prepare the data for submission, conduct 
compliance and audit checks, and prepare for HMDA-related exams. These 
ongoing operational costs are driven primarily by the time spent on 
each task and the wage of the relevant employee. The Bureau estimates 
that current annual operational costs of reporting under HMDA are 
approximately $2,500 for a representative low-complexity financial 
institution with a loan/application register size of 50 records; 
$35,600 for a representative moderate-complexity financial institution 
with a loan/application register size of 1,000 records; and $313,000 
for a representative high-complexity financial institution with loan/
application register size of 50,000 records. This translates into an 
estimated per-application cost of approximately $51, $36, and $6 for 
representative low-, moderate-, and high-complexity financial 
institutions, respectively. Using recent survey estimates of net income 
from the Mortgage Bankers Association (MBA) \454\ as a frame of 
reference for these ongoing operational costs, the average net income 
per origination is approximately $2,900 for small/mid-size banks, 
$3,900 for medium banks, and $2,100 for large banks; and approximately 
$2,300 for small/mid-size independent mortgage companies, $3,000 for 
medium independent mortgage companies, and $1,900 for large independent 
mortgage companies.\455\
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    \454\ These estimates come from an annual survey conducted by 
the Mortgage Bankers Association and the STRATMOR group as part of 
the Peer Group Program.
    \455\ The Bureau notes that these net income estimates were 
reported by the Mortgage Bankers Association and the STRATMOR group 
on a per-origination basis. The Bureau estimates the HMDA 
operational cost per application, not per origination.
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    The final rule will affect the operational tasks associated with 
collecting and reporting HMDA data. More time will be required for 
tasks such as transcribing and checking data, and more resources will 
need to be devoted to tasks such as internal and external audits. The 
Bureau estimates that, absent the mitigation efforts discussed below, 
covered persons' ongoing operational costs will increase by 
approximately $2,600 for a representative low-complexity financial 
institution; $17,500 for a representative moderate-complexity financial 
institution; and $35,700 for a representative high-complexity financial 
institution, per year. These estimates do not include the increases in 
ongoing operational costs for financial institutions that will be 
required to report quarterly data or open-end lines of credit. This 
translates into a market-level impact of approximately $50,600,000 to 
$88,500,000 per year. Using a 7 percent discount rate, the net present 
value of this impact over five years across the entire market is an 
increase in costs of approximately $207,400,000 to $362,900,000.
    For financial institutions that will be required to report HMDA 
data quarterly, which the Bureau estimates are all high-complexity 
financial institutions, the additional ongoing operational costs will 
be approximately $41,000 per year.\456\ This translates into a market-
level impact of approximately $1,200,000 per year. Using a 7 percent 
discount rate, the net present value of this impact over five years 
across the entire market is an increase in costs of approximately 
$4,900,000.
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    \456\ The Bureau estimates there will be 29 financial 
institutions that will be required to report HMDA data quarterly and 
that they will be high-complexity institutions. Note that this 
estimate refers to increased ongoing costs due to quarterly 
reporting beyond the costs already mentioned.
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    For financial institutions that originated at least 100 open-end 
lines of credit in each of the two preceding years and will be required 
to report information about open-end lines of credit, the additional 
ongoing operational costs from open-end

[[Page 66264]]

reporting will be approximately $9,500 per year for a representative 
low-complexity financial institution, $53,000 per year for a 
representative moderate-complexity financial institution, and $288,000 
per year for a representative high-complexity financial institution. 
This translates into a market-level impact of approximately $30,900,000 
per year. Using a 7 percent discount rate, the net present value of 
this impact over five years across the entire market is an increase in 
costs of approximately $126,600,000.
    Combined, the impact on ongoing operational costs to reporters of 
closed-end mortgage loans, open-end lines of credit, and quarterly 
reporting translates into a market-level impact of approximately 
$82,600,000 to $120,600,000 per year, without accounting for any 
operational improvements. Using a 7 percent discount rate, the net 
present value of this impact over five years across the entire market 
is an increase in costs of approximately $338,900,000 to 
$494,400,000.\457\
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    \457\ The market-level estimates provide lower and upper bounds 
of the impact of the final rule on the market as a whole. To convey 
differences in impacts across the three representative tiers of 
financial institutions, the Bureau presents institution-level 
estimates for each tier and does not aggregate up to market-level 
estimates for each tier. The institution-level estimates for each 
tier provide more useful and accurate estimates of differences in 
impacts across the three representative financial institutions, 
because they do not require the additional assumptions used to map 
HMDA reporters to tiers. See part VII.F.2, below.
---------------------------------------------------------------------------

    Accounting for operational improvements undertaken by the Bureau, 
the estimated net increase in ongoing operational costs will be smaller 
than the above estimates. The Bureau's initial outreach efforts, as 
well as information gathered during the Small Business Review Panel 
process, indicated that reportability questions, regulatory clarity, 
geocoding, and submission processes and edits were significant concerns 
to financial institutions. Along with modifying the reporting 
requirements, the Bureau is making operational enhancements and 
modifications to address these concerns. For example, the Bureau is 
working to consolidate the outlets for assistance; provide 
implementation support similar to the support provided for the title 
XIV and the TILA-RESPA Integrated Disclosure rules; improve points of 
contact for help inquiries; modify the types of edits and when edits 
are approved; develop a Web-based HMDA data submission and edit-check 
system, create a data entry tool for small financial institutions that 
use Data Entry Software; and develop approaches to reduce geocoding 
burdens. All of these enhancements will improve the submission and 
processing of data, increase clarity, and reduce reporting burden.
    Accounting for these operational improvements, the estimated net 
impact of the final rule on ongoing operational costs for closed-end 
reporters will be approximately $1,900, $7,800, and $20,000 per year, 
for representative low-, moderate-, and high-complexity financial 
institutions, respectively. This translates into a market-level impact 
of approximately $26,700,000 to $41,400,000 per year. Using a 7 percent 
discount rate, the net present value of this impact over five years 
across the entire market is an increase in costs of approximately 
$109,500,000 to $169,800,000. For quarterly reporters, which the Bureau 
assumes are all high-complexity financial institutions, the estimated 
net impact of the final rule on ongoing operational costs will be 
approximately an additional $31,200 per year. This translates into an 
additional market-level impact of approximately $900,000 per year. 
Using a 7 percent discount rate, the net present value of this impact 
over five years across the entire market is an increase in costs of 
approximately $3,700,000. For open-end reporters, the estimated net 
impact of the final rule on ongoing operational costs will be 
approximately $8,600, $43,400, and $273,000 per year, for 
representative low-, moderate-, and high-complexity financial 
institutions respectively. This translates into a market-level impact 
of approximately $26,000,000 per year. Using a 7 percent discount rate, 
the net present value of this impact over five years across the entire 
market is an increase in costs of approximately $106,600,000. Combined, 
with the inclusion of the operational improvements, the impact on 
ongoing operational costs to reporters of closed-end mortgage loans, 
open-end lines of credit, and quarterly reporting translates into a 
market-level impact of approximately $53,600,000 to $68,300,000 per 
year. Using a 7 percent discount rate, the net present value of this 
impact over five years across the entire market is an increase in costs 
of approximately $219,800,000 to $280,100,000.
    In addition to impacting ongoing operational costs, the final rule 
will impose one-time costs necessary to modify processes in response to 
the new regulatory requirements. These one-time costs are driven 
primarily by updating software systems, training staff, updating 
compliance procedures and manuals, and overall planning and preparation 
time. The Bureau estimates that these one-time costs due to reporting 
of closed-end mortgage loans will be approximately $3,000 for low-
complexity financial institutions, $250,000 for moderate-complexity 
financial institutions, and $800,000 for high-complexity financial 
institutions. These estimates include the impact on financial 
institutions that will be required to report quarterly data, but 
exclude the impact of expanding transactional coverage to include 
mandatory reporting of open-end lines of credit for financial 
institutions that meet the open-end reporting threshold.\458\
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    \458\ The Bureau realizes that the impact to one-time costs 
varies by institution due to many factors, such as size, operational 
structure, and product complexity, and that this variance exists on 
a continuum that is impossible to fully capture. As a result, the 
one-time cost estimates will be high for some financial institutions 
and low for others.
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    Industry commenters indicated that many financial institutions, 
especially larger and more complex institutions, process applications 
for open-end lines of credit in their consumer lending departments 
using separate procedures, policies, and data systems. In addition, 
because most financial institutions do not currently report open-end 
lines of credit, many financial institutions will have to develop 
completely new reporting infrastructures to comply with the switch to 
mandatory reporting. As a result, there will be one-time costs to 
create processes and systems for open-end lines of credit in addition 
to the one-time costs summarized above to modify processes and systems 
for other mortgage products.
    The Bureau recognizes that the one-time cost of reporting open-end 
lines of credit could be substantial for many financial institutions, 
but lacks the data necessary to accurately quantify it. Although some 
commenters provided feedback on the additional burden of reporting data 
on these products, no commenter provided specific estimates of the 
potential one-time costs of reporting open-end lines of credit. The 
closest information was provided by one commenter that estimated that 
HELOC reporting would increase system fees by $117,000, which is 
similar to the Bureau's estimate of a $125,000 one-time cost related to 
reporting open-end lines of credit for moderately complex financial 
institutions.\459\
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    \459\ It is not clear from this comment whether the estimate 
excludes open-end lines of credit for commercial or business 
purposes other than purchase, home improvement, or refinancing, 
which financial institutions will not have to report.
---------------------------------------------------------------------------

    For this discussion, the Bureau assumes that if a lender will 
report both closed-end mortgage loans and open-

[[Page 66265]]

end lines of credit, the one-time cost of integrating open-end lines of 
credit into HMDA reporting processes will be roughly equal to 50 
percent of the one-time cost absent mandatory reporting of such 
products. This estimate accounts for the fact that reporting open-end 
lines of credit will require some new systems, extra start-up training, 
and new compliance procedures and manuals, but that some fixed, one-
time costs could be shared with closed-end lines of business subject to 
Regulation C because both have to undergo systemic changes. This 
assumption is consistent with the Bureau's estimate that, under the 
open-end reporting threshold, an overwhelming majority of open-end 
reporters would also be reporting closed-end mortgage loans and 
applications simultaneously, as will be discussed below in parts 
VII.F.3 and VII.F.4. The Bureau therefore estimates that high- and 
moderate-complexity financial institutions that will be required to 
report open-end lines of credit while also reporting closed-end 
mortgage loans will incur additional one-time costs of $400,000 and 
$125,000, respectively, due to open-end reporting. The Bureau believes 
that the additional one-time costs of open-end reporting will be 
relatively low for low-complexity financial institutions. The Bureau 
believes that these institutions are less reliant on information 
technology systems for HMDA reporting and that they may process open-
end lines of credit on the same system and in the same business unit as 
closed-end mortgage loans. Therefore, for low-complexity financial 
institutions, the Bureau estimates that the additional one-time cost 
created by open-end reporting is minimal and is derived mostly from new 
training and procedures adopted for the overall changes in the final 
rule. For the estimated 24 lenders that would only report open-end 
lines of credit but not closed-end mortgage loans, because there would 
be no cost sharing between open-end and closed-end reporting, the 
Bureau adopts the one-time cost estimates for similar-sized closed-end 
reporters and hence conservatively estimates that the one-time costs 
for these open-end reporters will be approximately $3,000 for low-
complexity financial institutions and $250,000 for moderate-complexity 
financial institutions.\460\
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    \460\ The Bureau estimates that none of the open-end-only 
reporters will fall into the high-complexity category. The Bureau 
also estimates that these open-end-only reporters previously would 
have been reporting under HMDA as they are depository institutions 
that have closed-end mortgage loan/application register sizes 
between 1 and 24 records. Therefore the Bureau believes that they 
will be able to repurpose and modify the existing HMDA reporting 
process for open-end reporting.
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    The specific approach used to estimate one-time costs is based on 
the Bureau's outreach efforts prior to the proposal. Specifically, for 
low-complexity financial institutions, these outreach efforts indicated 
that the cost to update information technology systems will be minimal, 
because the processes involved in reporting are highly manual. The 
estimate of one-time training costs for low-complexity financial 
institutions is based on estimated ongoing training costs of $300 per 
year for staff directly responsible for data reporting. In response to 
the final rule, additional staff will require one-time training, but 
the intensity of this training will be lower than ongoing training. To 
capture this additional, less-intensive training, the Bureau used five 
times the annual training cost as the estimated one-time training cost 
($1,500). Training costs provide the best-available proxy for the one-
time cost to update compliance procedures and manuals, so the Bureau 
used $1,500 as an estimate of these costs as well. Therefore, the total 
one-time cost estimate for low-complexity financial institutions is 
approximately $3,000 (= $0 + $1,500 + $1,500). This estimate varies 
little regardless of whether the financial institution reports open-end 
lines of credit.
    For moderate-complexity financial institutions, outreach efforts 
indicated that representative costs to update information technology, 
excluding possible open-end reporting, will be approximately $225,000. 
The estimate of one-time training costs for moderate-complexity 
financial institutions, excluding possible open-end reporting, is based 
on the estimated ongoing training costs of $2,500 per year. Again, the 
Bureau used five times the annual training cost as the estimated one-
time training cost ($12,500). Training costs provide the best-available 
proxy for the one-time cost to update compliance procedures and 
manuals, so the Bureau used $12,500 as an estimate of these costs as 
well. The one-time cost estimate for a representative moderate-
complexity financial institution is therefore approximately $250,000 (= 
$225,000 + $12,500 + $12,500), excluding the costs of reporting open-
end lines of credit. By including the 50 percent multiplier discussed 
above, the Bureau assumes that the one-time cost of open-end reporting 
by moderate-complexity financial institutions is $125,000. Therefore, 
for a representative moderate-complexity financial institution that 
meets both the open-end and closed-end reporting thresholds, the total 
one-time cost estimate is $375,000.
    For high-complexity financial institutions, outreach efforts 
indicated that representative costs to update information technology, 
excluding open-end reporting, will be approximately $500,000. The 
estimate of one-time training costs for high-complexity financial 
institutions, excluding open-end reporting, is based on the estimate of 
ongoing training costs of $30,000 per year. Again, the Bureau used five 
times the annual training cost as the estimated one-time training cost 
($150,000). Training costs provide the best available proxy for the 
one-time cost to update compliance procedures and manuals, so the 
Bureau used $150,000 as an estimate of these costs as well. The one-
time cost estimate for a representative high-complexity financial 
institution is therefore approximately $800,000 (= $500,000 + $150,000 
+ $150,000), excluding the costs of reporting open-end lines of credit. 
By including the 50 percent multiplier discussed above, the Bureau 
assumes that the one-time cost of open-end reporting by high-complexity 
financial institutions is $400,000. Therefore, for a representative 
high-complexity financial institution that meets both the open-end and 
closed-end reporting thresholds, the total one-time cost estimate is 
$1,200,000.
    Based on outreach discussions with financial institutions prior to 
the proposal, the Bureau also believes that additional nondepository 
institutions that currently do not report under HMDA but will have to 
report closed-end mortgage loans under the final rule will incur start-
up costs to develop policies and procedures, infrastructure, and 
training. These start-up costs for closed-end reporting will be 
approximately $25,000 for these financial institutions, which the 
Bureau assumes to be all tier 3 institutions. This startup cost differs 
from the one-time costs presented above, because the one-time costs 
mostly involve the costs from modifying existing reporting systems for 
existing HMDA reporters that will continue to report, while the startup 
cost is the cost incurred from building an entirely new reporting 
system for a new HMDA reporter.
    The Bureau estimates the overall market impact on one-time costs 
for closed-end reporting to be between $650,000,000 and $1,263,200,000; 
the overall market impact on one-time costs for open-end reporting by 
financial institutions that are also closed-end reporters to be 
approximately

[[Page 66266]]

$61,600,000; the overall market impact on one-time costs for open-end 
reporting alone to be approximately $3,000,000; and the start-up cost 
for nondepository institutions that will become new closed-end 
reporters to be approximately $11,300,000. With these four sets of 
numbers together, the Bureau estimates the combined overall market 
impact on one-time and start-up costs of the final rule is between 
$725,900,000 and $1,339,100,000. As a frame of reference for all of 
these market-level, one-time cost estimates, the total non-interest 
expenses for current HMDA reporters were approximately $420 billion in 
2012. The upper-bound estimate of around $1,339,100,000 is 
approximately 0.3 percent of the total annual non-interest 
expenses.\461\ Because these costs are one-time investments, financial 
institutions are expected to amortize these costs over a period of 
years. In this analysis, the Bureau amortizes all costs over five 
years, using a simple straight-line amortization. Using a 7 percent 
discount rate and a five-year amortization window, the annualized one-
time and start-up costs estimate is approximately between $177,000,000 
and $326,600,000 per year.
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    \461\ The Bureau estimated the total non-interest expense for 
banks, thrifts, and credit unions that reported under HMDA based on 
Call Report data for depository institutions and credit unions and 
NMLSR data for nondepository institutions, all matched with 2012 
HMDA reporters.
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    Comments on the impact analysis in the proposed rulemaking. 
Throughout the Dodd-Frank Act section 1022 discussion in the proposal, 
the Bureau solicited feedback about data or methodologies that would 
enable it to more precisely estimate the benefits, costs, and impacts 
of the proposed changes. For example, the Bureau solicited data on the 
operational activities and distribution of financial institutions 
across the three tiers used to estimate costs, and on the one-time cost 
of reporting dwelling-secured home-equity products. The Bureau also 
invited feedback on possible ways to quantify the benefits of the 
proposal. The Bureau also sought information on what data points are 
applicable to specific products, and on whether there are any 
alternatives to or adjustment in each data point that would reduce 
burden on covered persons while still meeting the purposes of HMDA.
    In general, industry commenters offered various estimates of the 
burden associated with the proposal for the particular financial 
institution represented by the commenter. For example, commenters 
representing different financial institutions provided estimates of the 
increased burden on a per-loan basis that ranged from $3 to over 
$73.42, 30 minutes to 60 minutes, and 70 to 100 percent. Other industry 
commenters framed their estimated increases in burden in terms of 
additional full-time employees, and provided estimates ranging from one 
to 15 employees. Other industry commenters attempted to estimate the 
overall increased cost of all aspects of the proposal, which ranged 
from $40,000 to $1,000,000. Other commenters framed their estimates of 
the overall increased costs of all aspects of the proposal on an annual 
basis, which ranged from $7,500 to $75,000 per year. One national trade 
association commenter surveyed its members and reported that 
implementing the data points required by the Dodd-Frank Act would 
represent one-time costs of $9,591 and ongoing costs of $3,842 per 
year, and implementing the Bureau's discretionary data points would 
represent one-time costs of $13,955 and ongoing costs of $4,842 per 
year. Finally, several industry commenters offered general estimates 
that the burden of reporting would double, triple, or increase 
exponentially. The Bureau has reviewed these estimates and considered 
the information reported by the commenters.
    Many industry commenters criticized aspects of the proposal's Dodd-
Frank Act section 1022 discussion. The most common criticism was 
disagreement with the accuracy of the cost estimates contained in the 
proposal. Several industry commenters pointed out that the proposal's 
cost estimates were considerably different than the actual costs 
involved in HMDA reporting by the individual financial institution 
represented by the commenter. For example, one industry commenter 
specifically questioned the $1,600 estimate for operational costs for 
low-complexity financial institutions in the proposal. As a second 
example, another commenter suggested that the estimated cost per 
transaction could not be accurate, because a small entity 
representative reported that it spent an average of three hours just on 
following up with loan officers regarding missing government monitoring 
information.
    The Bureau notes that the current costs of reporting data under 
HMDA, as well as the impact of the final rule, are all institution-
specific. For the purpose of the section 1022 discussion, however, it 
is not possible to generate separate estimates for each HMDA reporter. 
As a meaningful alternative, the Bureau constructed benefits, costs, 
and impacts for three representative institutions. As a result, 
estimates from specific commenters often deviated from the Bureau's 
estimates as expected. Sometimes, however, the cost estimates of the 
representative financial institution and the cost estimates of a 
particular commenter aligned. For example, one industry commenter 
described the Bureau's estimated one-time implementation costs for 
moderate-complexity financial institution as potentially correct. 
Although the estimated impacts of the proposed rule on many 
institutions deviated from the estimates the Bureau constructed for 
three representative institutions, these commenters, in general, did 
not disagree with the Bureau's methodology or assumptions.
    Other industry commenters cited flaws with the data used to 
estimate the costs and benefits of the proposal. For example, one 
commenter explained that the discussion was based on data from current 
HMDA reporters and therefore may not allow accurate estimates of the 
impact on newly reporting nondepository institutions. Another commenter 
generally stated that the discussion used insufficient quantitative 
data. Scarcity of data in general, and of quality data in particular, 
posed a challenge when estimating the benefits and costs of the final 
rule. This was especially true when constructing estimates for newly 
reporting financial institutions, because it is difficult to identify 
exactly which institutions would have to report, and data on these 
institutions are limited. To the extent possible, the Bureau utilized 
the best and most current data from what it knew to be the relevant and 
available data sources. No commenter identified any additional data 
sources that would have improved the Bureau's estimates. Nevertheless, 
in response to those comments, the Bureau reanalyzed currently 
available data sources to better understand the impacts of the final 
rule. For example, following the proposal and comment period, the 
Bureau thoroughly analyzed Call Reports and Consumer Credit Panel data 
to better understand the open-end line of credit market and the impacts 
of requiring reporting of these products. Details of this analysis are 
included in the discussions on institutional and transactional coverage 
below.
    Some industry commenters believed that the cost estimates were 
internally inconsistent or inconsistent with other parts of the 
proposal. For example, one commenter doubted that variable costs would 
increase by only $0.30 per application if the number of fields were 
essentially doubling. This comment highlights one of the many nuances 
of the analysis in the proposal. The $0.30

[[Page 66267]]

estimate is for a representative moderate-complexity institution, and 
captures the estimated impact on variable operational costs of having 
to report 37 additional data fields.\462\ As indicated in Tables 2-4 
below, the Bureau designated five of the 18 operational tasks as 
variable-cost tasks, so the $0.30 estimate only captures part of the 
overall impact of increasing the number of fields financial 
institutions must report. When assessing the impact to consumers, the 
Bureau focused on the variable costs based on standard economic theory 
that, under perfect competition, institutions will pass on increases in 
variable costs to consumers but will absorb the one-time costs and 
increases to fixed costs. No commenters disagreed with the Bureau's 
designation of tasks as variable-cost or fixed-cost, and no commenters 
suggested improvements to the formulations or assumptions the Bureau 
used to construct estimates for each operational task. Therefore, 
although the representative institution estimates may not precisely 
match the projected impact for a particular institution, the Bureau 
continues to believe that the representative estimates are a meaningful 
alternative to a particularized estimate for each institution, and has 
decided not to modify its basic methodological approach in response to 
this comment.\463\
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    \462\ The 37 additional data fields were contained in the 
proposed rule. The final rule increases the total number of 
additional data fields. That change has been reflected in the 
Bureau's updated impact analyses in this final rule.
    \463\ However, the Bureau did update some of its basic 
assumptions, including wage rate and number of data fields after the 
proposal to reflect the final rule and more recent wage data. The 
Bureau also modified the tier designations for estimated open-end 
reporters as a result of a separate open-end reporting threshold 
that the Bureau instituted in the final rule in response to the 
public comments.
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    Many industry commenters believed that the Bureau had not 
considered certain costs associated with reporting HMDA data. A few 
commenters believed that the methodology used to estimate costs omitted 
certain tasks connected to reporting, such as the increased time spent 
on examinations and scrubbing and re-scrubbing the data. As noted in 
Tables 2-4 below, the Bureau included standard annual edits and 
internal checks, as well as examination preparation and examination 
assistance as three of the 18 operational steps institutions use when 
preparing and reporting HMDA data. The Bureau discussed all 18 
operational steps with small entity representatives during the Small 
Business Review Panel process and solicited feedback on these steps, 
along with formulations for estimating their costs, in the proposed 
rule. Although some institutions indicated that they used slightly 
different tasks, in general, all feedback received indicated that these 
18 operational tasks generally reflect the steps most financial 
institutions take when gathering and reporting HMDA data.
    Other commenters cited other elements of cost that they believed 
should have been included in the discussion. One industry commenter 
stated that the Bureau should consider the opportunity cost of time 
spent reporting HMDA data. Although not explicitly stated, the current 
estimates do consider the opportunity cost of the impact of the final 
rule. In response to the final rule, some current employees will trade 
off profit-related activities for HMDA-related activities. The 
opportunity cost of the final rule is the lost profit from this 
reallocation of staff time. Wages are typically used as a proxy for 
opportunity cost, and this is the measure the Bureau uses to estimate 
the cost of financial institutions having to reallocate employee time 
to HMDA-related activities in response to the final rule.
    Two other commenters suggested that the Bureau include the privacy 
costs of the proposed rule, such as the cost associated with data 
breaches. These commenters provided no information that would enable 
accurate estimates of such costs. Because any potential data breach is 
an inherent part of lenders' operational risk associated with any data 
operation, the Bureau cannot precisely estimate its cost for the 
representative institutions in its three-tier approach. Financial 
institutions collect and maintain significant amounts of highly 
sensitive, personally identifiable information concerning customers in 
the ordinary course of business. The Bureau understands that 
substantially all of the new data to be compiled under the final rule 
either are data that HMDA reporters compile for reasons other than HMDA 
or are calculations that derive from such data, and must be retained by 
financial institutions to comply with other applicable laws. Therefore, 
the Bureau does not believe that costs related to the risk of data 
breaches substantially affect the estimates contained in this section 
1022 discussion.
    Several other industry commenters stated that the Bureau did not 
discuss potential competitive disadvantages that small financial 
institutions might suffer as a result of the rule, because they would 
be unable to distribute the cost of compliance among as large a 
transaction base as large financial institutions. Several industry 
commenters cited reports from Goldman Sachs and Banking Compliance 
Index figures to support claims that regulatory burdens were 
disproportionally affecting small financial institutions and preventing 
low-income consumers from accessing certain financial products. Another 
industry commenter cited the decline in HMDA reporters from 2012 to 
2013 as evidence that small financial institutions have left the 
market. The Bureau presented separate impact estimates for low-, 
moderate-, and high-complexity institutions, broadly reflecting 
differences in impact across institutions of different size. For low-
complexity institutions, which best represent small institutions, the 
estimated impact on ongoing operational costs from reporting closed-end 
mortgage loans, after the operational modifications the Bureau is 
making, is approximately $1,900 under the final rule. This translates 
into approximately a $38 increase in per-application costs. Based on 
recent survey estimates of net income from the MBA, this impact 
represents approximately 1.3 percent ($38/$2,900) of net income per 
origination for small/mid-size banks.\464\ The Bureau views that amount 
as relatively small. In addition, the Bureau has increased the closed-
end mortgage loan reporting threshold for depository institutions from 
one to 25, and instituted an open-end line of credit reporting 
threshold of 100 to alleviate burden on small financial institutions 
while still maintaining the benefits of HMDA data. Therefore, the 
Bureau concludes that the final rule is unlikely to competitively 
disadvantage small institutions.
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    \464\ According to a recent annual survey on mortgage 
originators by the Mortgage Bankers Association and the STRATMOR 
group as part of the Peer Group Program, the average net income per 
origination is approximately $2,900 for small/mid-size banks, $3,900 
for medium banks, and $2,100 for large banks; and approximately 
$2,300 for small/mid-size independent mortgage companies, $3,000 for 
medium independent mortgage companies, and $1,900 for large 
independent mortgage companies.
---------------------------------------------------------------------------

    A few industry commenters stated that the Dodd-Frank Act section 
1022 discussion did not address the proposal's expanded coverage of 
commercial loans. As explained above, based on these comments and 
subsequent analysis, the Bureau has decided to maintain Regulation C's 
existing transactional coverage scheme for commercial-purpose 
transactions. The final rule will only require reporting of 
applications for, and originations of, dwelling-secured

[[Page 66268]]

commercial-purpose loans and lines of credit if they are for home 
purchase, home improvement, or refinancing purposes. The Bureau 
believes the volume of such transactions is fairly small and that, as a 
result, it is unnecessary to account separately for the costs, 
benefits, and impacts of commercial-purpose reporting under the final 
rule.
    Many industry commenters argued that the degree of alignment to the 
MISMO data standards would increase burden. Several financial 
institutions reported that they would need to train their staff members 
in order to understand the MISMO definitions. One commenter suggested 
that use of the MISMO data standards should be optional because it 
would be burdensome for small financial institutions. A national trade 
association commenter reported that only 22 percent of its members 
reported using MISMO. These commenters have misunderstood the 
implications of the proposed MISMO utilization. The Bureau did not 
propose to, and the final rule does not require, any financial 
institution to use or become familiar with the MISMO data standards. 
Rather, the rule merely recognizes that many financial institutions are 
already using the MISMO standard for collecting and transmitting 
mortgage data and uses similar definitions for certain data points in 
order to reduce burden. Thus, the rule decreases costs for those 
institutions that already maintain data points with the same 
definitions and values as MISMO. Financial institutions that are 
unfamiliar with MISMO may not realize a similar reduction in cost, and 
will have to report data points not required under the current rule, 
but they will not experience any increased burden from reporting those 
HMDA data points that the Bureau has defined consistently with MISMO 
definitions. These institutions will not need to learn anything about 
MISMO because the final rule itself and the associated materials 
contain all the necessary definitions and instructions for reporting 
HMDA data.
    One industry commenter believed that the cost estimates should not 
be amortized over five years because financial institutions may not 
recover these costs over that time period. The Bureau presented both 
non-amortized market-level estimates and market-level estimates 
amortized over five years. As noted earlier, it is not feasible to 
tailor the analysis to each financial institution subject to the rule. 
The Bureau believes that these results effectively provide a general 
picture of the impact of the final rule on costs.
    Many industry commenters believed that the proposal would likely 
increase the cost of credit for consumers. Several of these commenters 
cited the cost of system modifications associated with reporting open-
end lines of credit. A few commenters claimed that certain small 
financial institutions, such as small credit unions, small farm credit 
lenders, or small banks, would be faced with difficult choices, such as 
merging, raising prices, originating fewer loans, or exiting the 
market. A small number of industry commenters stated that they would 
double their origination fees as a result of the proposed rule. A 
national trade association commenter cited, among other things, a study 
from several individuals at the Mercatus Center at George Mason 
University and a survey of its members showing that small financial 
institutions were decreasing their mortgage lending activity in 
response to increased regulatory burdens. Similarly, other industry 
commenters pointed to a report from Goldman Sachs showing that higher 
regulatory costs had priced some low-income consumers out of the credit 
card and mortgage markets. Following standard economic theory, in a 
perfectly competitive market where financial institutions are profit 
maximizers, the affected financial institutions would pass on to 
consumers the marginal, i.e., variable, cost per application or 
origination and would absorb the one-time and increased fixed costs of 
complying with the rule. Overall, the Bureau estimates that the final 
rule will increase variable costs by $23 per closed-end mortgage 
application for representative low-complexity institutions, $0.20 per 
closed-end mortgage application for representative moderate-complexity 
institutions, and $0.10 per closed-end mortgage application for 
representative high-complexity institutions. The Bureau estimates that 
the final rule will increase variable costs by $41.50 per open-end line 
of credit application for representative low-complexity institutions, 
$6.20 per open-end line of credit application for representative 
moderate-complexity institutions, and $3 per open-end line of credit 
application for representative high-complexity institutions. These 
expenses will be amortized over the life of a loan and represent a 
negligible increase in the cost of a mortgage loan. Therefore, the 
Bureau does not anticipate any material adverse effect on credit access 
in the long or short term even if financial institutions pass on these 
costs to consumers.
    One national trade association commenter asked the Bureau to 
consider the indirect impact on rural consumers and to analyze the 
effect of the proposed rule combined with the other recent mortgage 
rules. This commenter noted that most of its members lend in rural 
areas and cited the Mercatus Center study mentioned above, which 
explained that small financial institutions in rural markets were 
particularly burdened by recent regulatory changes. Part VII.G.2 of the 
proposed rule considered the impact of the proposed rule on rural 
consumers. Following standard economic principles suggesting that 
institutions will pass on increases in variable costs, the Bureau 
estimated that the impact on consumers in rural areas will be small. 
Although some commenters suggested considering these impacts further, 
no commenters provided any specific estimates or suggested changes to 
methodology that could alter that conclusion.
    Many commenters suggested that the Bureau provide an analysis of 
the costs and benefits of different alternatives, such as additional 
possible loan-volume thresholds. The Bureau has considered several 
alternatives and has described the costs and benefits of these 
alternatives, to the extent permitted by available data, in greater 
detail elsewhere in this final notice. As one example, Tables 5-7 in 
part VII.F.3 summarize the numbers of institutions and applications 
that would be excluded under closed-end reporting thresholds of 25, 50, 
100, 250, and 500 loans. Similarly, in response to comments received, 
the Bureau conducted additional analyses and subsequently constructed 
analogous tables showing the impact of the rule on reporting of open-
end lines of credit at various thresholds. These estimates are shown in 
Table 8.
    One industry commenter claimed that the Bureau improperly discussed 
benefits outside of the statutory purposes of HMDA. Section 1022 of the 
Dodd-Frank Act, however, contains no such limitation. Instead, the 
statute directs the Bureau to consider, among other things, the 
``potential benefits and costs to consumers and covered persons.''\465\ 
Although the discussion of benefits is focused on the statutory 
purposes of HMDA, improved information about the mortgage market will 
have other benefits that may fall outside of a narrow reading of the 
statutory purposes. The Bureau believes that failing to consider these 
benefits would deprive the public of important

[[Page 66269]]

information about the potential impacts of the final rule.
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    \465\ 12 U.S.C. 5512(b)(2)(A)(i).
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    Finally, one commenter urged the Bureau to gather data and define 
clear metrics for evaluating the success of the rule for retrospective 
review. This commenter offered several means of evaluation, including 
whether changes occur in antidiscrimination enforcement, redlining 
activity, false positive rates, access to credit, public and private 
investment, or costs to consumers. Section 1022(d) of the Dodd-Frank 
Act requires the Bureau to assess each ``significant'' rule or order 
adopted by the Bureau under Federal consumer financial law.\466\ This 
assessment must consider the effectiveness of the rule in meeting the 
purposes and objectives of the Consumer Financial Protection Act of 
2010 and the specific goals stated by the Bureau, and the Bureau must 
publish a report of its assessment within five years of the effective 
date of the rule.\467\ Before publishing the report of its assessment, 
the Bureau must also invite public comment regarding the modification, 
expansion, or elimination of the significant rule.\468\ The Bureau 
believes that this rule will almost certainly constitute a significant 
rule that warrants assessment under section 1022(d) of the Dodd-Frank 
Act. Therefore, it will be evaluating the effectiveness of the rule 
along dimensions similar to those proposed by the commenter and will 
provide the public with an opportunity for public comment.
---------------------------------------------------------------------------

    \466\ 12 U.S.C. 5512(d).
    \467\ 12 U.S.C. 5512(d)(1)-(2).
    \468\ 12 U.S.C. 5512(d)(3).
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2. Methodology for Generating Cost Estimates
    Prior to the proposal, the Bureau reviewed the current HMDA 
compliance systems and activities of financial institutions. The review 
used a cost-accounting, case-study methodology consisting, in part, of 
interviews with 20 financial institutions of various sizes, nine 
vendors, and 15 governmental agency representatives.\469\ These 
interviews provided the Bureau with detailed information about current 
HMDA compliance processes and costs.\470\ This information showed how 
financial institutions gather and report HMDA data and provided the 
foundation for the approach the Bureau took to considering the 
benefits, costs, and impacts of the final rule. The Bureau augmented 
this information through the Small Business Review Panel process and 
through relevant academic literature, publicly available information 
and data sources available through the Internet,\471\ historical HMDA 
data, Call Report Data, NMLSR Data, public comments contained in the 
rulemaking docket established by the proposal, and the Bureau's 
expertise.
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    \469\ For a discussion of this methodology in the analysis of 
the costs of regulatory compliance, see Gregory Elliehausen, Bd. of 
Governors of the Fed. Reserve Sys., Staff Studies Series No. 171, 
The Cost of Bank Regulation: A Review of the Evidence, (April 1998), 
available at https://www.federalreserve.gov/pubs/staffstudies/1990-99/ss171.pdf. In addition, the Bureau recently conducted a 
Compliance Cost Study as an independent analysis of the costs of 
regulatory compliance. See U.S. Consumer Fin. Prot. Bureau, 
Understanding the Effects of Certain Deposit Regulations on 
Financial Institution's Operations: Findings on Relative Costs for 
Systems, Personnel, and Processes at Seven Institutions (2013), 
available at https://files.consumerfinance.gov/f/201311_cfpb_report_findings-relative-costs.pdf.
    \470\ The financial institutions interviewed were selected to 
provide variation in key characteristics like institution type 
(bank, credit union, independent mortgage bank), regulator, record 
count, submission mechanism, number of resubmissions, and other 
designations like whether the financial institution was a 
multifamily or rural lender. However the Bureau recognizes that this 
does not constitute a random survey of financial intuitions and the 
sample size might not be large enough to capture all variations 
among financial institutions.
    \471\ Internet resources included, among others, sites such as 
Jstor.org, which provides information on published research 
articles; FFIEC.gov, which provides information about HMDA, CRA, and 
the financial industry in general; university Web sites, which 
provide information on current research related to mortgages, HMDA, 
and the financial industry; community group Web sites, which provide 
the perspective of community groups; and trade group Web sites, 
which provide the perspective of industry.
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    Based on the outreach described above, the Bureau classified the 
operational activities that financial institutions currently use for 
HMDA data collection and reporting into discrete compliance ``tasks.'' 
This classification consists of 18 ``component tasks,'' which can be 
grouped into four ``primary tasks.'' The level of detail of the 
classification is intended to facilitate estimation of baseline costs 
and to enable rigorous analysis of the impact of the final rule across 
a wide range of financial institutions. The four primary tasks are 
described briefly below.
    1. Data collection: transcribing data, resolving reportability 
questions, and transferring data to HMDA Management System (HMS).
    2. Reporting and resubmission: Geocoding, standard annual edit and 
internal checks, researching questions, resolving question responses, 
checking post-submission edits, filing post-submission documents, 
creating modified loan/application register, distributing modified 
loan/application register, distributing disclosure statement, and using 
vendor HMS software.
    3. Compliance and internal audits: Training, internal audits, and 
external audits.
    4. HMDA-related exams: Examination preparation and examination 
assistance.
    In addition to collecting information about operational activities 
and costs, the Bureau also used outreach efforts and the Small Business 
Review Panel process to better understand the potential one-time costs 
that HMDA reporters will incur in response to the proposed rule. 
Management, legal, and compliance personnel will likely require time to 
learn new reporting requirements and assess legal and compliance risks. 
Financial institutions that use vendors for HMDA compliance will incur 
one-time costs associated with software installation, troubleshooting, 
and testing. The Bureau is aware that these activities will take time 
and that the costs may vary depending on the time available. Financial 
institutions that maintain their own reporting systems will incur one-
time costs to develop, prepare, and implement necessary modifications 
to those systems. In all cases, financial institutions will need to 
update training materials to reflect new requirements and activities 
and may have certain one-time costs for providing initial training to 
current employees.
    The Bureau recognizes that the cost per loan of complying with the 
current requirements of HMDA, as well as the operational and one-time 
impact of the final rule, will differ by financial institution. During 
the Bureau's outreach with financial institutions, the Bureau 
identified seven key dimensions of compliance operations that were 
significant drivers of compliance costs. These seven dimensions are: 
The reporting system used; the degree of system integration; the degree 
of system automation; the compliance program; and the tools for 
geocoding, performing completeness checks, and editing. The Bureau 
found that financial institutions tended to have similar levels of 
complexity in compliance operations across all seven dimensions. For 
example, if a given financial institution had less system integration, 
then it tended to use less automation and less-complex tools for 
geocoding. Financial institutions generally did not use less-complex 
approaches on one dimension and more-complex approaches on another. The 
small entity representatives validated this perspective during the 
Small Business Review Panel meeting.
    To capture the relationships between operational complexity and 
compliance

[[Page 66270]]

cost, the Bureau used these seven dimensions to define three broadly 
representative financial institutions according to the overall level of 
complexity of their compliance operations. Tier 1 denotes a 
representative financial institution with the highest level of 
complexity, tier 2 denotes a representative financial institution with 
a moderate level of complexity, and tier 3 denotes a representative 
financial institution with the lowest level of complexity. For each 
tier, the Bureau developed a separate set of assumptions and cost 
estimates. All of these assumptions and cost estimates apply at the 
institutional level.\472\ In the Outline of Proposals prepared for the 
Small Business Review Panel, the Bureau provided a detailed exposition 
of the analytical approach used for the three tiers.\473\ Small 
business representatives attending the Small Business Review Panel did 
not raise substantial objections to this three-tier approach.
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    \472\ The Bureau assumes that, for closed-end reporters, the 
tier 1 representative financial institution has 50,000 records, the 
tier 2 representative has 1,000 records, and the tier 3 
representative has 50 records on the HMDA loan/application register. 
All cost estimates reflect the assumptions defining the three 
representative financial institutions and reflect general 
characteristics and patterns, including man-hours spent on each of 
the 18 component tasks and salaries of the personnel involved. To 
the extent that an individual financial institution specializes in a 
given product, or reports different numbers of records on its loan/
application register, these representative estimates will differ 
from the actual cost to that particular financial institution.
    \473\ See U.S. Consumer Fin. Prot. Bureau, Small Business Review 
Panel for Home Mortgage Disclosure Act Rulemaking: Outline of 
Proposals Under Consideration and Alternative Considered (Feb. 7, 
2014) (Outline of Proposals), available at https://files.consumerfinance.gov/f/201402_cfpb_hmda_outline-of-proposals.pdf.
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    Table 1 below provides an overview of all three representative 
tiers across the seven dimensions of compliance operations:
[GRAPHIC] [TIFF OMITTED] TR28OC15.001

    Tables 2-4 convey the baseline estimates of annual ongoing 
operational costs as well as the underlying formulas used to calculate 
these estimates for the 18 operational tasks for the three 
representative financial institutions. The wage rate is $33 per hour, 
which is the national average wage for compliance officers based on the 
most recent National Compensation Survey from the Bureau of Labor 
Statistics (May 2014).\474\ The number of applications for tier 3, tier 
2, and tier 1 financial institutions is 50, 1,000, and 50,000, 
respectively. The Bureau used similar breakdowns of the 18 operational 
tasks for each representative financial institution to estimate the 
impact of the final rule on ongoing operational costs. The Bureau notes 
that with the assumed wage rate, number of applications, and other key 
assumptions provided in the notes following each table, readers of this 
discussion may back out all elements in the formulas provided below 
using the baseline estimates for each task in each tier.
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    \474\ The Bureau has updated the wage rate used throughout the 
impact analyses accompanying this final rule to $33 per hour, up 
from $28 used in the proposal, in order to reflect the most recent 
ongoing labor costs for financial institutions. Consequently, the 
baseline cost estimates in this final rule are higher than what the 
Bureau presented in the proposal.
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[GRAPHIC] [TIFF OMITTED] TR28OC15.004

BILLING CODE 4810-AM-C
    The baseline cost assumptions and cost estimates presented above 
reflect the current world in which most open-end lines of credit are 
not reported under HMDA. In the final rule, reporting of open-end lines 
of credit becomes mandatory for those institutions that meet all the 
other criteria for a ``financial institution'' in final Sec.  1003.2(g) 
and originated at least 100 open-end lines of credit. The Bureau 
estimated that currently only about 1 percent of total open-end lines 
of credit secured by dwellings were reported under HMDA. Hence, the 
Bureau has assumed that the baseline costs for open-end reporting in 
the current rule are zero. The Bureau believes that the HMDA reporting 
process and ongoing operational cost structure for reporting open-end 
lines of credit under the final rule will be fundamentally similar to 
closed-end reporting. Therefore, for open-end reporting the Bureau 
adopted the three-tier approach and most of the key assumptions used 
for closed-end reporting above, with two modifications. First, for the 
representative low-complexity open-end reporter, the Bureau assumed 
that the number of open-end lines of credit applications would be 150. 
This was set to both accommodate the threshold of 100 open-end lines of 
credit and to reasonably reflect the likely distribution among the 
smallest open-end reporters based on the Bureau's estimated number

[[Page 66274]]

of likely open-end reporters and their volumes. Second, for the 
representative high-complexity open-end reporter, the Bureau assumed 
that the number of open-end line of credit applications would be 
30,000. This reflects a reasonable distribution among the largest open-
end reporters based on the Bureau's estimated number of likely open-end 
reporters and their volumes. The Bureau assumed that the number of 
open-end line of credit applications for the representative moderate-
complexity open-end reporter would still be 1,000, just as for the 
moderate-complexity closed-end reporter. The sections on transactional 
and institutional coverage discuss the Bureau's approach regarding the 
cost of open-end line of credit reporting in more detail.
    To this point, all estimates apply at the level of the institution. 
To aggregate institution-level information to generate cost estimates 
at the market level, the Bureau developed an approach to map all HMDA 
closed-end reporters to one of the three tiers. Because financial 
institutions are arrayed along a continuum of compliance costs that 
cannot be precisely mapped to the three representative tiers, the 
Bureau has adopted a conservative strategy based on a possible range of 
the number of financial institutions in each tier. To identify these 
distributions, the Bureau relied on the Bureau's best estimate of the 
total number of closed-end reporters and the number of total closed-end 
loan/application register records under the final rule. In particular, 
the Bureau used the total number of reporters (7,197) and the total 
number of loan/application register records (16,698,000) in the 2013 
HMDA data.
    As a first step, the Bureau identified all possible tier 
distributions among closed-end reporters that were consistent with the 
reporter and record counts, using the same loan/application register 
sizes adopted in the institutional-level analysis (50,000 for tier 1 
institutions; 1,000 for tier 2 institutions; and 50 for tier 3 
institutions). Specifically, the Bureau set the following two 
constraints: (1) The total number of HMDA reporters in all three tiers 
must sum to 7,197; and (2) using the assumed loan/application register 
size in each tier, the total number of loan/application register 
records by all reporters in all three tiers must sum to 16,698,000. 
Additionally, the Bureau imposed two constraints. First, the Bureau 
classified all 184 HMDA reporters with over 10,000 records as tier 1, 
because the Bureau's investigation led it to believe that these large 
financial institutions all possess a high level of complexity in HMDA 
reporting. Second, the Bureau assumed that at least 20 percent of 
financial institutions were tier 2 and at least 20 percent were tier 3. 
These assumptions helped to narrow the range of possible combinations. 
The Bureau also substituted the actual loan/application register size 
of the 184 largest HMDA reporters into the constraint for the loan/
application register size of a tier 1 financial institution, further 
narrowing the range of possible combinations. The Bureau notes that all 
distributions identified are mathematically possible based on the 
Bureau's assumptions.
    Second, for the subset of tier distributions satisfying these 
closed-end reporter and count constraints, the Bureau then estimated 
market-level costs associated with closed-end reporting based on the 
tier-specific assumptions and cost estimates. That is, for a given 
distribution derived in the first step, the Bureau multiplied the 
institutional-level cost estimate associated with closed-end reporting 
for each tier by the number of institutions in that tier, and then 
summed across all three tiers. The distributions with the lowest- and 
highest-estimated market-level costs provided the lower and upper 
bounds for the market-level closed-end cost estimates throughout the 
consideration of the benefits and costs. Specifically, the Bureau 
arrived at two distributions for all closed-end reporters: (1) The 
first distribution has 3 percent of financial institutions in tier 1, 
71 percent of financial institutions in tier 2, and 26 percent of 
financial institutions in tier 3; and (2) the second distribution has 4 
percent of financial institutions in tier 1, 28 percent of financial 
institutions in tier 2, and 68 percent of financial institutions in 
tier 3. These two distributions likely do not match the state of the 
world exactly. Nevertheless, for the set of assumptions described 
above, these distributions provide upper and lower bounds for the 
market-level estimates of closed-end reporting. The Bureau recognizes 
that this range estimate does not permit perfect precision in 
estimating the impact of the final rule, but rather provides ranges.
    The Bureau adopted a different strategy in assigning open-end 
reporters to the 3 tiers that will be discussed in detail in the 
sections on transactional and institutional coverage.
    Initial outreach efforts, as well as information gathered during 
the Small Business Review Panel process, indicated that compliance 
costs for financial institutions were impacted by the complexity of the 
data field specifications and the process of submitting and editing 
HMDA data. The public comments the Bureau received for the proposed 
rule did not present information contrary to that conclusion. As part 
of implementing the final rule, the Bureau will be implementing several 
operational improvements. For example, the Bureau is working to 
consolidate the outlets for assistance, provide implementation support 
similar to the support provided for title XIV and the TILA-RESPA 
Integrated Disclosure rules; and improving points of contact for help 
inquiries. In addition, the Bureau is improving the geocoding process, 
creating a web-based submission tool, developing a data-entry tool for 
small financial institutions that currently use Data Entry Software, 
and otherwise streamlining the submission and editing process to make 
it more efficient. All of these enhancements will clarify the data 
field specifications and reduce burden. The consideration of benefits 
and costs discusses how these enhancements will affect the impact of 
the final rule.
3. The Scope of the Institutional Coverage of the Final Rule
    The final rule revises the threshold that determines which 
financial institutions are required to report data under HMDA. 
Specifically, depository and nondepository institutions that meet all 
the other criteria for a ``financial institution'' in final Sec.  
1003.2(g) \475\ will only be required to report HMDA data if they 
originated at least 25 closed-end mortgage loans or at least 100 open-
end lines of credit in each of the two preceding calendar years. Also, 
certain nondepository institutions that currently are exempt will 
become HMDA reporters under the final rule.
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    \475\ Under Sec.  1003.2, a bank, savings association, or credit 
union meets the definition of financial institution if it satisfies 
all of the following criteria in addition to the loan-volume test 
described above: (1) on the preceding December 31, it had assets in 
excess of the asset threshold established and published annually by 
the Bureau for coverage by the Act; (2) on the preceding December 
31, it had a home or branch office in a MSA; (3) during the previous 
calendar year, it originated at least one home purchase loan or 
refinancing of a home purchase loan secured by a first-lien on a 
one- to four-unit dwelling; and (4) the institution is federally 
insured or regulated, or the mortgage loan referred to in item (3) 
was insured, guaranteed, or supplemented by a Federal agency or 
intended for sale to the Federal National Mortgage Association or 
the Federal Home Loan Mortgage Corporation. A nondepository 
institution meets the definition of financial institution if it (1) 
had a home or branch office in an MSA in the preceding calendar year 
and (2) satisfies the loan-volume test discussed above.
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    Based on data from Call Reports, HMDA, and the NMLSR, the Bureau 
estimates that the new threshold of 25 closed-end mortgage loans will 
reduce the number of reporting depository

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institutions by approximately 1,400 (eliminating approximately 51,000 
loan/application register records) and will increase the number of 
reporting nondepository institutions by approximately 75-450 (adding 
approximately 30,000 loan/application register records), for a net 
reduction of 950 institutions and 21,000 records.\476\ Based on data 
from Call Reports, HMDA, and Consumer Credit Panel data, the Bureau 
estimates that the new separate threshold of 100 open-end lines of 
credit will not require reporting by any financial institutions that 
are not currently reporting. The open-end threshold will require a 
small number of depository institutions, approximately 24, that will 
not be required to report HMDA data on their closed-end lending to 
report HMDA data on their open-end lending. These 24 financial 
institutions are current HMDA reporters but would have been excluded 
under the proposal's coverage test because they originate fewer than 25 
closed-end mortgage loans annually. Combined, these 24 financial 
institutions will account for approximately 60,000 loan/application 
register records regarding open-end lines of credit. The vast majority 
of loan/application register records related to open-end lines of 
credit, approximately 900,000 loan/application register entries, will 
come from financial institutions that are both open- and closed-end 
reporters, because most financial institutions that will be required to 
report open-end lines of credit also will report closed-end mortgage 
loans.\477\
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    \476\ Estimates of the number of depository institutions that 
will no longer be required to report closed-end mortgage loans under 
HMDA, as well as the reduction in loan/application register volume 
associated with the 25 closed-end mortgage loan threshold can be 
obtained directly from current HMDA data and are therefore 
relatively reliable. It is difficult to estimate how many 
nondepository institutions will become HMDA reporters under the 
final rule's closed-end reporting threshold. These institutions are 
not currently HMDA reporters, so estimating how the final rule will 
affect them requires gathering, and making assumptions about, data 
and information from other sources. There are various data quality 
issues related to these sources, so the estimates for nondepository 
institutions should be viewed as the best-effort estimates given the 
data limitations. To avoid underestimating the costs of the final 
rule, the Bureau's quantitative estimates are based on the 
assumption that 450 nondepository institutions will become HMDA 
reporters, which is the high end of the range.
    \477\ The Bureau believes that few nondepositories engage in 
open-end lending. Determining the exact number of depository 
institutions that will be required to report under HMDA because of 
the open-end-line-of-credit reporting threshold requires information 
that is not readily available. As discussed further below, the 
Bureau had to rely on certain assumptions to derive the estimated 
number of depository institutions that will report open-end lines of 
credit. Based on recent HMDA data, Call Reports, credit union Call 
Reports, and Consumer Credit Panel data, the Bureau estimates there 
will be approximately 749 financial institutions that will report 
open-lines of credit, including approximately 725 depositories that 
will also report closed-end mortgage loans. In total they likely 
will report approximately 900,000 loan/application register records. 
Much of that detail is discussed in the section on transactional 
coverage. Expansions or contractions of the number of financial 
institutions, or changes in product offerings and demands between 
now and implementation of the final rule may alter these estimated 
impacts.
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    Because the final rule includes both open-end and closed-end 
reporting thresholds, it is difficult to discuss the impact on 
institutional coverage without also discussing the impact on 
transactional coverage. Given that the Bureau estimates that adopting a 
threshold of 100 open-end lines of credit will affect the number of 
reportable transactions more significantly than the number of reporting 
institutions, much of the discussion relating to the open-end reporting 
threshold is found in the discussion of transactional coverage in part 
VII.F.4, below. The discussion in this part primarily addresses the 
changes to institutional coverage resulting from the closed-end 
reporting threshold and open-end-only reporters resulting from the 
separate open-end reporting threshold.
    Benefits to consumers. The institutional coverage threshold related 
to closed-end mortgage loans will have several benefits to consumers. 
First, the final rule will expand the coverage among nondepository 
institutions for HMDA reporting by removing the 100-loan threshold 
applicable to nondepository institutions in the existing rule. 
Traditionally, nondepository institutions have been subject to less 
scrutiny by regulators than depository institutions, and little is 
known about the mortgage lending behavior of nondepository institutions 
that fall below the current reporting thresholds. By illuminating this 
part of the mortgage market, the final rule will provide regulators, 
public officials, and members of the public with important information. 
For example, it is possible that small nondepository institutions are 
serving particular market segments or populations that would benefit 
from more oversight by public officials and community groups. This 
oversight can be enhanced only if more information is revealed about 
the segments, and the change in institutional coverage in the final 
rule is designed to fill this vacuum. To the extent that such increased 
data and transparency enhances social welfare, consumers served by 
these nondepository institutions will benefit.
    Similarly, expanding coverage among nondepository institutions 
could improve the processes used to identify possible discriminatory 
lending patterns and enforce antidiscrimination statutes. Financial 
regulators and enforcement agencies use HMDA data in their initial 
prioritization and screening processes to select institutions for 
examination or investigation. HMDA data also provide information that 
is used in fair lending reviews of mortgage lenders for potential 
violations of antidiscrimination statutes, including ECOA and the Fair 
Housing Act. This is especially true for redlining analyses, which 
compare lending patterns across lenders within given markets. Current 
deficiencies in HMDA's institutional coverage leave gaps in the data 
used by regulators for conducting fair lending prioritization and 
redlining analyses to compare lenders or markets. Because many 
depository and nondepository institutions with similar loan volumes are 
similar in other respects, excluding some nondepository institutions 
with fewer than 100 loans may weaken the understanding of markets 
needed for prioritization and redlining analyses. Consequently, 
increased reporting among nondepository institutions may increase the 
ability to identify fair lending risk.
    The final rule will also improve the ability to determine whether 
financial institutions are serving the housing needs of their 
communities. Information from data sources such as the United States 
Census, Call Reports, and the NMLSR can be used to help identify the 
housing needs of the communities that lenders serve. HMDA data provide 
a supply-side picture of how well each financial institution is meeting 
these housing needs. Indeed, HMDA data may be analogized to a census of 
mortgage demand and supply for covered financial institutions. However, 
such data currently paints only a partial picture of the market served 
by financial institutions with 25 to 99 closed-end mortgage loans. The 
addition of nondepository institutions with between 25 and 99 closed-
end mortgage loan originations will provide an improved understanding 
of the mortgage markets where these financial institutions operate, 
thereby enhancing efforts to assess whether these institutions, and 
financial institutions overall, are serving the housing needs of their 
communities.
    Costs to consumers. The revised threshold will not impose any 
direct costs on consumers. Consumers may bear some indirect costs if 
financial institutions that will be required to report under the final 
rule pass on some or all of their costs to consumers. Following 
standard microeconomic

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principles, the Bureau believes that these institutions will pass on 
increased variable costs to future mortgage applicants but will absorb 
start-up costs, one-time costs, and increased fixed costs if financial 
institutions are profit maximizers and the market is perfectly 
competitive.\478\
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    \478\ If markets are not perfectly competitive or financial 
institutions are not profit maximizers, then the costs that a 
financial institutions may pass on may differ. For example, 
financial institutions may attempt to pass on one-time costs and 
increases in fixed costs, or they may not be able to pass on 
variable costs.
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    The Bureau defines variable costs as costs that depend on the 
number of applications received. Based on initial outreach efforts, the 
following five operational steps affect variable costs: Transcribing 
data, resolving reportability questions, transferring data to an HMS, 
geocoding, and researching questions. The primary impact of the final 
rule on these operational steps is an increase in time spent per task. 
Overall, the Bureau estimates that the impact of the final rule on 
variable costs per closed-end application is approximately $25 for a 
representative tier 3 financial institution, $0.40 for a representative 
tier 2 financial institution, and $0.10 for a representative tier 1 
financial institution.\479\ The 75-450 nondepository institutions that 
will now be required to report closed-end mortgage loans and 
applications have small origination volumes, so the Bureau expects most 
of them to be tier 3 financial institutions. Hence, based on 
microeconomics principles, the Bureau expects that a representative 
nondepository financial institution affected by this final rule will 
pass on to mortgage borrowers costs of approximately $25 per 
application. This expense will be amortized over the life of the loan 
and represents a negligible increase in the cost of a mortgage loan. 
Therefore, the Bureau does not anticipate any material adverse effect 
on credit access in the long or short term even if the additional 
nondepository institutions that must begin reporting pass on these 
costs to consumers.
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    \479\ These cost estimates do not incorporate the impact of 
operational improvements. Incorporating these additional operational 
changes will reduce the estimated impact on variable costs. 
Therefore, the estimates we provided are upper bound estimates of 
the increase in variable costs that financial institutions will pass 
on to consumers. These estimates of the impact of the final rule on 
variable costs per application show the combined impact of all 
components of the final rule and therefore differ from estimates of 
the impact on variable costs presented below, which show the impact 
of specific components of the final rule. In addition, these 
estimates focus only on the variable-cost tasks, while other 
estimates incorporate both variable- and fixed-cost tasks.
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    During the Small Business Review Panel process, some small entity 
representatives noted that they would attempt to pass on all increased 
compliance costs associated with the proposed rule, but that whether 
these costs were passed on would depend on the competiveness of the 
market in which they operate, especially for smaller financial 
institutions. In addition, some small entity representatives noted that 
they would attempt to pass on costs through higher fees on other 
products, leave geographic or product markets, or spend less time on 
customer service. Many industry commenters echoed similar sentiments 
that the proposal would likely increase the cost of credit for 
consumers. A few commenters noted that small financial institutions in 
general would be required to merge, raise prices, make fewer loans, or 
exit markets. To the extent that the market is less than perfectly 
competitive and financial institutions are able to pass on a greater 
amount of these compliance costs, the cost to consumers will be 
slightly larger than the estimates described above. Even so, the Bureau 
believes that the potential costs that will be passed on to consumers 
are small.
    The final rule may impose additional costs on consumers as well. 
Reducing the number of depository institutions required to report will 
reduce HMDA's overall coverage of the mortgage market. This reduction 
will reduce the usefulness of HMDA data for assessing whether lenders 
are meeting the housing needs of their communities and highlighting 
opportunities for public and private investment. This reduction may 
also affect the usefulness of HMDA for identifying possible 
discriminatory lending patterns--especially for redlining analyses, 
which focus on market-level data and data on competitors. To better 
understand these potential costs, the Bureau analyzed the 
characteristics of the depository institutions that would be excluded 
from reporting closed-end mortgage loans by the 25-loan threshold, and 
compared these characteristics to depository institutions that 
currently report and would not be excluded. This type of analysis is 
possible because the final rule reduces both the number of closed-end 
reporting depository institutions and the closed-end mortgage loans 
that they report, and the total universe reported under the current 
regulation is known. For this exercise, the Bureau excluded purchased 
loans from its comparisons.
    Overall, the Bureau found that, relative to depository institutions 
that will continue to report under the final rule (i.e., reporting 
depositories), applications for closed-end mortgage loans at excluded 
depository institutions were more likely to be (1) made to the 
depository institutions supervised by the FDIC or NCUA (over 42 and 41 
percent, respectively, compared to 13.74 percent and 10.21 percent at 
reporting depositories); (2) second-lien (over 9 percent, compared to 
2.96 percent at reporting depositories); (3) home improvement (over 23 
percent, compared to 6.83 percent at reporting depositories); \480\ (4) 
non-owner-occupied (over 22 percent, compared to 11.86 at reporting 
depositories); (5) manufactured housing or multifamily (slightly less 
than 4 and 5 percent, respectively, compared to 1.83 percent and 0.42 
percent at reporting depositories); (6) portfolio loans (approximately 
88 percent, compared to roughly 33 percent at reporting depositories); 
and (7) higher-priced (nearly 13 percent, compared to 2.92 percent at 
reporting depositories). To the extent that these excluded loans are 
different from those that remain and these loans serve a somewhat 
different group of consumers that are more disadvantaged, the loss of 
those records will impose a cost on this group of consumers as less 
information may be available to the government, community groups, and 
researchers to serve their unique needs.
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    \480\ These totals include applications for both secured and 
non-dwelling-secured home improvement loans, even though non-
dwelling-secured home improvement loans will not be reported under 
the final rule. To the extent that excluded depository institutions 
engage in more non-dwelling-secured home improvement lending than 
reporting depositories, these numbers will overestimate the 
difference in reportable home improvement applications by the two 
types of institutions under the final rule.
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    Excluding small-volume depository institutions currently reporting 
under HMDA also impacts the volume of records available for analysis at 
the market level. The geographic data fields currently in the HMDA data 
provide four possible market levels: State, MSA, county, and census 
tract. Overall, analysis of these markets shows that for most markets, 
a small percentage of loan/application register records would be lost 
by excluding small-volume depository institutions for closed-end 
mortgage loan reporting.\481\ But the lost records are more likely to 
be in certain States, territories, and MSAs. The percentage excluded is 
greater than 1 percent for Alaska and Puerto Rico, which showed the 
highest percentage of

[[Page 66277]]

excluded records at 1.93 percent and 7.32 percent, respectively. Ranked 
by the percentage of loan/application register records that would be 
excluded for each MSA, the 75th percentile was 0.35 percent, suggesting 
that for 75 percent of MSAs, excluding small depository institutions 
would exclude less than 0.35 percent of total loan/application register 
records. The 95th percentile was 1.05 percent, suggesting that for 5 
percent of MSAs, excluding small depository institutions would exclude 
more than 1.05 percent of total loan/application register records. The 
five MSAs with the most excluded records were all in Puerto Rico. 
Census tracts have smaller loan volumes than States and MSAs, so the 
variation in percentages is naturally expected to be higher. Ranked by 
the percentage of loan/application register records that would be 
excluded, the 75th and 95th percentiles for census tracts were 0.47 
percent and 2.65 percent, respectively. To the extent that government, 
community groups, and researchers rely on HMDA data relevant to these 
particular markets to further social goals, the loss of this 
information will impose a cost on the consumers in these markets.
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    \481\ This analysis includes purchased loans.
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    Benefits to covered persons. The final rule will provide some cost 
savings to depository institutions that will be excluded under the 
revised closed-end mortgage loan-volume threshold. The Bureau estimated 
1,400 depository institutions will be excluded from reporting closed-
end mortgage loans and applications under the closed-end reporting 
threshold in the final rule. The Bureau also believes that these 1,400 
depository institutions most likely would not be subject to open-end 
reporting under the open-end reporting threshold. Therefore, these 
depository institutions will no longer incur current operational costs 
associated with gathering and reporting HMDA data. The Bureau expects 
most of these depository institutions to be tier 3 financial 
institutions, given the small volume of home purchase, refinance, and 
home improvement mortgages they originate. The Bureau estimates that 
the current annual operational costs of reporting under HMDA are 
approximately $2,500 for representative tier 3 financial institutions 
with a loan/application register size of 50 records. This translates 
into a market-level benefit of approximately $3,500,000 (= $2,500 * 
1,400) per year. Using a 7 percent discount rate, the net present value 
of this impact savings over five years is approximately 
$14,400,000.\482\
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    \482\ Note that the figures above refer to cost savings by the 
newly excluded small-volume depository institutions, assuming costs 
based on the current Regulation C reporting system. With the changes 
in the final rule, along with the operational improvements that the 
Bureau is making, the impact of the final rule on operational costs 
will be approximately $1,900 per year for a representative tier 3 
financial institution. This translates into a market-level savings 
of approximately $2,660,000 (= $1,900 * 1,400) per year. Using a 7 
percent discount rate, the net present value of this savings over 
five years is approximately $10,900,00.
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    In addition to avoiding ongoing costs, the 1,400 excluded 
depository institutions will not incur the one-time costs necessary to 
modify processes in response to the final rule. The Bureau estimates 
that these one-time costs from reporting closed-end mortgage loans are, 
on average, $3,000 for tier 3 financial institutions. Assuming that all 
1,400 depository institutions are tier 3 institutions, this yields an 
overall market savings of $4,200,000. Using a 7 percent discount rate 
and a five-year amortization window, the annualized one-time savings is 
approximately $17,200,000.
    One-time costs to covered persons. The estimated additional 75-450 
nondepository institutions that will have to report closed-end mortgage 
loans under the final rule will incur start-up costs to develop 
policies and procedures, infrastructure, and training. Given the 
relatively small origination volume by these nondepository 
institutions, the Bureau expects most of them to be tier 3 financial 
institutions. Based on outreach discussions with financial institutions 
prior to the proposal, the Bureau believes that these start-up costs 
for closed-end reporting will be approximately $25,000 for tier 3 
financial institutions.\483\ This yields an overall market cost of 
approximately $11,250,000 (= 450 * $25,000). Using a 7 percent discount 
rate and a five-year amortization window, the annualized start-up cost 
is $46,100,000.
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    \483\ Note this start-up cost differs from the one-time cost 
presented previously, because the one-time cost mostly involves the 
costs from modifying an existing reporting system for an existing 
reporter, while the startup cost is the cost incurred from building 
an entirely new reporting system for a new HMDA reporter.
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    The estimated 24 financial institutions meeting the open-end 
reporting threshold but falling below the closed-end reporting 
threshold will incur one-time costs from building reporting systems, 
including developing policies and procedures, infrastructure, and 
training for reporting open-end lines of credit.\484\ The Bureau has 
estimated that these one-time costs will be approximately $3,000 for 
low-complexity financial institutions, $250,000 for moderate-complexity 
financial institutions, and $800,000 for high-complexity financial 
institutions. The Bureau assumes 12 of these institutions are tier 3 
institutions and 12 are tier 2 institutions. This yields an overall 
one-time cost of approximately $3,000,000. Using a 7 percent discount 
rate and a five-year amortization window, the annualized one-time cost 
is approximately $740,000 per year.
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    \484\ The Bureau estimates that these open-end-only reporters 
are not technically new HMDA reporters in the sense that they 
previously would have been reporting under HMDA because they are 
depository institutions that have closed-end mortgage loan/
application register sizes between 1 and 24. Therefore, the Bureau 
believes they will be able to repurpose and modify the existing HMDA 
reporting process for open-end reporting. The Bureau estimates none 
of these open-end-only reporters will be high-complexity financial 
institutions.
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    Ongoing costs to covered persons. The estimated 75-450 
nondepository institutions that will have to report closed-end mortgage 
loans under the final rule will incur the operational costs of 
gathering and reporting data. Including both current operational costs 
and the impact of the final rule, the Bureau estimates that these 
operational costs will total approximately $5,100 for a representative 
tier 3 financial institution per year, without incorporating the 
Bureau's operational improvements. This yields an overall market impact 
of approximately $2,300,000 (= 450 * $5,100). Using a 7 percent 
discount rate, the net present value of this cost over five years is 
approximately $9,400,000. With operational improvements, the Bureau 
estimates that these operational costs will total approximately $4,400 
for a representative tier 3 financial institution per year. This yields 
an overall market impact of approximately $2,000,000 (= 450 * $4,400). 
Using a 7 percent discount rate, the net present value of this cost 
over five years is approximately $8,100,000.
    The estimated 24 depository institutions that will have to report 
open-end lines of credit under the final rule but not closed-end 
mortgage loans will incur the operational costs of gathering and 
reporting data for open-end lines of credit. The Bureau estimates that 
the operational costs for depository institutions will total 
approximately $8,600 per year for a representative tier 3 open-end 
reporter and $43,400 per year for a representative tier 2 open-end 
reporter, and assumes current operational cost is equal to zero for 
open-end reporting. Assuming 12 of these 24 financial institutions are 
tier 3 open-end reporters

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and the rest are tier 2 open-end reporters, this yields an overall 
market impact of approximately $620,000 (= 12 * $8,600 + 12 * $43,400). 
Using a 7 percent discount rate, the net present value of this cost 
over five years is approximately $2,600,000. These estimates 
incorporate all of the Bureau's operational improvements.
    Alternatives considered. Regarding closed-end mortgage loans, the 
Bureau considered several reporting thresholds higher than 25 loans. 
The Bureau sought to exclude financial institutions whose data are of 
limited value in the HMDA dataset, thus ensuring that the institutional 
coverage criteria do not impair HMDA's ability to achieve its purposes, 
while also minimizing the burden for financial institutions. 
Specifically, these alternative thresholds were evaluated according to 
the extent to which they balanced several important factors, including 
simplifying the reporting regime by establishing a uniform loan-volume 
threshold applicable to both depository and nondepository institutions; 
eliminating the burden of reporting from low-volume depository 
institutions while maintaining sufficient data for analysis at the 
national, local, and institutional levels; and increasing visibility 
into the home mortgage lending practices of nondepository institutions.
    Table 5, below, provides estimates of the coverage among depository 
institutions at various closed-end reporting thresholds. Table 6 
provides estimates of the loss of HMDA data for certain geographic 
markets. Table 7 provides estimates of the coverage among nondepository 
institutions at various closed-end reporting thresholds.
BILLING CODE 4810-AM-P

[[Page 66279]]

[GRAPHIC] [TIFF OMITTED] TR28OC15.005

BILLING CODE 4810-AM-C

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    The Bureau believes that a threshold of 25 closed-end mortgage 
loans reduces burden on small depository institutions while preserving 
important data about communities and improving visibility into the 
lending practices of nondepository institutions. As shown above in 
Table 5, the 25-loan threshold will achieve a significant reduction in 
burden by eliminating reporting by more than 20 percent of depository 
institutions that are currently reporting. As described in greater 
detail throughout this discussion, the Bureau estimates that the most 
significant driver of costs under HMDA is the requirement to report, 
rather than any specific aspect of reporting, such as the number or 
complexity of required data fields or the number of entries. For 
example, the estimated annual ongoing costs of reporting closed-end 
mortgage loans under the final rule are estimated to be approximately 
$4,400 for a representative tier 3 financial institution, accounting 
for the Bureau's operational improvements. About $2,300 of this annual 
ongoing cost is comprised of fixed costs. As a comparison, each 
required data field accounts for approximately $42 of this annual 
ongoing cost. Thus, a threshold of 25 closed-end mortgage loans 
provides a meaningful reduction in burden by reducing the number of 
depository institution reporters.
    Higher thresholds would further reduce burden but would produce 
data losses that would undermine the benefits provided by HMDA data. 
One of the most substantial impacts of any low loan-volume threshold is 
that it reduces information about lending at the community level, 
including information about vulnerable consumers and the origination 
activities of smaller lenders. Public officials, community advocates, 
and researchers rely on HMDA data to analyze access to credit at the 
neighborhood level and to target programs to assist underserved 
communities and consumers. For example, Lawrence, Massachusetts 
identified a need for homebuyer counseling and education based on HMDA 
data, which showed a high percentage of high-cost loans in the area 
compared to surrounding communities.\485\ Similarly, HMDA data helped 
bring to light discriminatory lending patterns in Chicago 
neighborhoods, resulting in a large discriminatory lending 
settlement.\486\ In addition, researchers and consumer advocates 
analyze HMDA data at the census-tract level to identify patterns of 
discrimination at a national level.\487\ Higher closed-end loan-volume 
thresholds would eliminate data about more communities and consumers. 
At a closed-end reporting threshold of 100, according to 2013 HMDA 
data, the number of census tracts that would lose 20 percent of 
reported data would increase by almost eight times over the number 
under a closed-end reporting threshold of 25 loans. The number of 
affected low- to-moderate-income tracts would increase six times over 
the number at the 25-loan level.
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    \485\ See City of Lawrence, Massachusetts, HUD Consolidated Plan 
2010-2015, at 68 (2010), https://www.cityoflawrence.com/Data/Sites/1/documents/cd/Lawrence_Consolidated_Plan_Final.pdf. Similarly, in 
2008 the City of Albuquerque used HMDA data to characterize 
neighborhoods as ``stable,'' ``prone to gentrification,'' or ``prone 
to disinvestment'' for purposes of determining the most effective 
use of housing grants. See City of Albuquerque, Five Year 
Consolidated Housing Plan and Workforce Housing Plan 100 (2008), 
available at https://www.cabq.gov/family/documents/ConsolidatedWorkforceHousingPlan20082012final.pdf. As another 
example, Antioch, California, monitors HMDA data, reviews it when 
selecting financial institutions for contracts and participation in 
local programs, and supports home purchase programs targeted to 
households purchasing homes in Census Tracts with low loan 
origination rates based on HMDA data. See City of Antioch, 
California, Fiscal Year 2012-2013 Action Plan 29 (2012), https://www.ci.antioch.ca.us/CitySvcs/CDBGdocs/Action%20Plan%20FY12-13.pdf. 
See, e.g., Dara D. Mendez et al., Institutional Racism and Pregnancy 
Health: Using Home Mortgage Disclosure Act Data to Develop an Index 
for Mortgage Discrimination at the Community Level, 126 Pub. Health 
Reports (1974-) Supp. 3, 102-114 (Sept./Oct. 2011) (using HMDA data 
to analyze discrimination against pregnant women in redlined 
neighborhoods), available at https://www.publichealthreports.org/issueopen.cfm?articleID=2732.
    \486\ See, e.g., Yana Kunichoff, Lisa Madigan Credits Reporter 
with Initiating Largest Discriminatory Lending Settlements in U.S. 
History (June 14, 2013), https://www.chicagonow.com/chicago-muckrakers/2013/06/lisa-madigan-credits-reporter-with-initiating-largest-discriminatory-lending-settlements-in-u-s-history/ (``During 
our ongoing litigation . . . the Chicago Reporter study looking at 
the HMDA data for the City of Chicago came out . . . It was such a 
startling statistic that I said . . . we have to investigate, we 
have to find out if this is true . . . We did an analysis of that 
data that substantiated what the Reporter had already found . . . 
[W]e ultimately resolved those two lawsuits. They are the largest 
fair-lending settlements in our nation's history.'')
    \487\ See, e.g., California Reinvestment Coalition, et al., 
Paying More for the American Dream VI: Racial Disparities in FHA/VA 
Lending, at https://www.woodstockinst.org/research/paying-more-american-dream-vi-racial-disparities-fhava-lending. Likewise, 
researchers have analyzed GSE purchases in census tracts designated 
as underserved by HUD using HMDA data. James E. Pearce, Fannie Mae 
and Freddie Mac Mortgage Purchases in Low-Income and High-Minority 
Neighborhoods: 1994-96, Cityscape: A Journal of Policy Development 
and Research (2001), available at https://www.huduser.org/periodicals/cityscpe/vol5num3/pearce.pdf.

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    The Bureau also believes that it is important to increase 
visibility into nondepository institutions' activity given the lack of 
available data about lower-volume nondepository institutions' mortgage 
lending practices. A uniform closed-end reporting threshold of fewer 
than 100 loans annually will expand nondepository institution coverage, 
because the current test requires reporting by all nondepository 
institutions that meet the other applicable criteria and originate 100 
loans annually.\488\ Any closed-end reporting threshold set at 100 
loans would not provide any enhanced insight into nondepository 
institution lending, and a threshold above 100 closed-end mortgage 
loans would decrease visibility into nondepository institutions' 
practices and hamper the ability of HMDA users to monitor risks posed 
to consumers by those institutions. The threshold of 25 closed-end 
mortgage loans, however, achieves a significant expansion of 
nondepository institution coverage, with up to a 40 percent increase in 
the number of reporting institutions.
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    \488\ In addition, nondepository institutions that originate 
fewer than 100 applicable loans annually are required to report if 
they have assets of at least $10 million and meet the other 
criteria. See 12 CFR 1003.2 (definition of financial institution).
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    The Bureau's proposal did not include an open-end line of credit 
threshold for institutional coverage. Under the Bureau's proposal, an 
institution that met the 25 closed-end mortgage loan threshold (and the 
other criteria for institutional coverage) would have been required to 
report all of its open-end lines of credit, even if its open-end 
lending volume was very low. On the other hand, institutions that did 
not meet the 25 closed-end mortgage loan threshold but that had 
significant open-end lending volume would not have been HMDA reporters. 
As noted, the Bureau received a large number of comments expressing 
concerns related to the burden of reporting under this threshold. In 
response to these concerns and in an attempt to reduce reporting by 
financial institutions that have originated at least 25 closed-end 
mortgage loans but only a very small number of open-end lines of 
credit, the final rule adopts a separate open-end reporting threshold. 
A financial institution will be required to report open-end lines of 
credit only if its open-end origination volume exceeds this threshold.
    When setting this separate threshold, the Bureau considered several 
alternatives to the final threshold of 100 open-end lines of credit. In 
doing so, the Bureau sought to exclude financial institutions whose 
data are of limited value while ensuring that the institutional 
coverage criteria for mandatory reporting of open-end lines of credit 
do not impair HMDA's ability to achieve its purposes. Specifically, 
these alternative thresholds were evaluated according to the extent to 
which they balanced several important factors, including limiting the 
number of open-end reporters in general, limiting the number of small-
volume open-end reporters whose data are of limited use in particular, 
and limiting the number of open-end reporters that would not have 
reported closed-end mortgage loans under HMDA, while maintaining 
sufficient data for analysis with adequate market coverage.
    Table 8, below, provides estimates of the coverage among depository 
institutions at various open-end reporting thresholds. It is the 
Bureau's belief that most nondepository institutions do not originate 
dwelling-secured open-end lines of credit. The Bureau notes that no 
single data source accurately reports the number of originations of 
open-end lines of credit, as that term is defined in the final rule. 
The Bureau had to use multiple data sources, including credit union 
Call Reports, Call Reports for banks and thrifts, HMDA data, and 
Consumer Credit Panel data, in order to develop estimates about open-
end originations for currently reporting depository institutions.\489\
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    \489\ For this exercise, the Bureau limits its analysis to 
current HMDA reporters, because it believes that those depository 
institutions would be the ones who would have met all other HMDA 
reporting requirements, such as location and asset tests, as well as 
origination of at least one home purchase loan or refinancing of a 
home purchase loan, secured by a first lien on a one- to four-unit 
dwelling. In general, credit union Call Reports provide the number 
of originations of open-end lines of credit secured by real estate 
but exclude lines of credit in the first lien status and may have 
included business loans that will be excluded from HMDA reporting 
according to the final rule. Call Reports for banks and thrifts 
report only the balance of the home-equity lines of credit at the 
end of reporting period but not the number of originations in the 
period.
[GRAPHIC] [TIFF OMITTED] TR28OC15.007

    The first row under the heading corresponds to the estimated 
coverage under the proposed rule where any financial institution that 
satisfied the proposed 25-closed-end mortgage loan threshold \490\ 
would have reported open-end lines of credit. The other rows correspond 
to various other thresholds the Bureau considered for an independent 
open-end reporting threshold.
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    \490\ For this analysis, the Bureau has not considered reverse 
mortgages that are structured as open-end lines of credit. Reverse 
mortgages cannot be identified within the current HMDA data. It is 
the Bureau's belief that most reverse mortgages currently are not 
reported under HMDA.
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    The Bureau believes that a threshold of 100 open-end lines of 
credit reduces burden on financial institutions while preserving 
important coverage and visibility into the market for dwelling-secured 
lines of credit. As shown above

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in Table 8, compared to the proposal, the open-end reporting threshold 
reduces the number of open-end reporters by almost 3,400, while 
reducing the market coverage by only about 6 percent. Other thresholds 
may have more imbalanced effects on either reporting burden or market 
coverage. For example, at a threshold of 25 open-end lines of credit, 
the projected market coverage by reporting institutions will only 
increase by 5 percent compared to the coverage level at a threshold of 
100 open-end lines of credit, but almost 1,000 additional institutions 
would be burdened by reporting requirements. On the other hand, while a 
threshold of 1,000 open-end lines of credit would substantially reduce 
the number of reporting institutions, it would only cover about two-
thirds of the total market. It is also worth noting that, at a 
threshold of 100 open-end lines of credit, almost all open-end 
reporters will also report closed-end mortgage loans.\491\ The Bureau 
believes that sharing of reporting and compliance resources within the 
same financial institution for both closed-end and open-end reporting 
will help reduce reporting costs.
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    \491\ Note that, while the Bureau estimates there will be 24 
financial institutions that will report open-end lines of credit but 
not report closed-end mortgage loans, that number (24) is well 
within the margin of error and thus may be close to zero due to the 
uncertainty of the raw estimation.
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    The Bureau also considered exempting certain small financial 
institutions, such as those defined as ``small entities'' as described 
in part VIII, below, from the reporting requirements of the final rule. 
As described above, however, excluding small financial institutions 
would undermine both the utility of HMDA data for analysis at the local 
level and the benefits that HMDA provides to communities. Thus, 
removing these institutions would deprive users of important data about 
communities and vulnerable consumers.
    Finally, the Bureau considered a tiered reporting regime under 
which smaller financial institutions would be exempt from reporting 
some or all of the data points not identified by the Dodd-Frank Act. 
Tiered reporting would preserve some information about availability of 
credit in particular communities and to vulnerable consumers while 
relieving some burden. Tiered reporting presents a number of problems, 
however. First, because under a tiered reporting regime smaller 
financial institutions would not report all or some of the HMDA data 
points, tiered reporting would prevent communities and users of HMDA 
data from learning important information about the lending and 
underwriting practices of smaller financial institutions, which may 
differ from those of larger institutions. Second, as discussed above, 
the primary driver of HMDA costs is establishing and maintaining 
systems to collect and report data, not the costs associated with 
collecting and reporting a particular data field. Therefore, tiered 
reporting would reduce the costs of low-volume depository institutions 
somewhat, but not significantly.
4. The Scope of the Transactional Coverage of the Final Rule
    The final rule requires financial institutions generally to report 
all dwelling-secured, consumer-purpose closed-end loans and open-end 
lines of credit, as well as commercial-purpose loans and lines of 
credit made for home purchase, home improvement, or refinancing 
purposes.\492\ The final rule eliminates home improvement loans not 
secured by a dwelling from the reporting requirements, while consumer-
purpose closed-end mortgage loans, open-end lines of credit, and 
reverse mortgages will now be reported regardless of whether they were 
for home purchase, home improvement, or refinancing. Commercial-purpose 
closed-end loans will continue to be reported only if the purpose is 
for home purchase, home improvement, or refinancing. Commercial-purpose 
open-end lines of credit with home purchase, home improvement, or 
refinancing purposes must now be reported. Finally, for preapproval 
requests that are approved but not accepted, reporting will change from 
optional to mandatory.
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    \492\ A financial institution reports data on dwelling-secured, 
closed-end mortgage loans only if it originated at least 25 closed-
end mortgage loans in each of the two preceding calendar years and 
also met all the other reporting criteria. Similarly, a financial 
institution reports data on dwelling-secured, open-end lines of 
credit only if it originated at least 100 open-end lines of credit 
in each of the two preceding calendar years and also met all the 
other reporting criteria.
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    Benefits to consumers. The revisions to Regulation C's 
transactional coverage will benefit consumers by providing a more 
complete picture of the dwelling-secured lending market. The additional 
transactions required to be reported will improve market monitoring, 
and will potentially aid in identifying and tempering future financial 
crises. Using open-end lines of credit and closed-end home-equity loans 
as an example, in the lead up to the financial crisis between 2000 and 
2008, the balance of home-equity lending increased by approximately 
16.8 percent annually, moving from $275.5 billion to $953.5 billion in 
total.\493\ Various researchers have pointed out that rapidly expanding 
lending activities in home-equity lines of credit and home-equity loans 
contributed to the housing bubble as borrowers and lenders both 
vigorously took on high leverage. Additional research has shown that 
the growth in home-equity lending was correlated with subsequent home 
price depreciation, as well as high default and foreclosure rates among 
first mortgages.\494\ Researchers have argued that these correlations 
were driven in part by consumers using open-end lines of credit to fund 
investment properties, which impacted default rates when housing prices 
began to fall. Researchers have also shown evidence that distressed 
homeowners with closed-end subordinate-lien mortgage loans encountered 
several challenges when seeking assistance from public and private 
mortgage relief programs.\495\ Data on these loans might have helped 
public officials improve the effectiveness of these relief programs. 
However, because HMDA does not currently cover all home-equity loans, 
and most financial institutions choose not to report home-equity lines 
of credit, this substantial market is almost completely missing from 
the HMDA data. Based on information from HUD and Moody's Analytics (May 
2013), HMDA data currently include only approximately 1 percent of all 
open-end lines of credit and 35 percent of closed-end home-equity loan 
originations. Data identifying the presence and purpose of home-equity 
lending may enable government, industry, and the public to avert 
similar scenarios in the future.
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    \493\ Michael LaCour-Little et al., The Role of Home Equity 
Lending in the Recent Mortgage Crisis, 42 Real Estate Economics 153 
(2014).
    \494\ See Atif Mian & Amir Sufi, House Prices, Home Equity-Based 
Borrowing, and the U.S. Household Leverage Crisis, 101 Am. Econ. 
Rev. 2132, 2154 (Aug. 2011); Donghoon Lee et al., Fed. Reserve Bank 
of New York, Staff Report No. 569, A New Look at Second Liens, at 11 
(Aug. 2012); Michael LaCour-Little et al., The Role of Home Equity 
Lending in the Recent Mortgage Crisis, 42 Real Estate Economics 153 
(2014).
    \495\ See Vicki Been et al., Furman Ctr. for Real Estate and 
Urban Policy, Essay: Sticky Seconds--The Problems Second Liens Pose 
to the Resolution of Distressed Mortgages, at 13-18 (Aug. 2012).
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    Changes to transactional coverage will also improve the ability of 
government, researchers, and community groups to determine whether 
financial institutions are serving the housing needs of their 
communities. Home equity has long been the most important form of 
household savings and consumers often resort to tapping their home 
equity for various purposes. The optional reporting of open-end lines 
of credit, and limited coverage of closed-end

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home-equity lending and reverse mortgages under the current Regulation 
C, provide an incomplete picture of whether financial institutions are 
serving the housing needs of their communities. The changes to 
transactional coverage will significantly close this gap.
    Additionally, the changes to transactional coverage in the final 
rule will benefit consumers by improving fair lending analyses. 
Regulators, community groups, and researchers use HMDA data to identify 
disparities in mortgage lending based on race, ethnicity, and sex. 
These analyses are used for prioritization and scoping purposes to 
select the institutions, and parts of institutions, to review. As 
discussed above, a substantial amount of open-end lines of credit and 
closed-end home-equity loans are not reported. The extent of reverse 
mortgage reporting under HMDA is unknown because the existing data 
provide no way to distinguish reverse mortgages from other loans, but 
the Bureau believes that a substantial number of reverse mortgages are 
not reported. Because a substantial amount of these transactions are 
not reported, it is not possible during prioritization analyses to 
develop a clear assessment of the fair lending risk to consumers of 
these specific products. In addition, all of these products may have 
unique underwriting and pricing guidelines that would merit separate 
analyses. It is not currently possible to identify these products in 
HMDA, however, so most fair lending analyses that use HMDA data combine 
these products and other products with potentially different 
underwriting and pricing standards. These shortcomings reduce the 
reliability of risk assessment analyses, limiting the ability to 
identify consumers that might have been subjected to illegal 
discrimination.
    Requiring reporting of all reverse mortgages also benefits 
consumers through improved fair lending analysis focused on age 
discrimination. Reverse mortgages are a special mortgage product 
designed to satisfy the later-life consumption needs of seniors by 
leveraging their home equity while permitting them to maintain 
homeownership. During its 2013 fiscal year, HUD endorsed 60,091 home-
equity conversion mortgages (HECMs), which counted for almost all of 
the reverse mortgage market. Various stakeholders and advocates have 
called for better data about the reverse mortgage market based on 
concerns about potential abuse of vulnerable seniors. Mandatory 
reporting of reverse mortgages will provide public officials, community 
organizations, and members of the public with more information to 
assist consumers age 62 or older. This change is consistent with 
Congress's decision to include age as a new data point in the Dodd-
Frank Act, which the Bureau believes signaled an intention to 
strengthen protections for seniors.
    Mandatory reporting of preapproval requests that are approved but 
not accepted will also benefit consumers through improved fair lending 
analyses. Currently, data about preapproval requests that are approved 
but not accepted are optionally reported. Thus, these data are largely 
absent from the HMDA data that regulators and community groups analyze. 
Including these preapproval requests will improve fair lending analyses 
by providing for a more accurate comparison between those applications 
that satisfy a financial institution's underwriting criteria and those 
that are reported as either originated or approved but not accepted, 
and those that are reported as denials.
    The changes to transactional coverage in the final rule also 
improve the ability of public officials to distribute public-sector 
investment so as to attract private investment to areas where it is 
needed. HMDA data provide a broadly representative picture of home 
lending in the nation unavailable from any other data source. Open-end 
lines of credit and closed-end home-equity loans are important forms of 
lending that are considered in evaluations under the CRA. Expanded 
reporting of open-end lines of credit, closed-end home-equity loans, 
and reverse mortgages will improve HMDA's coverage of mortgage markets, 
which in turn will enhance the HMDA data's usefulness in identifying 
areas in need of public and private investment and thereby benefit 
consumers.
    Finally, expanded reporting of home-equity lending will reduce the 
chance of regulatory gaming by financial institutions. To the extent 
that open-end lines of credit and closed-end home-equity loans are 
largely interchangeable for customers applying for credit for a given 
purpose, lenders could, under current Regulation C reporting 
requirements, intentionally recommend consumer-purpose open-end lines 
of credit as substitutes for closed-end home-equity loans to avoid 
reporting of home-equity loans. Expanded reporting of both closed-end 
home-equity loans and open-end lines of credit will mitigate such 
misaligned incentives and ultimately benefit consumers by closing the 
data reporting gap.
    Costs to consumers. The final rule eliminates reporting of home 
improvement loans not secured by a dwelling (i.e., whether unsecured or 
secured by non-dwelling collateral), which reduces the data available 
to analysts. This, in turn, imposes a cost on consumers. The Bureau 
estimates that financial institutions reported approximately 340,000 
non-dwelling-secured home-improvement loans under HMDA during 2013. 
This comprised 2.4 percent of the total record volume. Under the final 
rule, regulators, community groups, and researchers will not be able to 
use HMDA data to assess fair lending risks for this product, which will 
reduce the likelihood of identifying consumers who are potentially 
disadvantaged when taking out non-dwelling-secured home improvement 
loans. In addition, it is possible that the general loss of data may 
negatively affect research in other unexpected ways and thus negatively 
impact consumers. However, commenters did not state that they or others 
have used HMDA data about non-dwelling-secured home-improvement loans 
to further HMDA's purposes, and the Bureau does not believe HMDA data 
on such loans is widely used for those purposes.
    The increased transactional coverage will not impose any direct 
costs on consumers. However, consumers may bear some indirect costs of 
increased transactional coverage if financial institutions pass on some 
or all of the costs imposed on them by reporting additional 
transactions. Following microeconomic principles, the Bureau believes 
that financial institutions will absorb one-time costs and increased 
fixed costs but will pass on increased variable costs to future 
mortgage applicants. The Bureau estimates that the final rule's changes 
to transactional coverage regarding open-end lines of credit will 
increase variable costs per open-end line of credit application by 
approximately $41.50 for a representative tier 3 open-end reporter, 
$6.20 for a representative tier 2 open-end reporter, and $3 for a 
representative tier 1 open-end reporter.\496\ Thus, the Bureau expects 
that a representative tier 3 financial institution covered by the final 
rule will pass on to borrowers of open-end lines of credit $41.50 per

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application; a representative tier 2 financial institution will pass on 
$6.20 per open-end application; and a representative tier 1 financial 
institution will pass on $3 per open-end application. This expense will 
be amortized over the life of the loan and represents a negligible 
increase in the cost of a mortgage loan. Therefore, the Bureau does not 
anticipate a material adverse effect on credit access in the long or 
short term if financial institutions pass on to consumers the costs of 
reporting open-end lines of credit under the transactional coverage 
adopted in the final rule.
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    \496\ These cost estimates incorporate all the required data 
fields in the final rule and the operational improvements the Bureau 
is developing. This differs from cost impacts regarding data points 
presented in part VII.F.5, which normally isolate one change by, for 
example, not counting operational improvements. This is because the 
Bureau assumes that the overwhelming majority of open-end-line-of-
credit reporting will be new and hence the baseline cost would be 
zero and the number of data fields as well as operational details in 
the baseline scenarios for open-end reporting would be inapplicable.
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    During the Small Business Review Panel process, some small entity 
representatives noted that they would attempt to pass on all increased 
compliance costs associated with the proposed rule, but that this would 
be difficult in the current market where profit margins for mortgages 
are tight, especially for smaller financial institutions. In addition, 
some small entity representatives noted that they would attempt to pass 
on costs through higher fees on other products offered, leave 
geographic or product markets, or spend less time on customer service. 
Similarly, several industry commenters stated that the rule would 
increase costs to consumers or force small financial institutions to 
consider merging, raising prices, originating fewer loans, or exiting 
the market. As discussed above, the Bureau believes that any costs 
passed on to consumers will be amortized over the life of a loan and 
represent a negligible increase in the cost of a mortgage loan. 
Therefore, the Bureau does not anticipate any material adverse effect 
on credit access in the long or short term even if financial 
institutions pass on these costs to consumers.
    Benefits to covered persons. The final rule eliminates reporting of 
non-dwelling-secured home improvement loans, which will reduce costs to 
covered persons. Using HMDA data, as well as information from 
interviews of financial institutions, the Bureau estimates that each 
year, on average, tier 3, tier 2, and tier 1 financial institutions 
receive approximately 1, 20, and 900 applications for non-dwelling-
secured home improvement loans, respectively. Excluding those average 
numbers of non-dwelling-secured home improvement loans from reporting 
will reduce annual operational costs by approximately $43 for a 
representative tier 3 financial institution, $128 for a representative 
tier 2 financial institution, and $2,740 for a representative tier 1 
financial institution.\497\ This translates into a market-level savings 
of approximately $1,090,000 to $1,150,000 per year. Using a 7 percent 
discount rate, the net present value of this impact over five years 
will be a reduction in cost of approximately $4,500,000 to $4,700,000.
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    \497\ These estimates do not include potential cost savings from 
operational improvements.
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    The final rule's expanded transactional coverage will improve the 
prioritization process used to identify institutions at higher risk of 
fair lending violations. This will reduce the false positives that 
occur when inadequate information causes lenders with low fair lending 
risk to be initially misidentified as high risk. Additional information 
on these products will explain some of these false positives, so that 
examination resources are used more efficiently and that lenders with 
low fair lending risk receive a reduced level of regulatory scrutiny.
    One-time costs to covered persons. The Bureau believes that the 
greatest one-time cost to covered persons from the final rule's changes 
to transactional coverage will come from the requirement to report 
open-end lines of credit. Based on outreach efforts and comments 
received, the Bureau believes that many financial institutions process 
applications for open-end lines of credit on separate data platforms 
and data systems in different business units than home-purchase and 
refinance mortgages. Financial institutions not currently reporting 
open-end lines of credit will incur one-time costs to develop reporting 
capabilities for these business lines and products. Financial 
institutions, whether they use vendors for HMDA compliance or develop 
software internally, will incur one-time costs to prepare, develop, 
implement, integrate, troubleshoot, and test new systems for open-end 
reporting. Management, operations, legal, and compliance personnel in 
these business lines will likely require time to learn the new 
reporting requirements and to assess legal and compliance risks. 
Financial institutions will need to update training materials to 
reflect new requirements and may incur certain one-time costs for 
providing initial training to current employees. The Bureau is aware 
that these activities will take time and that the costs may be 
sensitive to the time available for them. The Bureau also believes that 
financial institutions that will report both open-end lines of credit 
and closed-end mortgage loans, which comprise the overwhelming majority 
of open-end reporters, could share one-time costs related to open-end 
and closed-end reporting. The degree of such cost sharing likely will 
vary based on operational complexities.
    The Bureau expects these one-time costs to be smaller for financial 
institutions that are less complex and less likely to have separate 
business lines with separate data platforms and data systems for open-
end lines of credit. These entities use less complex reporting 
processes, so more tasks are manual rather than automated, and new 
requirements may involve greater use of established processes. As a 
result, compliance will likely require straightforward changes in 
systems and workplace practices and therefore impose relatively low 
one-time costs. In estimating the impact of the transactional coverage 
changes for representative tier 3 open-end reporters that will also 
report closed-end mortgage loans, the Bureau assumes that the one-time 
cost of open-end reporting is minimal and already absorbed into the 
one-time cost of closed-end reporting because most of these 
straightforward changes would have occurred anyway due to the modified 
closed-end reporting requirements. For representative tier 3 open-end 
reporters that will not report closed-end mortgage loans, because the 
one-time cost from open-end reporting cannot be absorbed into the one-
time costs of closed-end reporting, the Bureau believes that such costs 
can be proxied by the overall estimate of the one-time costs that the 
tier 3 closed-end reporters will incur, absent expanded reporting of 
open-end lines of credit. Thus, the Bureau estimates that the changes 
to transactional coverage in the final rule will impose average one-
time costs of $3,000 for tier 3 open-end reporters.
    For more complex financial institutions that meet the open-end 
reporting threshold, the Bureau expects the one-time costs imposed by 
the change in transactional coverage in the final rule to be relatively 
large. To estimate these one-time costs, the Bureau views the business 
lines responsible for open-end lines of credit in moderate-to-high 
complexity institutions as a second business line that has to modify 
its reporting infrastructure in response to the final rule. Industry 
stated this view of additional costs in comments on the proposed rule. 
However, very few financial institutions or trade associations provided 
the Bureau with specific estimates of the one-time cost associated with 
this change. In outreach conducted before the proposed rule, some 
industry participants generally stated that the one-time cost of 
reporting open-end lines of credit could be twice

[[Page 66285]]

as much as the one-time cost of adapting to other parts of the final 
rule, but did not provide any further detail. One commenter stated that 
the Bureau's estimated one-time implementation costs for moderate-
complexity financial institutions were potentially correct. The Bureau 
estimates that, excluding open-end-line-of-credit reporting, the final 
rule will impose average one-time costs of $250,000 for tier 2 
financial institutions and $800,000 for tier 1 financial institutions. 
The Bureau assumes that for tier 1 and tier 2 open-end reporters that 
will also report closed-end mortgage loans, which form the majority of 
the projected open-end reporting tier 1 and tier 2 institutions, the 
one-time cost of integrating open-end lines of credit into HMDA 
reporting processes will be roughly equal to 50 percent of the one-time 
costs absent expanded reporting of such products. This estimate 
accounts for the fact that some new systems may have to be built to 
facilitate reporting for these lines of business but that some fixed, 
one-time costs could be shared with lines of business currently subject 
to Regulation C, because both have to undergo systemic changes. Using 
these general estimates for open-end reporting tier 1 and tier 2 
institutions that will also report closed-end mortgage loans, 
therefore, the Bureau estimates one-time costs of $125,000 and $400,000 
for business lines responsible for open-end lines of credit.
    On the other hand, for representative tier 2 open-end reporters 
that will not report closed-end mortgage loans, because such cost 
sharing between open-end and closed-end reporting is not possible, the 
Bureau proxies for the one-time costs associated with open-end 
reporting by using the overall estimate of the one-time costs that the 
tier 2 closed-end reporter will incur in response to the final rule 
absent expanded reporting of open-end lines of credit. Thus, the Bureau 
estimates that the changes to transactional coverage in the final rule 
will impose average one-time costs of $250,000 for tier 2 open-end 
reporters that will not report closed-end mortgage loans under the 
final rule. The Bureau does not project any tier 1 financial 
institutions that will report open-end lines of credit but not closed-
end mortgage loans under the final rule.
    Under the final rule, the open-end reporting threshold is set 
separately from the closed-end reporting threshold. A financial 
institution can report open-end lines of credit only, closed-end 
mortgage loans only, or both. For open-end reporters, the Bureau 
estimates that 749 financial institutions will meet the threshold for 
reporting data on open-end lines of credit, including 24 that will 
report open-end lines of credit only but not closed-end mortgage loans 
and 725 that will report open-end and closed-end simultaneously. 
Coupled with the fact that lenders often process open-end lines of 
credit in business lines separate from closed-end mortgage loans, for 
the purpose of transactional and institutional coverage analyses, the 
Bureau has adopted an approach that treats these open-end reporters as 
if they were separate entities distinct from their closed-end mortgage 
units.\498\
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    \498\ The Bureau estimates that under the final rule almost all 
open-end reporters would have some business activity in closed-
mortgage arena, even if a handful of them will not be reporting 
closed-end mortgage loans under the final rule due to their low 
closed-end mortgage origination volume (below 25 but greater than 
zero).
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    As with closed-end mortgage loan reporting, the Bureau realizes 
that costs for open-end reporting vary by institutions due to many 
factors, such as size, operational structure, and product complexity, 
and that this variance exists on a continuum that is impossible to 
fully represent. Nevertheless, the Bureau believes that the HMDA 
reporting process and ongoing operational cost structure for open-end 
reporters will be fundamentally similar to closed-end reporting. To 
conduct a cost consideration that is both practical and meaningful for 
open-end reporting, the Bureau therefore adopts the same three-tier 
approach and most of the key assumptions used for closed-end reporting, 
with two modifications. First, for representative low-complexity open-
end reporters, the Bureau assumed that the number of open-end line of 
credit applications would be 150. This was set to both accommodate the 
open-end reporting threshold of 100 open-end lines of credit and to 
reflect a reasonable distribution among the smallest open-end 
reporters, based on the Bureau's estimated number of likely open-end 
reporters and their volumes. Second, for representative high-complexity 
open-end reporters, the Bureau assumed that the number of open-end line 
of credit applications would be 30,000. This reflects a reasonable 
distribution among the largest open-end lines of credit based on the 
Bureau's estimated number of likely open-end reporters and their 
volumes. The Bureau assumed that the number of open-end line of credit 
applications for the representative moderate-complexity open-end 
reporter would still be 1,000, just as for the moderate-complexity 
closed-end reporter.
    For open-end reporters, the Bureau has adopted 2 cutoffs based on 
the estimated open-end line of credit volume. Specifically, the Bureau 
assumes the lenders that originate fewer than 200 but more than 100 
open-end lines of credit are tier 3 (low-complexity) open-end 
reporters; lenders that originate between 200 and 7,000 open-lines of 
credit are tier 2 (moderate-complexity) open-end reporters; and lenders 
that originate more than 7,000 open-end lines of credit are tier 1 
(high-complexity) open-end reporters. These cutoffs were chosen to 
match the overall market size in terms of the estimated number of open-
end reporters (724) and the estimated number of records (approximately 
900,000). Under such assumptions, the Bureau assigns 13 of the possible 
open-end reporters to tier 1, 463 to tier 2, and 273 to tier 3. Roughly 
2 percent of these institutions are in tier 1, 62 percent are in tier 
2, and 36 percent are in tier 3. This is close to the high-end 
distribution of closed-end reporters in which 3 percent are in tier 1, 
71 percent are in tier 2, and 26 percent are in tier 3. Dividing open-
end-only reporters from open-end reporters that will also report 
closed-end mortgage loans, the Bureau estimates that among 24 likely 
reporters that will report only open-end lines of credit, there are 12 
tier 2 open-end reporters, 12 tier 3 open-end reporters, and no tier 1 
open-end reporters; among 725 likely reporters that will report both 
open-end lines of credit and closed-end mortgage loans, there are 13 
tier 1 open-end reporters, 451 tier 2 open-end reporters, and 261 tier 
3 open-end reporters.
    The baseline cost assumptions and cost estimates presented above 
reflect the current world in which most open-end lines of credit are 
not reported under HMDA. In the final rule, reporting open-end lines of 
credit becomes mandatory for those institutions that meet all the other 
criteria for a ``financial institution'' in final Sec.  1003.2(g) and 
originate at least 100 open-end lines of credit. The Bureau estimated 
that currently only about 1 percent of total open-end lines of credit 
secured by dwellings were reported under HMDA. Hence the Bureau has 
assumed that the baseline cost for open-end-line-of-credit reporting in 
the current rule is zero.
    By using the one-time cost estimates due to open-end reporting for 
representative open-end reporters that are in different tiers and that 
either report only open-end lines of credit or both open-end lines of 
credit and closed-end mortgage loans, multiplied by the number of open-
end reporters of each corresponding type, the Bureau estimates that the 
total one-time cost due to open-end reporting for open-end reporters 
that will report both open-end

[[Page 66286]]

lines of credit and closed-end mortgage loans is approximately 
$61,600,000 (that is: Tier 1 $400,000 * 13 + Tier 2 $125,000 * 451 + 
Tier 3 $0 * 261); the total one-time cost due to open-end reporting for 
open-end reporters that will report only open-end lines of credit is 
approximately $3,000,000 (that is: Tier 1 $400,000 * 0 + Tier 2 
$250,000 * 12 + Tier 3 $3,000 * 12). Combined, the one-time costs due 
to open-end reporting for all open-end reporters are estimated to be 
approximately $64,600,000. Using a 7 percent discount rate and a five-
year amortization window, the annualized one-time cost due to changes 
in transactional coverage is approximately $15,800,000 per year. As a 
frame of reference for these market-level, one-time cost estimates due 
to open-end reporting, the total non-interest expenses of current HMDA 
reporters were approximately $420 billion in 2012. The one-time cost 
estimate of $64,600,000 is about 0.15 percent of the total annual non-
interest expenses.\499\ Because these costs are one-time investments, 
financial institutions are expected to amortize these costs over a 
period of years.
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    \499\ The Bureau estimated the total non-interest expense for 
banks, thrifts and credit unions that reported to HMDA based on Call 
Report data for depository institutions and credit unions, and NMLSR 
data for nondepository institutions, all matched with 2012 HMDA 
reporters.
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    For mandatory reporting of preapproval requests that are approved 
but not accepted, the Bureau believes that the primary impact will be 
on ongoing operational costs rather than on one-time costs. Financial 
institutions are currently required to report whether a preapproval was 
requested for home purchase loans, and whether the preapproval was 
approved (if accepted) or denied, so the infrastructure to report 
preapproval information is already in place. Expanding mandatory 
reporting to all outcomes of the preapproval process therefore 
primarily impacts the ongoing, operational tasks required to gather 
information and data on additional reportable transactions.
    Ongoing costs to covered persons. The changes to transactional 
coverage in the final rule will require financial institutions that 
meet the open-end threshold and other criteria to report open-end lines 
of credit, thereby increasing the ongoing operational costs of those 
financial institutions for HMDA reporting. As stated above, for the 
purpose of transactional coverage analyses, the Bureau treats these 
open-end reporters as if they were separate entities distinct from 
their closed-end mortgage units. The Bureau assumes that the 
operational costs of open-end reporting vary across 3 different open-
end reporting complexity tiers, but whether an open-end reporter also 
reports closed-end mortgage loans does not affect its operational costs 
on the open-end side. The Bureau estimates that for a representative 
tier 1 open-end reporter with 30,000 open-end loan/application register 
records, the ongoing operational cost of open-end reporting is about 
$273,000 per year, or approximately $9 per record per year. For a 
representative tier 2 open-end reporter with 1,000 open-end loan/
application register records, the ongoing operational cost of open-end 
reporting is about $43,400 per year, or approximately $43 per record 
per year. For a representative tier 3 open-end reporter with 150 open-
end loan/application register records, the ongoing operational cost of 
open-end reporting is about $8,600 per year, or approximately $57 per 
record per year. Based on information from HUD and Moody's Analytics 
(May 2013), HMDA data currently include only approximately 1 percent of 
all open-end lines of credit. Therefore, the Bureau assumes that the 
ongoing operational cost associated with open-end reporting is 
practically zero. Therefore, the estimated ongoing operational costs 
for open-end reporting under the final rule represent the entire impact 
on operational costs due to the open-end transactional coverage change. 
These cost estimates incorporate all the required data fields in the 
final rule and the Bureau's operational improvements.
    Based on the estimate that 13 open-end reporters are in tier 1, 463 
are in tier 2, and 273 are in tier 3, the Bureau estimates that the 
total impact on ongoing operational costs due to open-end reporting is 
approximately $26,000,000 per year ($273,000 * 13 + $43,400 * 463 + 
$8,600 * 273). Using a 7 percent discount rate, the net present value 
of this cost over five years is approximately $106,600,000.
    The final rule also modifies transactional coverage by requiring 
reporting of closed-end home-equity loans, reverse mortgages, and 
preapproval requests that have been approved but not accepted. To 
estimate the impact on ongoing operational costs due to these changes, 
the Bureau allocates these transactions among the three representative 
closed-end lenders proportionately to the lender's loan/application 
register size. The Bureau estimated that, on average, tier 3 financial 
institutions with 50 records receive approximately one application for 
closed-end home-equity loans; no applications for reverse mortgages; 
and no preapproval requests that were approved but not accepted. The 
Bureau estimated that, on average, tier 2 financial institutions with 
1,000 records receive an estimated 15 applications for closed-end home-
equity loans; no applications for reverse mortgages; and five 
preapproval requests that were approved but not accepted. And the 
Bureau estimated that, on average, tier 1 financial institutions with 
50,000 records receive an estimated 700 applications for closed-end 
home-equity loans; five applications for reverse mortgages; and 245 
preapproval requests that were approved but not accepted.
    Reporting data for these additional loans will increase operational 
costs by approximately $43, $128, and $2,890 per year for 
representative tier 3, tier 2, and tier 1 financial institutions, 
respectively, without accounting for operational improvements. Using 
the two tier distributions discussed previously, this translates into a 
market-level cost of approximately $1,130,000 to $1,180,000 per year. 
Using a 7 percent discount rate, the net present value of this cost 
over five years is approximately $4,600,000 to $4,800,000. Considering 
operational improvements, operational costs will increase by 
approximately $42, $125, and $2,880 per year, for the representative 
entities in tier 3, tier 2, and tier 1, respectively. This translates 
into a market-level cost of approximately $1,120,000 to $1,160,000 per 
year. Using a 7 percent discount rate, the net present value of this 
cost over five years is approximately $4,600,000 to $4,800,000.
    Alternatives considered. The Bureau considered excluding 
preapprovals from reporting requirements. Based on a review of 
historical HMDA data, the Bureau estimates that on average tier 3 
financial institutions receive one request for a preapproval per year, 
tier 2 financial institutions receive 15 requests per year, and tier 1 
financial institutions receive 700 requests per year. The estimated 
reduction in the operational cost of reporting data for these 
preapprovals is approximately $43, $96, and $2,100 per year, for 
representative tier 3, tier 2, and tier 1 financial institutions, 
respectively, without accounting for savings from operational 
improvements. This translates into a market-level impact of 
approximately $880,000 to $890,000 per year. Using a 7 percent discount 
rate, the net present value of this savings over five years is 
approximately $3,600,000 to $3,700,000.
    Including the operational improvements reduces the estimated 
operational costs of reporting data for preapprovals by approximately 
$41, $94, and $2,100 per year for

[[Page 66287]]

representative tier 3, tier 2, and tier 1 financial institutions, 
respectively. This translates into a market-level savings of 
approximately $870,000 to $880,000 per year. Using a 7 percent discount 
rate, the net present value of this savings over five years is 
$3,560,000 to $3,610,000.
5. The Data That Financial Institutions are Required to Report About 
Each Loan or Application
    For each application, originated loan, or purchased loan submitted 
as part of a financial institution's loan/application register, 
Regulation C currently requires reporting of 35 separate pieces of 
information, and allows for optional reporting of three denial 
reasons.\500\ Throughout this part VII.F.5, the Bureau uses the term 
``data point'' to refer to each piece of information to be reported and 
``data field'' to refer to the actual entries on the loan/application 
register necessary to report the required data points. For example, 
currently race is one data point with ten data fields (five for primary 
applicant race and five for co-applicant race). The Dodd-Frank Act 
amended HMDA by enhancing two existing data points (rate spread and 
application ID) and identifying 11 new data points.\501\ As part of 
this rulemaking, the Bureau comprehensively reviewed all current data 
points in Regulation C, carefully examined each data point specifically 
mentioned in the Dodd-Frank Act, and considered proposals to collect 
other appropriate data points to fill gaps where additional information 
could be useful to better understand the HMDA data.\502\
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    \500\ The 35 pieces of information are respondent ID, agency 
code, application number, application date, loan type, property 
type, purpose, occupancy, loan amount, preapprovals, action, action 
date, MSA, State, county, census tract, applicant ethnicity, 
applicant sex, five applicant race data fields, co-applicant 
ethnicity, co-applicant sex, five co-applicant race data fields, 
income, purchaser, rate spread, HOEPA status, and lien status.
    \501\ These 11 data points consist of total points and fees, 
prepayment penalty term, introductory interest rate term, non-
amortizing features, loan term, application channel, loan originator 
ID, property value, parcel number, age, and credit score.
    \502\ A financial institution's loan/application register is 
also accompanied by a transmittal sheet that contains data about the 
submission, such as the number of entries, the address of the 
financial institution, and the appropriate Federal agency. The final 
rule does not change these requirements, except that financial 
institutions that report data quarterly will identify the relevant 
quarter and year, and the reporter's identification number is being 
replaced by the Legal Entity Identifier, discussed below.
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    The revisions include improvements and technical revisions to 
current Regulation C data requirements; the implementation as required 
or appropriate of the categories of information specifically identified 
in the Dodd-Frank Act; and the addition of other data points that fill 
existing informational gaps and will further the purposes of HMDA. One 
important consideration during the Bureau's rulemaking process that 
informs this discussion of benefits, costs, and impacts was alignment 
of data fields to existing regulations or industry data standards. In 
order to develop this alignment, the Bureau analyzed each data point 
currently included in Regulation C, each new data point identified in 
the Dodd- Frank Act, and each additional data point the Bureau 
considered during the rulemaking process, to determine whether 
analogous data existed in the Uniform Loan Delivery Dataset (ULDD) 
(first preference) or the larger Mortgage Industry Standards 
Maintenance Organization (MISMO) data dictionary (second preference). 
In each instance, before the Bureau considered aligning to one of these 
external data standards, the MISMO/ULDD definition needed to be 
adequate to meet the objectives of HMDA and Regulation C. In some 
instances, even when analogous data existed in ULDD or MISMO, the 
Bureau decided to adopt data point definitions different than ULDD or 
MISMO when other considerations outweighed the benefit of alignment. 
For data points that could not be aligned with MISMO/ULDD, the Bureau 
aligned these data points with definitions provided by other 
regulations if appropriate, or used completely new definitions.
    Current HMDA data points. Currently, financial institutions are 
required to collect and report information for 35 data fields, and have 
the option of reporting three additional fields conveying denial 
reasons. Considering only the current 35 mandatory fields, the final 
rule will increase the number of required fields by 12. Reporting of 
denial reasons is changing from optional to mandatory and reporters 
will have the option of reporting four denial reasons instead of three. 
This change will add four required data fields. A fifth additional data 
field captures number of total units, which along with construction 
method is replacing property type, as the current ``property type'' 
data field will be replaced by two fields (number of units and 
construction method), both of which are in MISMO and ULDD. 
Disaggregation of ethnicity increases the total number of ethnicity 
data fields that are reportable by eight, from two to ten. Currently, 
applicants and co-applicants each choose either Hispanic/Latino or not 
Hispanic/Latino. Going forward, applicants and co-applicants will 
continue to have the option of choosing Hispanic/Latino or not 
Hispanic/Latino, but will also have the option of choosing Mexican, 
Puerto Rican, Cuban, or Other Hispanic/Latino. Applicants will not be 
limited on the number of ethnic groups they can choose, and HMDA 
reporters must report all ethnicities applicants report. Therefore, 
both the primary applicant and co-applicant can choose up to five 
ethnicities, for a total of ten data fields, or a net increase of eight 
data fields. On the other hand, disaggregation of race will not 
increase the total number of race data fields, because the final rule 
limits the total number of race fields that can be reported for each 
applicant/co-applicant to five, the same as the current level. 
Specifically, currently applicants and co-applicants can each choose up 
to five racial groups (American Indian or Alaska Native, Asian, Black 
or African American, Native Hawaiian or Other Pacific Islander, and 
White). Going forward, the list that applicants and co-applicants can 
choose from will be expanded to include Asian Indian, Chinese, 
Filipino, Japanese, Korean, Vietnamese, Other Asian, Native Hawaiian, 
Guamanian or Chamorro, Samoan, or Other Pacific Islander. Finally, 
financial institutions will no longer have to report MSA/MD, because 
these data can be easily obtained from information already provided 
about the relevant State and county. Adding 13 data fields and losing 
one yields a net increase of 12 data fields.
    In addition to adding 12 data fields, the final rule will also 
change the information reported for 19 current HMDA data fields. These 
revisions address changes required by the Dodd-Frank Act, align current 
HMDA fields with industry data standards, and close information gaps. 
Specifically, to address changes required by the Dodd-Frank Act, the 
financial institution's identifier will be replaced by a Legal Entity 
Identifier, application ID will be replaced by a unique, robust ID 
number, and rate spread will be required for most covered loans subject 
to Regulation Z. Occupancy will be revised to convey principal 
residence, second residence, or investment property, and property type 
will be replaced by number of total units and construction method. 
Finally, to close information gaps, loan amount will be reported in 
dollars instead of thousands of dollars; additional ``other'' and 
``cash-out refinance'' categories will be added to loan purpose; and 
the current ethnicity

[[Page 66288]]

and race fields will contain more granular ethnicity and racial 
categories.
    Current HMDA data points--benefits to consumers. The Bureau 
believes that the revisions to the current HMDA data fields, which 
increase the amount of information included in HMDA, will improve 
current processes used to identify possible discriminatory lending 
patterns and enforce antidiscrimination statutes. The following 
discussion provides several examples of how the revised existing data 
fields will ultimately benefit consumers by facilitating enhanced fair 
lending analyses. The section-by-section analyses in part V, above, 
provide more detailed exposition on each of the enhanced data points.
    As one example, the reason for denial is an important data point 
used to understand underwriting decisions and focus fair lending 
reviews. Currently, Regulation C permits optional reporting of the 
reasons for denial of a loan application. Mandatory reporting of this 
information, combined with enhanced or additional data points commonly 
used to make underwriting decisions, will provide more consistent and 
meaningful data. These improved data can improve the ability to 
identify both discriminatory lending patterns in underwriting decisions 
and consumers who have been unfairly disadvantaged. In addition, denial 
reasons, combined with careful analysis of key underwriting data 
fields, could help reduce the false positive rate of fair lending 
prioritization analyses, leading to better targeting of fair lending 
reviews. This will further improve the likelihood of identifying 
customers who were truly unfairly disadvantaged and merit restitution.
    Additionally, rate spread is currently the only quantitative 
pricing measure in HMDA, and is only available for originated loans 
meeting or exceeding the higher-priced mortgage loan thresholds for 
first- and subordinate-lien loans. Expanding reporting of rate spread 
to all covered loans subject to Regulation Z, except assumptions, 
purchased loans and reverse mortgage transactions, greatly enhances 
HMDA's usefulness for analyzing fair lending risk in pricing decisions. 
This change will also reduce the false positive rate observed during 
fair lending prioritization analyses so that the resources of 
regulators and financial institutions are used more efficiently. 
Together with additional pricing measures included in the final rule, 
this information will also greatly enhance the understanding of the 
costs of credit that consumers face.
    The disaggregated racial and ethnic categories will provide 
meaningful data for advancing HMDA's purposes. In particular, a 
significant benefit of disaggregated HMDA data is that it could allow 
non-regulators, such as researchers and community groups, the 
opportunity to augment the fair lending work that regulatory agencies 
conduct. These groups could focus on areas and risks that regulatory 
agencies may not choose to examine.
    The revisions to the occupancy and property type data fields 
provide a fourth example of benefit for fair lending analyses. The 
final rule revises data regarding occupancy status by requiring 
separate itemization of second residences and investment properties, 
and revises data regarding property type by replacing this field with 
construction method and the number of units. These revisions will allow 
more accurate accounting of the differences in underwriting and pricing 
policies that financial institutions apply. This will improve analyses 
of outcomes and hence reduce false positive rates in current fair 
lending prioritization processes used by regulatory agencies. Improved 
prioritization will further improve the likelihood of identifying 
customers who were truly unfairly disadvantaged and merit restitution.
    The Bureau also believes that the revisions to the current HMDA 
data fields, which increase the amount of information included in the 
HMDA dataset, will improve the ability to assess whether financial 
institutions are meeting the housing needs of their communities and 
assist public officials in making decisions about public-sector 
investments. The denial reason data fields will provide greater 
understanding of why credit is denied to specific applicants, the 
expanded rate spread data point will provide additional information 
about the affordability of the credit offered, and the revised 
occupancy and property type data fields will provide additional insight 
into more detailed property and product markets. Additionally, the 
revisions to the occupancy status data field will provide finer 
gradients by separately identifying second homes and investment 
properties, which will help identify trends involving potentially 
speculative purchases of housing units similar to those that 
contributed to the recent financial crisis. Recent research suggests 
that speculative purchases by investors were one driver of the recent 
housing bubble and subsequent financial crisis.\503\ These impacts may 
be especially relevant for areas that are experiencing sharp increases 
in investor purchases. Thus, information related to second homes and 
investment properties may help communities and local officials develop 
policies tailored to the unique characteristics associated with these 
separate segments of the mortgage market.
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    \503\ See Andrew Haughwout et al., Fed. Reserve Bank of New 
York, Staff Report No. 514, Real Estate Investors, the Leverage 
Cycle, and the Housing Market Crisis, (Sept. 2011).
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    Finally, revisions to the property type data field will be of 
particular interest in the wake of the housing crisis as families have 
increasingly turned to rental housing. Greater detail about multifamily 
housing finance may provide additional information about whether 
financial institutions are serving the housing needs of their 
communities.
    Current HMDA data points--costs to consumers. The revisions to the 
current HMDA data fields will not impose any direct costs on consumers. 
However, consumers may bear some indirect costs if financial 
institutions pass on some or all of the costs imposed on them by the 
final rule. Following microeconomic principles, the Bureau believes 
that financial institutions will pass on increased variable costs to 
future mortgage applicants but will absorb one-time costs and increased 
fixed costs if markets are perfectly competitive and financial 
institutions are profit maximizers. The impact of the changes in the 
final rule to the 19 current HMDA data fields will affect only one-time 
costs and fixed costs, as financial institutions modify their 
infrastructure to incorporate the final data field specifications. The 
revision to current HMDA data fields that impacts variable cost is the 
net addition of 12 data fields.
    To estimate the impact on variable cost of a net increase of 12 
additional data fields, the Bureau treated the four denial reason data 
fields as new data fields, the additional property type field as a new 
data field that aligns with MISMO/ULDD, the 8 additional ethnicity 
fields as new data fields, and the MSA/MD data field as an existing 
data field to be dropped that aligns with MISMO/ULDD. The Bureau 
estimates that the impact of this component of the final rule on 
variable costs per application is approximately $10 for a 
representative tier 3 financial institution, $0.31 for a representative 
tier 2 financial institution, and $0.03 for a representative tier 1 
financial institution.\504\ This expense will be

[[Page 66289]]

amortized over the life of the loan and represents a negligible 
increase in the cost of a mortgage loan. Therefore, the Bureau does not 
anticipate any material adverse effect on credit access in the long or 
short term if financial institutions pass on these costs to consumers.
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    \504\ These estimates are for financial institutions that meet 
the threshold for reporting closed-end mortgage loans, but not for 
reporting of open-end lines of credit or quarterly reporting.
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    During the Small Business Review Panel process, some small entity 
representatives noted that they would attempt to pass on all increased 
compliance costs associated with the final rule, but that this would be 
difficult in the current market where profit margins for mortgages are 
tight. In addition, some small entity representatives noted that they 
would attempt to pass on costs through higher fees on other products 
offered, leave geographic or product markets, or spend less time on 
customer service. Many comments to the proposed rule echoed similar 
sentiments that the proposal would likely increase the cost of credit 
for consumers. Several commenters cited increased costs associated with 
reporting additional data fields. A few commenters noted that small 
financial institutions in general would be required to merge, raise 
prices, originate fewer loans, or exit markets. As discussed above, the 
Bureau believes that any costs passed on to consumers will be amortized 
over the life of a loan and represent a negligible increase in the cost 
of a mortgage loan. Therefore, the Bureau does not anticipate any 
material adverse effect on credit access in the long or short term even 
if financial institutions pass on these costs to consumers.
    Current HMDA data points--benefits to covered persons. One primary 
benefit of the revisions to the current HMDA data points in the final 
rule is the improved alignment between the HMDA data standards and the 
data standards that many financial institutions already maintain.\505\ 
For example, the current HMDA definitions for occupancy status and 
property type are not directly compatible with the records of mortgage 
loan applications that most financial institutions store in their loan 
origination systems. This may have created extra burden on the 
financial institutions that had to use additional software to modify 
data in existing systems in order to record and submit HMDA data.
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    \505\ The final rule eliminates required reporting of the MSA/MD 
data field. Although the exclusion of this data field creates a 
benefit to covered persons, it is not considered explicitly here, 
because on net, the revisions to current HMDA fields in the final 
rule add 12 data fields.
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    The Bureau believes that aligning the requirements of Regulation C 
to existing industry standards for collecting and transmitting data on 
mortgage loans and applications will reduce the burden associated with 
Regulation C compliance and data submission for some institutions. In 
addition, promoting consistent data standards for both industry and 
regulatory use has benefits for market efficiency, market 
understanding, and market oversight. The efficiencies achieved by such 
alignment should grow over time, as the industry moves toward common 
data standard platforms.
    For example, many financial institutions already separately 
identify second residence and investment properties in their 
underwriting process and loan origination system (LOS). Separate 
enumeration of these occupancy types is also present in MISMO/ULDD. 
Therefore, aligning to industry standards will reduce burden for 
financial institutions by maintaining the same definition for HMDA 
reporting that financial institutions use in the ordinary course of 
business. Smaller, less-complex financial institutions will experience 
fewer potential benefits, because these institutions rely more on 
manual reporting processes and are more likely to originate portfolio 
loans where MISMO/ULDD may have not been adopted.
    Among current HMDA data fields, property type and occupancy will be 
modified to align with MISMO/ULDD. The primary benefit of this 
alignment will be to reduce costs for training and researching 
questions. The Bureau estimates that this alignment will reduce 
operational costs by approximately $120, $1,100, and $10,200 per year 
for representative tier 3, 2, and 1 financial institutions, 
respectively.\506\ This translates into a market-level impact of 
$5,700,000 to $7,900,000 per year. Using a 7 percent discount rate, the 
net present value of this savings over five years is $23,300,000 to 
$32,200,000. With the inclusion of operational improvements, the 
estimated reduction in operational costs is approximately $120, $1,000, 
and $10,100 per year for representative tier 3, tier 2, and tier 1 
financial institutions, respectively.\507\ This translates into a 
market-level savings of $5,600,000 to $7,700,000 per year. The net 
present value of this savings over five years is $23,000,000 to 
$31,700,000.
---------------------------------------------------------------------------

    \506\ These estimates are for financial institutions that meet 
the threshold for reporting closed-end mortgage loans, but not for 
reporting of open-end lines of credit or quarterly reporting, and do 
not include potential cost savings from operational improvements and 
additional help sources.
    \507\ These estimates are for financial institutions that meet 
the threshold for reporting closed-end mortgage loans, but not for 
reporting of open-end lines of credit or quarterly reporting.
---------------------------------------------------------------------------

    Current HMDA data points--ongoing costs to covered persons. 
Specific to the current set of HMDA data points, the final rule 
increases the number of data fields by 12 on net, and alters the 
information provided for 19 other fields. The cost impact of these 
changes on covered persons will vary by data field. For example, some 
data fields may depend on multiple sub-components or information from 
multiple platforms. To capture these potential differences, the Bureau 
estimated different costs depending on whether a data field is aligned 
with ULDD, MISMO, another regulation, or is a completely new data 
field.
    The four denial reason fields are new data fields not aligned with 
MISMO, ULDD or another regulation; number of units, which along with 
construction method replaces property type, is aligned with ULDD; the 
eight additional ethnicity data fields are not aligned with MISMO, ULDD 
or another regulation; and MSA/MD, which is being excluded, is also 
aligned with ULDD.\508\ This net increase of 12 data fields increases 
the costs of transcribing data, transferring data to HMS, researching 
questions, checking post-submission edits, training, exam assistance, 
conducting annual edits/checks, and conducting external audits. The 
Bureau estimates that this component of the final rule will increase 
operational costs by approximately $460, $3,100, and $8,000 per year 
for representative tier 3, tier 2, and tier 1 financial institutions, 
respectively.\509\
---------------------------------------------------------------------------

    \508\ Although some institutions are required by their regulator 
to report denial reasons, Regulation C does not currently require 
reporting of denial reasons, so the Bureau treated these data fields 
as new data fields. The cost estimates discussed below are adjusted 
to reflect that some institutions already report these data fields.
    \509\ These estimates are for financial institutions that meet 
the threshold for reporting closed-end mortgage loans, but not for 
reporting of open-end lines of credit or quarterly reporting, and do 
not include potential cost savings from operational improvements and 
additional help sources.
---------------------------------------------------------------------------

    Number of units will be a new data field that all financial 
institutions will be required to report, and MSA/MD is an existing data 
field that will no longer be required. Although the three current 
denial reasons are considered new data fields, operationally, they will 
only be new data fields for reporters currently choosing not to report 
them, or currently not being required by their regulator to report 
them. In the 2013 HMDA data, approximately 30 percent of HMDA reporters 
did not provide denial reasons, and approximately 25 percent of all 
denials did not have data

[[Page 66290]]

regarding the reason for denial. Further analysis reveals that, 
compared to other HMDA reporters, HMDA reporters currently providing 
data regarding denial reasons had larger loan/application registers and 
reported almost twice as many denials. Therefore, requiring mandatory 
reporting of denial reasons will only impact about 30 percent of 
reporters, and these reporters will likely be smaller institutions. The 
additional denial reason and the eight additional ethnicity data fields 
are all new data fields all financial institutions will have to report. 
Taking all of this into consideration, the Bureau estimates the market-
level cost of increasing the number of current HMDA data fields by 12 
on net in the final rule to be between $8,900,000 and $15,200,000. 
Using a 7 percent discount rate, the net present value of the cost 
increase over five years is $36,500,000 to $62,100,000.
    Considering operational improvements, the final rule will increase 
operational costs by approximately $400, $2,100, and $6,500 per year 
for representative tier 3, tier 2, and tier 1 financial institutions, 
respectively.\510\ This translates into a market-level cost of between 
$6,700,000 and $10,800,000. Using a 7 percent discount rate, the net 
present value over five years will be a cost increase of $27,500,000 to 
$44,100,000.
---------------------------------------------------------------------------

    \510\ These estimates are for financial institutions that meet 
the threshold for reporting closed-end mortgage loans, but not for 
reporting of open-end lines of credit or quarterly reporting.
---------------------------------------------------------------------------

    The primary cost impact of modifying 19 existing data fields, two 
of which align with ULDD, will be the occurrence of one-time costs to 
modify current reporting policies and procedures, update software 
systems, and conduct training and planning. These cost impacts will 
generally be addressed in the discussion of one-time costs below. The 
one exception is the requirement that financial institutions obtain and 
report an LEI instead of the current reporter's ID. The Bureau 
estimates that the one-time cost of acquiring an LEI is approximately 
$200 with an ongoing cost of approximately $100 per year. This 
translates into an estimated market-level impact of $1,400,000 in one-
time costs and an increase of $720,000 in ongoing costs per year. For 
one-time costs, using a 7 percent discount rate and five-year 
amortization window, the annualized cost is $351,000. For ongoing 
costs, using a 7 percent discount rate, the net present value over five 
years is an increase in costs of approximately $3,000,000.
    Current HMDA data points--alternatives considered. Apart from the 
revisions discussed above, the Bureau considered requiring a detailed 
enumeration of the subordinate lien category. This change to lien 
status was included in the proposal because the Bureau believed that 
more detailed enumeration would provide useful information for analysis 
and would reduce the reporting burden by making the definition of lien 
status consistent with MISMO. Following numerous commenters that 
pointed out that very few loans would have third or higher liens and 
that more granularity would actually increase rather than reduce 
reporting burden, the Bureau decided to maintain the definition of lien 
status currently in HMDA. To the extent that changes were adopted for 
any individual current data point, the costs and benefits of that 
decision are addressed in the section-by-section analysis of the 
relevant provision above.
    New HMDA data points. The final rule requires financial 
institutions to report 50 additional data fields under HMDA. This 
number does not include unique loan ID, rate spread, number of units, 
or construction method, each of which replaces a data field currently 
reported under HMDA. The Dodd-Frank Act explicitly identified 13 
additional data points. Excluding unique loan ID and rate spread, which 
replace data fields currently reported under HMDA, the remaining 11 
Dodd-Frank Act-identified data points translate into 22 new data fields 
financial institutions will have to report on their loan/application 
registers. To fill information and data gaps, the Bureau is adopting 13 
data points, which translates into an additional 28 new data fields 
financial institutions will have to report on their loan/application 
register. For these 50 additional data fields, 19 are aligned with 
ULDD, 12 are aligned with MISMO, and one is aligned with another 
regulation. The remaining 18 data fields are not in MISMO or ULDD, or 
aligned with another regulation.\511\
---------------------------------------------------------------------------

    \511\ Some data fields were aligned with multiple sources. For 
the consideration of costs and benefits, the Bureau assigned each 
data field to one source. The following hierarchy was used for data 
fields aligned to multiple sources: (1) ULDD, (2) MISMO, (3) another 
regulation, and (4) not aligned to another source.
---------------------------------------------------------------------------

    New HMDA data points--benefits to consumers. The additional data 
points will have several benefits to consumers. First, the additional 
fields will improve the usefulness of HMDA data for analyzing mortgage 
markets by regulators and the public. For example, data points such as 
non-amortizing features, term of introductory interest rate, prepayment 
penalty term, and the open-end line of credit indicator are related to 
certain high-risk lending concerns, and reporting this information will 
enable a better understanding of the types of products and features 
consumers are receiving. Recent research has indicated that each of 
these products and product characteristics have increased likelihoods 
of default and foreclosure and may have exacerbated the recent housing 
crisis. In addition to being better able to identify some of the risk 
factors that played a role in the recent financial crisis, the new HMDA 
data points on pricing and underwriting will improve current research 
efforts to understand mortgage markets. All of these enhancements will 
allow for improved monitoring of trends in mortgage markets and help 
identify and prevent problems that could potentially harm consumers and 
society overall.
    Second, the additional data points will help improve current policy 
efforts designed to address various market failures. As discussed 
previously, the mortgage market is characterized by information 
asymmetry, and this inherent deficiency was made apparent during the 
financial crisis. In response to the recent financial crisis, the 
government has pursued a number of policies aimed at regulating the 
market and protecting consumers. The additional data points will help 
inform future policy-making efforts by improving consideration of the 
benefits and costs associated with various choices, resulting in more 
effective policies. As an example, many recent regulations have limited 
the types of risky mortgage products that lenders can make to borrowers 
without fully considering borrowers' ability to repay. New data fields 
on non-amortizing features, term of introductory interest rate, 
prepayment penalty term, and debt-to-income ratio can assist future 
assessment of the effectiveness of such regulations and facilitate 
adjustments when needed.
    Third, the additional data points will help determine whether 
financial institutions are serving the housing needs of their 
communities and help public officials target public investment to 
better attract private investment. For example, the data points related 
to manufactured housing will reveal more information about this segment 
of the market. Borrowers in manufactured housing are typically more 
financially vulnerable than borrowers in site-built housing and may 
deserve closer attention from government agencies and community groups. 
Similarly, the data points related to multifamily dwellings

[[Page 66291]]

will reveal more information about this segment of the market, which 
mostly serves low- to moderate-income renters who live in these 
financed units. Advocacy groups and government agencies have raised 
concerns over affordability issues faced by individuals living in 
multifamily dwellings, who also tend to be more financially vulnerable. 
Overall, by permitting a better and more comprehensive understanding of 
these markets, the final rule will improve the usefulness of HMDA data 
for assessing the supply and demand of credit, and financial 
institutions' treatment of applicants and borrowers in these 
communities.
    Fourth, the Bureau believes that the additional data points will 
improve current processes used to identify possible discriminatory 
lending patterns and enforce antidiscrimination statutes. Financial 
regulators and enforcement agencies use HMDA data in their initial 
prioritization and screening processes to select institutions for 
examination and as the base dataset during fair lending reviews. The 
additional data will allow for improved segmentation during these 
analyses, so that applications are compared to other applications for 
similar products. For example, underwriting and pricing policies often 
differ for open-end lines of credit, closed-end home-equity loans, 
reverse mortgages, and products with different amortization types. 
Currently, these products are all combined during prioritization and 
screening analyses. With additional data fields identifying these 
products, separate analyses can be conducted for each product, which 
will more accurately reflect outcomes for consumers. As a second 
example, pricing often differs across delivery channels, because 
pricing policies and processing differ, and because intermediaries, 
such as mortgage brokers, add an additional layer to the complexity of 
mortgage pricing. The addition of the origination channel data point 
will permit the separation of originations for pricing analyses, 
allowing for a better understanding of the drivers of pricing outcomes. 
Improved segmentation improves the accuracy of fair lending analyses, 
which improves the usefulness of HMDA to identify potentially 
disadvantaged consumers.
    Additionally, the new HMDA data points on pricing will greatly 
improve the usefulness of HMDA data for assessing pricing outcomes 
during fair lending analyses. Currently, the rate spread data field is 
the only quantitative pricing measure included in the HMDA data. This 
data field includes rate spread data only for higher-priced mortgage 
loans, which currently comprise less than 5 percent of originated loans 
in the HMDA data. Thus, the usefulness of this data field is highly 
limited in today's environment, and for the foreseeable future. In 
addition, mortgage products and pricing structure are inherently 
complex. The rate spread data are based on the APR. APR alone, though a 
useful summary measure that is commonly recognizable to borrowers, 
fails to capture all of the underlying complexities that go into 
mortgage pricing. Adding discount points, lender credits, and interest 
rate will provide a much clearer understanding of the trade-offs 
between rates and points that are the foundation of mortgage pricing. 
The total loan costs, lender credits, and origination charge data 
fields will provide a deeper understanding of fees, which form the 
third component of mortgage pricing.
    Furthermore, many of the new HMDA data points capture legitimate 
factors that financial institutions use in underwriting and pricing 
that are currently lacking in the HMDA data, which will help regulators 
and government enforcement agencies to better understand disparities in 
outcomes. Many, if not all, lenders consider data points such as credit 
score, CLTV, DTI, and AUS results when either underwriting or pricing 
mortgage applications. The addition of these types of data points will 
help users understand patterns in underwriting and pricing outcomes and 
thus better assess the fair lending risk presented by those outcomes.
    Finally, the addition of the age data field will allow users to 
analyze outcomes for different age groups during fair lending analyses. 
Although consumers are protected against discrimination on the basis of 
age by ECOA and Regulation B, HMDA data currently lack a direct means 
of measuring the age of applicants. This limits the ability of 
government agencies and community groups to monitor and enforce 
violations of ECOA and Regulation B prohibitions against age 
discrimination in mortgage markets. Older individuals, in particular, 
are potentially at a higher risk of age discrimination, as well as 
unfair, deceptive, or abusive acts or practices. These data are 
especially important as an increased number of baby boomers enter 
retirement. The addition of the age data field will allow users to 
identify potential differential treatment of older Americans for 
various mortgage products. For example, reverse mortgages are designed 
to serve senior consumers and are priced based on age factors, 
providing an illustration of the importance of adding this data field 
to the HMDA data. Age data might also help inform housing policies 
designed to assist seniors in maintaining or obtaining home ownership, 
and building or utilizing home equity for improved social welfare.
    The new HMDA data fields will reduce the false positive rates that 
occur when inadequate information causes regulators and enforcement 
agencies to initially misidentify financial institutions with low fair 
lending risk as having a high risk of fair lending violations. Better 
alignment between the degrees of regulatory scrutiny and fair lending 
risk will increase the likelihood of identifying any instances where 
consumers are being illegally disadvantaged, thereby ultimately 
benefitting consumers.
    New HMDA data points--costs to consumers. The addition of 50 data 
fields will not impose any direct costs on consumers. However, 
consumers may bear some indirect costs if financial institutions pass 
on some or all of the costs imposed on them by the final rule. 
Following microeconomic principles, the Bureau believes that financial 
institutions will pass on increased variable costs to future mortgage 
applicants, but will absorb one-time costs and increased fixed costs if 
markets are perfectly competitive and financial institutions are profit 
maximizers. The Bureau estimates that the impact of the additional 50 
data fields on variable costs per application is approximately $22 for 
a representative tier 3 financial institution, $0.62 for a 
representative tier 2 financial institution, and $0.05 for a 
representative tier 1 financial institution.\512\ This expense will be 
amortized over the life of the loan and represents a small increase in 
the cost of a mortgage loan. Therefore, the Bureau does not anticipate 
any material adverse effect on credit access in the long or short term 
if financial institutions pass on these costs to consumers.
---------------------------------------------------------------------------

    \512\ These estimates are for financial institutions that meet 
the threshold for reporting closed-end mortgage loans, and not for 
reporting of open-end lines of credit or quarterly reporting.
---------------------------------------------------------------------------

    During the Small Business Review Panel process, some small entity 
representatives noted that they would attempt to pass on all increased 
compliance costs associated with the final rule, but that this would be 
difficult in the current market where profit margins for mortgages are 
tight. In addition, some small entity representatives noted that they 
would attempt to pass on costs through higher

[[Page 66292]]

fees on other products offered, leave geographic or product markets, or 
spend less time on customer service. Many comments to the proposed rule 
echoed similar sentiments that the proposal would likely increase the 
cost of credit for consumers. As discussed above, the Bureau believes 
that any costs passed on to consumers will be amortized over the life 
of a loan and represent a negligible increase in the cost of a mortgage 
loan. Therefore, the Bureau does not anticipate any material adverse 
effect on credit access in the long or short term even if financial 
institutions pass on these costs to consumers.
    New HMDA data points--benefits to covered persons. The Bureau 
believes that the additional data points will improve current processes 
used to identify possible discriminatory lending patterns, which could 
reduce the burden of financial institutions subject to fair lending 
examinations or investigations. Financial regulators and enforcement 
agencies use HMDA data in their initial prioritization and screening 
processes to select institutions for examination or investigation, and 
as the base dataset during fair lending reviews. During prioritization 
analyses, the additional data points will provide information about the 
legitimate factors used in underwriting and pricing that are currently 
lacking in the HMDA data, helping government agencies better understand 
disparities in outcomes. They will also allow for improved 
segmentation, so that applications are compared to other applications 
for similar products. Finally, the additional data points on pricing 
measures will greatly enhance screening analyses of pricing decisions. 
All of these improvements will reduce false positives resulting from 
inadequate information. Examination resources will be used more 
efficiently, so that lenders at low risk of fair lending violations 
receive a reduced level of regulatory scrutiny.
    New HMDA data points--one-time costs to covered persons. The new 
data points included in the final rule will impose one-time costs on 
HMDA reporters. Management, operations, legal, and compliance personnel 
will likely require time to learn the new reporting requirements and 
assess legal and compliance risks. Financial institutions that use 
vendors for HMDA compliance will incur one-time costs associated with 
software installation, troubleshooting, and testing. The Bureau is 
aware that these activities will take time and that the costs may be 
sensitive to the time available for them. Financial institutions that 
maintain their own reporting systems will incur one-time costs to 
develop, prepare, and implement the necessary modifications to those 
systems. In all cases, financial institutions will need to update 
training materials to reflect new requirements and may incur certain 
one-time costs for providing initial training to current employees. The 
Bureau expects these one-time costs to be relatively small for less 
complex financial institutions. These entities use less complex 
reporting processes, so the tasks involved are more manual than 
automated and new requirements may involve greater use of established 
processes. As a result, compliance will likely require straightforward 
changes in systems and workplace practices and therefore impose 
relatively low one-time costs.
    The Bureau estimates the additional reporting requirements will 
impose on average estimated one-time costs of $3,000 for tier 3 
financial institutions, $250,000 for tier 2 financial institutions, and 
$800,000 for tier 1 financial institutions without considering the 
expansion of transactional coverage to include expanded reporting of 
open-end lines of credit, closed-end home-equity loans, and reverse 
mortgages.\513\ Including the estimated one-time costs to modify 
processes and systems for these expanded reporting requirements, the 
Bureau estimates that the total one-time costs will be $3,000 for tier 
3 institutions, $375,000 for tier 2 institutions, and $1,200,000 for 
tier 1 institutions. In total, this yields an overall market impact 
between $725,900,000 and $1,339,100,000. Using a 7 percent discount 
rate and a five-year amortization window, the annualized one-time cost 
is $177,000,000 to $326,600,000. As a frame of reference for these 
market-level, one-time cost estimates, the total non-interest expenses 
of current HMDA reporters were approximately $420 billion in 2012. The 
upper bound estimate of $1,339,100,000 is approximately 0.3 percent of 
the total annual non-interest expenses.\514\ Because these costs are 
one-time investments, financial institutions are expected to amortize 
these costs over a period of years.
---------------------------------------------------------------------------

    \513\ The Bureau realizes that the impact of one-time costs 
varies by institution due to many factors, such as size, operational 
structure, and product complexity, and that this variance exists on 
a continuum that is impossible to fully capture. As a result, the 
one-time cost estimates will be high for some financial 
institutions, and low for others.
    \514\ The Bureau estimated the total non-interest expense for 
banks, thrifts and credit unions that reported to HMDA based on Call 
Report and NCUA Call Report data for depository institutions and 
credit unions, and NMLS data for nondepository institutions, all 
matched with 2012 HMDA reporters.
---------------------------------------------------------------------------

    New HMDA data points--ongoing costs to covered persons. The final 
rule requires financial institutions to report 50 additional data 
fields. Adding these additional data fields increases the cost of many 
operational steps required to report data, including transcribing data, 
transferring data to HMS, conducting annual edits/checks, and 
conducting external audits. The Bureau estimates that the impact of the 
additional 50 data fields on annual operational costs is approximately 
$2,400 for a representative tier 3 financial institution, $15,800 for a 
representative tier 2 financial institution, and $38,600 for a 
representative tier 1 financial institution.\515\ This translates into 
a market-level cost of $54,600,000 to $92,900,000 per year. Using a 7 
percent discount rate, the net present value of this cost over five 
years is $224,000,000 to $381,000,000. Considering operational 
improvements, the estimated increase in the operational cost of 
reporting these 50 additional data fields is approximately $2,100, 
$10,900, and $31,000 per year for representative tier 3, tier 2, and 
tier 1 financial institutions, respectively. This translates into a 
market-level cost of $41,000,000 to $66,100,000 per year. The net 
present value of this impact over five years will be a cost increase of 
$168,100,000 to $271,100,000.
---------------------------------------------------------------------------

    \515\ These estimates are for financial institutions that meet 
the threshold for reporting closed-end mortgage loans, but not for 
reporting of open-end lines of credit or quarterly reporting.
---------------------------------------------------------------------------

    New HMDA data points--alternatives considered. To the extent that 
changes were adopted for any individual data point not identified by 
the Dodd-Frank Act, the costs and benefits of that decision are 
addressed in the section-by-section analysis of the relevant provision 
above. Assessing the regulation as a whole, however, the Bureau 
considered removing some or all of the discretionary data points. As 
explained in greater detail in the section-by-section analysis above, 
the Bureau believes that the final rule balances the benefits of 
improved data with the burden of reporting. Removing the discretionary 
data points would deprive communities, researchers, and public 
officials of important data beneficial to identifying potentially 
unlawful discriminatory lending patterns, targeting public investment, 
and determining whether financial institutions are serving the housing 
needs of their communities. For example, information regarding 
origination charges, discount points,

[[Page 66293]]

interest rate, and lender credits will provide a much clearer 
understanding of the trade-offs between fees, rates, and points that 
are the foundation of mortgage pricing and the cost of housing 
transactions. Eliminating the discretionary data points would also 
increase false positives and inefficiency in evaluating the lending 
activity of financial institutions. As explained above, many of the 
additional data points capture factors that financial institutions use 
in underwriting and pricing that are currently lacking in the HMDA 
data, such as CLTV, DTI, and AUS results. On the burden side, the 
primary driver of HMDA costs is establishing and maintaining systems to 
collect and report data, not the costs associated with collecting and 
reporting a particular data field. Therefore, removing discretionary 
data points would cause a significant loss of data that would not be 
justified by the relatively small reduction in burden.
6. The Modifications to Disclosure and Reporting Requirements
    The final rule will make several changes to the disclosure and 
reporting requirements under Regulation C. The first change concerns 
the modified loan/application register and the disclosure statement 
that a financial institution must make available to the public. 
Regulation C currently requires that a financial institution must make 
its ``modified'' loan/application register available to the public 
after removing three fields to protect applicant and borrower privacy: 
The application or loan ID, the date that the application was received, 
and the date that action was taken. Regulation C also requires 
financial institutions to make available to the public their disclosure 
statements, which are a series of tables describing an institution's 
HMDA data for the previous calendar year. The final rule requires 
financial institutions to make their modified loan/application 
registers and disclosure statements available to the public by making 
available brief notices referring members of the public seeking these 
data products to the Bureau's Web site to obtain them.
    Second, the Bureau is requiring that a financial institution that 
reported for the preceding calendar year at least 60,000 covered loans 
and applications, excluding purchased covered loans, submit its HMDA 
data for the first three quarters of the calendar year on a quarterly 
basis in addition to submitting its HMDA data for the entire calendar 
year on an annual basis. Based on 2013 HMDA data, 29 financial 
institutions reported at least 60,000 covered loans and applications, 
excluding purchased covered loans, in 2013, which comprised 
approximately 50 percent of the market. Although this estimate does not 
include the expansion of reporting of open-end lines of credit, the 
Bureau has determined that the requirement to report these products 
under the final rule is unlikely to have a significant impact on the 
number of financial institutions that would be required to report 
quarterly. Errors or omissions in the data that such financial 
institutions report on a quarterly basis will not be considered 
violations of HMDA or Regulation C if the financial institution makes a 
good-faith effort to report all required data fully and accurately 
within sixty calendar days after the end of each calendar quarter and 
corrects or completes the data prior to submitting its annual loan/
application register.
    Finally, the final rule will eliminate the option for financial 
institutions with 25 or fewer entries to submit the loan/application 
register in paper format.
    Benefits to consumers. The final rule eliminates the option of 
paper reporting for financial institutions reporting 25 or fewer 
records, and provides that financial institutions shall make their 
disclosure statements available to the public through a notice that 
clearly conveys that the disclosure statement may be obtained on the 
Bureau's Web site. These provisions will have little direct benefit to 
most consumers because they do not significantly change the substance, 
collection, or release of the information required to be reported.
    However, the requirement that financial institutions make their 
modified loan/application registers available to the public by making 
available a brief notice referring members of the public to the 
Bureau's Web site will generally benefit some consumers. This provision 
will increase the availability of modified loan/application registers 
by providing one easily accessible location where members of the public 
will be able to access all modified loan/application registers for all 
financial institutions required to report under the statute. Although 
this benefit is limited somewhat by the fact that the modified loan/
application register is currently available for download in the 
agencies' release made available on the FFIEC Web site, the agencies' 
release is typically not available until almost six months after the 
modified loan/application register must be made available.
    Quarterly reporting by large volume financial institutions may have 
a number of benefits to consumers. Currently, there is significant 
delay between the time that final action is taken on an application and 
the time information about the application or loan is reported to 
regulators pursuant to Regulation C. This time delay ranges from two 
months if the date of final action occurs during December to 14 months 
if the date of final action occurs during January of the reporting 
year. The Bureau believes that timelier data will improve the ability 
of the regulators to identify current trends in mortgage markets, 
detect early warning signs of future housing finance crises, and 
determine, in much closer to ``real time,'' whether financial 
institutions are fulfilling their obligations to serve the housing 
needs of communities in which they are located, whether opportunities 
exist for public investment to attract private investment in 
communities, and whether there are possible discriminatory lending 
patterns. Also, timelier identification of risks and troublesome trends 
in mortgage markets by the Bureau and the appropriate agencies will 
allow for more effective interventions by public officials. Finally, 
the Bureau intends to release aggregate quarterly data or analysis to 
the public more frequently than annually, which would improve the 
ability of members of the public to use the data in a timely manner.
    Costs to consumers. The adopted changes requiring financial 
institutions to make their disclosure statements and modified loan/
application registers available to the public by providing brief 
notices referring members of the public to the Bureau's Web site, to 
eliminate the option of paper reporting for financial institutions 
reporting 25 or fewer records, and to require quarterly reporting by 
financial institutions that reported at least 60,000 covered loans or 
applications, excluding purchased covered loans, in the preceding year 
will impose only minimal direct costs on consumers. Permitting 
financial institutions to make their disclosure statements and modified 
loan/application register data available to the public through notices 
that clearly convey that the disclosure statements and modified loan/
application register data may be obtained on the Bureau's Web site will 
require consumers to obtain these disclosure statements online. Given 
the prevalence of internet access and the ease of using the Bureau's 
Web site, the Bureau believes these adopted changes will impose minimal 
direct costs on consumers. Any potential costs to consumers of 
obtaining disclosure statements and modified loan/application register 
data online are likely no greater than the

[[Page 66294]]

costs of obtaining disclosure statements and modified loan/application 
register data from the physical offices of financial institutions, or 
from a floppy disk or other electronic data storage medium that may be 
used with a personal computer, as contemplated by HMDA section 
304(k)(1)(b).
    However, consumers may bear some indirect costs of the changes in 
the final rule if financial institutions pass on some or all of their 
increased costs to consumers. Following microeconomic principles, the 
Bureau believes that financial institutions will pass on increased 
variable costs to future loan applicants but will absorb one-time costs 
and increased fixed costs if financial institutions are profit 
maximizers and the market is perfectly competitive. The Bureau defines 
variable costs as costs that depend on the number of applications 
received. Based on initial outreach efforts, five of the 18 operational 
tasks are variable cost tasks: Transcribing data, resolving 
reportability questions, transferring data to an HMS, geocoding, and 
researching questions.
    The Bureau believes that the four changes discussed in this section 
will have either no, or only a minimal, effect on these variable cost 
tasks. Quarterly reporting, as well as the requirements that financial 
institutions make their disclosure statements and modified loan/
application registers available to the public by making available a 
brief notice referring members of the public to the Bureau's Web site, 
will not impact any variable-cost operational steps. Hence, these three 
revisions in the final rule will not lead financial institutions to 
pass through some of the incremental costs to consumers in a perfectly 
competitive market with profit-maximizing financial institutions. 
Eliminating the option of paper reporting for financial institutions 
may increase transcription costs for financial institutions that 
currently qualify for this option and report HMDA data in paper form. 
However, given the closed-end and open-end reporting thresholds, very 
few, if any, financial institutions would meet the threshold for paper 
reporting. Given these factors, the Bureau estimates that the impact of 
this cost is negligible.
    Benefits to covered persons. The Bureau believes that eliminating 
the option of paper reporting and requiring quarterly reporting for 
certain financial institutions will provide little direct benefit to 
covered persons. However, the requirement that financial institutions 
make their modified loan/application registers available to the public 
by providing a brief notice referring members of the public to the 
Bureau's Web site will benefit covered persons. This provision reduces 
costs to financial institutions associated with preparing and making 
available to the public the modified loan/application register and 
eliminates a financial institution's risk of missing the deadline to 
make it available. It also eliminates the risks to financial 
institutions making errors in preparing the modified loan/application 
register that could result in the unintended disclosure of data.
    Initial outreach efforts indicated that tier 3 financial 
institutions rarely receive requests for modified loan/application 
register data. However, some tier 3 financial institutions indicated 
that they nevertheless prepare the data in preparation for requests. 
The Bureau has represented this cost as equivalent to preparing one 
modified loan/application register dataset each year. The Bureau 
estimates that representative tier 2 and tier 1 financial institutions 
receive three and 15 requests for modified loan/application register 
data each year, respectively. Based on these estimated volumes, the 
Bureau estimates that this revision in the final rule will reduce 
ongoing operational costs by approximately $130 per year for a 
representative tier 3 financial institution, approximately $310 per 
year for a representative tier 2 financial institution, and 
approximately $770 per year for a representative tier 1 financial 
institution. This translates into a market-level reduction in cost of 
approximately $1,500,000 to $2,000,000 per year. Using a 7 percent 
discount rate, the net present value of this savings over five years is 
$6,100,000 to $8,200,000.
    Similarly, permitting a financial institution to make its 
disclosure statements available to the public through a notice that 
clearly conveys that the disclosure statement may be obtained on the 
Bureau's Web site will free financial institutions from having to 
download and print their disclosure statements in order to provide them 
to requesters. Initial outreach efforts indicated that tier 3 financial 
institutions rarely receive requests for disclosure statements. 
However, some tier 3 financial institutions indicated that they 
nevertheless download and print a disclosure statement in preparation 
for requests. The Bureau has represented this cost as equivalent to 
receiving one request for a disclosure statement each year. The Bureau 
estimates that on average tier 2 and tier 1 financial institutions 
receive three and 15 requests for disclosure statements each year, 
respectively. Based on these estimated volumes, the Bureau estimates 
that this change will reduce ongoing operational costs by approximately 
$15 per year for a representative tier 3 financial institution, 
approximately $50 per year for a representative tier 2 financial 
institution, and approximately $250 per year for a representative tier 
1 financial institution. This translates into a market-level reduction 
in cost of approximately $250,000 to $333,000 per year. Using a 7 
percent discount rate, the net present value of this savings over five 
years is $1,015,000 to $1,366,000.
    One-time costs to covered persons. The Bureau believes that the 
provisions requiring financial institutions to make their disclosure 
statements and modified loan/application registers available to the 
public by providing brief notices referring members of the public to 
the Bureau's Web site will require a one-time cost to create the 
notice. However the Bureau believes that the one-time cost to create 
these notices will be negligible. Similarly, the Bureau believes that 
the revisions in the final rule to require quarterly reporting by large 
volume financial institutions, and to eliminate the option of paper 
reporting, will not impose any significant one-time costs on covered 
persons.
    Ongoing costs to covered persons. The Bureau believes that the 
provisions requiring financial institutions to make their disclosure 
statements and modified loan/application registers available to the 
public by providing brief notices referring members of the public to 
the Bureau's Web site will not increase ongoing costs to covered 
persons. Eliminating the option of paper reporting for financial 
institutions reporting 25 or fewer records may increase transcription 
costs for financial institutions that currently maintain all HMDA data 
in paper form. However, as discussed above, the Bureau believes that 
the number of financial institutions that do this is very low, 
especially given changes to the institutional coverage criteria, 
planned improvements to the data submission process and the small size 
of the loan/application register at issue (25 or fewer records). 
Therefore, the Bureau estimates that the impact of this cost is 
negligible.
    Quarterly reporting will increase ongoing costs to covered persons, 
as costs will increase for annual edits and internal checks, checking 
post-submission edits, filing post-submission edits, internal audits, 
and external audits. The Bureau estimates that this change will 
increase ongoing operational costs by approximately

[[Page 66295]]

$31,000 per year for a representative tier 1 financial 
institution.\516\
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    \516\ The Bureau also estimates that this change will increase 
ongoing operational costs by approximately $800 and $5,000 per year 
for representative tier 3 and 2 institutions, respectively, were 
these institutions required to report quarterly. However, since the 
Bureau believes that all the financial institutions subject to 
quarterly reporting under the final rule will be tier 1 
institutions, the estimates for tier 3 and tier 2 institutions have 
been excluded. These estimates are for financial institutions that 
meet the threshold for reporting closed-end mortgage loans, but not 
for reporting of open-end lines of credit.
---------------------------------------------------------------------------

    Based on 2013 HMDA data, 29 financial institutions reported at 
least 60,000 covered loan and applications, combined, excluding 
purchased covered loans, in 2013, which is substantially larger than 
the average loan/application register sizes of the representative tier 
3 institutions (50 records), tier 2 institutions (1,000 records), and 
is also above the loan/application register size of the representative 
tier 1 institutions (50,000) assumed by the Bureau. Therefore, the 
Bureau believes that it is reasonable to regard all of these 
institutions as tier 1 HMDA reporters. This yields an estimated market 
cost of $899,000 (= 29 * $31,000). Using a 7 percent discount rate, the 
net present value of this impact over five years will be approximately 
an increase in costs of $3,700,000.

G. Potential Specific Impacts of the Final Rule

1. Depository Institutions and Credit Unions With $10 Billion or Less 
in Total Assets, as Described in Section 1026
    As discussed above, the final rule makes certain changes to the 
institutional and transactional coverage of Regulation C and modifies 
the disclosure and reporting requirements. The Bureau believes that the 
benefits of these revisions for depository institutions and credit 
unions with $10 billion or less in total assets will be similar to the 
benefits to creditors as a whole, as discussed above. The only 
potential difference would be the benefits of aligning current and new 
HMDA data points to industry standards, which will likely create higher 
benefits for larger institutions. Regarding costs, other than as noted 
here, the Bureau also believes that the impact of the final rule on the 
depository institutions and credit unions with $10 billion or less in 
total assets will be similar to the impact for creditors as a whole. 
The primary difference in the impact on these institutions is likely to 
come from differences in the level of complexity of operations, 
compliance systems, and software of these institutions. The three 
representative lender types, which the Bureau analyzed when considering 
the benefits, costs and impacts of the final rule, incorporate 
differences in complexity and infrastructure across financial 
institutions, and the effect of these differences on impacts of the 
final rule.
    Based on Call Report data for December 2013, 13,454 of 13,565 
depository institutions and credit unions had $10 billion or less in 
total assets. Based on 2013 HMDA data, and the reporting requirement 
for closed-end mortgage loans in the final rule, approximately 4,800 of 
these depository institutions and credit unions would be required to 
report data on closed-end mortgage loans. Six of the estimated 29 
institutions that would have been required to report on a quarterly 
basis in 2014 had the final rule been in effect were depository 
institutions or credit unions with $10 billion or less in total assets. 
Given their large loan/application register volumes, all of these 
institutions are assumed to be tier 1 institutions. Finally, 
approximately 749 institutions will meet the threshold for open-end 
lines of credit and be required to report data on these products. The 
Bureau estimates that 660 of these institutions are depository 
institutions and credit unions with $10 billion or less in total 
assets. Under all of these assumptions, the Bureau estimates that the 
market-level impact of the final rule on operational costs for 
depository institutions and credit unions with $10 billion or less in 
total assets will be a cost of between $27,600,000 and $44,500,000. 
Using a discount rate of 7 percent, the net present value of this cost 
over five years is between $113,000,000 and $182,500,000. Regarding 
one-time costs, the Bureau estimates that the market-level impact of 
the final rule for depository institutions and credit unions with $10 
billion or less in total assets is between $637,200,000 and 
$1,252,300,000. Using a 7 percent discount rate and a five-year 
amortization window, the annualized one-time cost is between 
$155,400,000 and $305,400,000.
2. Impact of the Provisions in the Final Rule on Consumers in Rural 
Areas
    The Bureau believes that the provisions in the final rule will not 
impose direct costs to consumers in rural areas. However, as with all 
consumers, consumers in rural areas may bear some indirect costs of the 
final rule. This will occur if financial institutions serving rural 
areas are HMDA reporters and if these institutions pass on some or all 
of the cost increase to consumers.
    Recent research suggests that financial institutions that primarily 
serve rural areas are generally not HMDA reporters.\517\ The Housing 
Assistance Council (HAC) suggests that the asset and geographic 
coverage criteria disproportionately exempt small lenders operating in 
rural communities. For example, HAC uses 2009 Call Report data to show 
that approximately 700 FDIC-insured lending institutions had assets 
totaling less than the HMDA institutional coverage threshold and were 
headquartered in rural communities. These institutions, which would not 
be HMDA reporters, may represent one of the few sources of credit for 
many rural areas. Research by economists at the Federal Reserve Board 
also suggests that HMDA's coverage of rural areas is limited, 
especially areas further from MSAs.\518\ If a large portion of the 
rural housing market is serviced by financial institutions that are not 
HMDA reporters, any indirect impact of the changes on consumers in 
rural areas will be limited, as the changes directly involve none of 
those financial institutions.
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    \517\ See Keith Wiley, Housing Assistance Council, What Are We 
Missing? HMDA Asset-Excluded Filers, (2011), available at https://www.ruralhome.org/storage/documents/smallbanklending.pdf; Lance 
George and Keith Wiley, Housing Assistance Council, Improving HMDA: 
A Need to Better Understand Rural Mortgage Markets, (2010), 
available at https://www.ruralhome.org/storage/documents/notehmdasm.pdf.
    \518\ Robert B. Avery, Kenneth P. Brevoort, and Glenn B. Canner, 
Opportunities and Issues in Using HMDA Data, 29 J. of Real Estate 
Research 352 (2007), available at https://pages.jh.edu/jrer/papers/pdf/past/vol29n04/02.351_380.pdf.
---------------------------------------------------------------------------

    Although some research suggests that HMDA currently does not cover 
a significant number of financial institutions serving the rural 
housing market, HMDA data do contain information for some covered loans 
involving properties in rural areas. These data can be used to estimate 
the number of HMDA reporters servicing rural areas, and the number of 
consumers in rural areas that might potentially be affected by the 
changes to Regulation C. For this analysis, the Bureau uses non-MSA 
areas as a proxy for rural areas, with the understanding that portions 
of MSAs and non-MSAs may contain urban and rural territory and 
populations. In 2013, 5,678 HMDA reporters reported applications, 
originations, or purchased loans for property located in geographic 
areas outside of an MSA.\519\ This count

[[Page 66296]]

provides some sense of the number of financial institutions that could 
potentially pass on impacts of the final rule to consumers in rural 
areas.\520\ In total, these 5,678 financial institutions reported 
1,989,000 applications, originations, or purchased loans for properties 
in non-MSA areas. This number provides some sense of the number of 
consumers in rural areas that could potentially be impacted indirectly 
by the changes in the final rule. In general, individual financial 
institutions report small numbers of closed-end mortgage loans from 
non-MSAs, as approximately 70 percent reported fewer than 100 closed-
end mortgage loans from non-MSAs.
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    \519\ These counts exclude preapproval requests that were denied 
or approved but not accepted, because geographic information is 
typically not available for these transactions.
    \520\ These counts do not include the estimated 750 or so 
financial institutions that will be required to report open-end 
lines of credit, or the estimated 75-450 nondepository institutions 
that will be required to report due to the coverage threshold being 
reduced from 100 to 25. In both instances, data required to estimate 
how many of these institutions serve rural areas is limited. To the 
extent that some do serve rural areas, the numbers presented will be 
underestimates.
---------------------------------------------------------------------------

    Following microeconomic principles, the Bureau believes that 
financial institutions will pass on increased variable costs to future 
mortgage applicants but will absorb one-time costs and increased fixed 
costs if financial institutions are profit maximizers and the market is 
perfectly competitive.\521\ The Bureau defines variable costs as costs 
that depend on the number of applications received. Based on initial 
outreach efforts, the following five operational steps affect variable 
costs: Transcribing data, resolving reportability questions, 
transferring data to an HMS, geocoding, and researching questions. The 
primary impact of the final rule on these operational steps is an 
increase in time spent per task. Overall, the Bureau estimates that the 
impact of the final rule on variable costs per application is $23 for a 
representative tier 3 financial institution, $0.20 for a representative 
tier 2 financial institution, and $0.10 for a representative tier 1 
financial institution.\522\ The 5,678 financial institutions that 
served rural areas would attempt to pass these variable costs on to all 
future mortgage customers, including the estimated 2 million consumers 
from rural areas. Amortized over the life of the loan, this expense 
would represent a negligible increase in the cost of a mortgage loan. 
Therefore, the Bureau does not anticipate any material adverse effect 
on credit access in the long or short term even if these financial 
institutions pass on these costs to consumers.
---------------------------------------------------------------------------

    \521\ If markets are not perfectly competitive or financial 
institutions are not profit maximizers then what financial 
institutions pass on may differ. For example, they may attempt to 
pass on one-time costs and increases in fixed costs, or they may not 
be able to pass on variable costs.
    \522\ These cost estimates do not incorporate the impact of 
operational improvements and additional help sources. These 
estimates are for financial institutions that meet the threshold for 
reporting closed-end mortgage loans, but not for reporting of open-
end lines of credit or quarterly reporting.
---------------------------------------------------------------------------

    During the Small Business Review Panel process, some small entity 
representatives noted that they would attempt to pass on all increased 
compliance costs associated with the final rule, but that this would 
depend upon the competiveness of the market in which they operate, 
especially for smaller financial institutions. In addition, some small 
entity representatives noted that they would attempt to pass on costs 
through higher fees on other products, exit geographic or product 
markets, or spend less time on customer service. The similar concern 
was echoed by some industry comments to the proposal. To the extent 
that the market is less than perfectly competitive and the lenders are 
able to pass on a greater amount of these compliance costs, the costs 
to consumers will be slightly larger than the estimates described 
above. Nevertheless, the Bureau believes that the potential costs that 
will be passed on to consumers are small.
    On the benefit side, the expanded institutional and transactional 
coverage, and reporting requirements may indirectly benefit consumers 
in rural areas to the extent that HMDA reporters serve these areas. 
Specifically, the revisions in the final rule will provide the public 
and public officials with information to help determine whether 
financial institutions are serving the housing needs of rural 
communities, to target public investment to attract private investment 
in rural communities, and to identify possible discriminatory lending 
patterns and enforce antidiscrimination statutes.
    Given the differences between rural and non-rural markets in 
structure, demand, supply, and competition level, consumers in rural 
areas may experience benefits and costs from the final rule that are 
different than those experienced by consumers in general. To the extent 
that the impacts of the final rule on creditors differ by type of 
creditor, this may affect the costs and benefits of the final rule on 
consumers in rural areas. The Bureau solicited feedback regarding the 
impact of the proposed rule on consumers in rural areas. One national 
trade association commenter cited a study from several individuals at 
the Mercatus Center at George Mason University that found compliance 
burden had increased for over 90 percent of community banks surveyed, 
and that banks in rural areas were particularly impacted. This survey 
focused on the overall burden of all recent regulation, and did not 
focus on the burden specific to HMDA. Therefore, the Bureau was unable 
to determine how much of the increased cost to attribute to the final 
HMDA rule and has not revised the estimates contained in this part 
based on the particular study cited by the commenter.

III. Final Regulatory Flexibility Act Analysis

    The Regulatory Flexibility Act (RFA) generally requires an agency 
to conduct an initial regulatory flexibility analysis (IRFA) and a 
final regulatory flexibility analysis (FRFA) of any rule for which 
notice-and-comment procedures are required by 5 U.S.C. 553.\523\ These 
analyses must describe the impact of the rule on small entities.\524\ 
An IRFA or FRFA is not required if the agency certifies that the rule 
will not have a significant economic impact on a substantial number of 
small entities.\525\ The Bureau is also subject to certain additional 
procedures under the RFA involving the convening of a panel to consult 
with small business representatives prior to proposing a rule for which 
an IRFA is required.\526\
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    \523\ 5 U.S.C. 601 et. seq.
    \524\ For purposes of assessing the impacts of the final rule on 
small entities, ``small entities'' is defined in the RFA to include 
small businesses, small not-for-profit organizations, and small 
government jurisdictions. 5 U.S.C. 601(6). A ``small business'' is 
determined by application of Small Business Administration 
regulations and reference to the North American Industry 
Classification System (NAICS) classifications and size standards. 5 
U.S.C. 601(3). A ``small organization'' is any ``not-for-profit 
enterprise which is independently owned and operated and is not 
dominant in its field.'' 5 U.S.C. 601(4). A ``small governmental 
jurisdiction'' is the government of a city, county, town, township, 
village, school district, or special district with a population of 
less than 50,000. 5 U.S.C. 601(5).
    \525\ 5 U.S.C. 605(b).
    \526\ 5 U.S.C. 609.
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    In the proposal, the Bureau did not certify that the proposed rule 
would not have a significant economic impact on a substantial number of 
small entities within the meaning of the RFA. Accordingly, the Bureau 
convened and chaired a Small Business Review Panel under the Small 
Business Regulatory Enforcement Fairness Act (SBREFA) to consider the 
impact of the proposed rule on small entities that would be subject to 
that rule and to obtain feedback from representatives of such small 
entities. The 2014 HMDA Proposal preamble included detailed information 
on the Small Business Review Panel. The Panel's advice and 
recommendations

[[Page 66297]]

are found in the Small Business Review Panel Final Report \527\ and 
were discussed in the section-by-section analysis of the proposed rule. 
The 2014 HMDA Proposal also contained an IFRA pursuant to section 603 
of the RFA. In this IRFA, the Bureau solicited comment on any costs, 
recordkeeping requirements, compliance requirements, or changes in 
operating procedures arising from the application of the proposed rule 
to small businesses; comment regarding any Federal rules that would 
duplicate, overlap, or conflict with the proposed rule; and comment on 
alternative means of compliance for small entities. Comments addressing 
individual provisions of the final rule are addressed in the section-
by-section analysis above. Comments addressing the impact on small 
entities are discussed below. Many of these comments implicated 
individual provisions of the final rule or the Bureau's Dodd-Frank Act 
section 1022 discussion, and are also addressed in those parts.
---------------------------------------------------------------------------

    \527\ See Final Report of the Small Business Review Panel on the 
CFPB's Proposals Under Consideration for the Home Mortgage 
Disclosure Act (HMDA) Rulemaking (April 24, 2014), https://files.consumerfinance.gov/f/201407_cfpb_report_hmda_sbrefa.pdf.
---------------------------------------------------------------------------

    Based on the comments received, and for the reasons stated below, 
the Bureau believes the final rule will have a significant economic 
impact on a substantial number of small entities. Accordingly, the 
Bureau has prepared the following final regulatory flexibility analysis 
pursuant to section 604 of the RFA.

A. Statement of the Need for, and Objectives of, the Rule

    The Bureau is publishing the final rule to implement section 1094 
of the Dodd-Frank Act, which amended HMDA to improve the utility of the 
HMDA data.\528\ HMDA was intended to provide the public with 
information that can be used to help determine whether financial 
institutions are serving the housing needs of their communities, to 
assist public officials in distributing public-sector investment so as 
to attract private investment, and to assist in identifying possible 
discriminatory lending patterns and enforcing antidiscrimination 
statutes. Historically, HMDA has been implemented by the Board through 
Regulation C, 12 CFR part 203. In 2011, the Bureau established a new 
Regulation C, 12 CFR part 1003, substantially duplicating the Board's 
Regulation C, making only non-substantive, technical, formatting, and 
stylistic changes. Congress has periodically modified HMDA, and the 
Board routinely updated Regulation C, in order to ensure that the data 
continued to fulfill HMDA's purposes. In 2010, Congress responded to 
the mortgage crisis by passing the Dodd-Frank Act, which enacted 
changes to HMDA, as well as directing reforms to the mortgage market 
and the broader financial system. In addition to transferring 
rulemaking authority for HMDA from the Board to the Bureau, section 
1094 of the Dodd-Frank Act, among other things, directed the Bureau to 
implement changes requiring the collection and reporting of several new 
data points, and authorized the Bureau to require financial 
institutions to collect and report such other information as the Bureau 
may require.
---------------------------------------------------------------------------

    \528\ Dodd-Frank Act, Public Law 111-203, section 1094, 124 
Stat. 1376, 2097 (2010).
---------------------------------------------------------------------------

    A full discussion of the reasons for the final rule may be found in 
parts V and VII, above. Briefly, the rule addresses the market failures 
caused by the underproduction of public mortgage data and the 
information asymmetries in credit markets through improved 
institutional and transactional coverage and additional information 
about underwriting, pricing, and property characteristics. The final 
rule will improve the ability of regulators, industry, advocates, 
researchers, and economists to assess housing needs, public investment, 
possible discrimination, and market trends.

B. Statement of the Significant Issues Raised by the Public Comments in 
Response to the IRFA, a Statement of the Assessment of the Agency of 
Such Issues, and a Statement of Any Changes Made as a Result of Such 
Comments

    In accordance with section 603(a) of the RFA, the Bureau prepared 
an IRFA. In the IRFA, the Bureau estimated the possible compliance 
costs for small entities with respect to each major component of the 
rule against a pre-statute baseline. The Bureau requested comment on 
the IRFA.
    Very few commenters specifically addressed the IRFA. Comments that 
repeated the same issues raised by the Office of Advocacy of the U.S. 
Small Business Administration are addressed in part VIII.C, below. 
Other comments related to small financial institutions are discussed 
here. As discussed in the section 1022 analysis in part VII above, 
several commenters addressed the impact of the proposed rule on small 
financial institutions. Several industry commenters stated that the 
proposed rule would create a competitive disadvantage for small 
financial institutions. For example, these commenters noted that larger 
financial institutions would be able to distribute the cost of 
compliance across a larger transaction base. Several industry 
commenters cited reports from Goldman Sachs and Banking Compliance 
Index figures to support claims that regulatory burdens were 
disproportionally affecting small financial institutions and preventing 
low income consumers from accessing certain financial products. Another 
industry commenter cited the decline in HMDA reporters from 2012 to 
2013 as evidence that small financial institutions have left the 
market.
    The Bureau presented separate impact estimates for low-, moderate-, 
and high-complexity institutions, broadly reflecting differences in 
impact across institutions of different size, and has recognized that 
on average the smaller institution will incur slightly higher 
compliance costs per HMDA record due to the final rule than larger 
institutions. However, the magnitude of such impact on a per 
application basis is fairly small. Specifically, for low-complexity 
institutions, which best represent small institutions, the estimated 
impact on operational costs, after the operational modifications the 
Bureau is making, is approximately $1,900 per year.\529\ This 
translates into approximately a $38 increase in per application costs. 
Based on recent survey estimates of net income from the MBA, this 
impact represents approximately 1.3 percent ($38/$2,900) of net income 
per origination for mid/medium sized banks, which the Bureau views as 
relatively small. Therefore, the Bureau concludes that the final rule 
will have little impact on any competitive disadvantage faced by small 
institutions.
---------------------------------------------------------------------------

    \529\ This estimate applies to financial institutions that meet 
the threshold for reporting closed-end mortgage loans, but not for 
reporting of open-end lines of creditor quarterly reporting.
---------------------------------------------------------------------------

    Other industry commenters believed that the proposal would likely 
increase the cost of credit for consumers. Several of these commenters 
cited the cost of systems modifications associated with reporting home-
equity lines of credit. A few commenters claimed that certain small 
financial institutions, such as small credit unions, small farm credit 
lenders, or small banks, would be faced with difficult choices, such as 
merging, raising prices, originating fewer loans, or exiting the 
market. A small number of industry commenters stated that they would 
double their origination fees as a result of the proposed rule. A 
national trade association commenter cited, among other things, a study 
from several individuals at the Mercatus Center at

[[Page 66298]]

George Mason University and a survey of its members showing that small 
financial institutions were decreasing their mortgage lending activity 
in response to increased regulatory burdens. Similarly, other industry 
commenters pointed to a report from Goldman Sachs showing that higher 
regulatory costs had priced some low-income consumers out of the credit 
card and mortgage markets. Following standard economic theory, in a 
perfectly competitive market where financial institutions are profit 
maximizers, the affected financial institutions would pass on to 
consumers the marginal, i.e., variable, cost per application or 
origination and would absorb the one-time and increased fixed costs of 
complying with the rule. Overall, the Bureau estimates that the final 
rule will increase variable costs by $23 per application for 
representative tier 3 institutions, $0.20 per application for 
representative tier 2 institutions, and $0.10 per application for 
representative tier 1 institutions.\530\ These expenses will be 
amortized over the life of a loan and represent a negligible increase 
in the cost of a mortgage loan. Therefore, the Bureau does not 
anticipate any material adverse effect on credit access in the long or 
short term even if institutions pass on these costs to consumers.
---------------------------------------------------------------------------

    \530\ These estimates apply to financial institutions that meet 
the threshold for reporting closed-end mortgage loans, but not for 
reporting of open-end lines of credit or quarterly reporting.
---------------------------------------------------------------------------

    Several industry commenters explained that expanding the rule to 
include commercial-purpose transactions would increase the cost of 
business credit. These commenters stated that financial institutions 
would be less willing to take the dwelling of a borrower as collateral, 
which would decrease the availability of credit. However, as explained 
above, the Bureau is specifically exempting certain commercial-purpose 
transactions from the scope of the final rule so that coverage of 
commercial-purpose transactions is generally maintained at its existing 
level.\531\ Accordingly, the Bureau expects that the final rule will 
not have a significant impact on the availability of commercial credit.
---------------------------------------------------------------------------

    \531\ The revisions to the final rule will require reporting of 
commercial-purpose lines of credit for the purposes of home 
purchase, home improvement, or refinancing. Reporting of these loans 
is not currently required, therefore it is possible that the 
coverage of commercial-purpose loans will increase slightly, but the 
Bureau believes that the impact will be minimal.
---------------------------------------------------------------------------

    Other industry commenters believed that any utilization of the 
MISMO data standards would burden small entities. These commenters 
stated that small financial institutions would have to incur training 
costs to familiarize themselves with MISMO. One national trade 
association commenter reported that only 22 percent of community banks 
use MISMO. These commenters believe that MISMO alignment should be 
optional for small financial institutions. As explained above, the 
Bureau believes that these commenters have misunderstood the 
implications of the proposed MISMO alignment. The Bureau did not 
propose to, and the final rule does not, require any financial 
institution to use or become familiar with the MISMO data standards. 
Rather, the rule merely recognizes that many financial institutions are 
already using the MISMO standard for collecting and transmitting 
mortgage data, and has utilized similar definitions for certain data 
points in order to reduce burden. Thus, the rule decreases cost for 
those institutions that are familiar with MISMO. Financial institutions 
that are unfamiliar with MISMO may not realize a similar reduction in 
cost, but they will not experience any increased burden from the 
utilization of MISMO definitions because the final rule itself and the 
associated materials contain all of the necessary definitions and 
instructions for reporting HMDA data.
    Several industry commenters believed that the Bureau had ignored 
the comments of the small entity representatives that participated in 
the Small Business Review Panel or had simply solicited feedback in 
response to their suggestions. As noted in the IRFA, the small entity 
representatives made several comments at the SBREFA Panel. Many of 
these suggestions have been reflected in the final rule. For example, 
the Bureau heard from small entity representatives that they rarely, if 
ever, receive requests for their modified loan/application registers, 
and the Small Business Review Panel recommended that the Bureau 
consider whether there is a continued need for small institutions to 
make their modified loan/application registers available. The final 
rule provides that financial institutions shall make available to the 
public a notice that clearly conveys that the institution's modified 
loan/application register may be obtained on the Bureau's Web site. 
This approach relieves small financial institutions of the obligation 
to provide the modified loan/application register to the public 
directly. Additionally, several small entity representatives expressed 
concern over the operational difficulties of geocoding and the data 
submission process in general. The Bureau is making operational 
enhancements and modifications to address these concerns. For example, 
the Bureau is working to provide implementation support similar to the 
support provided for the title XIV and TILA-RESPA Integrated Disclosure 
rules. The Bureau is also improving the geocoding process, creating a 
web-based HMDA data submission and edit-check system, developing a 
data-entry tool for small financial institutions that currently use 
Data Entry Software, and otherwise streamlining the submission and 
editing process to make it more efficient. All of these enhancements 
will improve the submission and processing of data, increase clarity, 
and reduce reporting burden. Finally, small entity representatives 
requested a two-year look-back period in the loan-volume threshold. The 
final rule includes a two-year look-back period. Under the final rule, 
a financial institution that does not meet the loan-volume thresholds 
established in the final rule and that experiences an unusual and 
unexpected high origination volume in one year will not be required to 
begin HMDA reporting unless and until the higher origination volume 
continues for a second year in a row.
    In addition to modifying the proposed rule in direct response to 
suggestions from small entity representatives that participated in the 
Small Business Review Panel, the Bureau also modified the proposed rule 
based on responses to the Bureau's requests for feedback that were 
prompted by the small entity representatives. As one example, the 
proposed change in transactional coverage to a dwelling-secured basis 
would have extensively expanded reporting of commercial-purpose loans 
and lines of credit. In response to comments received about the cost 
impact of this proposal, the Bureau decided to maintain Regulation C's 
existing purpose-based coverage test for commercial-purpose 
transactions, which maintains coverage of commercial-purpose lending 
generally at existing levels. Similarly, the proposed change in 
transactional coverage to a dwelling-secured basis would have 
extensively expanded reporting of consumer-purpose open-end lines of 
credit. In response to comments received about the cost impact of this 
proposal, especially about the one-time costs of constructing the 
infrastructure to report data from a separate business line, the Bureau 
decided to adopt a separate loan-volume reporting threshold of 100 
open-end lines of credit. This threshold will reduce reporting burden 
for small entities.

[[Page 66299]]

C. Response to the Chief Counsel for Advocacy of the Small Business 
Administration and Statement of Any Change Made in the Final Rule as a 
Result of the Comments

    The SBA Office of Advocacy (Advocacy) provided a formal comment 
letter to the Bureau in response to the 2014 HMDA Proposal. Among other 
things, this letter expressed concern about the following issues: The 
expanded transactional coverage of the proposal, the analysis of the 
different loan-volume thresholds suggested by the small entity 
representatives, the requirement to report the discretionary data 
points, and the requirement to maintain modified loan/application 
registers.
    First, Advocacy expressed concern over the expanded transactional 
coverage of the proposed rule. The proposed rule would have covered all 
dwelling-secured closed-end mortgage loans, open-end lines of credit, 
and reverse mortgages. Advocacy supported the Bureau's decision to 
eliminate reporting of non-dwelling-secured home improvement loans. 
However, Advocacy noted that reporting additional transactions was 
burdensome for small financial institutions and believed that the new 
transactions might cause certain small financial institutions to become 
HMDA reporters for the first time. Advocacy urged the Bureau not to 
adopt the expanded transactional coverage.
    As described in greater detail in parts V and VII above, the Bureau 
considered the benefits and costs of the final rule's transactional 
coverage criteria. With respect to commercial-purpose transactions, the 
Bureau has decided to withdraw most of the expanded coverage of 
commercial-purpose loans. The Bureau is now limiting reporting of 
commercial-purpose loans and lines of credit to those for home 
purchase, home improvement, or refinancing purposes only. The Bureau is 
adopting the proposed expansion to consumer-purpose open-end lines of 
credit and reverse mortgages. Information about these types of 
transactions serves an important role in fulfilling HMDA's purposes. 
For example, among other things, data about reverse mortgages will help 
determine how the housing needs of seniors are being met, while data 
about open-end lines of credit will help assess housing-related credit 
being offered in particular communities.
    Regarding the impact of the new transactions on the loan-volume 
threshold, the Bureau notes that the 25-loan threshold includes only 
closed-end mortgage loans. The final rule institutes a separate 
reporting threshold of 100 open-end lines of credit for institutional 
coverage. As shown in Table 8 in part VII.F.3, above, compared to the 
proposal, this separate open-end reporting threshold will achieve a 
significant reduction in burden by eliminating the number of 
institutions that would be required to report data concerning their 
open-end lines of credit, if any, by almost 3,400, most which are 
likely small financial institutions. The Bureau further estimates that 
the open-end reporting threshold will require no additional financial 
institutions to report HMDA data, as compared to the current rule, 
because it is the Bureau's belief that nondepository institutions 
commonly are not engaged in dwelling-secured open-end-line-of-credit 
lending, and the depository institutions and credit unions that will 
report open-end lines of credit will still be subject to all other 
reporting requirements and hence can only come from current HMDA 
reporters.\532\ Therefore, the Bureau believes that the additional 
types of transactions required by the final rule will not impose a 
significant burden on small financial institutions or dramatically 
expand the institutional coverage of the rule.
---------------------------------------------------------------------------

    \532\ The Bureau estimates under the final rule, about 24 
depository institutions and credit unions will report open-end lines 
of credit but not closed-end mortgage loans. However, even these 
future open-end-only reporters are not new to HMDA reporting, as 
they are currently reporting under HMDA but likely will stop 
reporting closed-end mortgage loans given their closed-end loan 
volumes fall below the 25-loan closed-end threshold.
---------------------------------------------------------------------------

    Second, Advocacy believed that the loan-volume threshold was too 
low. Advocacy also expressed concern over the Bureau's consideration of 
alternative loan-volume thresholds. Advocacy stated that the 25-loan 
threshold would exclude approximately 70,000 records from depository 
institutions and include approximately 30,000 records from 
nondepository institutions. According to Advocacy, assuming that all 
excluded institutions were small entities, the proposal would exclude 
21 percent of small entities. Finally, Advocacy urged the Bureau to 
provide a full analysis of the possible loan-volume thresholds 
suggested by the small entity representatives.
    Throughout this rulemaking, the Bureau considered several higher 
loan-volume thresholds. These thresholds were evaluated based on their 
impact on the goals of the rulemaking, which include simplifying the 
reporting regime by establishing a uniform loan-volume threshold 
applicable to both depository and nondepository institutions; 
eliminating the burden of reporting from low-volume depository 
institutions while maintaining sufficient data for analysis at the 
national, local, and institutional levels; and increasing visibility 
into the home mortgage lending practices of nondepository institutions.
    As described in parts V and VII.F.3, above, the 25-loan threshold 
for closed-end mortgage loans appropriately balances multiple competing 
interests and advances the goals of the rulemaking. The Bureau believes 
that the threshold reduces burden on small financial institutions while 
preserving important data about communities and increasing visibility 
into the lending practices of nondepository institutions. The 25-loan 
threshold will achieve a significant reduction in burden by eliminating 
reporting by about 20 percent of depository institutions that are 
currently reporting. As described in greater detail throughout this 
discussion, the Bureau estimates that the most significant driver of 
costs under HMDA is fixed costs associated with the requirement to 
report, rather than the variable costs associated with any specific 
aspect of reporting, such as the number or complexity of required data 
fields or the number of entries. For example, the estimated annual 
ongoing cost of reporting under the rule is approximately $4,400 for a 
representative tier 3 financial institution after accounting for 
operational improvements. Just over $2,300 of this annual ongoing cost 
is composed of fixed costs. As a comparison, each required data field 
accounts for approximately $43 of this annual ongoing cost. Thus, the 
25-loan threshold for closed-end mortgage loans provides a meaningful 
reduction in burden.
    Higher thresholds would further reduce burden but would produce 
data losses that would undermine the benefits provided by HMDA data. 
One of the most substantial impacts of any loan-volume threshold is the 
information that it provides about lending at the community level, 
including information about vulnerable consumers and the origination 
activities of smaller lenders. Public officials, community advocates, 
and researchers rely on HMDA data to analyze access to credit at the 
neighborhood-level and to target programs to assist underserved 
communities and consumers. For example, Lawrence, Massachusetts 
identified a need for homebuyer counseling and education based on HMDA 
data, which showed a high percentage of high-cost loans compared

[[Page 66300]]

to surrounding communities.\533\ Similarly, HMDA data helped bring to 
light discriminatory lending patterns in Chicago neighborhoods, 
resulting in a large discriminatory lending settlement.\534\ In 
addition, researchers and consumer advocates analyze HMDA data at the 
census tract level to identify patterns of discrimination at a national 
level.\535\ Higher loan-volume thresholds would affect data about more 
communities and consumers. At a loan-volume threshold set at 100, 
according to 2013 HMDA data, the number of census tracts that would 
lose 20 percent of reported data would increase by almost eight times 
over the number with a threshold set at 25 loans. The number of 
affected LMI tracts would increase more than six times over the number 
at the 25-loan level. Tables 5-8 in part VII.F.3 provide additional 
information about how different reporting thresholds affect the number 
of financial institutions that would be required to report closed-end 
mortgage loans, as well as open-end lines of credit.
---------------------------------------------------------------------------

    \533\ See City of Lawrence, HUD Consolidated Plan 2010-2015, at 
68 (2010), available at https://www.cityoflawrence.com/Data/Sites/1/documents/cd/Lawrence_Consolidated_Plan_Final.pdf. Similarly, in 
2008 the City of Albuquerque used HMDA data to characterize 
neighborhoods as ``stable,'' ``prone to gentrification,'' or ``prone 
to disinvestment'' for purposes of determining the most effective 
use of housing grants. See City of Albuquerque, Five Year 
Consolidated Housing Plan and Workforce Housing Plan, at 100 (2008), 
available at https://www.cabq.gov/family/documents/ConsolidatedWorkforceHousingPlan20082012final.pdf. As another 
example, Antioch, California, monitors HMDA data, reviews it when 
selecting financial institutions for contracts and participation in 
local programs, and supports home purchase programs targeted to 
households purchasing homes in Census Tracts with low loan 
origination rates based on HMDA data. See City of Antioch, Fiscal 
Year 2012-2013 Action Plan, at 29 (2012), available at https://www.ci.antioch.ca.us/CitySvcs/CDBGdocs/Action%20Plan%20FY12-13.pdf. 
See, e.g., Dara D. Mendez et al., Institutional Racism and Pregnancy 
Health: Using Home Mortgage Disclosure Act Data to Develop an Index 
for Mortgage Discrimination at the Community Level, 126 Pub. Health 
Reports (1974-) Supp. 3, 102-114 (Sept/Oct. 2011) (using HMDA data 
to analyze discrimination against pregnant women in redlined 
neighborhoods), available at https://www.publichealthreports.org/issueopen.cfm?articleID=2732.
    \534\ See, e.g., Yana Kunichoff, Lisa Madigan Credits Reporter 
with Initiating Largest Discriminatory Lending Settlements in U.S. 
History (June 14, 2013), https://www.chicagonow.com/chicago-muckrakers/2013/06/lisa-madigan-credits-reporter-with-initiating-largest-discriminatory-lending-settlements-in-u-s-history/ (``During 
our ongoing litigation . . . the Chicago Reporter study looking at 
the HMDA data for the City of Chicago came out . . . It was such a 
startling statistic that I said . . . we have to investigate, we 
have to find out if this is true . . . We did an analysis of that 
data that substantiated what the Reporter had already found . . . 
[W]e ultimately resolved those two lawsuits. They are the largest 
fair-lending settlements in our nation's history.'')
    \535\ See, e.g., California Reinvestment Coalition, et al, 
Paying More for the American Dream VI: Racial Disparities in FHA/VA 
Lending, at https://www.woodstockinst.org/research/paying-more-american-dream-vi-racial-disparities-fhava-lending. Likewise, 
researchers have analyzed GSE purchases in census tracts designated 
as underserved by HUD using HMDA data. James E. Pearce, Fannie Mae 
and Freddie Mac Mortgage Purchases in Low-Income and High-Minority 
Neighborhoods: 1994-96, Cityscape: A Journal of Policy Development 
and Research (2001), available at https://www.huduser.org/periodicals/cityscpe/vol5num3/pearce.pdf.
---------------------------------------------------------------------------

    Additionally, the Bureau believes that it is important to increase 
visibility into nondepository institutions' practices due to the lack 
of adequate data regarding their lending activity. Uniform loan-volume 
thresholds of fewer than 100 loans annually will expand nondepository 
institution coverage, because the current test requires reporting by 
all nondepository institutions that meet the other applicable criteria 
and originate 100 loans annually.\536\ Therefore, any threshold set at 
100 loans would not provide any enhanced insight into nondepository 
institution lending and a threshold above 100 loans would actually 
decrease visibility into nondepository institutions' practices and 
hamper the ability of HMDA users to monitor risks posed to consumers by 
those institutions. The 25-loan volume threshold, however, achieves a 
significant expansion of nondepository institution coverage, with about 
a 40 percent increase in the number of reporting institutions.
---------------------------------------------------------------------------

    \536\ In addition, nondepository institutions that originate 
fewer than 100 applicable loans annually are required to report if 
they have assets of at least $10 million and meet the other 
criteria. See 12 CFR 1003.2 (definition of financial institution).
---------------------------------------------------------------------------

    Third, Advocacy stated that most small entities were concerned 
about the additional proposed data points that were not required by the 
Dodd-Frank Act. Advocacy believed that complying with the discretionary 
reporting requirements would impose additional expenses on small 
entities and might subject them to penalties for reporting errors. 
Therefore, Advocacy recommended that the Bureau exempt small entities 
from the reporting requirements regarding data points not mandated by 
the Dodd-Frank Act.
    The Bureau considered exempting smaller financial institutions from 
the requirement to report some or all of the discretionary data points. 
As described above, however, because under a tiered reporting regime 
smaller financial institutions would not report all or some of the HMDA 
data points, tiered reporting would prevent communities and users of 
HMDA data from learning important information about the lending and 
underwriting practices of smaller financial institutions, which may 
differ from those of larger institutions. Second, as discussed above, 
the primary driver of HMDA costs is establishing and maintaining 
systems to collect and report data, not the costs associated with 
collecting and reporting a particular data field. Therefore, tiered 
reporting would reduce the costs of low-volume depository institutions 
somewhat, but not significantly.
    Finally, Advocacy argued that requiring small entities to maintain 
modified loan/application registers was unduly burdensome because these 
institutions reported rarely being asked to provide such information to 
the public. Advocacy recommended removing small entities from this 
requirement. The Bureau generally agrees with these recommendations. As 
explained above, the final rule provides that financial institutions 
shall make available to the public a notice that clearly conveys that 
the institution's modified loan/application register may be obtained on 
the Bureau's Web site. This approach relieves all financial 
institutions, including small entities, of the obligation to provide 
the modified loan/application register to the public directly. The 
Bureau is also finalizing its proposal to provide that financial 
institutions shall make available to the public a notice that clearly 
conveys that the institution's disclosure statements may be obtained on 
the Bureau's Web site. This approach relieves all financial 
institutions, including small entities, of such burdens.

D. Description of and Estimate of the Number of Small Entities to Which 
the Rule Will Apply or an Explanation of Why No Such Estimate Is 
Available

    As discussed in the proposal and Small Business Review Panel 
Report, for purposes of assessing the impacts of the final rule on 
small entities, ``small entities'' is defined in the RFA to include 
small businesses, small not-for-profit organizations, and small 
government jurisdictions.\537\ A ``small business'' is determined by 
application of Small Business Administration regulations and reference 
to the North American Industry Classification System (NAICS) 
classifications and size standards.\538\ A ``small organization'' is 
any ``not-for-profit enterprise which is independently owned and 
operated and is not dominant in its field.'' \539\ A ``small 
governmental jurisdiction'' is the government of a city, county, town, 
township, village, school district, or

[[Page 66301]]

special district with a population of less than 50,000.\540\
---------------------------------------------------------------------------

    \537\ 5 U.S.C. 601(6).
    \538\ 5 U.S.C. 601(3).
    \539\ 5 U.S.C. 601(4).
    \540\ 5 U.S.C. 601(5).
---------------------------------------------------------------------------

    The following table provides the Bureau's estimate of the number 
and types of entities that may be affected by the final rule under 
consideration:
[GRAPHIC] [TIFF OMITTED] TR28OC15.008

E. Projected Reporting, Recordkeeping, and Other Compliance 
Requirements of the Rule, Including an Estimate of the Classes of Small 
Entities Which Will Be Subject to the Requirement and the Type of 
Professional Skills Necessary for the Preparation of the Report

1. Reporting Requirements
    HMDA requires financial institutions to report certain information 
related to covered loans to the Bureau or to the appropriate Federal 
agency.\541\ Under Regulation C, all reportable transactions must be 
recorded on a loan/application register within 30 calendar days \542\ 
after the end of the calendar quarter in which final action is taken. 
Currently, financial institutions must disclose to the public upon 
request a modified version of the loan/application register submitted 
to regulators.\543\ Financial institutions must also make their 
disclosure statements, which are prepared by the FFIEC from data 
submitted by the institutions, available to the public upon 
request.\544\
---------------------------------------------------------------------------

    \541\ 12 U.S.C. 2803(h)(1).
    \542\ 12 CFR 1003.4(a).
    \543\ 12 CFR 1003.5(c).
    \544\ 12 CFR 1003.5(b).
---------------------------------------------------------------------------

    The final rule modifies current reporting requirements and imposes 
new reporting requirements by requiring financial institutions to 
report additional information required by the Dodd-Frank Act, as well 
as certain information determined by the Bureau to be necessary and 
proper to effectuate HMDA's purposes. The rule also modifies the scope 
of the institutional and transactional coverage thresholds. In 
addition, under the final rule, financial institutions will make 
available to the public notices that clearly convey that the 
institution's disclosure statement and modified loan/application 
register may be obtained on the Bureau's Web site. Finally, financial 
institutions that reported at least 60,000 covered loans and 
applications, combined, excluding purchased loans, in the preceding 
calendar year will be required to report HMDA data on a quarterly basis 
to the appropriate Federal agency. These data will only be considered 
preliminary submissions, and the final rule provides a safe harbor that 
protects, in certain circumstances, a financial institution from being 
cited for violations of HMDA or Regulation C for errors and omissions 
in its quarterly submissions. The section-by-section analysis of the 
final rule in part V, above, discusses all of the additional required 
data points and the scope of the final rule in greater detail.
2. Recordkeeping Requirements
    HMDA currently requires financial institutions to compile and 
maintain information related to transactions involving covered loans. 
HMDA section 304(c) requires that information required to be compiled 
and made

[[Page 66302]]

available under HMDA section 304, other than loan/application register 
information required under section 304(j), must be maintained and made 
available for a period of five years. HMDA section 304(j)(6) requires 
that loan/application register information for any year shall be 
maintained and made available, upon request, for three years. 
Regulation C requires that all reportable transactions be recorded on a 
loan/application register within thirty calendar days after the end of 
the calendar quarter in which final action is taken.\545\ Regulation C 
further specifies that a financial institution shall retain a copy of 
its submitted loan/application register for its records for at least 
three years.\546\
---------------------------------------------------------------------------

    \545\ 12 CFR 1003.4(a).
    \546\ 12 CFR 1003.5(a).
---------------------------------------------------------------------------

    The final rule will not modify the recordkeeping periods for 
financial institutions. The rule might, however, indirectly require 
additional recordkeeping in that it will require financial institutions 
to maintain additional information as a result of the expanded 
reporting requirements described above. However, the final rule reduces 
the amount of recordkeeping in other ways. Specifically, although the 
final rule does not eliminate the requirement that financial 
institutions retain a copy of their loan/application registers, the 
final rule does provide that financial institutions shall retain the 
notices concerning their disclosure statements and modified loan/
application registers, not the disclosure statements or modified loan/
application registers themselves, which may lessen the recordkeeping 
burden.
    Benefits to small entities. HMDA is a data reporting statute, so 
all provisions of the final rule affect reporting requirements. 
Overall, the final rule has several potential benefits for small 
entities. A summary of these benefits is provided here, and more 
detailed discussions of these benefits are provided in the section 1022 
discussion in part VII, above. First, the revision to the institutional 
coverage criteria, which imposes a 25-loan threshold for closed-end 
mortgage loans, will benefit depository institutions that are not 
significantly involved in originating dwelling-secured closed-end 
mortgage loans. The Bureau expects that most of these depository 
institutions are small entities. These depository institutions will no 
longer have to report closed-end mortgage loans under HMDA. The Bureau 
also estimates that most of the depository institutions with closed-end 
mortgage loan originations falling below the threshold will originate 
fewer than 100 open-end lines of credit, and thus not be required to 
report such transactions under HMDA. Therefore, they will no longer 
have to incur one-time costs, or any current or increased operational 
costs, imposed by the final rule.
    Second, the Bureau adopted revisions to transactional coverage 
criteria that benefit small entities. As one example, the final rule 
eliminates reporting of non-dwelling-secured home improvement loans. 
This change reduces reporting burden to small entities to the extent 
that these entities offer such loans. As a second example, the overall 
change in transactional coverage to a dwelling-secured basis in the 
proposed rule extensively expanded reporting of commercial-purpose 
loans and lines. In response to comments received about the cost impact 
of this proposal, some of which came from small entities, the Bureau 
decided to retain Regulation C's existing purpose-based coverage test 
for commercial-purpose transactions, which maintains coverage of 
commercial-purpose lending generally at existing levels.
    Third, the expanded transactional coverage provisions, combined 
with the additional data points being adopted, will improve the 
prioritization process that regulators and enforcement agencies use to 
identify institutions with higher fair lending risk. During 
prioritization analyses, the additional transactions and data points 
will allow for improved segmentation, so that applications are compared 
to other applications for similar products. In addition, the data 
points will add legitimate factors used in underwriting and pricing 
that are currently lacking in the HMDA data, helping regulators and 
government enforcement agencies better understand disparities in 
outcomes. These improvements will reduce false positives that occur 
when inadequate information causes lenders with low fair lending risk 
to be initially misidentified as high-risk. This reduction in false 
positives will improve allocation of examination resources so that 
lenders with low fair lending risk receive a reduced level of 
regulatory scrutiny. For small entities currently receiving regulatory 
oversight, this could greatly reduce the burden from fair lending 
examinations and enforcement actions.
    Fourth, utilizing industry data standards may provide a benefit to 
some small entities, especially those originating and selling loans to 
the GSEs. The Bureau believes that promoting consistent data standards 
for both industry and regulatory use has benefits for market 
efficiency, market understanding, and market oversight. The 
efficiencies achieved by aligning HMDA data with widely used industry 
data standards should grow over time. Specific to small entities, 
outreach efforts have determined that aligning HMDA with industry data 
standards will reduce costs for training and researching questions.
    Fifth, and finally, the additional fields will improve the 
usefulness of HMDA data for analyzing mortgage markets by the 
regulators and the public. For instance, data points such as non-
amortizing features, introductory interest rate, and prepayment penalty 
term that are commonly related to higher risk lending will provide a 
better understanding of the types of products and features consumers 
are receiving. This will allow for improved monitoring of trends in 
mortgage markets and help identify problems that could potentially harm 
consumers and society overall. Lowering the likelihood of future 
financial crises benefits all financial institutions, including small 
entities.
    Costs to small entities. Overall, the final rule has several 
potential costs for small entities. A summary of these costs is 
provided here, and more detailed discussions of these costs are 
provided in the section 1022 analysis in part VII, above. First, the 
adopted revision to the coverage criteria raises the closed-end 
mortgage loan reporting threshold for depository institutions from one 
to 25 loans and lowers the reporting threshold for nondepository 
institutions from 100 to 25 loans. Based on 2012 HMDA and NMLSR data, 
the Bureau estimates that an additional 75-450 nondepository 
institutions will be required to report as a result of this revision. 
The Bureau expects most of the affected nondepository institutions to 
be small entities. The additional nondepository institutions that will 
now be required to report under HMDA will incur one-time start-up costs 
to develop the necessary reporting infrastructure, as well as the 
ongoing operational costs to report.
    Second, for financial institutions subject to the final rule, the 
adopted revisions to transactional coverage will require reporting of 
open-end lines of credit, and require reporting of all closed-end home-
equity loans and reverse mortgages. To the extent that small entities 
offer these products, these additional reporting requirements will 
increase operational costs as costs increase, for example, to 
transcribe data, resolve reportability questions, transfer data to HMS, 
and research questions.
    Third, the final rule adds additional data points identified by the 
Dodd-Frank Act and that the Bureau believes are necessary to close 
information gaps. As part of this final rule, the Bureau is

[[Page 66303]]

aligning all current and final data points to industry data standards 
to the extent practicable. The additional data points will increase 
ongoing operational costs, and impose one-time costs as small entities 
modify reporting infrastructure to incorporate additional fields. The 
transition to industry data standards will offset this cost slightly 
through reduced costs of researching questions and training.
3. Estimate of the Classes of Small Entities That Will Be Subject to 
the Requirement and the Type of Professional Skills Necessary for the 
Preparation of the Report or Record
    Section 603(a)(5) of the RFA requires an estimate of the classes of 
small entities that will be subject to the requirement. The classes of 
small entities that will be subject to the reporting, recordkeeping, 
and compliance requirements of the final rule are the same classes of 
small entities that are identified in part VIII.D, above.
    Type of professional skills required. Section 604(a)(5) of the RFA 
also requires an estimate of the type of professional skills necessary 
for the preparation of the reports or records required by the rule. The 
recordkeeping and compliance requirements of the final rule that will 
affect small entities are summarized above.
    Based on outreach with financial institutions, vendors, and 
governmental agency representatives, the Bureau classified the 
operational activities that financial institutions currently use for 
HMDA data collection and reporting into 18 operational ``tasks'' which 
can be further grouped into four ``primary tasks.'' These are:
    1. Data collection: Transcribing data, resolving reportability 
questions, and transferring data to an HMS.
    2. Reporting and resubmission: Geocoding, standard annual edit and 
internal checks, researching questions, resolving question responses, 
checking post-submission edits, filing post-submission documents, 
creating modified loan/application register, distributing modified 
loan/application register, distributing disclosure statement, and using 
vendor HMS software.
    3. Compliance and internal audits: Training, internal audits, and 
external audits.
    4. HMDA-related exams: Examination preparation and examination 
assistance.
    All of these tasks are related to the preparation of reports or 
records and most of them are performed by compliance personnel in the 
compliance department of financial institutions. For some financial 
institutions, however, the data intake and transcription stage could 
involve loan officers or processors whose primary function is to obtain 
or process loan applications. For example, the loan officers would take 
in government monitoring information from the applicants and input that 
information into the reporting system. However, the Bureau believes 
that such roles generally do not require any additional professional 
skills related to recordkeeping or other compliance requirements of 
this final rule that are not otherwise required during the ordinary 
course of business for small entities.
    The type of professional skills required for compliance varies 
depending on the particular task involved. For example, data 
transcription requires data entry skills. Transferring data to an HMS 
and using vendor HMS software requires knowledge of computer systems 
and the ability to use them. Researching and resolving reportability 
questions requires a more complex understanding of the regulatory 
requirements and the details of the relevant line of business. 
Geocoding requires skills in using geocoding software, web systems, or, 
in cases where geocoding is difficult, knowledge of the local area in 
which the property is located. Standard annual editing, internal 
checks, and post-submission editing require knowledge of the relevant 
data systems, data formats, and HMDA regulatory requirements in 
addition to skills in quality control and assurance. Filing post-
submission documents, creating modified loan/application registers, and 
distributing modified loan/application registers and disclosure 
statements require skills in information creation, dissemination, and 
communication. Training, internal audits, and external audits require 
communications skills, teaching skills, and regulatory knowledge. HMDA-
related examination preparation and examination assistance involve 
knowledge of regulatory requirements, the relevant line of business, 
and the relevant data systems. Tables 2-4 in part VII.F.2 provide 
detailed estimates of the costs of conducting each of these operational 
tasks.
    The Standard Occupational Classification (SOC) code has compliance 
officers listed under code 13-1041. The Bureau believes that most of 
the skills required for preparation of the reports or records related 
to this final rule are the skills required for job functions performed 
in this occupation. However, the Bureau recognizes that under this 
general occupational code there is a high level of heterogeneity in the 
type of skills required as well as the corresponding labor costs 
incurred by the financial institutions performing these functions.
    During the Small Business Review Panel process, some small entity 
representatives noted that, due to the small size of their 
institutions, they do not have separate compliance departments 
exclusively dedicated to HMDA compliance. Their HMDA compliance 
personnel are often engaged in other corporate compliance functions. To 
the extent that the compliance personnel of a small entity are divided 
between HMDA compliance and other functions, the skills required for 
those personnel may differ from the skills required for fully-dedicated 
HMDA compliance personnel. For instance, some small entity 
representatives noted that high-level corporate officers such as CEOs 
and senior vice presidents could be directly involved in some HMDA 
tasks.
    The Bureau acknowledges the possibility that certain aspects of the 
final rule may require some small entities to hire additional 
compliance staff. The Bureau has no evidence that such additional staff 
will possess a qualitatively different set of professional skills than 
small entity staff employed currently for HMDA purposes. It is 
possible, however, that compliance with the final rule may emphasize 
certain skills. For example, additional data points may increase demand 
for skills involved in researching questions, standard annual editing, 
and post-submission editing. On the other hand, the Bureau is making 
operational enhancements and modifications to alleviate some of the 
compliance burden. For example, the Bureau is working to provide 
implementation support similar to the support provided for the title 
XIV and TILA-RESPA Integrated Disclosure rules. The Bureau is also 
improving the geocoding process, creating a web-based HMDA data 
submission and edit-check system, developing a data-entry tool for 
small financial institutions that currently use Data Entry Software, 
and otherwise streamlining the submission and editing process to make 
it more efficient. Such enhancements may also change the relative 
composition of HMDA compliance personnel and the skills involved in 
recording and reporting data. Nevertheless, the Bureau believes that 
compliance will still involve the general set of skills identified 
above.
    The recordkeeping and reporting requirements associated with the 
final rule will also involve skills for

[[Page 66304]]

information technology system development, integration, and 
maintenance. Financial institutions often use an HMS for HMDA purposes. 
An HMS could be developed by the institution internally or purchased 
from a third-party vendor. Under the final rule, the Bureau anticipates 
that most of these systems will need substantial updates to comply with 
the new requirements. It is possible that other systems used by 
financial institutions, such as loan origination systems, might also 
need modification to be compatible with the updated HMS. The 
professional skills required for this one-time updating will be related 
to software development, testing, system engineering, information 
technology project management, budgeting, and operations.
    Based on feedback from the small entity representatives, many small 
business HMDA reporters rely on FFIEC DES tools and do not use a 
dedicated HMS. The Bureau is working to create a web-based HMDA data 
submission and edit-check system and develop a data-entry tool for 
small financial institutions that currently use DES that will allow 
financial institutions to use the software from multiple terminals in 
different branches and might reduce the required information technology 
implementation cost for small financial institutions.

F. Description of the Steps the Agency Has Taken To Minimize the 
Significant Economic Impact on Small Entities

    The Bureau understands that the new provisions will impose a cost 
on small entities, and has attempted to mitigate the burden consistent 
with statutory objectives. The Bureau has adopted a number of 
modifications to particular provisions designed to reduce burden, which 
are described in the section-by-section analysis and the section 1022 
analysis in parts V and VII, above. Several of the more significant 
burden-reducing steps reflected in the final rule are also described 
here.
    First, by raising the loan-volume threshold applicable to closed-
end mortgage loans to 25 loans for depository institutions and adopting 
a threshold of 100 open-end lines of credit, the Bureau has provided 
substantial relief to small entities falling below these thresholds. As 
described in greater detail throughout this discussion, the Bureau 
estimates that the most significant driver of costs under HMDA is fixed 
costs associated with the requirement to report, rather than the 
variable costs associated with any specific aspect of reporting, such 
as the number or complexity of required data fields or the number of 
entries. For example, the estimated annual ongoing cost of reporting 
under the rule is approximately $4,400 for a representative tier 3 
financial institution. Just over $2,300 of this annual ongoing cost is 
composed of fixed costs. As a comparison, each required data field 
accounts for approximately $43 of this annual ongoing cost. Thus, the 
closed-end reporting threshold provides a meaningful reduction in 
burden.
    Second, the Bureau is providing that financial institutions shall 
make available to the public notices that clearly convey that the 
institutions' disclosure statements and modified loan/application 
registers may be obtained on the Bureau's Web site. This approach 
relieves all financial institutions, including small entities, of the 
obligation to provide the disclosure statement and modified loan/
application register to the public directly. It also eliminates the 
risks to financial institutions from missing the publication deadline 
and from errors in preparing the modified loan/application register 
that could result in the unintended disclosure of data. The Bureau 
believes that these aspects of the final rule will be beneficial to 
small entities.
    Third, the Bureau adopted revisions to transactional coverage 
criteria that benefit small entities. As one example, the final rule 
eliminates reporting of non-dwelling-secured home improvement loans. 
This change reduces reporting burden to small entities to the extent 
that these entities offer such loans. As a second example, the overall 
change of transactional coverage to a dwelling-secured basis in the 
proposed rule would have extensively expanded reporting of commercial-
purpose loans and lines of credit. In response to comments received 
about the cost impact of this proposal, some of which came from small 
entities, the Bureau decided to maintain Regulation C's existing 
purpose-based coverage test for commercial-purpose transactions, which 
maintains coverage of commercial-purpose transactions generally at 
existing levels.
    Fourth, and finally, the Bureau is making operational enhancements 
and modifications to improve the data submission process. For example, 
the Bureau is working to provide implementation support similar to the 
support provided for title XIV and TILA-RESPA Integrated Disclosure 
rules. The Bureau is also improving the geocoding process, creating a 
web-based HMDA data submission and edit-check system, developing a 
data-entry tool for small financial institutions that currently use 
Data Entry Software, and otherwise streamlining the submission and 
editing process to make it more efficient. All of these enhancements 
will improve the submission and processing of data, increase clarity, 
and reduce reporting burden.
    The section-by-section analysis, section 1022 analysis, and 
response to the comments from the Chief Counsel for Advocacy of the 
Small Business Administration, above, discuss the steps that the Bureau 
has considered and rejected, including adopting a higher loan-volume 
threshold and exempting small entities from the discretionary reporting 
requirements or from the reporting requirements altogether.

G. Description of the Steps the Agency Has Taken To Minimize Any 
Additional Cost of Credit for Small Entities

    Section 603(d) of the RFA requires the Bureau to consult with small 
entities regarding the potential impact of the proposed rule on the 
cost of credit for small entities and related matters.\547\ To satisfy 
these statutory requirements, the Bureau provided notification to the 
Chief Counsel for Advocacy of the SBA in December 2013 that the Bureau 
would collect the advice and recommendations of the same small entity 
representatives identified in consultation with the Chief Counsel for 
Advocacy of the SBA through the Small Business Review Panel outreach 
concerning any projected impact of the proposed rule on the cost of 
credit for small entities, as well as any significant alternatives to 
the proposed rule which accomplish the stated objectives of applicable 
statutes and which minimize any increase in the cost of credit for 
small entities.\548\ The Bureau sought to collect the advice and 
recommendations of the small entity representatives during the Panel 
Outreach Meeting regarding these issues because, as small financial 
service providers, the small entity representatives could provide 
valuable input on any such impact related to the proposed rule.\549\
---------------------------------------------------------------------------

    \547\ 5 U.S.C. 603(d).
    \548\ See 5 U.S.C. 603(d)(2). The Bureau provided this 
notification as part of the notification and other information 
provided to the Chief Counsel for Advocacy of the SBA with respect 
to the Small Business Review Panel outreach pursuant to RFA section 
609(b)(1).
    \549\ See 5 U.S.C. 603(d)(2)(B).
---------------------------------------------------------------------------

    Following the Small Business Review Panel and as stated in the 
proposal, the Bureau believed that the rule would have a minimal impact 
on the cost of business credit. The small entity representatives had 
few comments on

[[Page 66305]]

the impact on the cost of business credit, but a few representatives 
noted that they would likely have to pass additional costs on to 
business customers. The Bureau noted that the proposed rule would cover 
certain dwelling-secured loans used for business purposes. As explained 
above, the final rule does not adopt the proposed expansion of 
reporting for commercial transactions. The final rule generally 
requires reporting of consumer-purpose mortgage loans, and exempts 
loans for a business or commercial purpose unless the loan is a home 
improvement loan, a home purchase loan, or a refinancing. Maintaining 
coverage of commercial loans at its current level will minimize the 
impact of the cost of credit for small entities. The Bureau expects any 
such increase to be minimal.

IV. Paperwork Reduction Act

    Under the Paperwork Reduction Act of 1995 (PRA),\550\ Federal 
agencies are generally required to seek approval from the Office of 
Management and Budget (OMB) for information collection requirements 
prior to implementation. Further, the Bureau may not conduct or sponsor 
a collection of information unless OMB approves the collection under 
the PRA and displays a currently valid OMB control number. 
Notwithstanding any other provision of law, no person is required to 
comply with, or is subject to penalty for failure to comply with, a 
collection of information if the collection instrument does not display 
a currently valid OMB control number. The information collection 
requirements contained in Regulation C are currently approved by OMB 
under OMB control number 3170-0008.
---------------------------------------------------------------------------

    \550\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------

    On August 29, 2014, notice of the proposed rule was published in 
the Federal Register. The Bureau invited comment on: (1) Whether the 
proposed collection of information is necessary for the proper 
performance of the Bureau's functions, including whether the 
information has practical utility; (2) the accuracy of the Bureau's 
estimate of the burden of the proposed information collection; (3) ways 
to enhance the quality, utility, and clarity of the information to be 
collected; and (4) ways to minimize the burden of information 
collection on respondents, including through the use of automated 
collection techniques or other forms of information technology. The 
comment period for the proposal expired on October 29, 2014.
    The Bureau received almost no comments specifically addressing the 
PRA notice. One industry commenter noted that the proposal's total 
estimated burden of 4,700,000 hours per year, if divided evenly among 
all respondents, was 752 hours, or the equivalent to a full-time 
employee working 19 weeks. The commenter was concerned with the amount 
of burden represented by this figure. As the commenter acknowledged, 
4,700,000 hours represented the total estimated burden hours imposed by 
the entire rule, not just the amended provisions, for all persons 
associated with all HMDA reporters. For any individual financial 
institution, the estimated burden hours may be far less than the 752-
hour estimate derived by the commenter. For example, the Bureau 
estimates that the total annual burden of all reporting, recordkeeping, 
and third-party disclosure requirements for a tier 3 financial 
institution is approximately 134 hours per year.
    As described below, the final rule amends the information 
collection requirements contained in Regulation C.\551\ The information 
collection requirements currently contained in Regulation C remain in 
effect and are approved by OMB under OMB control number 3170-0008. This 
final rule contains information collection requirements that have not 
been approved by the OMB and, therefore, are not effective until OMB 
approval is obtained. The revised information collection requirements 
are contained in Sec. Sec.  1003.4 and 1003.5 of the final rule. The 
Bureau will publish a separate notice in the Federal Register 
announcing OMB's action on these submissions, which will include the 
OMB control number and expiration date.
---------------------------------------------------------------------------

    \551\ 12 CFR part 1003.
---------------------------------------------------------------------------

    The title of this information collection is Home Mortgage 
Disclosure (Regulation C). The frequency of response is annually, 
quarterly, and on-occasion. The Bureau's regulation will require 
financial institutions that meet certain thresholds to maintain data 
about originations and purchases of mortgage loans, as well as mortgage 
loan applications that do not result in originations, to update the 
information quarterly, and to report the information annually or 
quarterly. Financial institutions must also make certain information 
available to the public upon request.
    The information collection requirements in this final rule will be 
mandatory.\552\ Certain data fields will be removed or modified before 
they are made available to the public, as required by the statute and 
regulation. These removals or modifications will be determined through 
the Bureau's assessment under its balancing test of the benefits and 
risks created by the disclosure of loan-level HMDA data. The non-
removed and unmodified data will be made publicly available and are not 
considered confidential. Data not made publicly available are 
considered confidential under the Bureau's confidentiality regulations, 
12 CFR part 1070 et seq., and the Freedom of Information Act.\553\ The 
likely respondents will be financial institutions--specifically banks, 
savings associations, or credit unions (depository institutions), and 
for-profit mortgage-lending institutions (nondepository institutions)--
that meet the tests for coverage under Regulation C. These respondents 
will be required under the rule to maintain, disclose to the public, 
and report to Federal agencies, information regarding covered loans and 
applications for covered loans.
---------------------------------------------------------------------------

    \552\ See 12 U.S.C. 2801 et seq.
    \553\ 5 U.S.C. 552(b)(6).
---------------------------------------------------------------------------

    For the purposes of this PRA analysis, the Bureau estimates that, 
under the final rule, approximately 1,400 depository institutions that 
currently report HMDA data will no longer be required to report, and 
that approximately 75-450 nondepository institutions that currently do 
not report HMDA data will now be required to report. In 2013, 
approximately 7,200 financial institutions reported data under HMDA. 
The adopted coverage changes will reduce the number of reporters by an 
estimated 950 reporters for an estimated total of approximately 6,250. 
Under the final rule, the Bureau generally will account for the 
paperwork burden for all respondents under Regulation C. Using the 
Bureau's burden estimation methodology, which projects the estimated 
burden on several types of representative respondents to the entire 
market, the Bureau believes the total estimated industry burden for the 
approximately 6,250 respondents \554\ subject to the rule will be 
approximately 8,300,000 hours per year.\555\ The Bureau

[[Page 66306]]

expects that the amount of time required to implement each revision of 
the final rule for a given institution may vary based on the size, 
complexity, and practices of the respondent.
---------------------------------------------------------------------------

    \554\ The count of 6,250 is constructed as the number of HMDA 
reporters in 2013 (7,200) less the estimated 1,400 depository 
institutions that will no longer have to report under the adopted 
coverage rules plus the additional 75-450 estimated nondepository 
institutions that will have to begin reporting under the adopted 
coverage rules.
    \555\ The Bureau estimates that, for all HMDA reporters, the 
burden hours will be approximately 6,851,000 to 9,779,000 hours per 
year. 8,300,000 is approximately the mid-point of this estimated 
range. These burden hour estimates include reporting of closed-end 
mortgage loans, open-end lines of credit, and quarterly reporting.
---------------------------------------------------------------------------

    In 2013, a total of 145 financial institutions reported HMDA data 
to the Bureau. Currently, only depository institutions with over $10 
billion in assets and their affiliates report their HMDA data to the 
Bureau. Using 2013 loan/application register sizes as a proxy to assign 
these 145 financial institutions into tiers yields 84, 39, and 22 tier 
1, 2, and 3 financial institutions, respectively.\556\ The Bureau 
estimates that the current time burden for the Bureau reporters is 
approximately 690,000 hours per year. Eighteen of these 145 
institutions reported over 60,000 HMDA loan/application register 
records and will therefore be required to report data quarterly. An 
estimated 74 of these 145 institutions would exceed the open-end 
reporting threshold of 100 open-end lines of credit. Including the 
modifications to the information collection requirements contained in 
the final rule, and the operations modernization measures, the Bureau 
estimates that the burden for annual and quarterly Bureau reporters 
will be 1,089,000 and 300,000 hours per year, respectively, for a total 
estimated burden hours of 1,389,000 per year. This represents an 
increase of approximately 699,000 burden hours over the estimated 
burden under the current rule.
---------------------------------------------------------------------------

    \556\ The Bureau's estimation methodology is fully described in 
the section 1022 analysis in part VII, above.
---------------------------------------------------------------------------

A. Information Collection Requirements 557
---------------------------------------------------------------------------

    \557\ A detailed analysis of the burdens and costs described in 
this part can be found in the Paperwork Reduction Act Supporting 
Statement that corresponds to this final rule. The Supporting 
Statement is available at www.reginfo.gov.
---------------------------------------------------------------------------

    The Bureau believes that the following aspects of the final rule 
are information collection requirements under the PRA: (1) The 
requirement that financial institutions maintain copies of their 
submitted annual loan/application register information for three years 
and record information regarding reportable transactions for the first 
three quarters of the calendar year on a quarterly basis; (2) the 
requirement that financial institutions report HMDA data annually--and, 
in the case of financial institutions that reported for the preceding 
calendar year at least 60,000 covered loans and applications, combined, 
excluding purchased covered loans, for the first three quarters of the 
calendar year on a quarterly basis--to the appropriate Federal agency; 
and (3) the requirement that financial institutions provide notices 
that clearly convey that disclosure statements and modified loan/
application registers may be obtained on the Bureau's Web site and 
maintain notices of availability of modified loan/application registers 
for three years and notices of availability of disclosure statements 
for five years.
1. Recordkeeping Requirements
    Financial institutions are required to maintain a copy of both the 
submitted annual loan/application register and a notice of its 
availability for three years. However, financial institutions no longer 
have to maintain the modified loan/application register. Similarly, 
financial institutions are required to maintain the notice of 
availability of their disclosure statements for five years, but no 
longer have to maintain the disclosure statements themselves. 
Therefore, the final rule includes changes that both increase and 
decrease the documentation or non-data-specific information that 
financial institutions will have to maintain. The Bureau believes that 
the net impact of these changes on recordkeeping requirements is 
minimal. In addition to recordkeeping requirements related to the loan/
application register and disclosure statements, the rule increases the 
number of data fields, and possibly the number of records, that 
financial institutions are required to gather and report. The Bureau 
estimates that the current time burden of reporting for Bureau 
reporters is approximately 296,000 hours per year. The Bureau estimates 
that, with the final amendments and the operations modernization, the 
time burden for annual and quarterly Bureau reporters will be 
approximately 417,000 and 112,000 hours per year, respectively, for a 
total estimate of approximately 529,000 burden hours per year. This 
represents an increase of approximately 233,000 burden hours over the 
estimated burden under the current rule.
2. Reporting Requirements
    HMDA is a data reporting statute, so most provisions of the rule 
affect reporting requirements, as described above. Specifically, 
financial institutions are required annually to report HMDA data to the 
Bureau or to the appropriate Federal agency,\558\ and all reportable 
transactions must be recorded on a loan/application register within 30 
calendar days\559\ after the end of the calendar quarter in which final 
action is taken. Additionally, financial institutions that reported for 
the preceding calendar year at least 60,000 covered loans and 
applications, combined, excluding purchased covered loans, will be 
required to report HMDA data for the first three quarters of the 
calendar year on a quarterly basis to the Bureau or the appropriate 
Federal agency.
---------------------------------------------------------------------------

    \558\ 12 U.S.C. 2803(h)(1).
    \559\ 12 CFR 1003.4(a).
---------------------------------------------------------------------------

    The Bureau estimates that the current time burden of reporting for 
Bureau reporters is approximately 391,000 hours per year. The Bureau 
estimates that, with the final amendments and the operations 
modernization, the time burden for annual and quarterly Bureau 
reporters will be approximately 671,000 and 188,000 hours per year, 
respectively, for a total estimate of approximately 859,000 burden 
hours per year. This represents an increase of approximately 468,000 
burden hours over the estimated burden under the current rule.
3. Disclosure Requirements
    The final rule modifies Regulation C's requirements for financial 
institutions to disclose information to the public. Under the final 
rule, a financial institution will no longer be required to make 
available to the public the modified loan/application register itself 
but must instead make available a notice informing the public that the 
institution's modified loan/application register may be obtained on the 
Bureau's Web site. Additionally, the final rule will require financial 
institutions to make available to the public their disclosure 
statements by making available a notice that clearly conveys that the 
disclosure statement may be obtained on the Bureau's Web site and that 
includes the Bureau's Web site address.
    The Bureau estimates that the current time burden of disclosure for 
Bureau reporters is approximately 2,700 hours per year. The Bureau 
estimates that, with the final amendments and the operations 
modernization, the time burden for annual and quarterly Bureau 
reporters will be approximately 360 and 100 hours per year, 
respectively, for a total estimate of approximately 460 burden hours 
per year. This represents a decrease of approximately 2,240 burden 
hours from the estimated burden under the current rule. Burden hours 
have fallen here because financial institutions will no longer have to 
make their modified loan/application register

[[Page 66307]]

or disclosure statements available to the public.
4. One-Time Costs Associated With the Adopted Information Collections
    Financial institutions' management, legal, and compliance personnel 
will likely take time to learn new reporting requirements and assess 
legal and compliance risks. Financial institutions that use vendors for 
HMDA compliance will incur one-time costs associated with software 
installation, troubleshooting, and testing. The Bureau is aware that 
these activities will require time and that the costs may be sensitive 
to the time available for them. Financial institutions that maintain 
their own reporting systems will incur one-time costs to develop, 
prepare, and implement necessary modifications to those systems. In all 
cases, financial institutions will need to update training materials to 
reflect new requirements and activities and may incur certain one-time 
costs for providing initial training to current employees.
    For current HMDA reporters, the Bureau estimates that the final 
rule will impose average one-time costs of $3,000 for tier 3 financial 
institutions, $250,000 for tier 2 financial institutions, and $800,000 
for tier 1 financial institutions without considering the expansion of 
transactional coverage to include additional open-end lines of credit 
and reverse mortgages.\560\ Including the estimated one-time costs to 
modify processes and systems for home-equity products, the Bureau 
estimates that the total one-time costs will be $3,000 for tier 3 
institutions, $375,000 for tier 2 institutions, and $1,200,000 for tier 
1 institutions. This yields an overall estimated market impact of 
between $725,900,000 and $1,339,000,000. Using a 7 percent discount 
rate and a five-year amortization window, the annualized one-time, 
additional cost is $177,000,000 to $326,600,000.
---------------------------------------------------------------------------

    \560\ The Bureau realizes that the impact to one-time costs 
varies by institution due to many factors, such as size, operational 
structure, and product complexity, and that this variance exists on 
a continuum that is impossible to fully capture. As a result, the 
one-time cost estimates will be high for some financial institutions 
and low for others.
---------------------------------------------------------------------------

    The revisions to the institutional coverage criteria will require 
an estimated 75-450 nondepository institutions that are currently not 
reporting under HMDA to begin reporting. These nondepository 
institutions will incur start-up costs to develop policies and 
procedures, infrastructure, and training. Based on outreach discussions 
with financial institutions prior to the proposal, the Bureau believes 
that these start-up costs will be approximately $25,000 for tier 3 
financial institutions. Although origination volumes for these 75-450 
nondepository institutions are slightly higher, the Bureau still 
expects most of these nondepository institutions to be tier 3 financial 
institutions. Under this assumption, the estimated overall market cost 
will be $11,300,000 (= 450 * $25,000).

B. Summary of Burden Hours

    The tables below summarize the estimated annual burdens under 
Regulation C associated with the information collections described 
above for Bureau reporters and all HMDA reporters, respectively. The 
tables combine all three aspects of information collection: Reporting, 
recordkeeping, and disclosure requirements. The Paperwork Reduction Act 
Supporting Statement that corresponds with this final rule provides 
more information as to how these estimates were derived and further 
detail regarding the burden hours associated with each information 
collection. The first table presents burden hour estimates for 
financial institutions that report HMDA data to the Bureau, and the 
second table provides information for all HMDA reporters.
[GRAPHIC] [TIFF OMITTED] TR28OC15.009


[[Page 66308]]


[GRAPHIC] [TIFF OMITTED] TR28OC15.010

List of Subjects in 12 CFR Part 1003

    Banks, Banking, Credit unions, Mortgages, National banks, Savings 
associations, Reporting and recordkeeping requirements.

Authority and Issuance

    For the reasons set forth above, the Bureau amends Regulation C, 12 
CFR part 1003, as set forth below:

PART 1003--HOME MORTGAGE DISCLOSURE (REGULATION C)

0
1. The authority citation for part 1003 continues to read as follows:

    Authority: 12 U.S.C. 2803, 2804, 2805, 5512, 5581.


0
2. Effective January 1, 2018, Sec.  1003.1 is amended by revising 
paragraph (c) to read as follows:


Sec.  1003.1  Authority, purpose, and scope.

* * * * *
    (c) Scope. This part applies to financial institutions as defined 
in Sec.  1003.2(g). This part requires a financial institution to 
submit data to the appropriate Federal agency for the financial 
institution as defined in Sec.  1003.5(a)(4), and to disclose certain 
data to the public, about covered loans for which the financial 
institution receives applications, or that it originates or purchases, 
and that are secured by a dwelling located in a State of the United 
States of America, the District of Columbia, or the Commonwealth of 
Puerto Rico.

0
3. Effective January 1, 2017, Sec.  1003.2 is amended by revising 
paragraph (1)(iii) and adding paragraph (1)(v) to the definition of 
``financial institution'' to read as follows:


Sec.  1003.2  Definitions.

* * * * *
    Financial institution means:
    (1) * * *
    (iii) In the preceding calendar year, originated at least one home 
purchase loan (excluding temporary financing such as a construction 
loan) or refinancing of a home purchase loan, secured by a first lien 
on a one- to four-family dwelling;
* * * * *
    (v) In each of the two preceding calendar years, originated at 
least 25 home purchase loans, including refinancings of home purchase 
loans, that are not excluded from this part pursuant to Sec.  
1003.4(d); and
* * * * *

0
4. Effective January 1, 2018, Sec.  1003.2 is revised to read as 
follows:


Sec.  1003.2  Definitions.

    In this part:
    (a) Act means the Home Mortgage Disclosure Act (HMDA) (12 U.S.C. 
2801 et seq.), as amended.
    (b) Application--(1) In general. Application means an oral or 
written request for a covered loan that is made in accordance with 
procedures used by a financial institution for the type of credit 
requested.
    (2) Preapproval programs. A request for preapproval for a home 
purchase loan, other than a home purchase loan that will be an open-end 
line of credit, a reverse mortgage, or secured by a multifamily 
dwelling, is an application under this section if the request is 
reviewed under a program in which the financial institution, after a 
comprehensive analysis of the creditworthiness of the applicant, issues 
a written commitment to the applicant valid for a designated period of 
time to extend a home purchase loan up to a specified amount. The 
written

[[Page 66309]]

commitment may not be subject to conditions other than:
    (i) Conditions that require the identification of a suitable 
property;
    (ii) Conditions that require that no material change has occurred 
in the applicant's financial condition or creditworthiness prior to 
closing; and
    (iii) Limited conditions that are not related to the financial 
condition or creditworthiness of the applicant that the financial 
institution ordinarily attaches to a traditional home mortgage 
application.
    (c) Branch office means:
    (1) Any office of a bank, savings association, or credit union that 
is considered a branch by the Federal or State supervisory agency 
applicable to that institution, excluding automated teller machines and 
other free-standing electronic terminals; and
    (2) Any office of a for-profit mortgage-lending institution (other 
than a bank, savings association, or credit union) that takes 
applications from the public for covered loans. A for-profit mortgage-
lending institution (other than a bank, savings association, or credit 
union) is also deemed to have a branch office in an MSA or in an MD, 
if, in the preceding calendar year, it received applications for, 
originated, or purchased five or more covered loans related to property 
located in that MSA or MD, respectively.
    (d) Closed-end mortgage loan means an extension of credit that is 
secured by a lien on a dwelling and that is not an open-end line of 
credit under paragraph (o) of this section.
    (e) Covered loan means a closed-end mortgage loan or an open-end 
line of credit that is not an excluded transaction under Sec.  
1003.3(c).
    (f) Dwelling means a residential structure, whether or not attached 
to real property. The term includes but is not limited to a detached 
home, an individual condominium or cooperative unit, a manufactured 
home or other factory-built home, or a multifamily residential 
structure or community.
    (g) Financial institution means a depository financial institution 
or a nondepository financial institution, where:
    (1) Depository financial institution means a bank, savings 
association, or credit union that:
    (i) On the preceding December 31 had assets in excess of the asset 
threshold established and published annually by the Bureau for coverage 
by the Act, based on the year-to-year change in the average of the 
Consumer Price Index for Urban Wage Earners and Clerical Workers, not 
seasonally adjusted, for each twelve month period ending in November, 
with rounding to the nearest million;
    (ii) On the preceding December 31, had a home or branch office in 
an MSA;
    (iii) In the preceding calendar year, originated at least one home 
purchase loan or refinancing of a home purchase loan, secured by a 
first lien on a one- to four-unit dwelling;
    (iv) Meets one or more of the following two criteria:
    (A) The institution is federally insured or regulated; or
    (B) Any loan referred to in paragraph (g)(1)(iii) of this section 
was insured, guaranteed, or supplemented by a Federal agency, or was 
intended by the institution for sale to the Federal National Mortgage 
Association or the Federal Home Loan Mortgage Corporation; and
    (v) Meets at least one of the following criteria:
    (A) In each of the two preceding calendar years, originated at 
least 25 closed-end mortgage loans that are not excluded from this part 
pursuant to Sec.  1003.3(c)(1) through (10); or
    (B) In each of the two preceding calendar years, originated at 
least 100 open-end lines of credit that are not excluded from this part 
pursuant to Sec.  1003.3(c)(1) through (10); and
    (2) Nondepository financial institution means a for-profit 
mortgage-lending institution (other than a bank, savings association, 
or credit union) that:
    (i) On the preceding December 31, had a home or branch office in an 
MSA; and
    (ii) Meets at least one of the following criteria:
    (A) In each of the two preceding calendar years, originated at 
least 25 closed-end mortgage loans that are not excluded from this part 
pursuant to Sec.  1003.3(c)(1) through (10); or
    (B) In each of the two preceding calendar years, originated at 
least 100 open-end lines of credit that are not excluded from this part 
pursuant to Sec.  1003.3(c)(1) through (10).
    (h) [Reserved]
    (i) Home improvement loan means a closed-end mortgage loan or an 
open-end line of credit that is for the purpose, in whole or in part, 
of repairing, rehabilitating, remodeling, or improving a dwelling or 
the real property on which the dwelling is located.
    (j) Home purchase loan means a closed-end mortgage loan or an open-
end line of credit that is for the purpose, in whole or in part, of 
purchasing a dwelling.
    (k) Loan/Application Register means both the record of information 
required to be collected pursuant to Sec.  1003.4 and the record 
submitted annually or quarterly, as applicable, pursuant to Sec.  
1003.5(a).
    (l) Manufactured home means any residential structure as defined 
under regulations of the U.S. Department of Housing and Urban 
Development establishing manufactured home construction and safety 
standards (24 CFR 3280.2). For purposes of Sec.  1003.4(a)(5), the term 
also includes a multifamily dwelling that is a manufactured home 
community.
    (m) Metropolitan Statistical Area (MSA) and Metropolitan Division 
(MD). (1) Metropolitan Statistical Area or MSA means a Metropolitan 
Statistical Area as defined by the U.S. Office of Management and 
Budget.
    (2) Metropolitan Division (MD) means a Metropolitan Division of an 
MSA, as defined by the U.S. Office of Management and Budget.
    (n) Multifamily dwelling means a dwelling, regardless of 
construction method, that contains five or more individual dwelling 
units.
    (o) Open-end line of credit means an extension of credit that:
    (1) Is secured by a lien on a dwelling; and
    (2) Is an open-end credit plan as defined in Regulation Z, 12 CFR 
1026.2(a)(20), but without regard to whether the credit is consumer 
credit, as defined in Sec.  1026.2(a)(12), is extended by a creditor, 
as defined in Sec.  1026.2(a)(17), or is extended to a consumer, as 
defined in Sec.  1026.2(a)(11).
    (p) Refinancing means a closed-end mortgage loan or an open-end 
line of credit in which a new, dwelling-secured debt obligation 
satisfies and replaces an existing, dwelling-secured debt obligation by 
the same borrower.
    (q) Reverse mortgage means a closed-end mortgage loan or an open-
end line of credit that is a reverse mortgage transaction as defined in 
Regulation Z, 12 CFR 1026.33(a), but without regard to whether the 
security interest is created in a principal dwelling.

0
5. Effective January 1, 2018, Sec.  1003.3 is amended by revising the 
heading and adding paragraph (c) to read as follows:


Sec.  1003.3  Exempt institutions and excluded transactions.

* * * * *
    (c) Excluded transactions. The requirements of this part do not 
apply to:
    (1) A closed-end mortgage loan or open-end line of credit 
originated or purchased by a financial institution acting in a 
fiduciary capacity;
    (2) A closed-end mortgage loan or open-end line of credit secured 
by a lien on unimproved land;

[[Page 66310]]

    (3) Temporary financing;
    (4) The purchase of an interest in a pool of closed-end mortgage 
loans or open-end lines of credit;
    (5) The purchase solely of the right to service closed-end mortgage 
loans or open-end lines of credit;
    (6) The purchase of closed-end mortgage loans or open-end lines of 
credit as part of a merger or acquisition, or as part of the 
acquisition of all of the assets and liabilities of a branch office as 
defined in Sec.  1003.2(c);
    (7) A closed-end mortgage loan or open-end line of credit, or an 
application for a closed-end mortgage loan or open-end line of credit, 
for which the total dollar amount is less than $500;
    (8) The purchase of a partial interest in a closed-end mortgage 
loan or open-end line of credit;
    (9) A closed-end mortgage loan or open-end line of credit used 
primarily for agricultural purposes;
    (10) A closed-end mortgage loan or open-end line of credit that is 
or will be made primarily for a business or commercial purpose, unless 
the closed-end mortgage loan or open-end line of credit is a home 
improvement loan under Sec.  1003.2(i), a home purchase loan under 
Sec.  1003.2(j), or a refinancing under Sec.  1003.2(p);
    (11) A closed-end mortgage loan, if the financial institution 
originated fewer than 25 closed-end mortgage loans in each of the two 
preceding calendar years; or
    (12) An open-end line of credit, if the financial institution 
originated fewer than 100 open-end lines of credit in each of the two 
preceding calendar years.

0
6. Effective January 1, 2018, Sec.  1003.4 is revised to read as 
follows:


Sec.  1003.4  Compilation of reportable data.

    (a) Data format and itemization. A financial institution shall 
collect data regarding applications for covered loans that it receives, 
covered loans that it originates, and covered loans that it purchases 
for each calendar year. A financial institution shall collect data 
regarding requests under a preapproval program, as defined in Sec.  
1003.2(b)(2), only if the preapproval request is denied, is approved by 
the financial institution but not accepted by the applicant, or results 
in the origination of a home purchase loan. The data collected shall 
include the following items:
    (1)(i) A universal loan identifier (ULI) for the covered loan or 
application that can be used to identify and retrieve the covered loan 
or application file. Except for a purchased covered loan or application 
described in paragraphs (a)(1)(i)(D) and (E) of this section, the 
financial institution shall assign and report a ULI that:
    (A) Begins with the financial institution's Legal Entity Identifier 
(LEI) that is issued by:
    (1) A utility endorsed by the LEI Regulatory Oversight Committee; 
or
    (2) A utility endorsed or otherwise governed by the Global LEI 
Foundation (GLEIF) (or any successor of the GLEIF) after the GLEIF 
assumes operational governance of the global LEI system.
    (B) Follows the LEI with up to 23 additional characters to identify 
the covered loan or application, which:
    (1) May be letters, numerals, or a combination of letters and 
numerals;
    (2) Must be unique within the financial institution; and
    (3) Must not include any information that could be used to directly 
identify the applicant or borrower; and
    (C) Ends with a two-character check digit, as prescribed in 
appendix C to this part.
    (D) For a purchased covered loan that any financial institution has 
previously assigned or reported with a ULI under this part, the 
financial institution that purchases the covered loan must use the ULI 
that was assigned or previously reported for the covered loan.
    (E) For an application that was previously reported with a ULI 
under this part and that results in an origination during the same 
calendar year that is reported in a subsequent reporting period 
pursuant to Sec.  1003.5(a)(1)(ii), the financial institution may 
report the same ULI for the origination that was previously reported 
for the application.
    (ii) Except for purchased covered loans, the date the application 
was received or the date shown on the application form.
    (2) Whether the covered loan is, or in the case of an application 
would have been, insured by the Federal Housing Administration, 
guaranteed by the Veterans Administration, or guaranteed by the Rural 
Housing Service or the Farm Service Agency.
    (3) Whether the covered loan is, or the application is for, a home 
purchase loan, a home improvement loan, a refinancing, a cash-out 
refinancing, or for a purpose other than home purchase, home 
improvement, refinancing, or cash-out refinancing.
    (4) Whether the application or covered loan involved a request for 
a preapproval of a home purchase loan under a preapproval program.
    (5) Whether the construction method for the dwelling related to the 
property identified in paragraph (a)(9) of this section is site-built 
or a manufactured home.
    (6) Whether the property identified in paragraph (a)(9) of this 
section is or will be used by the applicant or borrower as a principal 
residence, as a second residence, or as an investment property.
    (7) The amount of the covered loan or the amount applied for, as 
applicable.
    (i) For a closed-end mortgage loan, other than a purchased loan, an 
assumption, or a reverse mortgage, the amount to be repaid as disclosed 
on the legal obligation. For a purchased closed-end mortgage loan or an 
assumption of a closed-end mortgage loan, the unpaid principal balance 
at the time of purchase or assumption.
    (ii) For an open-end line of credit, other than a reverse mortgage 
open-end line of credit, the amount of credit available to the borrower 
under the terms of the plan.
    (iii) For a reverse mortgage, the initial principal limit, as 
determined pursuant to section 255 of the National Housing Act (12 
U.S.C. 1715z-20) and implementing regulations and mortgagee letters 
issued by the U.S. Department of Housing and Urban Development.
    (8) The following information about the financial institution's 
action:
    (i) The action taken by the financial institution, recorded as one 
of the following:
    (A) Whether a covered loan was originated or purchased;
    (B) Whether an application for a covered loan that did not result 
in the origination of a covered loan was approved but not accepted, 
denied, withdrawn by the applicant, or closed for incompleteness; and
    (C) Whether a preapproval request that did not result in the 
origination of a home purchase loan was denied or approved but not 
accepted.
    (ii) The date of the action taken by the financial institution.
    (9) The following information about the location of the property 
securing the covered loan or, in the case of an application, proposed 
to secure the covered loan:
    (i) The property address; and
    (ii) If the property is located in an MSA or MD in which the 
financial institution has a home or branch office, or if the 
institution is subject to paragraph (e) of this section, the location 
of the property by:
    (A) State;
    (B) County; and
    (C) Census tract if the property is located in a county with a 
population of more than 30,000 according to the most recent decennial 
census conducted by the U.S. Census Bureau.

[[Page 66311]]

    (10) The following information about the applicant or borrower:
    (i) Ethnicity, race, and sex, and whether this information was 
collected on the basis of visual observation or surname;
    (ii) Age; and
    (iii) Except for covered loans or applications for which the credit 
decision did not consider or would not have considered income, the 
gross annual income relied on in making the credit decision or, if a 
credit decision was not made, the gross annual income relied on in 
processing the application.
    (11) The type of entity purchasing a covered loan that the 
financial institution originates or purchases and then sells within the 
same calendar year.
    (12)(i) For covered loans subject to Regulation Z, 12 CFR part 
1026, other than assumptions, purchased covered loans, and reverse 
mortgages, the difference between the covered loan's annual percentage 
rate and the average prime offer rate for a comparable transaction as 
of the date the interest rate is set.
    (ii) ``Average prime offer rate'' means an annual percentage rate 
that is derived from average interest rates, points, and other loan 
pricing terms currently offered to consumers by a representative sample 
of creditors for mortgage loans that have low-risk pricing 
characteristics. The Bureau publishes average prime offer rates for a 
broad range of types of transactions in tables updated at least weekly, 
as well as the methodology the Bureau uses to derive these rates.
    (13) For covered loans subject to the Home Ownership and Equity 
Protection Act of 1994, as implemented in Regulation Z, 12 CFR 1026.32, 
whether the covered loan is a high-cost mortgage under Regulation Z, 12 
CFR 1026.32(a).
    (14) The lien status (first or subordinate lien) of the property 
identified under paragraph (a)(9) of this section.
    (15)(i) Except for purchased covered loans, the credit score or 
scores relied on in making the credit decision and the name and version 
of the scoring model used to generate each credit score.
    (ii) For purposes of this paragraph (a)(15), ``credit score'' has 
the meaning set forth in 15 U.S.C. 1681g(f)(2)(A).
    (16) The principal reason or reasons the financial institution 
denied the application, if applicable.
    (17) For covered loans subject to Regulation Z, 12 CFR 1026.43(c), 
the following information:
    (i) If a disclosure is provided for the covered loan pursuant to 
Regulation Z, 12 CFR 1026.19(f), the amount of total loan costs, as 
disclosed pursuant to Regulation Z, 12 CFR 1026.38(f)(4); or
    (ii) If the covered loan is not subject to the disclosure 
requirements in Regulation Z, 12 CFR 1026.19(f), and is not a purchased 
covered loan, the total points and fees charged in connection with the 
covered loan, expressed in dollars and calculated pursuant to 
Regulation Z, 12 CFR 1026.32(b)(1).
    (18) For covered loans subject to the disclosure requirements in 
Regulation Z, 12 CFR 1026.19(f), the total of all itemized amounts that 
are designated borrower-paid at or before closing, as disclosed 
pursuant to Regulation Z, 12 CFR 1026.38(f)(1).
    (19) For covered loans subject to the disclosure requirements in 
Regulation Z, 12 CFR 1026.19(f), the points paid to the creditor to 
reduce the interest rate, expressed in dollars, as described in 
Regulation Z, 12 CFR 1026.37(f)(1)(i), and disclosed pursuant to 
Regulation Z, 12 CFR 1026.38(f)(1).
    (20) For covered loans subject to the disclosure requirements in 
Regulation Z, 12 CFR 1026.19(f), the amount of lender credits, as 
disclosed pursuant to Regulation Z, 12 CFR 1026.38(h)(3).
    (21) The interest rate applicable to the approved application, or 
to the covered loan at closing or account opening.
    (22) For covered loans or applications subject to Regulation Z, 12 
CFR part 1026, other than reverse mortgages or purchased covered loans, 
the term in months of any prepayment penalty, as defined in Regulation 
Z, 12 CFR 1026.32(b)(6)(i) or (ii), as applicable.
    (23) Except for purchased covered loans, the ratio of the 
applicant's or borrower's total monthly debt to the total monthly 
income relied on in making the credit decision.
    (24) Except for purchased covered loans, the ratio of the total 
amount of debt secured by the property to the value of the property 
relied on in making the credit decision.
    (25) The scheduled number of months after which the legal 
obligation will mature or terminate or would have matured or 
terminated.
    (26) The number of months, or proposed number of months in the case 
of an application, until the first date the interest rate may change 
after closing or account opening.
    (27) Whether the contractual terms include or would have included 
any of the following:
    (i) A balloon payment as defined in Regulation Z, 12 CFR 
1026.18(s)(5)(i);
    (ii) Interest-only payments as defined in Regulation Z, 12 CFR 
1026.18(s)(7)(iv);
    (iii) A contractual term that would cause the covered loan to be a 
negative amortization loan as defined in Regulation Z, 12 CFR 
1026.18(s)(7)(v); or
    (iv) Any other contractual term that would allow for payments other 
than fully amortizing payments, as defined in Regulation Z, 12 CFR 
1026.43(b)(2), during the loan term, other than the contractual terms 
described in this paragraph (a)(27)(i), (ii), and (iii).
    (28) The value of the property securing the covered loan or, in the 
case of an application, proposed to secure the covered loan relied on 
in making the credit decision.
    (29) If the dwelling related to the property identified in 
paragraph (a)(9) of this section is a manufactured home and not a 
multifamily dwelling, whether the covered loan is, or in the case of an 
application would have been, secured by a manufactured home and land, 
or by a manufactured home and not land.
    (30) If the dwelling related to the property identified in 
paragraph (a)(9) of this section is a manufactured home and not a 
multifamily dwelling, whether the applicant or borrower:
    (i) Owns the land on which it is or will be located or, in the case 
of an application, did or would have owned the land on which it would 
have been located, through a direct or indirect ownership interest; or
    (ii) Leases or, in the case of an application, leases or would have 
leased the land through a paid or unpaid leasehold.
    (31) The number of individual dwelling units related to the 
property securing the covered loan or, in the case of an application, 
proposed to secure the covered loan.
    (32) If the property securing the covered loan or, in the case of 
an application, proposed to secure the covered loan includes a 
multifamily dwelling, the number of individual dwelling units related 
to the property that are income-restricted pursuant to Federal, State, 
or local affordable housing programs.
    (33) Except for purchased covered loans, the following information 
about the application channel of the covered loan or application:
    (i) Whether the applicant or borrower submitted the application for 
the covered loan directly to the financial institution; and
    (ii) Whether the obligation arising from the covered loan was, or 
in the case of an application, would have been initially payable to the 
financial institution.
    (34) For a covered loan or application, the unique identifier 
assigned by the Nationwide Mortgage Licensing System and Registry for 
the mortgage loan

[[Page 66312]]

originator, as defined in Regulation G, 12 CFR 1007.102, or Regulation 
H, 12 CFR 1008.23, as applicable.
    (35)(i) Except for purchased covered loans, the name of the 
automated underwriting system used by the financial institution to 
evaluate the application and the result generated by that automated 
underwriting system.
    (ii) For purposes of this paragraph (a)(35), an ``automated 
underwriting system'' means an electronic tool developed by a 
securitizer, Federal government insurer, or Federal government 
guarantor that provides a result regarding the credit risk of the 
applicant and whether the covered loan is eligible to be originated, 
purchased, insured, or guaranteed by that securitizer, Federal 
government insurer, or Federal government guarantor.
    (36) Whether the covered loan is, or the application is for, a 
reverse mortgage.
    (37) Whether the covered loan is, or the application is for, an 
open-end line of credit.
    (38) Whether the covered loan is, or the application is for a 
covered loan that will be, made primarily for a business or commercial 
purpose.
    (b) Collection of data on ethnicity, race, sex, age, and income. 
(1) A financial institution shall collect data about the ethnicity, 
race, and sex of the applicant or borrower as prescribed in appendix B 
to this part.
    (2) Ethnicity, race, sex, age, and income data may but need not be 
collected for covered loans purchased by a financial institution.
    (c)-(d) [Reserved]
    (e) Data reporting for banks and savings associations that are 
required to report data on small business, small farm, and community 
development lending under CRA. Banks and savings associations that are 
required to report data on small business, small farm, and community 
development lending under regulations that implement the Community 
Reinvestment Act of 1977 (12 U.S.C. 2901 et seq.) shall also collect 
the information required by paragraph 4(a)(9) of this section for 
property located outside MSAs and MDs in which the institution has a 
home or branch office, or outside any MSA.
    (f) Quarterly recording of data. A financial institution shall 
record the data collected pursuant to this section on a loan/
application register within 30 calendar days after the end of the 
calendar quarter in which final action is taken (such as origination or 
purchase of a covered loan, sale of a covered loan in the same calendar 
year it is originated or purchased, or denial or withdrawal of an 
application).
0
7. Effective January 1, 2018, Sec.  1003.5 is amended by revising 
paragraphs (b) through (f) to read as follows:


Sec.  1003.5  Disclosure and reporting.

* * * * *
    (b) Disclosure statement. (1) The Federal Financial Institutions 
Examination Council (FFIEC) will make available a disclosure statement 
based on the data each financial institution submits for the preceding 
calendar year pursuant to paragraph (a) of this section.
    (2) No later than three business days after receiving notice from 
the FFIEC that a financial institution's disclosure statement is 
available, the financial institution shall make available to the public 
upon request at its home office, and each branch office physically 
located in each MSA and each MD, a written notice that clearly conveys 
that the institution's disclosure statement may be obtained on the 
Bureau's Web site at www.consumerfinance.gov/hmda.
    (c) Modified loan/application register. (1) A financial institution 
shall make available to the public upon request at its home office, and 
each branch office physically located in each MSA and each MD, a 
written notice that clearly conveys that the institution's loan/
application register, as modified by the Bureau to protect applicant 
and borrower privacy, may be obtained on the Bureau's Web site at 
www.consumerfinance.gov/hmda.
    (2) A financial institution shall make available the notice 
required by paragraph (c)(1) of this section following the calendar 
year for which the data are collected.
    (d) Availability of written notices. (1) A financial institution 
shall make the notice required by paragraph (c) of this section 
available to the public for a period of three years and the notice 
required by paragraph (b)(2) of this section available to the public 
for a period of five years. An institution shall make these notices 
available during the hours the office is normally open to the public 
for business.
    (2) A financial institution may make available to the public, at 
its discretion and in addition to the written notices required by 
paragraphs (b)(2) or (c)(1) of this section, as applicable, its 
disclosure statement or its loan/application register, as modified by 
the Bureau to protect applicant and borrower privacy. A financial 
institution may impose a reasonable fee for any cost incurred in 
providing or reproducing these data.
    (e) Posted notice of availability of data. A financial institution 
shall post a general notice about the availability of its HMDA data in 
the lobby of its home office and of each branch office physically 
located in each MSA and each MD. This notice must clearly convey that 
the institution's HMDA data is available on the Bureau's Web site at 
www.consumerfinance.gov/hmda.
    (f) Aggregated data. Using data submitted by financial institutions 
pursuant to paragraph (a) of this section, the FFIEC will make 
available aggregate data for each MSA and MD, showing lending patterns 
by property location, age of housing stock, and income level, sex, 
ethnicity, and race.

0
8. Effective January 1, 2019, Sec.  1003.5 is revised to read as 
follows:


Sec.  1003.5  Disclosure and reporting.

    (a) Reporting to agency. (1)(i) Annual reporting. By March 1 
following the calendar year for which data are collected and recorded 
as required by Sec.  1003.4, a financial institution shall submit its 
annual loan/application register in electronic format to the 
appropriate Federal agency at the address identified by such agency. An 
authorized representative of the financial institution with knowledge 
of the data submitted shall certify to the accuracy and completeness of 
data submitted pursuant to this paragraph (a)(1)(i). The financial 
institution shall retain a copy of its annual loan/application register 
submitted pursuant to this paragraph (a)(1)(i) for its records for at 
least three years.
    (ii) [Reserved]
    (iii) When the last day for submission of data prescribed under 
this paragraph (a)(1) falls on a Saturday or Sunday, a submission shall 
be considered timely if it is submitted on the next succeeding Monday.
    (2) A financial institution that is a subsidiary of a bank or 
savings association shall complete a separate loan/application 
register. The subsidiary shall submit the loan/application register, 
directly or through its parent, to the appropriate Federal agency for 
the subsidiary's parent at the address identified by the agency.
    (3) A financial institution shall provide with its submission:
    (i) Its name;
    (ii) The calendar year the data submission covers pursuant to 
paragraph (a)(1)(i) of this section or calendar quarter and year the 
data submission covers pursuant to paragraph (a)(1)(ii) of this 
section;
    (iii) The name and contact information of a person who may be 
contacted with questions about the institution's submission;
    (iv) Its appropriate Federal agency;
    (v) The total number of entries contained in the submission;

[[Page 66313]]

    (vi) Its Federal Taxpayer Identification number; and
    (vii) Its Legal Entity Identifier (LEI) as described in Sec.  
1003.4(a)(1)(i)(A).
    (4) For purposes of paragraph (a) of this section, ``appropriate 
Federal agency'' means the appropriate agency for the financial 
institution as determined pursuant to section 304(h)(2) of the Home 
Mortgage Disclosure Act (12 U.S.C. 2803(h)(2)) or, with respect to a 
financial institution subject to the Bureau's supervisory authority 
under section 1025(a) of the Consumer Financial Protection Act of 2010 
(12 U.S.C. 5515(a)), the Bureau.
    (5) Procedures for the submission of data pursuant to paragraph (a) 
of this section are available at www.consumerfinance.gov/hmda.
    (b) Disclosure statement. (1) The Federal Financial Institutions 
Examination Council (FFIEC) will make available a disclosure statement 
based on the data each financial institution submits for the preceding 
calendar year pursuant to paragraph (a)(1)(i) of this section.
    (2) No later than three business days after receiving notice from 
the FFIEC that a financial institution's disclosure statement is 
available, the financial institution shall make available to the public 
upon request at its home office, and each branch office physically 
located in each MSA and each MD, a written notice that clearly conveys 
that the institution's disclosure statement may be obtained on the 
Bureau's Web site at www.consumerfinance.gov/hmda.
    (c) Modified loan/application register. (1) A financial institution 
shall make available to the public upon request at its home office, and 
each branch office physically located in each MSA and each MD, a 
written notice that clearly conveys that the institution's loan/
application register, as modified by the Bureau to protect applicant 
and borrower privacy, may be obtained on the Bureau's Web site at 
www.consumerfinance.gov/hmda.
    (2) A financial institution shall make available the notice 
required by paragraph (c)(1) of this section following the calendar 
year for which the data are collected.
    (d) Availability of written notices. (1) A financial institution 
shall make the notice required by paragraph (c) of this section 
available to the public for a period of three years and the notice 
required by paragraph (b)(2) of this section available to the public 
for a period of five years. An institution shall make these notices 
available during the hours the office is normally open to the public 
for business.
    (2) A financial institution may make available to the public, at 
its discretion and in addition to the written notices required by 
paragraphs (b)(2) or (c)(1) of this section, as applicable, its 
disclosure statement or its loan/application register, as modified by 
the Bureau to protect applicant and borrower privacy. A financial 
institution may impose a reasonable fee for any cost incurred in 
providing or reproducing these data.
    (e) Posted notice of availability of data. A financial institution 
shall post a general notice about the availability of its HMDA data in 
the lobby of its home office and of each branch office physically 
located in each MSA and each MD. This notice must clearly convey that 
the institution's HMDA data is available on the Bureau's Web site at 
www.consumerfinance.gov/hmda.
    (f) Aggregated data. Using data submitted by financial institutions 
pursuant to paragraph (a)(1)(i) of this section, the FFIEC will make 
available aggregate data for each MSA and MD, showing lending patterns 
by property location, age of housing stock, and income level, sex, 
ethnicity, and race.

0
9. Effective January 1, 2020, Sec.  1003.5 is amended by adding 
paragraph (a)(1)(ii) to read as follows:


Sec.  1003.5  Disclosure and reporting.

    (a) * * *
    (1) * * *
    (ii) Quarterly reporting. Within 60 calendar days after the end of 
each calendar quarter except the fourth quarter, a financial 
institution that reported for the preceding calendar year at least 
60,000 covered loans and applications, combined, excluding purchased 
covered loans, shall submit to the appropriate Federal agency its loan/
application register containing all data required to be recorded for 
that quarter pursuant to Sec.  1003.4(f). The financial institution 
shall submit its quarterly loan/application register pursuant to this 
paragraph (a)(1)(ii) in electronic format at the address identified by 
the appropriate Federal agency for the institution.
* * * * *
0
10. Effective January 1, 2019, Sec.  1003.6 is revised to read as 
follows:


Sec.  1003.6  Enforcement.

    (a) Administrative enforcement. A violation of the Act or this part 
is subject to administrative sanctions as provided in section 305 of 
the Act (12 U.S.C. 2804), including the imposition of civil money 
penalties, where applicable. Compliance is enforced by the agencies 
listed in section 305 of the Act.
    (b) Bona fide errors. (1) An error in compiling or recording data 
for a covered loan or application is not a violation of the Act or this 
part if the error was unintentional and occurred despite the 
maintenance of procedures reasonably adapted to avoid such an error.
    (2) An incorrect entry for a census tract number is deemed a bona 
fide error, and is not a violation of the Act or this part, provided 
that the financial institution maintains procedures reasonably adapted 
to avoid such an error.
    (c) Quarterly recording and reporting. (1) If a financial 
institution makes a good-faith effort to record all data required to be 
recorded pursuant to Sec.  1003.4(f) fully and accurately within 30 
calendar days after the end of each calendar quarter, and some data are 
nevertheless inaccurate or incomplete, the inaccuracy or omission is 
not a violation of the Act or this part provided that the institution 
corrects or completes the data prior to submitting its annual loan/
application register pursuant to Sec.  1003.5(a)(1)(i).
    (2) If a financial institution required to comply with Sec.  
1003.5(a)(1)(ii) makes a good-faith effort to report all data required 
to be reported pursuant to Sec.  1003.5(a)(1)(ii) fully and accurately 
within 60 calendar days after the end of each calendar quarter, and 
some data are nevertheless inaccurate or incomplete, the inaccuracy or 
omission is not a violation of the Act or this part provided that the 
institution corrects or completes the data prior to submitting its 
annual loan/application register pursuant to Sec.  1003.5(a)(1)(i).

0
11. Effective January 1, 2018, in Appendix A to Part 1003:
0
a. New subheading Transition Requirements for Data Collected in 2017 
and Submitted in 2018 and paragraph 1 under that subheading are added 
immediately after the ``Paperwork Reduction Act Notice'' paragraph.
0
b. Paragraphs II.A and B are revised, and paragraph II.C is added.
    The additions and revisions read as follows:

Appendix A to Part 1003--Form and Instructions for Completion of HMDA 
Loan/Application Register

Paperwork Reduction Act Notice

* * * * *

Transition Requirements for Data Collected in 2017 and Submitted in 
2018

    1. The instructions for completion of the loan/application 
register in part I of this appendix applies to data collected during 
the 2017 calendar year and reported in 2018. Part I of this appendix 
does not apply to data

[[Page 66314]]

collected pursuant to the amendments to Regulation C effective 
January 1, 2018.
* * * * *

II. Appropriate Federal Agencies for HMDA Reporting

    A. A financial institution shall submit its loan/application 
register in electronic format to the appropriate Federal agency at 
the address identified by such agency. The appropriate Federal 
agency for a financial institution is determined pursuant to section 
304(h)(2) of the Home Mortgage Disclosure Act (12 U.S.C. 2803(h)(2)) 
or, with respect to a financial institution subject to the Bureau's 
supervisory authority under section 1025(a) of the Consumer 
Financial Protection Act of 2010 (12 U.S.C. 5515(a)), is the Bureau.
    B. Procedures for the submission of the loan/application 
register are available at www.consumerfinance.gov/hmda.
    C. An authorized representative of the financial institution 
with knowledge of the data submitted shall certify to the accuracy 
and completeness of the data submitted.
* * * * *

Appendix A to Part 1003--[Removed and Reserved]



0
12. Effective January 1, 2019, Appendix A to Part 1003 is removed and 
reserved.

0
13. Effective January 1, 2018, Appendix B to Part 1003 is revised to 
read as follows:

Appendix B to Part 1003--Form and Instructions for Data Collection on 
Ethnicity, Race, and Sex

    You may list questions regarding the ethnicity, race, and sex of 
the applicant on your loan application form, or on a separate form 
that refers to the application. (See the sample data collection form 
below for model language.)
    1. You must ask the applicant for this information (but you 
cannot require the applicant to provide it) whether the application 
is taken in person, by mail or telephone, or on the internet. For 
applications taken by telephone, you must state the information in 
the collection form orally, except for that information which 
pertains uniquely to applications taken in writing, for example, the 
italicized language in the sample data collection form.
    2. Inform the applicant that Federal law requires this 
information to be collected in order to protect consumers and to 
monitor compliance with Federal statutes that prohibit 
discrimination against applicants on these bases. Inform the 
applicant that if the information is not provided where the 
application is taken in person, you are required to note the 
information on the basis of visual observation or surname.
    3. If you accept an application through electronic media with a 
video component, you must treat the application as taken in person. 
If you accept an application through electronic media without a 
video component (for example, facsimile), you must treat the 
application as accepted by mail.
    4. For purposes of Sec.  1003.4(a)(10)(i), if a covered loan or 
application includes a guarantor, you do not report the guarantor's 
ethnicity, race, and sex.
    5. If there are no co-applicants, you must report that there is 
no co-applicant. If there is more than one co-applicant, you must 
provide the ethnicity, race, and sex only for the first co-applicant 
listed on the collection form. A co-applicant may provide an absent 
co-applicant's ethnicity, race, and sex on behalf of the absent co-
applicant. If the information is not provided for an absent co-
applicant, you must report ``information not provided by applicant 
in mail, internet, or telephone application'' for the absent co-
applicant.
    6. When you purchase a covered loan and you choose not to report 
the applicant's or co-applicant's ethnicity, race, and sex, you must 
report that the requirement is not applicable.
    7. You must report that the requirement to report the 
applicant's or co-applicant's ethnicity, race, and sex is not 
applicable when the applicant or co-applicant is not a natural 
person (for example, a corporation, partnership, or trust). For 
example, for a transaction involving a trust, you must report that 
the requirement to report the applicant's ethnicity, race, and sex 
is not applicable if the trust is the applicant. On the other hand, 
if the applicant is a natural person, and is the beneficiary of a 
trust, you must report the applicant's ethnicity, race, and sex.
    8. You must report the ethnicity, race, and sex of an applicant 
as provided by the applicant. For example, if an applicant selects 
the ``Mexican'' box the institution reports ``Mexican'' for the 
ethnicity of the applicant. If an applicant selects the ``Asian'' 
box the institution reports ``Asian'' for the race of the applicant. 
Only an applicant may self-identify as being of a particular 
Hispanic or Latino subcategory (Mexican, Puerto Rican, Cuban, Other 
Hispanic or Latino) or of a particular Asian subcategory (Asian 
Indian, Chinese, Filipino, Japanese, Korean, Vietnamese, Other 
Asian) or of a particular Native Hawaiian or Other Pacific Islander 
subcategory (Native Hawaiian, Guamanian or Chamorro, Samoan, Other 
Pacific Islander) or of a particular American Indian or Alaska 
Native enrolled or principal tribe.
    9. You must offer the applicant the option of selecting more 
than one ethnicity or race. If an applicant selects more than one 
ethnicity or race, you must report each selected designation, 
subject to the limits described below.
    i. Ethnicity--Aggregate categories and subcategories. There are 
two aggregate ethnicity categories: Hispanic or Latino; and Not 
Hispanic or Latino. If an applicant selects Hispanic or Latino, the 
applicant may also select up to four ethnicity subcategories: 
Mexican; Puerto Rican; Cuban; and Other Hispanic or Latino. You must 
report each aggregate ethnicity category and each ethnicity 
subcategory selected by the applicant.
    ii. Ethnicity--Other subcategories. If an applicant selects the 
Other Hispanic or Latino ethnicity subcategory, the applicant may 
also provide a particular Hispanic or Latino ethnicity not listed in 
the standard subcategories. In such a case, you must report both the 
selection of Other Hispanic or Latino and the additional information 
provided by the applicant.
    iii. Race--Aggregate categories and subcategories. There are 
five aggregate race categories: American Indian or Alaska Native; 
Asian; Black or African American; Native Hawaiian or Other Pacific 
Islander; and White. The Asian and the Native Hawaiian or Other 
Pacific Islander aggregate categories have seven and four 
subcategories, respectively. The Asian race subcategories are: Asian 
Indian; Chinese, Filipino; Japanese; Korean; Vietnamese; and Other 
Asian. The Native Hawaiian or Other Pacific Islander race 
subcategories are: Native Hawaiian; Guamanian or Chamorro; Samoan; 
and Other Pacific Islander. You must report every aggregate race 
category selected by the applicant. If the applicant also selects 
one or more race subcategories, you must report each race 
subcategory selected by the applicant, except that you must not 
report more than a total of five aggregate race categories and race 
subcategories combined. For example, if the applicant selects all 
five aggregate race categories and also selects some race 
subcategories, you report only the five aggregate race categories. 
On the other hand, if the applicant selects the White, Asian, and 
Native Hawaiian or Other Pacific Islander aggregate race categories, 
and the applicant also selects the Korean, Vietnamese, and Samoan 
race subcategories, you must report White, Asian, Native Hawaiian or 
Other Pacific Islander, and any two, at your option, of the three 
race subcategories selected by the applicant. In this example, you 
must report White, Asian, and Native Hawaiian or Other Pacific 
Islander, and in addition you must report (at your option) either 
Korean and Vietnamese, Korean and Samoan, or Vietnamese and Samoan. 
To determine how to report an Other race subcategory for purposes of 
the five-race maximum, see paragraph 9.iv below.
    iv. Race--Other subcategories. If an applicant selects the Other 
Asian race subcategory or the Other Pacific Islander race 
subcategory, the applicant may also provide a particular Other Asian 
or Other Pacific Islander race not listed in the standard 
subcategories. In either such case, you must report both the 
selection of Other Asian or Other Pacific Islander, as applicable, 
and the additional information provided by the applicant, subject to 
the five-race maximum. In all such cases where the applicant has 
selected an Other race subcategory and also provided additional 
information, for purposes of the maximum of five reportable race 
categories and race subcategories combined set forth above, the 
Other race subcategory and additional information provided by the 
applicant together constitute only one selection. Thus, using the 
same facts in the example offered in paragraph 9.iii above, if the 
applicant also selected Other Asian and entered ``Thai'' in the 
space provided, Other Asian and Thai are considered one selection. 
You must report any two (at your option) of the four race 
subcategories selected by the applicant, Korean, Vietnamese, Other 
Asian-Thai, and

[[Page 66315]]

Samoan, in addition to the three aggregate race categories selected 
by the applicant.
    10. If the applicant chooses not to provide the information for 
an application taken in person, note this fact on the collection 
form and then collect the applicant's ethnicity, race, and sex on 
the basis of visual observation or surname. You must report whether 
the applicant's ethnicity, race, and sex was collected on the basis 
of visual observation or surname. When you collect an applicant's 
ethnicity, race, and sex on the basis of visual observation or 
surname, you must select from the following aggregate categories: 
Ethnicity (Hispanic or Latino; not Hispanic or Latino); race 
(American Indian or Alaska Native; Asian; Black or African American; 
Native Hawaiian or Other Pacific Islander; White); sex (male; 
female).
    11. If the applicant declines to answer these questions by 
checking the ``I do not wish to provide this information'' box on an 
application that is taken by mail or on the internet, or declines to 
provide this information by stating orally that he or she does not 
wish to provide this information on an application that is taken by 
telephone, you must report ``information not provided by applicant 
in mail, internet, or telephone application.''
    12. If the applicant begins an application by mail, internet, or 
telephone, and does not provide the requested information on the 
application but does not check or select the ``I do not wish to 
provide this information'' box on the application, and the applicant 
meets in person with you to complete the application, you must 
request the applicant's ethnicity, race, and sex. If the applicant 
does not provide the requested information during the in-person 
meeting, you must collect the information on the basis of visual 
observation or surname. If the meeting occurs after the application 
process is complete, for example, at closing or account opening, you 
are not required to obtain the applicant's ethnicity, race, and sex.
    13. When an applicant provides the requested information for 
some but not all fields, you report the information that was 
provided by the applicant, whether partial or complete. If an 
applicant provides partial or complete information on ethnicity, 
race, and sex and also checks the ``I do not wish to provide this 
information'' box on an application that is taken by mail or on the 
internet, or makes that selection when applying by telephone, you 
must report the information on ethnicity, race, and sex that was 
provided by the applicant.

[[Page 66316]]

[GRAPHIC] [TIFF OMITTED] TR28OC15.011


0
14. Effective January 1, 2018, Appendix C to Part 1003 is added to read 
as follows:

Appendix C to Part 1003--Procedures for Generating a Check Digit and 
Validating a ULI

    The check digit for the Universal Loan Identifier (ULI) pursuant 
to Sec.  1003.4(a)(1)(i)(C) is calculated using the ISO/IEC 7064, 
MOD 97-10 as it appears on the International Standard ISO/IEC 
7064:2003, which is published by the International Organization for 
Standardization (ISO).
    (copyright)ISO. This material is reproduced from ISO/IEC 
7064:2003 with permission of the American National Standards 
Institute (ANSI) on behalf of ISO. All rights reserved.

[[Page 66317]]

Generating A Check Digit

    Step 1: Starting with the leftmost character in the string that 
consists of the combination of the Legal Entity Identifier (LEI) 
pursuant to Sec.  1003.4(a)(1)(i)(A) and the additional characters 
identifying the covered loan or application pursuant to Sec.  
1003.4(a)(1)(i)(B), replace each alphabetic character with numbers 
in accordance with Table I below to obtain all numeric values in the 
string.

Table I--Alphabetic To Numeric Conversion Table

    The alphabetic characters are not case-sensitive and each 
letter, whether it is capitalized or in lower-case, is equal to the 
same value as each letter illustrates in the conversion table. For 
example, A and a are each equal to 10.

------------------------------------------------------------------------
 
------------------------------------------------------------------------
      A = 10             H = 17            O = 24            V = 31
      B = 11             I = 18            P = 25            W = 32
            C = 12       J = 19            Q = 26            X = 33
      D = 13             K = 20            R = 27            Y = 34
      E = 14             L = 21            S = 28            Z = 35
      F = 15             M = 22            T = 29
      G = 16             N = 23            U = 30
------------------------------------------------------------------------

    Step 2: After converting the combined string of characters to 
all numeric values, append two zeros to the rightmost positions.
    Step 3: Apply the mathematical function mod=(n,97) where n= the 
number obtained in step 2 above and 97 is the divisor.
    Alternatively, to calculate without using the modulus operator, 
divide the numbers in step 2 above by 97. Truncate the remainder to 
three digits and multiply it by .97. Round the result to the nearest 
whole number.
    Step 4: Subtract the result in step 3 from 98. If the result is 
one digit, add a leading 0 to make it two digits.
    Step 5: The two digits in the result from step 4 is the check 
digit. Append the resulting check digit to the rightmost position in 
the combined string of characters described in step 1 above to 
generate the ULI.

Example

    For example, assume the LEI for a financial institution is 
10Bx939c5543TqA1144M and the financial institution assigned the 
following string of characters to identify the covered loan: 
999143X. The combined string of characters is 
10Bx939c5543TqA1144M999143X.
    Step 1: Starting with the leftmost character in the combined 
string of characters, replace each alphabetic character with numbers 
in accordance with Table I above to obtain all numeric values in the 
string. The result is 10113393912554329261011442299914333.
    Step 2: Append two zeros to the rightmost positions in the 
combined string. The result is 
1011339391255432926101144229991433300.
    Step 3: Apply the mathematical function mod=(n,97) where n= the 
number obtained in step 2 above and 97 is the divisor. The result is 
60.
    Alternatively, to calculate without using the modulus operator, 
divide the numbers in step 2 above by 97. The result is 
1042617929129312294946332267952920.618556701030928. Truncate the 
remainder to three digits, which is .618, and multiply it by .97. 
The result is 59.946. Round this result to the nearest whole number, 
which is 60.
    Step 4: Subtract the result in step 3 from 98. The result is 38.
    Step 5: The two digits in the result from step 4 is the check 
digit. Append the check digit to the rightmost positions in the 
combined string of characters that consists of the LEI and the 
string of characters assigned by the financial institution to 
identify the covered loan to obtain the ULI. In this example, the 
ULI would be 10Bx939c5543TqA1144M999143X38.

Validating A ULI

    To determine whether the ULI contains a transcription error using 
the check digit calculation, the procedures are described below.
    Step 1: Starting with the leftmost character in the ULI, replace 
each alphabetic character with numbers in accordance with Table I above 
to obtain all numeric values in the string.
    Step 2: Apply the mathematical function mod=(n,97) where n=the 
number obtained in step 1 above and 97 is the divisor.
    Step 3: If the result is 1, the ULI does not contain transcription 
errors.

Example

    For example, the ULI assigned to a covered loan is 
10Bx939c5543TqA1144M999143X38.
    Step 1: Starting with the leftmost character in the ULI, replace 
each alphabetic character with numbers in accordance with Table I 
above to obtain all numeric values in the string. The result is 
1011339391255432926101144229991433338.
    Step 2: Apply the mathematical function mod=(n,97) where n is 
the number obtained in step 1 above and 97 is the divisor.
    Step 3: The result is 1. The ULI does not contain transcription 
errors.


0
15. Effective January 1, 2018, Supplement I to Part 1003 is revised to 
read as follows:

Supplement I to Part 1003--Official Interpretations

Introduction

    1. Status. The commentary in this supplement is the vehicle by 
which the Bureau of Consumer Financial Protection issues formal 
interpretations of Regulation C (12 CFR part 1003).

Section 1003.2--Definitions

2(b) Application

    1. Consistency with Regulation B. Bureau interpretations that 
appear in the official commentary to Regulation B (Equal Credit 
Opportunity Act, 12 CFR part 1002, Supplement I) are generally 
applicable to the definition of application under Regulation C. 
However, under Regulation C the definition of an application does 
not include prequalification requests.
    2. Prequalification. A prequalification request is a request by 
a prospective loan applicant (other than a request for preapproval) 
for a preliminary determination on whether the prospective loan 
applicant would likely qualify for credit under an institution's 
standards, or for a determination on the amount of credit for which 
the prospective applicant would likely qualify. Some institutions 
evaluate prequalification requests through a procedure that is 
separate from the institution's normal loan application process; 
others use the same process. In either case, Regulation C does not 
require an institution to report prequalification requests on the 
loan/application register, even though these requests may constitute 
applications under Regulation B for purposes of adverse action 
notices.
    3. Requests for preapproval. To be a preapproval program as 
defined in Sec.  1003.2(b)(2), the written commitment issued under 
the program must result from a comprehensive review of the 
creditworthiness of the applicant, including such verification of 
income, resources, and other matters as is typically done by the 
institution as part of its normal credit evaluation program. In 
addition to conditions involving the identification of a suitable 
property and verification that no material change has occurred in 
the applicant's financial condition or creditworthiness, the written 
commitment may be subject only to other conditions (unrelated to the 
financial condition or creditworthiness of the applicant) that the 
lender ordinarily attaches to a traditional home mortgage 
application approval. These conditions are limited to conditions 
such as requiring an acceptable title insurance binder or a 
certificate indicating clear termite inspection, and, in the case 
where the applicant plans to use the proceeds from the sale of the 
applicant's present home to purchase a new home, a settlement 
statement showing adequate proceeds from the sale of the present 
home. Regardless of its name, a program that satisfies the 
definition of a preapproval program in Sec.  1003.2(b)(2) is a 
preapproval program for purposes of Regulation C. Conversely, a 
program that a financial institution describes as a ``preapproval 
program'' that does not satisfy the requirements of Sec.  
1003.2(b)(2) is not a preapproval program for purposes of Regulation 
C. If a financial institution does not regularly use the procedures 
specified in Sec.  1003.2(b)(2), but instead considers requests for 
preapprovals on an ad hoc basis, the financial institution need not 
treat ad hoc requests as part of a preapproval program for purposes 
of Regulation C. A financial institution should, however, be 
generally consistent in following uniform procedures for considering 
such ad hoc requests.

2(c) Branch Office

Paragraph 2(c)(1)

    1. Credit unions. For purposes of Regulation C, a ``branch'' of 
a credit union is any office where member accounts are established 
or loans are made, whether or not the office has been approved as a 
branch by a Federal or State agency. (See 12 U.S.C. 1752.)
    2. Bank, savings association, or credit unions. A branch office 
of a bank, savings

[[Page 66318]]

association, or credit union does not include a loan-production 
office if the loan-production office is not considered a branch by 
the Federal or State supervisory authority applicable to that 
institution. A branch office also does not include the office of an 
affiliate or of a third party, such as a third-party broker.

Paragraph 2(c)(2)

    1. General. A branch office of a for-profit mortgage lending 
institution, other than a bank savings association or credit union, 
does not include the office of an affiliate or of a third party, 
such as a third-party broker.

2(d) Closed-end Mortgage Loan

    1. Dwelling-secured. Section 1003.2(d) defines a closed-end 
mortgage loan as an extension of credit that is secured by a lien on 
a dwelling and that is not an open-end line of credit under Sec.  
1003.2(o). Thus, for example, a loan to purchase a dwelling and 
secured only by a personal guarantee is not a closed-end mortgage 
loan because it is not dwelling-secured.
    2. Extension of credit. Under Sec.  1003.2(d), a dwelling-
secured loan is not a closed-end mortgage loan unless it involves an 
extension of credit. Thus, some transactions completed pursuant to 
installment sales contracts, such as some land contracts, are not 
closed-end mortgage loans because no credit is extended. For 
example, if a land contract provides that, upon default, the 
contract terminates, all previous payments will be treated as rent, 
and the borrower is under no obligation to make further payments, 
the transaction is not a closed-end mortgage loan. In general, 
extension of credit under Sec.  1003.2(d) refers to the granting of 
credit only pursuant to a new debt obligation. Thus, except as 
described in comments 2(d)-2.i and .ii, if a transaction modifies, 
renews, extends, or amends the terms of an existing debt obligation, 
but the existing debt obligation is not satisfied and replaced, the 
transaction is not a closed-end mortgage loan under Sec.  1003.2(d) 
because there has been no new extension of credit. The phrase 
extension of credit thus is defined differently under Regulation C 
than under Regulation B, 12 CFR part 1002.
    i. Assumptions. For purposes of Regulation C, an assumption is a 
transaction in which an institution enters into a written agreement 
accepting a new borrower in place of an existing borrower as the 
obligor on an existing debt obligation. For purposes of Regulation 
C, assumptions include successor-in-interest transactions, in which 
an individual succeeds the prior owner as the property owner and 
then assumes the existing debt secured by the property. Under Sec.  
1003.2(d), assumptions are extensions of credit even if the new 
borrower merely assumes the existing debt obligation and no new debt 
obligation is created. See also comment 2(j)-5.
    ii. New York State consolidation, extension, and modification 
agreements. A transaction completed pursuant to a New York State 
consolidation, extension, and modification agreement and classified 
as a supplemental mortgage under New York Tax Law section 255, such 
that the borrower owes reduced or no mortgage recording taxes, is an 
extension of credit under Sec.  1003.2(d). Comments 2(i)-1, 2(j)-5, 
and 2(p)-2 clarify whether such transactions are home improvement 
loans, home purchase loans, or refinancings, respectively.

2(f) Dwelling

    1. General. The definition of a dwelling is not limited to the 
principal or other residence of the applicant or borrower, and thus 
includes vacation or second homes and investment properties.
    2. Multifamily residential structures and communities. A 
dwelling also includes a multifamily residential structure or 
community such as an apartment, condominium, cooperative building or 
complex, or a manufactured home community. A loan related to a 
manufactured home community is secured by a dwelling for purposes of 
Sec.  1003.2(f) even if it is not secured by any individual 
manufactured homes, but only by the land that constitutes the 
manufactured home community including sites for manufactured homes. 
However, a loan related to a multifamily residential structure or 
community that is not a manufactured home community is not secured 
by a dwelling for purposes of Sec.  1003.2(f) if it is not secured 
by any individual dwelling units and is, for example, instead 
secured only by property that only includes common areas, or is 
secured only by an assignment of rents or dues.
    3. Exclusions. Recreational vehicles, including boats, campers, 
travel trailers, and park model recreational vehicles, are not 
considered dwellings for purposes of Sec.  1003.2(f), regardless of 
whether they are used as residences. Houseboats, floating homes, and 
mobile homes constructed before June 15, 1976, are also excluded, 
regardless of whether they are used as residences. Also excluded are 
transitory residences such as hotels, hospitals, college 
dormitories, and recreational vehicle parks, and structures 
originally designed as dwellings but used exclusively for commercial 
purposes, such as homes converted to daycare facilities or 
professional offices.
    4. Mixed-use properties. A property used for both residential 
and commercial purposes, such as a building containing apartment 
units and retail space, is a dwelling if the property's primary use 
is residential. An institution may use any reasonable standard to 
determine the primary use of the property, such as by square footage 
or by the income generated. An institution may select the standard 
to apply on a case-by-case basis.
    5. Properties with service and medical components. For purposes 
of Sec.  1003.2(f), a property used for both long-term housing and 
to provide related services, such as assisted living for senior 
citizens or supportive housing for persons with disabilities, is a 
dwelling and does not have a non-residential purpose merely because 
the property is used for both housing and to provide services. 
However, transitory residences that are used to provide such 
services are not dwellings. See comment 2(f)-3. Properties that are 
used to provide medical care, such as skilled nursing, 
rehabilitation, or long-term medical care, also are not dwellings. 
See comment 2(f)-3. If a property that is used for both long-term 
housing and to provide related services also is used to provide 
medical care, the property is a dwelling if its primary use is 
residential. An institution may use any reasonable standard to 
determine the property's primary use, such as by square footage, 
income generated, or number of beds or units allocated for each use. 
An institution may select the standard to apply on a case-by-case 
basis.

2(g) Financial Institution

    1. Preceding calendar year and preceding December 31. The 
definition of financial institution refers both to the preceding 
calendar year and the preceding December 31. These terms refer to 
the calendar year and the December 31 preceding the current calendar 
year. For example, in 2019, the preceding calendar year is 2018 and 
the preceding December 31 is December 31, 2018. Accordingly, in 
2019, Financial Institution A satisfies the asset-size threshold 
described in Sec.  1003.2(g)(1)(i) if its assets exceeded the 
threshold specified in comment 2(g)-2 on December 31, 2018. 
Likewise, in 2020, Financial Institution A does not meet the loan-
volume test described in Sec.  1003.2(g)(1)(v)(A) if it originated 
fewer than 25 closed-end mortgage loans during either 2018 or 2019.
    2. [Reserved]
    3. Merger or acquisition--coverage of surviving or newly formed 
institution. After a merger or acquisition, the surviving or newly 
formed institution is a financial institution under Sec.  1003.2(g) 
if it, considering the combined assets, location, and lending 
activity of the surviving or newly formed institution and the merged 
or acquired institutions or acquired branches, satisfies the 
criteria included in Sec.  1003.2(g). For example, A and B merge. 
The surviving or newly formed institution meets the loan threshold 
described in Sec.  1003.2(g)(1)(v)(B) if the surviving or newly 
formed institution, A, and B originated a combined total of at least 
100 open-end lines of credit in each of the two preceding calendar 
years. Likewise, the surviving or newly formed institution meets the 
asset-size threshold in Sec.  1003.2(g)(1)(i) if its assets and the 
combined assets of A and B on December 31 of the preceding calendar 
year exceeded the threshold described in Sec.  1003.2(g)(1)(i). 
Comment 2(g)-4 discusses a financial institution's responsibilities 
during the calendar year of a merger.
    4. Merger or acquisition--coverage for calendar year of merger 
or acquisition. The scenarios described below illustrate a financial 
institution's responsibilities for the calendar year of a merger or 
acquisition. For purposes of these illustrations, a ``covered 
institution'' means a financial institution, as defined in Sec.  
1003.2(g), that is not exempt from reporting under Sec.  1003.3(a), 
and ``an institution that is not covered'' means either an 
institution that is not a financial institution, as defined in Sec.  
1003.2(g), or an institution that is exempt from reporting under 
Sec.  1003.3(a).
    i. Two institutions that are not covered merge. The surviving or 
newly formed institution meets all of the requirements necessary to 
be a covered institution. No data collection is required for the 
calendar year of the merger (even though the merger creates

[[Page 66319]]

an institution that meets all of the requirements necessary to be a 
covered institution). When a branch office of an institution that is 
not covered is acquired by another institution that is not covered, 
and the acquisition results in a covered institution, no data 
collection is required for the calendar year of the acquisition.
    ii. A covered institution and an institution that is not covered 
merge. The covered institution is the surviving institution, or a 
new covered institution is formed. For the calendar year of the 
merger, data collection is required for covered loans and 
applications handled in the offices of the merged institution that 
was previously covered and is optional for covered loans and 
applications handled in offices of the merged institution that was 
previously not covered. When a covered institution acquires a branch 
office of an institution that is not covered, data collection is 
optional for covered loans and applications handled by the acquired 
branch office for the calendar year of the acquisition.
    iii. A covered institution and an institution that is not 
covered merge. The institution that is not covered is the surviving 
institution, or a new institution that is not covered is formed. For 
the calendar year of the merger, data collection is required for 
covered loans and applications handled in offices of the previously 
covered institution that took place prior to the merger. After the 
merger date, data collection is optional for covered loans and 
applications handled in the offices of the institution that was 
previously covered. When an institution remains not covered after 
acquiring a branch office of a covered institution, data collection 
is required for transactions of the acquired branch office that take 
place prior to the acquisition. Data collection by the acquired 
branch office is optional for transactions taking place in the 
remainder of the calendar year after the acquisition.
    iv. Two covered institutions merge. The surviving or newly 
formed institution is a covered institution. Data collection is 
required for the entire calendar year of the merger. The surviving 
or newly formed institution files either a consolidated submission 
or separate submissions for that calendar year. When a covered 
institution acquires a branch office of a covered institution, data 
collection is required for the entire calendar year of the merger. 
Data for the acquired branch office may be submitted by either 
institution.
    5. Originations. Whether an institution is a financial 
institution depends in part on whether the institution originated at 
least 25 closed-end mortgage loans in each of the two preceding 
calendar years or at least 100 open-end lines of credit in each of 
the two preceding calendar years. Comments 4(a)-2 through -4 discuss 
whether activities with respect to a particular closed-end mortgage 
loan or open-end line of credit constitute an origination for 
purposes of Sec.  1003.2(g).
    6. Branches of foreign banks--treated as banks. A Federal branch 
or a State-licensed or insured branch of a foreign bank that meets 
the definition of a ``bank'' under section 3(a)(1) of the Federal 
Deposit Insurance Act (12 U.S.C. 1813(a)) is a bank for the purposes 
of Sec.  1003.2(g).
    7. Branches and offices of foreign banks and other entities--
treated as nondepository financial institutions. A Federal agency, 
State-licensed agency, State-licensed uninsured branch of a foreign 
bank, commercial lending company owned or controlled by a foreign 
bank, or entity operating under section 25 or 25A of the Federal 
Reserve Act, 12 U.S.C. 601 and 611 (Edge Act and agreement 
corporations) may not meet the definition of ``bank'' under the 
Federal Deposit Insurance Act and may thereby fail to satisfy the 
definition of a depository financial institution under Sec.  
1003.2(g)(1). An entity is nonetheless a financial institution if it 
meets the definition of nondepository financial institution under 
Sec.  1003.2(g)(2).

2(i) Home Improvement Loan

    1. General. Section 1003.2(i) defines a home improvement loan as 
a closed-end mortgage loan or an open-end line of credit that is for 
the purpose, in whole or in part, of repairing, rehabilitating, 
remodeling, or improving a dwelling or the real property on which 
the dwelling is located. For example, a closed-end mortgage loan 
obtained to repair a dwelling by replacing a roof is a home 
improvement loan under Sec.  1003.2(i). A loan or line of credit is 
a home improvement loan even if only a part of the purpose is for 
repairing, rehabilitating, remodeling, or improving a dwelling. For 
example, an open-end line of credit obtained in part to remodel a 
kitchen and in part to pay college tuition is a home improvement 
loan under Sec.  1003.2(i). Similarly, for example, a loan that is 
completed pursuant to a New York State consolidation, extension, and 
modification agreement and that is classified as a supplemental 
mortgage under New York Tax Law section 255, such that the borrower 
owes reduced or no mortgage recording taxes, is a home improvement 
loan if any of the loan's funds are for home improvement purposes. 
See also comment 2(d)-2.ii.
    2. Improvements to real property. Home improvements include 
improvements both to a dwelling and to the real property on which 
the dwelling is located (for example, installation of a swimming 
pool, construction of a garage, or landscaping).
    3. Commercial and other loans. A home improvement loan may 
include a closed-end mortgage loan or an open-end line of credit 
originated outside an institution's residential mortgage lending 
division, such as a loan or line of credit to improve an apartment 
building originated in the commercial loan department.
    4. Mixed-use property. A closed-end mortgage loan or an open-end 
line of credit to improve a dwelling used for residential and 
commercial purposes (for example, a building containing apartment 
units and retail space), or the real property on which such a 
dwelling is located, is a home improvement loan if the loan's 
proceeds are used either to improve the entire property (for 
example, to replace the heating system), or if the proceeds are used 
primarily to improve the residential portion of the property. An 
institution may use any reasonable standard to determine the primary 
use of the loan proceeds. An institution may select the standard to 
apply on a case-by-case basis.
    5. Multiple-purpose loans. A closed-end mortgage loan or an 
open-end line of credit may be used for multiple purposes. For 
example, a closed-end mortgage loan that is a home improvement loan 
under Sec.  1003.2(i) may also be a refinancing under Sec.  
1003.2(p) if the transaction is a cash-out refinancing and the funds 
will be used to improve a home. Such a transaction is a multiple-
purpose loan. Comment 4(a)(3)-3 provides details about how to report 
multiple-purpose covered loans.
    6. Statement of borrower. In determining whether a closed-end 
mortgage loan or an open-end line of credit, or an application for a 
closed-end mortgage loan or an open-end line of credit, is for home 
improvement purposes, an institution may rely on the applicant's or 
borrower's stated purpose(s) for the loan or line of credit at the 
time the application is received or the credit decision is made. An 
institution need not confirm that the borrower actually uses any of 
the funds for the stated purpose(s).

2(j) Home Purchase Loan

    1. Multiple properties. A home purchase loan includes a closed-
end mortgage loan or an open-end line of credit secured by one 
dwelling and used to purchase another dwelling. For example, if a 
person obtains a home-equity loan or a reverse mortgage secured by 
dwelling A to purchase dwelling B, the home-equity loan or the 
reverse mortgage is a home purchase loan under Sec.  1003.2(j).
    2. Commercial and other loans. A home purchase loan may include 
a closed-end mortgage loan or an open-end line of credit originated 
outside an institution's residential mortgage lending division, such 
as a loan or line of credit to purchase an apartment building 
originated in the commercial loan department.
    3. Construction and permanent financing. A home purchase loan 
includes both a combined construction/permanent loan and the 
permanent financing that replaces a construction-only loan. A home 
purchase loan does not include a construction-only loan that is 
designed to be replaced by permanent financing at a later time, 
which is excluded from Regulation C as temporary financing under 
Sec.  1003.3(c)(3). Comment 3(c)(3)-1 provides additional details 
about transactions that are excluded as temporary financing.
    4. Second mortgages that finance the downpayments on first 
mortgages. If an institution making a first mortgage loan to a home 
purchaser also makes a second mortgage loan or line of credit to the 
same purchaser to finance part or all of the home purchaser's 
downpayment, both the first mortgage loan and the second mortgage 
loan or line of credit are home purchase loans.
    5. Assumptions. Under Sec.  1003.2(j), an assumption is a home 
purchase loan when an institution enters into a written agreement 
accepting a new borrower as the obligor on an existing obligation to 
finance the new borrower's purchase of the dwelling securing the 
existing obligation, if the resulting obligation is a closed-end 
mortgage loan or an open-end line of credit. A transaction in

[[Page 66320]]

which borrower B finances the purchase of borrower A's dwelling by 
assuming borrower A's existing debt obligation and that is completed 
pursuant to a New York State consolidation, extension, and 
modification agreement and is classified as a supplemental mortgage 
under New York Tax Law section 255, such that the borrower owes 
reduced or no mortgage recording taxes, is an assumption and a home 
purchase loan. See comment 2(d)-2.ii. On the other hand, a 
transaction in which borrower B, a successor-in-interest, assumes 
borrower A's existing debt obligation only after acquiring title to 
borrower A's dwelling is not a home purchase loan because borrower B 
did not assume the debt obligation for the purpose of purchasing a 
dwelling. See Sec.  1003.4(a)(3) and comment 4(a)(3)-4 for guidance 
about how to report covered loans that are not home improvement 
loans, home purchase loans, or refinancings.
    6. Multiple-purpose loans. A closed-end mortgage loan or an 
open-end line of credit may be used for multiple purposes. For 
example, a closed-end mortgage loan that is a home purchase loan 
under Sec.  1003.2(j) may also be a home improvement loan under 
Sec.  1003.2(i) and a refinancing under Sec.  1003.2(p) if the 
transaction is a cash-out refinancing and the funds will be used to 
purchase and improve a dwelling. Such a transaction is a multiple-
purpose loan. Comment 4(a)(3)-3 provides details about how to report 
multiple-purpose covered loans.

2(l) Manufactured Home

    1. Definition of a manufactured home. The definition in Sec.  
1003.2(l) refers to the Federal building code for manufactured 
housing established by the U.S. Department of Housing and Urban 
Development (HUD) (24 CFR part 3280.2). Modular or other factory-
built homes that do not meet the HUD code standards are not 
manufactured homes for purposes of Sec.  1003.2(l). Recreational 
vehicles are excluded from the HUD code standards pursuant to 24 CFR 
3282.8(g) and are also excluded from the definition of dwelling for 
purposes of Sec.  1003.2(f). See comment 2(f)-3.
    2. Identification. A manufactured home will generally bear a 
data plate affixed in a permanent manner near the main electrical 
panel or other readily accessible and visible location noting its 
compliance with the Federal Manufactured Home Construction and 
Safety Standards in force at the time of manufacture and providing 
other information about its manufacture pursuant to 24 CFR 3280.5. A 
manufactured home will generally also bear a HUD Certification Label 
pursuant to 24 CFR 3280.11.

2(m) Metropolitan Statistical Area (MD) or Metropolitan Division (MD).

    1. Use of terms ``Metropolitan Statistical Area (MSA)'' and 
``Metropolitan Division (MD).'' The U.S. Office of Management and 
Budget (OMB) defines Metropolitan Statistical Areas (MSAs) and 
Metropolitan Divisions (MDs) to provide nationally consistent 
definitions for collecting, tabulating, and publishing Federal 
statistics for a set of geographic areas. For all purposes under 
Regulation C, if an MSA is divided by OMB into MDs, the appropriate 
geographic unit to be used is the MD; if an MSA is not so divided by 
OMB into MDs, the appropriate geographic unit to be used is the MSA.

2(n) Multifamily Dwelling

    1. Multifamily residential structures. The definition of 
dwelling in Sec.  1003.2(f) includes multifamily residential 
structures and the corresponding commentary provides guidance on 
when such residential structures are included in that definition. 
See comments 2(f)-2 through -5.
    2. Special reporting requirements for multifamily dwellings. The 
definition of multifamily dwelling in Sec.  1003.2(n) includes a 
dwelling, regardless of construction method, that contains five or 
more individual dwelling units. Covered loans secured by a 
multifamily dwelling are subject to additional reporting 
requirements under Sec.  1003.4(a)(32), but are not subject to 
reporting requirements under Sec.  1003.4(a)(4), (10)(iii), (23), 
(29), or (30).

2(o) Open-End Line of Credit

    1. General. Section 1003.2(o) defines an open-end line of credit 
as an extension of credit that is secured by a lien on a dwelling 
and that is an open-end credit plan as defined in Regulation Z, 12 
CFR 1026.2(a)(20), but without regard to whether the credit is 
consumer credit, as defined in Sec.  1026.2(a)(12), is extended by a 
creditor, as defined in Sec.  1026.2(a)(17), or is extended to a 
consumer, as defined in Sec.  1026.2(a)(11). Aside from these 
distinctions, institutions may rely on 12 CFR 1026.2(a)(20) and its 
related commentary in determining whether a transaction is an open-
end line of credit under Sec.  1003.2(o). For example, assume a 
business-purpose transaction that is exempt from Regulation Z 
pursuant to Sec.  1026.3(a)(1) but that otherwise is open-end credit 
under Regulation Z Sec.  1026.2(a)(20). The business-purpose 
transaction is an open-end line of credit under Regulation C, 
provided the other requirements of Sec.  1003.2(o) are met. 
Similarly, assume a transaction in which the person extending open-
end credit is a financial institution under Sec.  1003.2(g) but is 
not a creditor under Regulation Z, Sec.  1026.2(a)(17). In this 
example, the transaction is an open-end line of credit under 
Regulation C, provided the other requirements of Sec.  1003.2(o) are 
met.
    2. Extension of credit. Extension of credit has the same meaning 
under Sec.  1003.2(o) as under Sec.  1003.2(d) and comment 2(d)-2. 
Thus, for example, a renewal of an open-end line of credit is not an 
extension of credit under Sec.  1003.2(o) and is not covered by 
Regulation C unless the existing debt obligation is satisfied and 
replaced. Likewise, under Sec.  1003.2(o), each draw on an open-end 
line of credit is not an extension of credit.

2(p) Refinancing

    1. General. Section 1003.2(p) defines a refinancing as a closed-
end mortgage loan or an open-end line of credit in which a new, 
dwelling-secured debt obligation satisfies and replaces an existing, 
dwelling-secured debt obligation by the same borrower. Except as 
described in comment 2(p)-2, whether a refinancing has occurred is 
determined by reference to whether, based on the parties' contract 
and applicable law, the original debt obligation has been satisfied 
or replaced by a new debt obligation. Whether the original lien is 
satisfied is irrelevant. For example:
    i. A new closed-end mortgage loan that satisfies and replaces 
one or more existing closed-end mortgage loans is a refinancing 
under Sec.  1003.2(p).
    ii. A new open-end line of credit that satisfies and replaces an 
existing closed-end mortgage loan is a refinancing under Sec.  
1003.2(p).
    iii. Except as described in comment 2(p)-2, a new debt 
obligation that renews or modifies the terms of, but that does not 
satisfy and replace, an existing debt obligation, is not a 
refinancing under Sec.  1003.2(p).
    2. New York State consolidation, extension, and modification 
agreements. Where a transaction is completed pursuant to a New York 
State consolidation, extension, and modification agreement and is 
classified as a supplemental mortgage under New York Tax Law 
sectionSec.  255, such that the borrower owes reduced or no mortgage 
recording taxes, and where, but for the agreement, the transaction 
would have met the definition of a refinancing under Sec.  
1003.2(p), the transaction is considered a refinancing under Sec.  
1003.2(p). See also comment 2(d)-2.ii.
    3. Existing debt obligation. A closed-end mortgage loan or an 
open-end line of credit that satisfies and replaces one or more 
existing debt obligations is not a refinancing under Sec.  1003.2(p) 
unless the existing debt obligation (or obligations) also was 
secured by a dwelling. For example, assume that a borrower has an 
existing $30,000 closed-end mortgage loan and obtains a new $50,000 
closed-end mortgage loan that satisfies and replaces the existing 
$30,000 loan. The new $50,000 loan is a refinancing under Sec.  
1003.2(p). However, if the borrower obtains a new $50,000 closed-end 
mortgage loan that satisfies and replaces an existing $30,000 loan 
secured only by a personal guarantee, the new $50,000 loan is not a 
refinancing under Sec.  1003.2(p). See Sec.  1003.4(a)(3) and 
related commentary for guidance about how to report the loan purpose 
of such transactions, if they are not otherwise excluded under Sec.  
1003.3(c).
    4. Same borrower. Section 1003.2(p) provides that, even if all 
of the other requirements of Sec.  1003.2(p) are met, a closed-end 
mortgage loan or an open-end line of credit is not a refinancing 
unless the same borrower undertakes both the existing and the new 
obligation(s). Under Sec.  1003.2(p), the ``same borrower'' 
undertakes both the existing and the new obligation(s) even if only 
one borrower is the same on both obligations. For example, assume 
that an existing closed-end mortgage loan (obligation X) is 
satisfied and replaced by a new closed-end mortgage loan (obligation 
Y). If borrowers A and B both are obligated on obligation X, and 
only borrower B is obligated on obligation Y, then obligation Y is a 
refinancing under Sec.  1003.2(p), assuming the other requirements 
of Sec.  1003.2(p) are met, because borrower B is obligated on both 
transactions. On the other hand, if only borrower A is obligated on 
obligation X, and only borrower B is obligated on obligation Y, then 
obligation Y is not a refinancing under

[[Page 66321]]

Sec.  1003.2(p). For example, assume that two spouses are divorcing. 
If both spouses are obligated on obligation X, but only one spouse 
is obligated on obligation Y, then obligation Y is a refinancing 
under Sec.  1003.2(p), assuming the other requirements of Sec.  
1003.2(p) are met. On the other hand, if only spouse A is obligated 
on obligation X, and only spouse B is obligated on obligation Y, 
then obligation Y is not a refinancing under Sec.  1003.2(p). See 
Sec.  1003.4(a)(3) and related commentary for guidance about how to 
report the loan purpose of such transactions, if they are not 
otherwise excluded under Sec.  1003.3(c).
    5. Two or more debt obligations. Section 1003.2(p) provides 
that, to be a refinancing, a new debt obligation must satisfy and 
replace an existing debt obligation. Where two or more new 
obligations replace an existing obligation, each new obligation is a 
refinancing if, taken together, the new obligations satisfy the 
existing obligation. Similarly, where one new obligation replaces 
two or more existing obligations, the new obligation is a 
refinancing if it satisfies each of the existing obligations.
    6. Multiple-purpose loans. A closed-end mortgage loan or an 
open-end line of credit may be used for multiple purposes. For 
example, a closed-end mortgage loan that is a refinancing under 
Sec.  1003.2(p) may also be a home improvement loan under Sec.  
1003.2(i) and be used for other purposes if the refinancing is a 
cash-out refinancing and the funds will be used both for home 
improvement and to pay college tuition. Such a transaction is a 
multiple-purpose loan. Comment 4(a)(3)-3 provides details about how 
to report multiple-purpose covered loans.

Section 1003.3--Exempt Institutions and Excluded Transactions

3(c) Excluded Transactions

Paragraph 3(c)(1)

    1. Financial institution acting in a fiduciary capacity. Section 
1003.3(c)(1) provides that a closed-end mortgage loan or an open-end 
line of credit originated or purchased by a financial institution 
acting in a fiduciary capacity is an excluded transaction. A 
financial institution acts in a fiduciary capacity if, for example, 
the financial institution acts as a trustee.

Paragraph 3(c)(2)

    1. Loan or line of credit secured by a lien on unimproved land. 
Section 1003.3(c)(2) provides that a closed-end mortgage loan or an 
open-end line of credit secured by a lien on unimproved land is an 
excluded transaction. A loan or line of credit is secured by a lien 
on unimproved land if the loan or line of credit is secured by 
vacant or unimproved property, unless the institution knows, based 
on information that it receives from the applicant or borrower at 
the time the application is received or the credit decision is made, 
that the proceeds of that loan or credit line will be used within 
two years after closing or account opening to construct a dwelling 
on, or to purchase a dwelling to be placed on, the land. A loan or 
line of credit that is not excludable under Sec.  1003.3(c)(2) 
nevertheless may be excluded, for example, as temporary financing 
under Sec.  1003.3(c)(3).

Paragraph 3(c)(3)

    1. Temporary financing. Section 1003.3(c)(3) provides that 
closed-end mortgage loans or open-end lines of credit obtained for 
temporary financing are excluded transactions. A loan or line of 
credit is considered temporary financing and excluded under Sec.  
1003.3(c)(3) if the loan or line of credit is designed to be 
replaced by permanent financing at a later time. For example:
    i. Lender A extends credit in the form of a bridge or swing loan 
to finance a borrower's down payment on a home purchase. The 
borrower pays off the bridge or swing loan with funds from the sale 
of his or her existing home and obtains permanent financing for his 
or her new home from Lender A. The bridge or swing loan is excluded 
as temporary financing under Sec.  1003.3(c)(3).
    ii. Lender A extends credit to finance construction of a 
dwelling. A new extension of credit for permanent financing for the 
dwelling will be obtained, either from Lender A or from another 
lender, and either through a refinancing of the initial construction 
loan or a separate loan. The initial construction loan is excluded 
as temporary financing under Sec.  1003.3(c)(3).
    iii. Assume the same scenario as in comment 3(c)(3)-1.ii, except 
that the initial construction loan is, or may be, renewed one or 
more times before the permanent financing is made. The initial 
construction loan, including any renewal thereof, is excluded as 
temporary financing under Sec.  1003.3(c)(3).
    iv. Lender A extends credit to finance construction of a 
dwelling. The loan automatically will convert to permanent financing 
with Lender A once the construction phase is complete. Under Sec.  
1003.3(c)(3), the loan is not designed to be replaced by permanent 
financing and therefore the temporary financing exclusion does not 
apply. See also comment 2(j)-3.
    v. Lender A originates a loan with a nine-month term to enable 
an investor to purchase a home, renovate it, and re-sell it before 
the term expires. Under Sec.  1003.3(c)(3), the loan is not designed 
to be replaced by permanent financing and therefore the temporary 
financing exclusion does not apply. Such a transaction is not 
temporary financing under Sec.  1003.3(c)(3) merely because its term 
is short.

Paragraph 3(c)(4)

    1. Purchase of an interest in a pool of loans. Section 
1003.3(c)(4) provides that the purchase of an interest in a pool of 
closed-end mortgage loans or open-end lines of credit is an excluded 
transaction. The purchase of an interest in a pool of loans or lines 
of credit includes, for example, mortgage-participation 
certificates, mortgage-backed securities, or real estate mortgage 
investment conduits.

Paragraph 3(c)(6)

    1. Mergers and acquisitions. Section 1003.3(c)(6) provides that 
the purchase of closed-end mortgage loans or open-end lines of 
credit as part of a merger or acquisition, or as part of the 
acquisition of all of the assets and liabilities of a branch office, 
are excluded transactions. If a financial institution acquires loans 
or lines of credit in bulk from another institution (for example, 
from the receiver for a failed institution), but no merger or 
acquisition of an institution, or acquisition of a branch office, is 
involved and no other exclusion applies, the acquired loans or lines 
of credit are covered loans and are reported as described in comment 
4(a)-1.iii.

Paragraph 3(c)(8)

    1. Partial interest. Section 1003.3(c)(8) provides that the 
purchase of a partial interest in a closed-end mortgage loan or an 
open-end line of credit is an excluded transaction. If an 
institution acquires only a partial interest in a loan or line of 
credit, the institution does not report the transaction even if the 
institution participated in the underwriting and origination of the 
loan or line of credit. If an institution acquires a 100 percent 
interest in a loan or line of credit, the transaction is not 
excluded under Sec.  1003.3(c)(8).

Paragraph 3(c)(9)

    1. Loan or line of credit used primarily for agricultural 
purposes. Section 1003.3(c)(9) provides that an institution does not 
report a closed-end mortgage loan or an open-end line of credit used 
primarily for agricultural purposes. A loan or line of credit is 
used primarily for agricultural purposes if its funds will be used 
primarily for agricultural purposes, or if the loan or line of 
credit is secured by a dwelling that is located on real property 
that is used primarily for agricultural purposes (e.g., a farm). An 
institution may refer to comment 3(a)-8 in the official 
interpretations of Regulation Z, 12 CFR part 1026, supplement I, for 
guidance on what is an agricultural purpose. An institution may use 
any reasonable standard to determine the primary use of the 
property. An institution may select the standard to apply on a case-
by-case basis.

Paragraph 3(c)(10)

    1. General. Section 1003.3(c)(10) provides a special rule for 
reporting a closed-end mortgage loan or an open-end line of credit 
that is or will be made primarily for a business or commercial 
purpose. If an institution determines that a closed-end mortgage 
loan or an open-end line of credit primarily is for a business or 
commercial purpose, then the loan or line of credit is a covered 
loan only if it is a home improvement loan under Sec.  1003.2(i), a 
home purchase loan under Sec.  1003.2(j), or a refinancing under 
Sec.  1003.2(p) and no other exclusion applies. Section 
1003.3(c)(10) does not categorically exclude all business- or 
commercial-purpose loans and lines of credit from coverage.
    2. Primary purpose. An institution must determine in each case 
if a closed-end mortgage loan or an open-end line of credit 
primarily is for a business or commercial purpose. If a closed-end 
mortgage loan or an open-end line of credit is deemed to be 
primarily for a business, commercial, or organizational purpose 
under Regulation Z, 12 CFR 1026.3(a) and its related commentary, 
then the loan or line of credit also is deemed

[[Page 66322]]

to be primarily for a business or commercial purpose under Sec.  
1003.3(c)(10).
    3. Examples--covered business- or commercial-purpose 
transactions. The following are examples of closed-end mortgage 
loans and open-end lines of credit that are not excluded from 
reporting under Sec.  1003.3(c)(10), because they primarily are for 
a business or commercial purpose, but they also meet the definition 
of a home improvement loan under Sec.  1003.2(i), a home purchase 
loan under Sec.  1003.2(j), or a refinancing under Sec.  1003.2(p):
    i. A closed-end mortgage loan or an open-end line of credit to 
purchase or to improve a multifamily dwelling or a single-family 
investment property, or a refinancing of a closed-end mortgage loan 
or an open-end line of credit secured by a multifamily dwelling or a 
single-family investment property;
    ii. A closed-end mortgage loan or an open-end line of credit to 
improve an office, for example a doctor's office, that is located in 
a dwelling; and
    iii. A closed-end mortgage loan or an open-end line of credit to 
a corporation, if the funds from the loan or line of credit will be 
used to purchase or to improve a dwelling, or if the transaction is 
a refinancing.
    4. Examples--excluded business- or commercial-purpose 
transactions. The following are examples of closed-end mortgage 
loans and open-end lines of credit that are not covered loans 
because they primarily are for a business or commercial purpose, but 
they do not meet the definition of a home improvement loan under 
Sec.  1003.2(i), a home purchase loan under Sec.  1003.2(j), or a 
refinancing under Sec.  1003.2(p):
    i. A closed-end mortgage loan or an open-end line of credit 
whose funds will be used primarily to improve or expand a business, 
for example to renovate a family restaurant that is not located in a 
dwelling, or to purchase a warehouse, business equipment, or 
inventory;
    ii. A closed-end mortgage loan or an open-end line of credit to 
a corporation whose funds will be used primarily for business 
purposes, such as to purchase inventory; and
    iii. A closed-end mortgage loan or an open-end line of credit 
whose funds will be used primarily for business or commercial 
purposes other than home purchase, home improvement, or refinancing, 
even if the loan or line of credit is cross-collateralized by a 
covered loan.

Paragraph 3(c)(11)

    1. General. Section 1003.3(c)(11) provides that a closed-end 
mortgage loan is an excluded transaction if a financial institution 
originated fewer than 25 closed-end mortgage loans in each of the 
two preceding calendar years. For example, assume that a bank is a 
financial institution in 2022 under Sec.  1003.2(g) because it 
originated 200 open-end lines of credit in 2020, 250 open-end lines 
of credit in 2021, and met all of the other requirements under Sec.  
1003.2(g)(1). Also assume that the bank originated 10 and 20 closed-
end mortgage loans in 2020 and 2021, respectively. The open-end 
lines of credit that the bank originated, or for which it received 
applications, during 2022 are covered loans and must be reported, 
unless they otherwise are excluded transactions under Sec.  
1003.3(c). However, the closed-end mortgage loans that the bank 
originated, or for which it received applications, during 2022 are 
excluded transactions under Sec.  1003.3(c)(11) and need not be 
reported. See comments 4(a)-2 through -4 for guidance about the 
activities that constitute an origination.

Paragraph 3(c)(12)

    1. General. Section 1003.3(c)(12) provides that an open-end line 
of credit is an excluded transaction if a financial institution 
originated fewer than 100 open-end lines of credit in each of the 
two preceding calendar years. For example, assume that a bank is a 
financial institution in 2022 under Sec.  1003.2(g) because it 
originated 50 closed-end mortgage loans in 2020, 75 closed-end 
mortgage loans in 2021, and met all of the other requirements under 
Sec.  1003.2(g)(1). Also assume that the bank originated 75 and 85 
open-end lines of credit in 2020 and 2021, respectively. The closed-
end mortgage loans that the bank originated, or for which it 
received applications, during 2022 are covered loans and must be 
reported, unless they otherwise are excluded transactions under 
Sec.  1003.3(c). However, the open-end lines of credit that the bank 
originated, or for which it received applications, during 2022 are 
excluded transactions under Sec.  1003.3(c)(12) and need not be 
reported. See comments 4(a)-2 through -4 for guidance about the 
activities that constitute an origination.

Section 1003.4--Compilation of Reportable Data

4(a) Data Format and Itemization

    1. General. Section 1003.4(a) describes a financial 
institution's obligation to collect data on applications it 
received, on covered loans that it originated, and on covered loans 
that it purchased during the calendar year covered by the loan/
application register.
    i. A financial institution reports these data even if the 
covered loans were subsequently sold by the institution.
    ii. A financial institution reports data for applications that 
did not result in an origination but on which actions were taken-for 
example, an application that the institution denied, that it 
approved but that was not accepted, that it closed for 
incompleteness, or that the applicant withdrew during the calendar 
year covered by the loan/application register. A financial 
institution is required to report data regarding requests under a 
preapproval program (as defined in Sec.  1003.2(b)(2)) only if the 
preapproval request is denied, results in the origination of a home 
purchase loan, or was approved but not accepted.
    iii. If a financial institution acquires covered loans in bulk 
from another institution (for example, from the receiver for a 
failed institution), but no merger or acquisition of an institution, 
or acquisition of a branch office, is involved, the acquiring 
financial institution reports the covered loans as purchased loans.
    iv. A financial institution reports the data for an application 
on the loan/application register for the calendar year during which 
the application was acted upon even if the institution received the 
application in a previous calendar year.
    2. Originations and applications involving more than one 
institution. Section 1003.4(a) requires a financial institution to 
collect certain information regarding applications for covered loans 
that it receives and regarding covered loans that it originates. The 
following provides guidance on how to report originations and 
applications involving more than one institution. The discussion 
below assumes that all of the parties are financial institutions as 
defined by Sec.  1003.2(g). The same principles apply if any of the 
parties is not a financial institution. Comment 4(a)-3 provides 
examples of transactions involving more than one institution, and 
comment 4(a)-4 discusses how to report actions taken by agents.
    i. Only one financial institution reports each originated 
covered loan as an origination. If more than one institution was 
involved in the origination of a covered loan, the financial 
institution that made the credit decision approving the application 
before closing or account opening reports the loan as an 
origination. It is not relevant whether the loan closed or, in the 
case of an application, would have closed in the institution's name. 
If more than one institution approved an application prior to 
closing or account opening and one of those institutions purchased 
the loan after closing, the institution that purchased the loan 
after closing reports the loan as an origination. If a financial 
institution reports a transaction as an origination, it reports all 
of the information required for originations, even if the covered 
loan was not initially payable to the financial institution that is 
reporting the covered loan as an origination.
    ii. In the case of an application for a covered loan that did 
not result in an origination, a financial institution reports the 
action it took on that application if it made a credit decision on 
the application or was reviewing the application when the 
application was withdrawn or closed for incompleteness. It is not 
relevant whether the financial institution received the application 
from the applicant or from another institution, such as a broker, or 
whether another financial institution also reviewed and reported an 
action taken on the same application.
    3. Examples--originations and applications involving more than 
one institution. The following scenarios illustrate how an 
institution reports a particular application or covered loan. The 
illustrations assume that all of the parties are financial 
institutions as defined by Sec.  1003.2(g). However, the same 
principles apply if any of the parties is not a financial 
institution.
    i. Financial Institution A received an application for a covered 
loan from an applicant and forwarded that application to Financial 
Institution B. Financial Institution B reviewed the application and 
approved the loan prior to closing. The loan closed in Financial 
Institution A's name. Financial Institution B purchased the loan 
from Financial Institution A after closing. Financial Institution B 
was not acting as

[[Page 66323]]

Financial Institution A's agent. Since Financial Institution B made 
the credit decision prior to closing, Financial Institution B 
reports the transaction as an origination, not as a purchase. 
Financial Institution A does not report the transaction.
    ii. Financial Institution A received an application for a 
covered loan from an applicant and forwarded that application to 
Financial Institution B. Financial Institution B reviewed the 
application before the loan would have closed, but the application 
did not result in an origination because Financial Institution B 
denied the application. Financial Institution B was not acting as 
Financial Institution A's agent. Since Financial Institution B made 
the credit decision, Financial Institution B reports the application 
as a denial. Financial Institution A does not report the 
application. If, under the same facts, the application was withdrawn 
before Financial Institution B made a credit decision, Financial 
Institution B would report the application as withdrawn and 
Financial Institution A would not report the application.
    iii. Financial Institution A received an application for a 
covered loan from an applicant and approved the application before 
closing the loan in its name. Financial Institution A was not acting 
as Financial Institution B's agent. Financial Institution B 
purchased the covered loan from Financial Institution A. Financial 
Institution B did not review the application before closing. 
Financial Institution A reports the loan as an origination. 
Financial Institution B reports the loan as a purchase.
    iv. Financial Institution A received an application for a 
covered loan from an applicant. If approved, the loan would have 
closed in Financial Institution B's name. Financial Institution A 
denied the application without sending it to Financial Institution B 
for approval. Financial Institution A was not acting as Financial 
Institution B's agent. Since Financial Institution A made the credit 
decision before the loan would have closed, Financial Institution A 
reports the application. Financial Institution B does not report the 
application.
    v. Financial Institution A reviewed an application and made the 
credit decision to approve a covered loan using the underwriting 
criteria provided by a third party (e.g., another financial 
institution, Fannie Mae, or Freddie Mac). The third party did not 
review the application and did not make a credit decision prior to 
closing. Financial Institution A was not acting as the third party's 
agent. Financial Institution A reports the application or 
origination. If the third party purchased the loan and is subject to 
Regulation C, the third party reports the loan as a purchase whether 
or not the third party reviewed the loan after closing. Assume the 
same facts, except that Financial Institution A approved the 
application, and the applicant chose not to accept the loan from 
Financial Institution A. Financial Institution A reports the 
application as approved but not accepted and the third party, 
assuming the third party is subject to Regulation C, does not report 
the application.
    vi. Financial Institution A reviewed and made the credit 
decision on an application based on the criteria of a third-party 
insurer or guarantor (for example, a government or private insurer 
or guarantor). Financial Institution A reports the action taken on 
the application.
    vii. Financial Institution A received an application for a 
covered loan and forwarded it to Financial Institutions B and C. 
Financial Institution A made a credit decision, acting as Financial 
Institution D's agent, and approved the application. The applicant 
did not accept the loan from Financial Institution D. Financial 
Institution D reports the application as approved but not accepted. 
Financial Institution A does not report the application. Financial 
Institution B made a credit decision, approving the application, the 
applicant accepted the offer of credit from Financial Institution B, 
and credit was extended. Financial Institution B reports the 
origination. Financial Institution C made a credit decision and 
denied the application. Financial Institution C reports the 
application as denied.
    4. Agents. If a financial institution made the credit decision 
on a covered loan or application through the actions of an agent, 
the institution reports the application or origination. State law 
determines whether one party is the agent of another. For example, 
acting as Financial Institution A's agent, Financial Institution B 
approved an application prior to closing and a covered loan was 
originated. Financial Institution A reports the loan as an 
origination.
    5. Purchased loans. i. A financial institution is required to 
collect data regarding covered loans it purchases. For purposes of 
Sec.  1003.4(a), a purchase includes a repurchase of a covered loan, 
regardless of whether the institution chose to repurchase the 
covered loan or was required to repurchase the covered loan because 
of a contractual obligation and regardless of whether the repurchase 
occurs within the same calendar year that the covered loan was 
originated or in a different calendar year. For example, assume that 
Financial Institution A originates or purchases a covered loan and 
then sells it to Financial Institution B, who later requires 
Financial Institution A to repurchase the covered loan pursuant to 
the relevant contractual obligations. Financial Institution B 
reports the purchase from Financial Institution A, assuming it is a 
financial institution as defined under Sec.  1003.2(g). Financial 
Institution A reports the repurchase from Financial Institution B as 
a purchase.
    ii. In contrast, for purposes of Sec.  1003.4(a), a purchase 
does not include a temporary transfer of a covered loan to an 
interim funder or warehouse creditor as part of an interim funding 
agreement under which the originating financial institution is 
obligated to repurchase the covered loan for sale to a subsequent 
investor. Such agreements, often referred to as ``repurchase 
agreements,'' are sometimes employed as functional equivalents of 
warehouse lines of credit. Under these agreements, the interim 
funder or warehouse creditor acquires legal title to the covered 
loan, subject to an obligation of the originating institution to 
repurchase at a future date, rather than taking a security interest 
in the covered loan as under the terms of a more conventional 
warehouse line of credit. To illustrate, assume Financial 
Institution A has an interim funding agreement with Financial 
Institution B to enable Financial Institution B to originate loans. 
Assume further that Financial Institution B originates a covered 
loan and that, pursuant to this agreement, Financial Institution A 
takes a temporary transfer of the covered loan until Financial 
Institution B arranges for the sale of the covered loan to a 
subsequent investor and that Financial Institution B repurchases the 
covered loan to enable it to complete the sale to the subsequent 
investor (alternatively, Financial Institution A may transfer the 
covered loan directly to the subsequent investor at Financial 
Institution B's direction, pursuant to the interim funding 
agreement). The subsequent investor could be, for example, a 
financial institution or other entity that intends to hold the loan 
in portfolio, a GSE or other securitizer, or a financial institution 
or other entity that intends to package and sell multiple loans to a 
GSE or other securitizer. In this example, the temporary transfer of 
the covered loan from Financial Institution B to Financial 
Institution A is not a purchase, and any subsequent transfer back to 
Financial Institution B for delivery to the subsequent investor is 
not a purchase, for purposes of Sec.  1003.4(a). Financial 
Institution B reports the origination of the covered loan as well as 
its sale to the subsequent investor. If the subsequent investor is a 
financial institution under Sec.  1003.2(g), it reports a purchase 
of the covered loan pursuant to Sec.  1003.4(a), regardless of 
whether it acquired the covered loan from Financial Institution B or 
directly from Financial Institution A.

Paragraph 4(a)(1)(i)

    1. ULI--uniqueness. Section 1003.4(a)(1)(i)(B)(2) requires a 
financial institution that assigns a universal loan identifier (ULI) 
to each covered loan or application (except as provided in Sec.  
1003.4(a)(1)(i)(D) and (E)) to ensure that the character sequence it 
assigns is unique within the institution and used only for the 
covered loan or application. A financial institution should assign 
only one ULI to any particular covered loan or application, and each 
ULI should correspond to a single application and ensuing loan in 
the case that the application is approved and a loan is originated. 
A financial institution may use a ULI that was reported previously 
to refer only to the same loan or application for which the ULI was 
used previously or a loan that ensues from an application for which 
the ULI was used previously. A financial institution may not report 
an application for a covered loan in 2030 using the same ULI that 
was reported for a covered loan that was originated in 2020. 
Similarly, refinancings or applications for refinancing should be 
assigned a different ULI than the loan that is being refinanced. A 
financial institution with multiple branches must ensure that its 
branches do not use the same ULI to refer to multiple covered loans 
or applications.
    2. ULI--privacy. Section 1003.4(a)(1)(i)(B)(3) prohibits a 
financial institution from including information that could be used 
to directly identify the applicant or borrower in the identifier 
that it

[[Page 66324]]

assigns for the application or covered loan of the applicant or 
borrower. Information that could be used to directly identify the 
applicant or borrower includes, but is not limited to, the 
applicant's or borrower's name, date of birth, Social Security 
number, official government-issued driver's license or 
identification number, alien registration number, government 
passport number, or employer or taxpayer identification number.
    3. ULI--purchased covered loan. If a financial institution has 
previously reported a covered loan with a ULI under this part, a 
financial institution that purchases that covered loan must use the 
ULI that was previously reported under this part. For example, if a 
loan origination was previously reported under this part with a ULI, 
the financial institution that purchases the covered loan would 
report the purchase of the covered loan using the same ULI. A 
financial institution that purchases a covered loan must use the ULI 
that was assigned by the financial institution that originated the 
covered loan. For example, if a financial institution that submits 
an annual loan/application register pursuant to Sec.  
1003.5(a)(1)(i) originates a covered loan that is purchased by a 
financial institution that submits a quarterly loan/application 
register pursuant to Sec.  1003.5(a)(1)(ii), the financial 
institution that purchased the covered loan must use the ULI that 
was assigned by the financial institution that originated the 
covered loan. A financial institution that purchases a covered loan 
assigns a ULI and records and submits it in its loan/application 
register pursuant to Sec.  1003.5(a)(1)(i) or (ii), whichever is 
applicable, if the covered loan was not assigned a ULI by the 
financial institution that originated the loan because, for example, 
the loan was originated prior to January 1, 2018.
    4. ULI--reinstated or reconsidered application. A financial 
institution may, at its option, use a ULI previously reported under 
this part if, during the same calendar year, an applicant asks the 
institution to reinstate a counteroffer that the applicant 
previously did not accept or asks the financial institution to 
reconsider an application that was previously denied, withdrawn, or 
closed for incompleteness. For example, if a financial institution 
reports a denied application in its second-quarter 2020 data 
submission, pursuant to Sec.  1003.5(a)(1)(ii), but then reconsiders 
the application, which results in an origination in the third 
quarter of 2020, the financial institution may report the 
origination in its third-quarter 2020 data submission using the same 
ULI that was reported for the denied application in its second-
quarter 2020 data submission, so long as the financial institution 
treats the transaction as a continuation of the application. 
However, a financial institution may not use a ULI previously 
reported if it reinstates or reconsiders an application that 
occurred and was reported in a prior calendar year. For example, if 
a financial institution reports a denied application in its fourth-
quarter 2020 data submission, pursuant to Sec.  1003.5(a)(1)(ii), 
but then reconsiders the application resulting in an origination in 
the first quarter of 2021, the financial institution reports a 
denied application under the original ULI in its fourth-quarter 2020 
data submission and an approved application with a different ULI in 
its first-quarter 2021 data submission, pursuant to Sec.  
1003.5(a)(1)(ii).
    5. ULI--check digit. Section 1003.(4)(a)(1)(i)(C) requires that 
the two right-most characters in the ULI represent the check digit. 
Appendix C prescribes the requirements for generating a check digit 
and validating a ULI.

Paragraph 4(a)(1)(ii)

    1. Application date--consistency. Section 1003.4(a)(1)(ii) 
requires that, in reporting the date of application, a financial 
institution report the date it received the application, as defined 
under Sec.  1003.2(b), or the date shown on the application form. 
Although a financial institution need not choose the same approach 
for its entire HMDA submission, it should be generally consistent 
(such as by routinely using one approach within a particular 
division of the institution or for a category of loans). If the 
financial institution chooses to report the date shown on the 
application form and the institution retains multiple versions of 
the application form, the institution reports the date shown on the 
first application form satisfying the application definition 
provided under Sec.  1003.2(b).
    2. Application date--indirect application. For an application 
that was not submitted directly to the financial institution, the 
institution may report the date the application was received by the 
party that initially received the application, the date the 
application was received by the institution, or the date shown on 
the application form. Although an institution need not choose the 
same approach for its entire HMDA submission, it should be generally 
consistent (such as by routinely using one approach within a 
particular division of the institution or for a category of loans).
    3. Application date--reinstated application. If, within the same 
calendar year, an applicant asks a financial institution to 
reinstate a counteroffer that the applicant previously did not 
accept (or asks the institution to reconsider an application that 
was denied, withdrawn, or closed for incompleteness), the 
institution may treat that request as the continuation of the 
earlier transaction using the same ULI or as a new transaction with 
a new ULI. If the institution treats the request for reinstatement 
or reconsideration as a new transaction, it reports the date of the 
request as the application date. If the institution does not treat 
the request for reinstatement or reconsideration as a new 
transaction, it reports the original application date.

Paragraph 4(a)(2)

    1. Loan type--general. If a covered loan is not, or in the case 
of an application would not have been, insured by the Federal 
Housing Administration, guaranteed by the Veterans Administration, 
or guaranteed by the Rural Housing Service or the Farm Service 
Agency, an institution complies with Sec.  1003.4(a)(2) by reporting 
the covered loan as not insured or guaranteed by the Federal Housing 
Administration, Veterans Administration, Rural Housing Service, or 
Farm Service Agency.

Paragraph 4(a)(3)

    1. Purpose--statement of applicant. A financial institution may 
rely on the oral or written statement of an applicant regarding the 
proposed use of covered loan proceeds. For example, a lender could 
use a check-box or a purpose line on a loan application to determine 
whether the applicant intends to use covered loan proceeds for home 
improvement purposes. If an applicant provides no statement as to 
the proposed use of covered loan proceeds and the covered loan is 
not a home purchase loan, cash-out refinancing, or refinancing, a 
financial institution reports the covered loan as for a purpose 
other than home purchase, home improvement, refinancing, or cash-out 
refinancing for purposes of Sec.  1003.4(a)(3).
    2. Purpose--refinancing and cash-out refinancing. Section 
1003.4(a)(3) requires a financial institution to report whether a 
covered loan is, or an application is for, a refinancing or a cash-
out refinancing. A financial institution reports a covered loan or 
an application as a cash-out refinancing if it is a refinancing as 
defined by Sec.  1003.2(p) and the institution considered it to be a 
cash-out refinancing in processing the application or setting the 
terms (such as the interest rate or origination charges) under its 
guidelines or an investor's guidelines. For example:
    i. Assume a financial institution considers an application for a 
loan product to be a cash-out refinancing under an investor's 
guidelines because of the amount of cash received by the borrower at 
closing or account opening. Assume also that under the investor's 
guidelines, the applicant qualifies for the loan product and the 
financial institution approves the application, originates the 
covered loan, and sets the terms of the covered loan consistent with 
the loan product. In this example, the financial institution would 
report the covered loan as a cash-out refinancing for purposes of 
Sec.  1003.4(a)(3).
    ii. Assume a financial institution does not consider an 
application for a covered loan to be a cash-out refinancing under 
its own guidelines because the amount of cash received by the 
borrower does not exceed a certain threshold. Assume also that the 
institution approves the application, originates the covered loan, 
and sets the terms of the covered loan consistent with its own 
guidelines applicable to refinancings other than cash-out 
refinancings. In this example, the financial institution would 
report the covered loan as a refinancing for purposes of Sec.  
1003.4(a)(3).
    iii. Assume a financial institution does not distinguish between 
a cash-out refinancing and a refinancing under its own guidelines, 
and sets the terms of all refinancings without regard to the amount 
of cash received by the borrower at closing or account opening, and 
does not offer loan products under investor guidelines. In this 
example, the financial institution reports all covered loans and 
applications for covered loans that are defined by Sec.  1003.2(p) 
as refinancings for purposes of Sec.  1003.4(a)(3).
    3. Purpose--multiple-purpose loan. Section 1003.4(a)(3) requires 
a financial institution to report the purpose of a covered loan or 
application. If a covered loan is a

[[Page 66325]]

home purchase loan as well as a home improvement loan, a 
refinancing, or a cash-out refinancing, an institution complies with 
Sec.  1003.4(a)(3) by reporting the loan as a home purchase loan. If 
a covered loan is a home improvement loan as well as a refinancing 
or cash-out refinancing, but the covered loan is not a home purchase 
loan, an institution complies with Sec.  1003.4(a)(3) by reporting 
the covered loan as a refinancing or a cash-out refinancing, as 
appropriate. If a covered loan is a refinancing or cash-out 
refinancing as well as for another purpose, such as for the purpose 
of paying educational expenses, but the covered loan is not a home 
purchase loan, an institution complies with Sec.  1003.4(a)(3) by 
reporting the covered loan as a refinancing or a cash-out 
refinancing, as appropriate. See comment 4(a)(3)-2. If a covered 
loan is a home improvement loan as well as for another purpose, but 
the covered loan is not a home purchase loan, a refinancing, or 
cash-out refinancing, an institution complies with Sec.  
1003.4(a)(3) by reporting the covered loan as a home improvement 
loan. See comment 2(i)-1.
    4. Purpose--other. If a covered loan is not, or an application 
is not for, a home purchase loan, a home improvement loan, a 
refinancing, or a cash-out refinancing, a financial institution 
complies with Sec.  1003.4(a)(3) by reporting the covered loan or 
application as for a purpose other than home purchase, home 
improvement, refinancing, or cash-out refinancing. For example, if a 
covered loan is for the purpose of paying educational expenses, the 
financial institution complies with Sec.  1003.4(a)(3) by reporting 
the covered loan as for a purpose other than home purchase, home 
improvement, refinancing, or cash-out refinancing. Section 
1003.4(a)(3) also requires an institution to report a covered loan 
or application as for a purpose other than home purchase, home 
improvement, refinancing, or cash-out refinancing if it is a 
refinancing but, under the terms of the agreement, the financial 
institution was unconditionally obligated to refinance the 
obligation subject to conditions within the borrower's control.
    5. Purpose--business or commercial purpose loans. If a covered 
loan primarily is for a business or commercial purpose as described 
in Sec.  1003.3(c)(10) and comment 3(c)(10)-2 and is a home purchase 
loan, home improvement loan, or a refinancing, Sec.  1003.4(a)(3) 
requires the financial institution to report the applicable loan 
purpose. If a loan primarily is for a business or commercial purpose 
but is not a home purchase loan, home improvement loan, or a 
refinancing, the loan is an excluded transaction under Sec.  
1003.3(c)(10).

Paragraph 4(a)(4)

    1. Request under a preapproval program. Section 1003.4(a)(4) 
requires a financial institution to report whether an application or 
covered loan involved a request for a preapproval of a home purchase 
loan under a preapproval program as defined by Sec.  1003.2(b)(2). 
If an application or covered loan did not involve a request for a 
preapproval of a home purchase loan under a preapproval program as 
defined by Sec.  1003.2(b)(2), a financial institution complies with 
Sec.  1003.4(a)(4) by reporting that the application or covered loan 
did not involve such a request, regardless of whether the 
institution has such a program and the applicant did not apply 
through that program or the institution does not have a preapproval 
program as defined by Sec.  1003.2(b)(2).
    2. Scope of requirement. A financial institution reports that 
the application or covered loan did not involve a preapproval 
request for a purchased covered loan; an application or covered loan 
for any purpose other than a home purchase loan; an application for 
a home purchase loan or a covered loan that is a home purchase loan 
secured by a multifamily dwelling; an application or covered loan 
that is an open-end line of credit or a reverse mortgage; or an 
application that is denied, withdrawn by the applicant, or closed 
for incompleteness.

Paragraph 4(a)(5)

    1. Modular homes and prefabricated components. Covered loans or 
applications related to modular homes should be reported with a 
construction method of site-built, regardless of whether they are 
on-frame or off-frame modular homes. Modular homes comply with local 
or other recognized buildings codes rather than standards 
established by the National Manufactured Housing Construction and 
Safety Standards Act, 42 U.S.C. 5401 et seq. Modular homes are not 
required to have HUD Certification Labels under 24 CFR 3280.11 or 
data plates under 24 CFR 3280.5. Modular homes may have a 
certification from a State licensing agency that documents 
compliance with State or other applicable building codes. On-frame 
modular homes are constructed on permanent metal chassis similar to 
those used in manufactured homes. The chassis are not removed on 
site and are secured to the foundation. Off-frame modular homes 
typically have floor construction similar to the construction of 
other site-built homes, and the construction typically includes 
wooden floor joists and does not include permanent metal chassis. 
Dwellings built using prefabricated components assembled at the 
dwelling's permanent site should also be reported with a 
construction method of site-built.
    2. Multifamily dwelling. For a covered loan or an application 
for a covered loan related to a multifamily dwelling, the financial 
institution should report the construction method as site-built 
unless the multifamily dwelling is a manufactured home community, in 
which case the financial institution should report the construction 
method as manufactured home.
    3. Multiple properties. See comment 4(a)(9)-2 regarding 
transactions involving multiple properties with more than one 
property taken as security.

Paragraph 4(a)(6)

    1. Multiple properties. See comment 4(a)(9)-2 regarding 
transactions involving multiple properties with more than one 
property taken as security.
    2. Principal residence. Section 1003.4(a)(6) requires a 
financial institution to identify whether the property to which the 
covered loan or application relates is or will be used as a 
residence that the applicant or borrower physically occupies and 
uses, or will occupy and use, as his or her principal residence. For 
purposes of Sec.  1003.4(a)(6), an applicant or borrower can have 
only one principal residence at a time. Thus, a vacation or other 
second home would not be a principal residence. However, if an 
applicant or borrower buys or builds a new dwelling that will become 
the applicant's or borrower's principal residence within a year or 
upon the completion of construction, the new dwelling is considered 
the principal residence for purposes of applying this definition to 
a particular transaction.
    3. Second residences. Section 1003.4(a)(6) requires a financial 
institution to identify whether the property to which the loan or 
application relates is or will be used as a second residence. For 
purposes of Sec.  1003.4(a)(6), a property is a second residence of 
an applicant or borrower if the property is or will be occupied by 
the applicant or borrower for a portion of the year and is not the 
applicant's or borrower's principal residence. For example, if a 
person purchases a property, occupies the property for a portion of 
the year, and rents the property for the remainder of the year, the 
property is a second residence for purposes of Sec.  1003.4(a)(6). 
Similarly, if a couple occupies a property near their place of 
employment on weekdays, but the couple returns to their principal 
residence on weekends, the property near the couple's place of 
employment is a second residence for purposes of Sec.  1003.4(a)(6).
    4. Investment properties. Section 1003.4(a)(6) requires a 
financial institution to identify whether the property to which the 
covered loan or application relates is or will be used as an 
investment property. For purposes of Sec.  1003.4(a)(6), a property 
is an investment property if the borrower does not, or the applicant 
will not, occupy the property. For example, if a person purchases a 
property, does not occupy the property, and generates income by 
renting the property, the property is an investment property for 
purposes of Sec.  1003.4(a)(6). Similarly, if a person purchases a 
property, does not occupy the property, and does not generate income 
by renting the property, but intends to generate income by selling 
the property, the property is an investment property for purposes of 
Sec.  1003.4(a)(6). Section 1003.4(a)(6) requires a financial 
institution to identify a property as an investment property if the 
borrower or applicant does not or will not occupy the property, even 
if the borrower or applicant does not consider the property as owned 
for investment purposes. For example, if a corporation purchases a 
property that is a dwelling under Sec.  1003.2(f), that it does not 
occupy, but that is for the long-term residential use of its 
employees, the property is an investment property for purposes of 
Sec.  1003.4(a)(6), even if the corporation considers the property 
as owned for business purposes rather than investment purposes, does 
not generate income by renting the property, and does not intend to 
generate income by selling the property at some point in time. If 
the property is for transitory use by employees, the property would 
not be considered a dwelling under Sec.  1003.2(f). See comment 
2(f)-3.

[[Page 66326]]

    5. Purchased covered loans. For purchased covered loans, a 
financial institution may report principal residence unless the loan 
documents or application indicate that the property will not be 
occupied as a principal residence.

Paragraph 4(a)(7)

    1. Covered loan amount--counteroffer. If an applicant accepts a 
counteroffer for an amount different from the amount for which the 
applicant applied, the financial institution reports the covered 
loan amount granted. If an applicant does not accept a counteroffer 
or fails to respond, the institution reports the amount initially 
requested.
    2. Covered loan amount--application approved but not accepted or 
preapproval request approved but not accepted. A financial 
institution reports the covered loan amount that was approved.
    3. Covered loan amount--preapproval request denied, application 
denied, closed for incompleteness or withdrawn. For a preapproval 
request that was denied, and for an application that was denied, 
closed for incompleteness, or withdrawn, a financial institution 
reports the amount for which the applicant applied.
    4. Covered loan amount--multiple-purpose loan. A financial 
institution reports the entire amount of the covered loan, even if 
only a part of the proceeds is intended for home purchase, home 
improvement, or refinancing.
    5. Covered loan amount--closed-end mortgage loan. For a closed-
end mortgage loan, other than a purchased loan, an assumption, or a 
reverse mortgage, a financial institution reports the amount to be 
repaid as disclosed on the legal obligation. For a purchased closed-
end mortgage loan or an assumption of a closed-end mortgage loan, a 
financial institution reports the unpaid principal balance at the 
time of purchase or assumption.
    6. Covered loan amount--open-end line of credit. For an open-end 
line of credit, a financial institution reports the entire amount of 
credit available to the borrower under the terms of the open-end 
plan, including a purchased open-end line of credit and an 
assumption of an open-end line of credit, but not for a reverse 
mortgage open-end line of credit.
    7. Covered loan amount--refinancing. For a refinancing, a 
financial institution reports the amount of credit extended under 
the terms of the new debt obligation.
    8. Covered loan amount--home improvement loan. A financial 
institution reports the entire amount of a home improvement loan, 
even if only a part of the proceeds is intended for home 
improvement.
    9. Covered loan amount--non-federally insured reverse mortgage. 
A financial institution reports the initial principal limit of a 
non-federally insured reverse mortgage as set forth in Sec.  
1003.4(a)(7)(iii).

Paragraph 4(a)(8)(i)

    1. Action taken--covered loan originated. A financial 
institution reports that the covered loan was originated if the 
financial institution made a credit decision approving the 
application before closing or account opening and that credit 
decision results in an extension of credit. The same is true for an 
application that began as a request for a preapproval that 
subsequently results in a covered loan being originated. See 
comments 4(a)-2 through -4 for guidance on transactions in which 
more than one institution is involved.
    2. Action taken--covered loan purchased. A financial institution 
reports that the covered loan was purchased if the covered loan was 
purchased by the financial institution after closing or account 
opening and the financial institution did not make a credit decision 
on the application prior to closing or account opening, or if the 
financial institution did make a credit decision on the application 
prior to closing or account opening, but is repurchasing the loan 
from another entity that the loan was sold to. See comment 4(a)-5. 
See comments 4(a)-2 through -4 for guidance on transactions in which 
more than one financial institution is involved.
    3. Action taken--application approved but not accepted. A 
financial institution reports application approved but not accepted 
if the financial institution made a credit decision approving the 
application before closing or account opening, subject solely to 
outstanding conditions that are customary commitment or closing 
conditions, but the applicant or the party that initially received 
the application fails to respond to the financial institution's 
approval within the specified time, or the closed-end mortgage loan 
was not otherwise consummated or the account was not otherwise 
opened. See comment 4(a)(8)(i)-13.
    4. Action taken--application denied. A financial institution 
reports that the application was denied if it made a credit decision 
denying the application before an applicant withdraws the 
application or the file is closed for incompleteness. See comments 
4(a)-2 through -4 for guidance on transactions in which more than 
one institution is involved.
    5. Action taken--application withdrawn. A financial institution 
reports that the application was withdrawn when the application is 
expressly withdrawn by the applicant before the financial 
institution makes a credit decision denying the application, before 
the financial institution makes a credit decision approving the 
application, or before the file is closed for incompleteness. A 
financial institution also reports application withdrawn if the 
financial institution provides a conditional approval specifying 
underwriting or creditworthiness conditions, pursuant to comment 
4(a)(8)(i)-13, and the application is expressly withdrawn by the 
applicant before the applicant satisfies all specified underwriting 
or creditworthiness conditions. A preapproval request that is 
withdrawn is not reportable under HMDA. See Sec.  1003.4(a).
    6. Action taken--file closed for incompleteness. A financial 
institution reports that the file was closed for incompleteness if 
the financial institution sent a written notice of incompleteness 
under Regulation B, 12 CFR 1002.9(c)(2), and the applicant did not 
respond to the request for additional information within the period 
of time specified in the notice before the applicant satisfies all 
underwriting or creditworthiness conditions. See comment 4(a)(8)(i)-
13. If a financial institution then provides a notification of 
adverse action on the basis of incompleteness under Regulation B, 12 
CFR 1002.9(c)(i), the financial institution may report the action 
taken as either file closed for incompleteness or application 
denied. A preapproval request that is closed for incompleteness is 
not reportable under HMDA. See Sec.  1003.4(a).
    7. Action taken--preapproval request denied. A financial 
institution reports that the preapproval request was denied if the 
application was a request for a preapproval under a preapproval 
program as defined in Sec.  1003.2(b)(2) and the institution made a 
credit decision denying the preapproval request.
    8. Action taken--preapproval request approved but not accepted. 
A financial institution reports that the preapproval request was 
approved but not accepted if the application was a request for a 
preapproval under a preapproval program as defined in Sec.  
1003.2(b)(2) and the institution made a credit decision approving 
the preapproval request but the application did not result in a 
covered loan originated by the financial institution.
    9. Action taken--counteroffers. If a financial institution makes 
a counteroffer to lend on terms different from the applicant's 
initial request (for example, for a shorter loan maturity, with a 
different interest rate, or in a different amount) and the applicant 
does not accept the counteroffer or fails to respond, the 
institution reports the action taken as a denial on the original 
terms requested by the applicant. If the applicant accepts, the 
financial institution reports the action taken as covered loan 
originated.
    10. Action taken--rescinded transactions. If a borrower rescinds 
a transaction after closing and before a financial institution is 
required to submit its loan/application register containing the 
information for the transaction under Sec.  1003.5(a), the 
institution reports the transaction as an application that was 
approved but not accepted.
    11. Action taken--purchased covered loans. An institution 
reports the covered loans that it purchased during the calendar 
year. An institution does not report the covered loans that it 
declined to purchase, unless, as discussed in comments 4(a)-2 
through -4, the institution reviewed the application prior to 
closing, in which case it reports the application or covered loan 
according to comments 4(a)-2 through -4.
    12. Action taken--repurchased covered loans. See comment 4(a)-5 
regarding reporting requirements when a covered loan is repurchased 
by the originating financial institution.
    13. Action taken--conditional approvals. If an institution 
issues an approval other than a commitment pursuant to a preapproval 
program as defined under Sec.  1003.2(b)(2), and that approval is 
subject to the applicant meeting certain conditions, the institution 
reports the action taken as provided below dependent on whether the 
conditions are solely customary commitment or closing conditions or 
if the conditions include any underwriting or creditworthiness 
conditions.

[[Page 66327]]

    i. Action taken examples. If the approval is conditioned on 
satisfying underwriting or creditworthiness conditions and they are 
not met, the institution reports the action taken as a denial. If, 
however, the conditions involve submitting additional information 
about underwriting or creditworthiness that the institution needs to 
make the credit decision, and the institution has sent a written 
notice of incompleteness under Regulation B, 12 CFR 1002.9(c)(2), 
and the applicant did not respond within the period of time 
specified in the notice, the institution reports the action taken as 
file closed for incompleteness. See comment 4(a)(8)(i)-6. If the 
conditions are solely customary commitment or closing conditions and 
the conditions are not met, the institution reports the action taken 
as approved but not accepted. If all the conditions (underwriting, 
creditworthiness, or customary commitment or closing conditions) are 
satisfied and the institution agrees to extend credit but the 
covered loan is not originated, the institution reports the action 
taken as application approved but not accepted. If the applicant 
expressly withdraws before satisfying all underwriting or 
creditworthiness conditions and before the institution denies the 
application or closes the file for incompleteness, the institution 
reports the action taken as application withdrawn. If all 
underwriting and creditworthiness conditions have been met, and the 
outstanding conditions are solely customary commitment or closing 
conditions and the applicant expressly withdraws before the covered 
loan is originated, the institution reports the action taken as 
application approved but not accepted.
    ii. Customary commitment or closing conditions. Customary 
commitment or closing conditions include, for example: a clear-title 
requirement, an acceptable property survey, acceptable title 
insurance binder, clear termite inspection, a subordination 
agreement from another lienholder, and, where the applicant plans to 
use the proceeds from the sale of one home to purchase another, a 
settlement statement showing adequate proceeds from the sale.
    iii. Underwriting or creditworthiness conditions. Underwriting 
or creditworthiness conditions include, for example: conditions that 
constitute a counter-offer, such as a demand for a higher down-
payment; satisfactory debt-to-income or loan-to-value ratios, a 
determination of need for private mortgage insurance, or a 
satisfactory appraisal requirement; or verification or confirmation, 
in whatever form the institution requires, that the applicant meets 
underwriting conditions concerning applicant creditworthiness, 
including documentation or verification of income or assets.
    14. Action taken--pending applications. An institution does not 
report any covered loan application still pending at the end of the 
calendar year; it reports that application on its loan/application 
register for the year in which final action is taken.

Paragraph 4(a)(8)(ii)

    1. Action taken date--general. A financial institution reports 
the date of the action taken.
    2. Action taken date--applications denied and files closed for 
incompleteness. For applications, including requests for a 
preapproval, that are denied or for files closed for incompleteness, 
the financial institution reports either the date the action was 
taken or the date the notice was sent to the applicant.
    3. Action taken date--application withdrawn. For applications 
withdrawn, the financial institution may report the date the express 
withdrawal was received or the date shown on the notification form 
in the case of a written withdrawal.
    4. Action taken date--approved but not accepted. For a covered 
loan approved by an institution but not accepted by the applicant, 
the institution reports any reasonable date, such as the approval 
date, the deadline for accepting the offer, or the date the file was 
closed. Although an institution need not choose the same approach 
for its entire HMDA submission, it should be generally consistent 
(such as by routinely using one approach within a particular 
division of the institution or for a category of covered loans).
    5. Action taken date--originations. For covered loan 
originations, including a preapproval request that leads to an 
origination by the financial institution, an institution generally 
reports the closing or account opening date. For covered loan 
originations that an institution acquires from a party that 
initially received the application, the institution reports either 
the closing or account opening date, or the date the institution 
acquired the covered loan from the party that initially received the 
application. If the disbursement of funds takes place on a date 
later than the closing or account opening date, the institution may 
use the date of initial disbursement. For a construction/permanent 
covered loan, the institution reports either the closing or account 
opening date, or the date the covered loan converts to the permanent 
financing. Although an institution need not choose the same approach 
for its entire HMDA submission, it should be generally consistent 
(such as by routinely using one approach within a particular 
division of the institution or for a category of covered loans). 
Notwithstanding this flexibility regarding the use of the closing or 
account opening date in connection with reporting the date action 
was taken, the institution must report the origination as occurring 
in the year in which the origination goes to closing or the account 
is opened.
    6. Action taken date--loan purchased. For covered loans 
purchased, a financial institution reports the date of purchase.

Paragraph 4(a)(9)

    1. Multiple properties with one property taken as security. If a 
covered loan is related to more than one property, but only one 
property is taken as security (or, in the case of an application, 
proposed to be taken as security), a financial institution reports 
the information required by Sec.  1003.4(a)(9) for the property 
taken as or proposed to be taken as security. A financial 
institution does not report the information required by Sec.  
1003.4(a)(9) for the property or properties related to the loan that 
are not taken as or proposed to be taken as security. For example, 
if a covered loan is secured by property A, and the proceeds are 
used to purchase or rehabilitate (or to refinance home purchase or 
home improvement loans related to) property B, the institution 
reports the information required by Sec.  1003.4(a)(9) for property 
A and does not report the information required by Sec.  1003.4(a)(9) 
for property B.
    2. Multiple properties with more than one property taken as 
security. If more than one property is taken or, in the case of an 
application, proposed to be taken as security for a single covered 
loan, a financial institution reports the covered loan or 
application in a single entry on its loan/application register and 
provides the information required by Sec.  1003.4(a)(9) for one of 
the properties taken as security that contains a dwelling. A 
financial institution does not report information about the other 
properties taken as security. If an institution is required to 
report specific information about the property identified in Sec.  
1003.4(a)(9), the institution reports the information that relates 
to the property identified in Sec.  1003.4(a)(9). For example, 
Financial Institution A originated a covered loan that is secured by 
both property A and property B, each of which contains a dwelling. 
Financial Institution A reports the loan as one entry on its loan/
application register, reporting the information required by Sec.  
1003.4(a)(9) for either property A or property B. If Financial 
Institution A elects to report the information required by Sec.  
1003.4(a)(9) about property A, Financial Institution A also reports 
the information required by Sec.  1003.4(a)(5), (6), (14), (29), and 
(30) related to property A. For aspects of the entries that do not 
refer to the property identified in Sec.  1003.4(a)(9) (i.e., Sec.  
1003.4(a)(1) through (4), (7), (8), (10) through (13), (15) through 
(28), (31) through (38)), Financial Institution A reports the 
information applicable to the covered loan or application and not 
information that relates only to the property identified in Sec.  
1003.4(a)(9).
    3. Multifamily dwellings. A single multifamily dwelling may have 
more than one postal address. For example, three apartment 
buildings, each with a different street address, comprise a single 
multifamily dwelling that secures a covered loan. For the purposes 
of Sec.  1003.4(a)(9), a financial institution reports the 
information required by Sec.  1003.4(a)(9) in the same manner 
described in comment 4(a)(9)-2.
    4. Loans purchased from another institution. The requirement to 
report the property location information required by Sec.  
1003.4(a)(9) applies not only to applications and originations but 
also to purchased covered loans.
    5. Manufactured home. If the site of a manufactured home has not 
been identified, a financial institution complies by reporting that 
the information required by Sec.  1003.4(a)(9) is not applicable.

Paragraph 4(a)(9)(i)

    1. General. Section 1003.4(a)(9)(i) requires a financial 
institution to report the property address of the location of the 
property securing a covered loan or, in the case of an application, 
proposed to secure a covered loan. The address should correspond to 
the

[[Page 66328]]

property identified on the legal obligation related to the covered 
loan. For applications that did not result in an origination, the 
address should correspond to the location of the property proposed 
to secure the loan as identified by the applicant. For example, 
assume a loan is secured by a property located at 123 Main Street, 
and the applicant's or borrower's mailing address is a post office 
box. The financial institution should not report the post office 
box, and should report 123 Main Street.
    2. Property address--format. A financial institution complies 
with the requirements in Sec.  1003.4(a)(9)(i) by reporting the 
following information about the physical location of the property 
securing the loan.
    i. Street address. When reporting the street address of the 
property, a financial institution complies by including, as 
applicable, the primary address number, the predirectional, the 
street name, street prefixes and/or suffixes, the postdirectional, 
the secondary address identifier, and the secondary address, as 
applicable. For example, 100 N Main ST Apt 1.
    ii. City name. A financial institution complies by reporting the 
name of the city in which the property is located.
    iii. State name. A financial institution complies by reporting 
the two letter State code for the State in which the property is 
located, using the U.S. Postal Service official State abbreviations.
    iv. Zip Code. A financial institution complies by reporting the 
five or nine digit Zip Code in which the property is located.
    3. Property address--not applicable. A financial institution 
complies with Sec.  1003.4(a)(9)(i) by indicating that the 
requirement is not applicable if the property address of the 
property securing the covered loan is not known. For example, if the 
property did not have a property address at closing or if the 
applicant did not provide the property address of the property to 
the financial institution before the application was denied, 
withdrawn, or closed for incompleteness, the financial institution 
complies with Sec.  1003.4(a)(9)(i) by indicating that the 
requirement is not applicable.

Paragraph 4(a)(9)(ii)(B)

    1. General. A financial institution complies by reporting the 
five-digit Federal Information Processing Standards (FIPS) numerical 
county code.

Paragraph 4(a)(9)(ii)(C)

    1. General. Census tract numbers are defined by the U.S. Census 
Bureau. A financial institution complies with Sec.  
1003.4(a)(9)(ii)(C) if it uses the boundaries and codes in effect on 
January 1 of the calendar year covered by the loan/application 
register that it is reporting.

Paragraph 4(a)(10)(i)

    1. Applicant data--general. Refer to appendix B to this part for 
instructions on collection of an applicant's ethnicity, race, and 
sex.
    2. Transition rule for applicant data collected prior to January 
1, 2018. If a financial institution receives an application prior to 
January 1, 2018, but final action is taken on or after January 1, 
2018, the financial institution complies with Sec.  1003.4(a)(10)(i) 
and (b) if it collects the information in accordance with the 
requirements in effect at the time the information was collected. 
For example, if a financial institution receives an application on 
November 15, 2017, collects the applicant's ethnicity, race, and sex 
in accordance with the instructions in effect on that date, and 
takes final action on the application on January 5, 2018, the 
financial institution has complied with the requirements of Sec.  
1003.4(a)(10)(i) and (b), even though those instructions changed 
after the information was collected but before the date of final 
action. However, if, in this example, the financial institution 
collected the applicant's ethnicity, race, and sex on or after 
January 1, 2018, Sec.  1003.4(a)(10)(i) and (b) requires the 
financial institution to collect the information in accordance with 
the amended instructions.

Paragraph 4(a)(10)(ii)

    1. Applicant data--completion by financial institution. A 
financial institution complies with Sec.  1003.4(a)(10)(ii) by 
reporting the applicant's age, as of the application date under 
Sec.  1003.4(a)(1)(ii), as the number of whole years derived from 
the date of birth as shown on the application form. For example, if 
an applicant provides a date of birth of 01/15/1970 on the 
application form that the financial institution receives on 01/14/
2015, the institution reports 44 as the applicant's age.
    2. Applicant data--co-applicant. If there are no co-applicants, 
the financial institution reports that there is no co-applicant. If 
there is more than one co-applicant, the financial institution 
reports the age only for the first co-applicant listed on the 
application form. A co-applicant may provide an absent co-
applicant's age on behalf of the absent co-applicant.
    3. Applicant data--purchased loan. A financial institution 
complies with Sec.  1003.4(a)(10)(ii) by reporting that the 
requirement is not applicable when reporting a purchased loan for 
which the institution chooses not to report the income.
    4. Applicant data--non-natural person. A financial institution 
complies with Sec.  1003.4(a)(10)(ii) by reporting that the 
requirement is not applicable if the applicant or co-applicant is 
not a natural person (for example, a corporation, partnership, or 
trust). For example, for a transaction involving a trust, a 
financial institution reports that the requirement to report the 
applicant's age is not applicable if the trust is the applicant. On 
the other hand, if the applicant is a natural person, and is the 
beneficiary of a trust, a financial institution reports the 
applicant's age.
    5. Applicant data--guarantor. For purposes of Sec.  
1003.4(a)(10)(ii), if a covered loan or application includes a 
guarantor, a financial institution does not report the guarantor's 
age.

Paragraph 4(a)(10)(iii)

    1. Income data--income relied on. When a financial institution 
evaluates income as part of a credit decision, it reports the gross 
annual income relied on in making the credit decision. For example, 
if an institution relies on an applicant's salary to compute a debt-
to-income ratio but also relies on the applicant's annual bonus to 
evaluate creditworthiness, the institution reports the salary and 
the bonus to the extent relied upon. If an institution relies on 
only a portion of an applicant's income in its determination, it 
does not report that portion of income not relied on. For example, 
if an institution, pursuant to lender and investor guidelines, does 
not rely on an applicant's commission income because it has been 
earned for less than 12 months, the institution does not include the 
applicant's commission income in the income reported. Likewise, if 
an institution relies on the verified gross income of the applicant 
in making the credit decision, then the institution reports the 
verified gross income. Similarly, if an institution relies on the 
income of a cosigner to evaluate creditworthiness, the institution 
includes the cosigner's income to the extent relied upon. An 
institution, however, does not include the income of a guarantor who 
is only secondarily liable.
    2. Income data--co-applicant. If two persons jointly apply for a 
covered loan and both list income on the application, but the 
financial institution relies on the income of only one applicant in 
evaluating creditworthiness, the institution reports only the income 
relied on.
    3. Income data--loan to employee. A financial institution 
complies with Sec.  1003.4(a)(10)(iii) by reporting that the 
requirement is not applicable for a covered loan to, or an 
application from, its employee to protect the employee's privacy, 
even though the institution relied on the employee's income in 
making the credit decision.
    4. Income data--assets. A financial institution does not include 
as income amounts considered in making a credit decision based on 
factors that an institution relies on in addition to income, such as 
amounts derived from annuitization or depletion of an applicant's 
remaining assets.
    5. Income data--credit decision not made. Section 
1003.4(a)(10)(iii) requires a financial institution to report the 
gross annual income relied on in processing the application if a 
credit decision was not made. For example, assume an institution 
received an application that included an applicant's self-reported 
income, but the application was withdrawn before a credit decision 
that would have considered income was made. The financial 
institution reports the income information relied on in processing 
the application at the time that the application was withdrawn or 
the file was closed for incompleteness.
    6. Income data--credit decision not requiring consideration of 
income. A financial institution complies with Sec.  
1003.4(a)(10)(iii) by reporting that the requirement is not 
applicable if the application did not or would not have required a 
credit decision that considered income under the financial 
institution's policies and procedures. For example, if the financial 
institution's policies and procedures do not consider income for a 
streamlined refinance program, the institution reports that the 
requirement is not

[[Page 66329]]

applicable, even if the institution received income information from 
the applicant.
    7. Income data--non-natural person. A financial institution 
reports that the requirement is not applicable when the applicant or 
co-applicant is not a natural person (e.g., a corporation, 
partnership, or trust). For example, for a transaction involving a 
trust, a financial institution reports that the requirement to 
report income data is not applicable if the trust is the applicant. 
On the other hand, if the applicant is a natural person, and is the 
beneficiary of a trust, a financial institution is required to 
report the information described in Sec.  1003.4(a)(10)(iii).
    8. Income data--multifamily properties. A financial institution 
complies with Sec.  1003.4(a)(10)(iii) by reporting that the 
requirement is not applicable when the covered loan is secured by, 
or application is proposed to be secured by, a multifamily dwelling.
    9. Income data--purchased loans. A financial institution 
complies with Sec.  1003.4(a)(10)(iii) by reporting that the 
requirement is not applicable when reporting a purchased covered 
loan for which the institution chooses not to report the income.
    10. Income data--rounding. A financial institution complies by 
reporting the dollar amount of the income in thousands, rounded to 
the nearest thousand ($500 rounds up to the next $1,000). For 
example, $35,500 is reported as 36.

Paragraph 4(a)(11)

    1. Type of purchaser--loan-participation interests sold to more 
than one entity. A financial institution that originates a covered 
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. For purposes of Sec.  1003.4(a)(11), if a financial 
institution sells some interest or interests in a covered loan but 
retains a majority interest in that loan, it does not report the 
sale.
    2. Type of purchaser--swapped covered loans. Covered loans 
``swapped'' for mortgage-backed securities are to be treated as 
sales; the purchaser is the entity receiving the covered loans that 
are swapped.
    3. Type of purchaser--affiliate institution. For purposes of 
complying with Sec.  1003.4(a)(11), the term ``affiliate'' means any 
company that controls, is controlled by, or is under common control 
with, another company, as set forth in the Bank Holding Company Act 
of 1956 (12 U.S.C. 1841 et seq.).
    4. Type of purchaser--private securitizations. A financial 
institution that knows or reasonably believes that the covered loan 
it is selling will be securitized by the entity purchasing the 
covered loan, other than by one of the government-sponsored 
enterprises, reports the purchasing entity type as a private 
securitizer regardless of the type or affiliation of the purchasing 
entity. Knowledge or reasonable belief could, for example, be based 
on the purchase agreement or other related documents, the financial 
institution's previous transactions with the purchaser, or the 
purchaser's role as a securitizer (such as an investment bank). If a 
financial institution selling a covered loan does not know or 
reasonably believe that the purchaser will securitize the loan, and 
the seller knows that the purchaser frequently holds or disposes of 
loans by means other than securitization, then the financial 
institution should report the covered loan as purchased by, as 
appropriate, a commercial bank, savings bank, savings association, 
life insurance company, credit union, mortgage company, finance 
company, affiliate institution, or other type of purchaser.
    5. Type of purchaser--mortgage company. For purposes of 
complying with Sec.  1003.4(a)(11), a mortgage company means a 
nondepository institution that purchases covered loans and typically 
originates such loans. A mortgage company might be an affiliate or a 
subsidiary of a bank holding company or thrift holding company, or 
it might be an independent mortgage company. Regardless, a financial 
institution reports the purchasing entity type as a mortgage 
company, unless the mortgage company is an affiliate of the seller 
institution, in which case the seller institution should report the 
loan as purchased by an affiliate institution.
    6. Purchases by subsidiaries. A financial institution that sells 
a covered loan to its subsidiary that is a commercial bank, savings 
bank, or savings association, should report the covered loan as 
purchased by a commercial bank, savings bank, or savings 
association. A financial institution that sells a covered loan to 
its subsidiary that is a life insurance company, should report the 
covered loan as purchased by a life insurance company. A financial 
institution that sells a covered loan to its subsidiary that is a 
credit union, mortgage company, or finance company, should report 
the covered loan as purchased by a credit union, mortgage company, 
or finance company. If the subsidiary that purchases the covered 
loan is not a commercial bank, savings bank, savings association, 
life insurance company, credit union, mortgage company, or finance 
company, the seller institution should report the loan as purchased 
by other type of purchaser. The financial institution should report 
the covered loan as purchased by an affiliate institution when the 
subsidiary is an affiliate of the seller institution.
    7. Type of purchaser--bank holding company or thrift holding 
company. When a financial institution sells a covered loan to a bank 
holding company or thrift holding company (rather than to one of its 
subsidiaries), it should report the loan as purchased by other type 
of purchaser, unless the bank holding company or thrift holding 
company is an affiliate of the seller institution, in which case the 
seller institution should report the loan as purchased by an 
affiliate institution.
    8. Repurchased covered loans. See comment 4(a)-5 regarding 
reporting requirements when a covered loan is repurchased by the 
originating financial institution.
    9. Type of purchaser--quarterly recording. For purposes of 
recording the type of purchaser within 30 calendar days after the 
end of the calendar quarter pursuant to Sec.  1003.4(f), a financial 
institution records that the requirement is not applicable if the 
institution originated or purchased a covered loan and did not sell 
it during the calendar quarter for which the institution is 
recording the data. If the financial institution sells the covered 
loan in a subsequent quarter of the same calendar year, the 
financial institution records the type of purchaser on its loan/
application register for the quarter in which the covered loan was 
sold. If a financial institution sells the covered loan in a 
succeeding year, the financial institution should not record the 
sale.
    10. Type of purchaser--not applicable. A financial institution 
reports that the requirement is not applicable for applications that 
were denied, withdrawn, closed for incompleteness or approved but 
not accepted by the applicant; and for preapproval requests that 
were denied or approved but not accepted by the applicant. A 
financial institution also reports that the requirement is not 
applicable if the institution originated or purchased a covered loan 
and did not sell it during that same calendar year.

Paragraph 4(a)(12)

    1. Average prime offer rate. Average prime offer rates are 
annual percentage rates derived from average interest rates, points, 
and other loan pricing terms offered to borrowers by a 
representative sample of lenders for mortgage loans that have low-
risk pricing characteristics. Other pricing terms include commonly 
used indices, margins, and initial fixed-rate periods for variable-
rate transactions. Relevant pricing characteristics include a 
consumer's credit history and transaction characteristics such as 
the loan-to-value ratio, owner-occupant status, and purpose of the 
transaction. To obtain average prime offer rates, the Bureau uses a 
survey of lenders that both meets the criteria of Sec.  
1003.4(a)(12)(ii) and provides pricing terms for at least two types 
of variable-rate transactions and at least two types of non-
variable-rate transactions. An example of such a survey is the 
Freddie Mac Primary Mortgage Market Survey[supreg].
    2. Bureau tables. The Bureau publishes on the FFIEC's Web site 
(https://www.ffiec.gov/hmda), in tables entitled ``Average Prime 
Offer Rates-Fixed'' and ``Average Prime Offer Rates-Adjustable,'' 
current and historic average prime offer rates for a wide variety of 
closed-end transaction types. The Bureau calculates an annual 
percentage rate, consistent with Regulation Z (see 12 CFR 1026.22 
and part 1026, appendix J), for each transaction type for which 
pricing terms are available from the survey described in comment 
4(a)(12)-1. The Bureau uses loan pricing terms available in the 
survey and other information to estimate annual percentage rates for 
other types of transactions for which direct survey data are not 
available. The Bureau publishes on the FFIEC's Web site the 
methodology it uses to arrive at these estimates. A financial 
institution may either use the average prime offer rates published 
by the Bureau or may determine average prime offer rates itself by 
employing the methodology published on the FFIEC Web site. A 
financial institution that determines average prime offer rates 
itself, however, is responsible for correctly determining the rates 
in accordance with the published methodology.

[[Page 66330]]

    3. Rate spread calculation--annual percentage rate. The 
requirements of Sec.  1003.4(a)(12)(i) refer to the covered loan's 
annual percentage rate. A financial institution complies with Sec.  
1003.4(a)(12)(i) by relying on the annual percentage rate for the 
covered loan, as calculated and disclosed pursuant to Regulation Z, 
12 CFR 1026.18 or 1026.38 (for closed-end mortgage loans) or 1026.40 
(for open-end credit lines of credit), as applicable.
    4. Rate spread calculation--comparable transaction. The rate 
spread calculation in Sec.  1003.4(a)(12)(i) is defined by reference 
to a comparable transaction, which is determined according to the 
covered loan's amortization type (i.e., fixed- or variable-rate) and 
loan term. For covered loans that are open-end lines of credit, 
Sec.  1003.4(a)(12)(i) requires a financial institution to identify 
the most closely comparable closed-end transaction. The tables of 
average prime offer rates published by the Bureau (see comment 
4(a)(12)-2) provide additional detail about how to identify the 
comparable transaction.
    i. Fixed-rate transactions. For fixed-rate covered loans, the 
term for identifying the comparable transaction is the transaction's 
maturity (i.e., the period until the last payment will be due under 
the closed-end mortgage loan contract or open-end line of credit 
agreement). If an open-end credit plan has a fixed rate but no 
definite plan length, a financial institution complies with Sec.  
1003.4(a)(12)(i) by using a 30-year fixed-rate loan as the most 
closely comparable closed-end transaction. Financial institutions 
may refer to the table on the FFIEC Web site entitled ``Average 
Prime Offer Rates-Fixed'' when identifying a comparable fixed-rate 
transaction.
    ii. Variable-rate transactions. For variable-rate covered loans, 
the term for identifying the comparable transaction is the initial, 
fixed-rate period (i.e., the period until the first scheduled rate 
adjustment). For example, five years is the relevant term for a 
variable-rate transaction with a five-year, fixed-rate introductory 
period that is amortized over thirty years. Financial institutions 
may refer to the table on the FFIEC Web site entitled ``Average 
Prime Offer Rates-Variable'' when identifying a comparable variable-
rate transaction. If an open-end line of credit has a variable rate 
and an optional, fixed-rate feature, a financial institution uses 
the rate table for variable-rate transactions.
    iii. Term not in whole years. When a covered loan's term to 
maturity (or, for a variable-rate transaction, the initial fixed-
rate period) is not in whole years, the financial institution uses 
the number of whole years closest to the actual loan term or, if the 
actual loan term is exactly halfway between two whole years, by 
using the shorter loan term. For example, for a loan term of ten 
years and three months, the relevant term is ten years; for a loan 
term of ten years and nine months, the relevant term is 11 years; 
for a loan term of ten years and six months, the relevant term is 
ten years. If a loan term includes an odd number of days, in 
addition to an odd number of months, the financial institution 
rounds to the nearest whole month, or rounds down if the number of 
odd days is exactly halfway between two months. The financial 
institution rounds to one year any covered loan with a term shorter 
than six months, including variable-rate covered loans with no 
initial, fixed-rate periods. For example, if an open-end covered 
loan has a rate that varies according to an index plus a margin, 
with no introductory, fixed-rate period, the transaction term is one 
year.
    iv. Amortization period longer than loan term. If the 
amortization period of a covered loan is longer than the term of the 
transaction to maturity, Sec.  1003.4(a)(12)(i) requires a financial 
institution to use the loan term to determine the applicable average 
prime offer rate. For example, assume a financial institution 
originates a closed-end, fixed-rate loan that has a term to maturity 
of five years and a thirty-year amortization period that results in 
a balloon payment. The financial institution complies with Sec.  
1003.4(a)(12)(i) by using the five-year loan term.
    5. Rate-set date. The relevant date to use to determine the 
average prime offer rate for a comparable transaction is the date on 
which the covered loan's interest rate was set by the financial 
institution for the final time before closing or account opening.
    i. Rate-lock agreement. If an interest rate is set pursuant to a 
``lock-in'' agreement between the financial institution and the 
borrower, then the date on which the agreement fixes the interest 
rate is the date the rate was set. Except as provided in comment 
4(a)(12)-5.ii, if a rate is reset after a lock-in agreement is 
executed (for example, because the borrower exercises a float-down 
option or the agreement expires), then the relevant date is the date 
the financial institution exercises discretion in setting the rate 
for the final time before closing or account opening. The same rule 
applies when a rate-lock agreement is extended and the rate is reset 
at the same rate, regardless of whether market rates have increased, 
decreased, or remained the same since the initial rate was set. If 
no lock-in agreement is executed, then the relevant date is the date 
on which the institution sets the rate for the final time before 
closing or account opening.
    ii. Change in loan program. If a financial institution issues a 
rate-lock commitment under one loan program, the borrower 
subsequently changes to another program that is subject to different 
pricing terms, and the financial institution changes the rate 
promised to the borrower under the rate-lock commitment accordingly, 
the rate-set date is the date of the program change. However, if the 
financial institution changes the promised rate to the rate that 
would have been available to the borrower under the new program on 
the date of the original rate-lock commitment, then that is the date 
the rate is set, provided the financial institution consistently 
follows that practice in all such cases or the original rate-lock 
agreement so provided. For example, assume that a borrower locks a 
rate of 2.5 percent on June 1 for a 30-year, variable-rate loan with 
a 5-year, fixed-rate introductory period. On June 15, the borrower 
decides to switch to a 30-year, fixed-rate loan, and the rate 
available to the borrower for that product on June 15 is 4.0 
percent. On June 1, the 30-year, fixed-rate loan would have been 
available to the borrower at a rate of 3.5 percent. If the financial 
institution offers the borrower the 3.5 percent rate (i.e., the rate 
that would have been available to the borrower for the fixed-rate 
product on June 1, the date of the original rate-lock) because the 
original agreement so provided or because the financial institution 
consistently follows that practice for borrowers who change loan 
programs, then the financial institution should use June 1 as the 
rate-set date. In all other cases, the financial institution should 
use June 15 as the rate-set date.
    iii. Brokered loans. When a financial institution has reporting 
responsibility for an application for a covered loan that it 
received from a broker, as discussed in comment 4(a)-4 (e.g., 
because the financial institution makes a credit decision prior to 
closing or account opening), the rate-set date is the last date the 
financial institution set the rate with the broker, not the date the 
broker set the borrower's rate.
    6. Compare the annual percentage rate to the average prime offer 
rate. Section 1003.4(a)(12)(i) requires a financial institution to 
compare the covered loan's annual percentage rate to the most 
recently available average prime offer rate that was in effect for 
the comparable transaction as of the rate-set date. For purposes of 
Sec.  1003.4(a)(12)(i), the most recently available rate means the 
average prime offer rate set forth in the applicable table with the 
most recent effective date as of the date the interest rate was set. 
However, Sec.  1003.4(a)(12)(i) does not permit a financial 
institution to use an average prime offer rate before its effective 
date.
    7. Rate spread--not applicable. If the covered loan is an 
assumption, reverse mortgage, a purchased loan, or is not subject to 
Regulation Z, 12 CFR part 1026, a financial institution complies 
with Sec.  1003.4(a)(12) by reporting that the requirement is not 
applicable. If the application did not result in an origination for 
a reason other than the application was approved but not accepted by 
the applicant, a financial institution complies with Sec.  
1003.4(a)(12) by reporting that the requirement is not applicable.
    8. Application approved but not accepted or preapproval request 
approved but not accepted. In the case of an application approved 
but not accepted or a preapproval request that was approved but not 
accepted, Sec.  1003.4(a)(12) requires a financial institution to 
report the applicable rate spread.

Paragraph 4(a)(13)

    1. HOEPA status--not applicable. If the covered loan is not 
subject to the Home Ownership and Equity Protection Act of 1994, as 
implemented in Regulation Z, 12 CFR 1026.32, a financial institution 
complies with Sec.  1003.4(a)(13) by reporting that the requirement 
is not applicable. If an application did not result in an 
origination, a financial institution complies with Sec.  
1003.4(a)(13) by reporting that the requirement is not applicable.

Paragraph 4(a)(14)

    1. Determining lien status for applications and covered loans 
originated and purchased. i. Financial institutions are required to 
report lien status for covered loans they originate

[[Page 66331]]

and purchase and applications that do not result in originations 
(preapproval requests that are approved but not accepted, 
preapproval requests that are denied, applications that are approved 
but not accepted, denied, withdrawn, or closed for incompleteness). 
For covered loans purchased by a financial institution, lien status 
is determined by reference to the best information readily available 
to the financial institution at the time of purchase. For covered 
loans that a financial institution originates and applications that 
do not result in originations, lien status is determined by 
reference to the best information readily available to the financial 
institution at the time final action is taken and to the financial 
institution's own procedures. Thus, financial institutions may rely 
on the title search they routinely perform as part of their 
underwriting procedures--for example, for home purchase loans. 
Regulation C does not require financial institutions to perform 
title searches solely to comply with HMDA reporting requirements. 
Financial institutions may rely on other information that is readily 
available to them at the time final action is taken and that they 
reasonably believe is accurate, such as the applicant's statement on 
the application or the applicant's credit report. For example, where 
the applicant indicates on the application that there is a mortgage 
on the property or where the applicant's credit report shows that 
the applicant has a mortgage--and that mortgage will not be paid off 
as part of the transaction--the financial institution may assume 
that the loan it originates is secured by a subordinate lien. If the 
same application did not result in an origination--for example, 
because the application was denied or withdrawn--the financial 
institution would report the application as an application for a 
subordinate-lien loan.
    ii. Financial institutions may also consider their established 
procedures when determining lien status for applications that do not 
result in originations. For example, assume an applicant applies to 
a financial institution to refinance a $100,000 first mortgage; the 
applicant also has an open-end line of credit for $20,000. If the 
financial institution's practice in such a case is to ensure that it 
will have first-lien position--through a subordination agreement 
with the holder of the lien securing the open-end line of credit--
then the financial institution should report the application as an 
application for a first-lien covered loan.
    2. Multiple properties. See comment 4(a)(9)-2 regarding 
transactions involving multiple properties with more than one 
property taken as security.

Paragraph 4(a)(15)

    1. Credit score--relied on. Except for purchased covered loans, 
Sec.  1003.4(a)(15) requires a financial institution to report the 
credit score or scores relied on in making the credit decision and 
information about the scoring model used to generate each score. A 
financial institution relies on a credit score in making the credit 
decision if the credit score was a factor in the credit decision 
even if it was not a dispositive factor. For example, if a credit 
score is one of multiple factors in a financial institution's credit 
decision, the financial institution has relied on the credit score 
even if the financial institution denies the application because one 
or more underwriting requirements other than the credit score are 
not satisfied.
    2. Credit score--multiple credit scores. When a financial 
institution obtains or creates two or more credit scores for a 
single applicant or borrower but relies on only one score in making 
the credit decision (for example, by relying on the lowest, highest, 
most recent, or average of all of the scores), the financial 
institution complies with Sec.  1003.4(a)(15) by reporting that 
credit score and information about the scoring model used. When a 
financial institution obtains or creates two or more credit scores 
for an applicant or borrower and relies on multiple scores for the 
applicant or borrower in making the credit decision (for example, by 
relying on a scoring grid that considers each of the scores obtained 
or created for the applicant or borrower without combining the 
scores into a composite score), Sec.  1003.4(a)(15) requires the 
financial institution to report one of the credit scores for the 
applicant or borrower that was relied on in making the credit 
decision. In choosing which credit score to report in this 
circumstance, a financial institution need not use the same approach 
for its entire HMDA submission, but it should be generally 
consistent (such as by routinely using one approach within a 
particular division of the institution or for a category of covered 
loans). In instances such as these, the financial institution should 
report the name and version of the credit scoring model for the 
score reported.
    3. Credit score--multiple applicants or borrowers. In a 
transaction involving two or more applicants or borrowers for which 
the financial institution obtains or creates a single credit score, 
and relies on that credit score in making the credit decision for 
the transaction, the institution complies with Sec.  1003.4(a)(15) 
by reporting that credit score for either the applicant or first co-
applicant. Otherwise, a financial institution complies with Sec.  
1003.4(a)(15) by reporting a credit score for the applicant that it 
relied on in making the credit decision, if any, and a credit score 
for the first co-applicant that it relied on in making the credit 
decision, if any. To illustrate, assume a transaction involves one 
applicant and one co-applicant and that the financial institution 
obtains or creates two credit scores for the applicant and two 
credit scores for the co-applicant. Assume further that the 
financial institution relies on the lowest, highest, most recent, or 
average of all of the credit scores obtained or created to make the 
credit decision for the transaction. The financial institution 
complies with Sec.  1003.4(a)(15) by reporting that credit score and 
information about the scoring model used. Alternatively, assume a 
transaction involves one applicant and one co-applicant and that the 
financial institution obtains or creates three credit scores for the 
applicant and three credit scores for the co-applicant. Assume 
further that the financial institution relies on the middle credit 
score for the applicant and the middle credit score for the co-
applicant to make the credit decision for the transaction. The 
financial institution complies with Sec.  1003.4(a)(15) by reporting 
both the middle score for the applicant and the middle score for the 
co-applicant.
    4. Transactions for which no credit decision was made. If a file 
was closed for incompleteness or the application was withdrawn 
before a credit decision was made, the financial institution 
complies with Sec.  1003.4(a)(15) by reporting that the requirement 
is not applicable, even if the financial institution had obtained or 
created a credit score for the applicant or co-applicant. For 
example, if a file is closed for incompleteness and is so reported 
in accordance with Sec.  1003.4(a)(8), the financial institution 
complies with Sec.  1003.4(a)(15) by reporting that the requirement 
is not applicable, even if the financial institution had obtained or 
created a credit score for the applicant or co-applicant. Similarly, 
if an application was withdrawn by the applicant before a credit 
decision was made and is so reported in accordance with Sec.  
1003.4(a)(8), the financial institution complies with Sec.  
1003.4(a)(15) by reporting that the requirement is not applicable, 
even if the financial institution had obtained or created a credit 
score for the applicant or co-applicant.
    5. Transactions for which no credit score was relied on. If a 
financial institution makes a credit decision without relying on a 
credit score for the applicant or borrower, the financial 
institution complies with Sec.  1003.4(a)(15) by reporting that the 
requirement is not applicable.
    6. Purchased covered loan. A financial institution complies with 
Sec.  1003.4(a)(15) by reporting that the requirement is not 
applicable when the covered loan is a purchased covered loan.
    7. Non-natural person. When the applicant and co-applicant, if 
applicable, are not natural persons, a financial institution 
complies with Sec.  1003.4(a)(15) by reporting that the requirement 
is not applicable.

Paragraph 4(a)(16)

    1. Reason for denial--general. A financial institution complies 
with Sec.  1003.4(a)(16) by reporting the principal reason or 
reasons it denied the application, indicating up to four reasons. 
The financial institution should report only the principal reason or 
reasons it denied the application, even if there are fewer than four 
reasons. For example, if a financial institution denies the 
application because of the applicant's credit history and debt-to-
income ratio, the financial institution need only report these two 
principal reasons. The reasons reported must be specific and 
accurately describe the principal reason or reasons the financial 
institution denied the application.
    2. Reason for denial--preapproval request denied. Section 
1003.4(a)(16) requires a financial institution to report the 
principal reason or reasons it denied the application. A request for 
a preapproval under a preapproval program as defined by Sec.  
1003.2(b)(2) is an application. If a financial institution denies a 
preapproval request, the financial institution complies with Sec.  
1003.4(a)(16) by reporting the reason or reasons it denied the 
preapproval request.
    3. Reason for denial--adverse action model form or similar form. 
If a financial institution

[[Page 66332]]

chooses to provide the applicant the reason or reasons it denied the 
application using the model form contained in appendix C to 
Regulation B (Form C-1, Sample Notice of Action Taken and Statement 
of Reasons) or a similar form, Sec.  1003.4(a)(16) requires the 
financial institution to report the reason or reasons that were 
specified on the form by the financial institution, which includes 
reporting the ``Other'' reason or reasons that were specified on the 
form by the financial institution, if applicable. If a financial 
institution chooses to provide a disclosure of the applicant's right 
to a statement of specific reasons using the model form contained in 
appendix C to Regulation B (Form C-5, Sample Disclosure of Right to 
Request Specific Reasons for Credit Denial) or a similar form, or 
chooses to provide the denial reason or reasons orally under 
Regulation B, 12 CFR 1002.9(a)(2)(ii), the financial institution 
complies with Sec.  1003.4(a)(16) by entering the principal reason 
or reasons it denied the application.
    4. Reason for denial--not applicable. A financial institution 
complies with Sec.  1003.4(a)(16) by reporting that the requirement 
is not applicable if the action taken on the application, pursuant 
to Sec.  1003.4(a)(8), is not a denial. For example, a financial 
institution complies with Sec.  1003.4(a)(16) by reporting that the 
requirement is not applicable if the loan is originated or purchased 
by the financial institution, or the application or preapproval 
request was approved but not accepted, or the application was 
withdrawn before a credit decision was made, or the file was closed 
for incompleteness.

Paragraph 4(a)(17)(i)

    1. Total loan costs--not applicable. Section 1003.4(a)(17)(i) 
does not require financial institutions to report the total loan 
costs for applications, or for transactions not subject to 
Regulation Z, 12 CFR 1026.43(c), and 12 CFR 1026.19(f), such as 
open-end lines of credit, reverse mortgages, or loans or lines of 
credit made primarily for business or commercial purposes. In these 
cases, a financial institution complies with Sec.  1003.4(a)(17)(i) 
by reporting that the requirement is not applicable to the 
transaction.
    2. Purchased loans--applications received prior to the 
integrated disclosure effective date. For purchased covered loans 
subject to this reporting requirement for which applications were 
received by the selling entity prior to the effective date of 
Regulation Z, 12 CFR 1026.19(f), a financial institution complies 
with Sec.  1003.4(a)(17)(i) by reporting that the requirement is not 
applicable to the transaction.
    3. Revised disclosures. If the amount of total loan costs 
changes because a financial institution provides a revised version 
of the disclosures required under Regulation Z, 12 CFR 1026.19(f), 
pursuant to Regulation Z, 12 CFR 1026.19(f)(2), the financial 
institution complies with Sec.  1003.4(a)(17)(i) by reporting the 
revised amount, provided that the revised disclosure was provided to 
the borrower during the same reporting period in which closing 
occurred. For example, in the case of a financial institution's 
quarterly submission made pursuant to Sec.  1003.5(a)(1)(ii), if the 
financial institution provides a corrected disclosure to reflect a 
refund made pursuant to Regulation Z, 12 CFR 1026.19(f)(2)(v), the 
financial institution reports the corrected amount of total loan 
costs only if the corrected disclosure was provided prior to the end 
of the quarter in which closing occurred. The financial institution 
does not report the corrected amount of total loan costs in its 
quarterly submission if the corrected disclosure was provided after 
the end of the quarter, even if the corrected disclosure was 
provided prior to the deadline for timely submission of the 
financial institution's quarterly data. However, the financial 
institution reports the corrected amount of total loan costs on its 
annual loan/application register.

Paragraph 4(a)(17)(ii)

    1. Total points and fees--not applicable. Section 
1003.4(a)(17)(ii) does not require financial institutions to report 
the total points and fees for transactions not subject to Regulation 
Z, 12 CFR 1026.43(c), such as open-end lines of credit, reverse 
mortgages, or loans or lines of credit made primarily for business 
or commercial purposes, or for applications or purchased covered 
loans. In these cases, a financial institution complies with Sec.  
1003.4(a)(17)(ii) by reporting that the requirement is not 
applicable to the transaction.
    2. Total points and fees cure mechanism. For covered loans 
subject to this reporting requirement, if a financial institution 
determines that the transaction's total points and fees exceeded the 
applicable limit and cures the overage pursuant to Regulation Z, 12 
CFR 1026.43(e)(3)(iii) and (iv), a financial institution complies 
with Sec.  1003.4(a)(17)(ii) by reporting the correct amount of 
total points and fees, provided that the cure was effected during 
the same reporting period in which closing occurred. For example, in 
the case of a financial institution's quarterly submission, the 
financial institution reports the revised amount of total points and 
fees only if it cured the overage prior to the end of the quarter in 
which closing occurred. The financial institution does not report 
the revised amount of total points and fees in its quarterly 
submission if it cured the overage after the end of the quarter, 
even if the cure was effected prior to the deadline for timely 
submission of the financial institution's quarterly data. However, 
the financial institution reports the revised amount of total points 
and fees on its annual loan/application register.

Paragraph 4(a)(18)

    1. Origination charges--not applicable. Section 1003.4(a)(18) 
does not require financial institutions to report the total 
borrower-paid origination charges for applications, or for 
transactions not subject to Regulation Z, 12 CFR 1026.19(f), such as 
open-end lines of credit, reverse mortgages, or loans or lines of 
credit made primarily for business or commercial purposes. In these 
cases, a financial institution complies with Sec.  1003.4(a)(18) by 
reporting that the requirement is not applicable to the transaction.
    2. Purchased loans--applications received prior to the 
integrated disclosure effective date. For purchased covered loans 
subject to this reporting requirement for which applications were 
received by the selling entity prior to the effective date of 
Regulation Z, 12 CFR 1026.19(f), a financial institution complies 
with Sec.  1003.4(a)(18) by reporting that the requirement is not 
applicable to the transaction.
    3. Revised disclosures. If the total amount of borrower-paid 
origination charges changes because a financial institution provides 
a revised version of the disclosures required under Regulation Z, 12 
CFR 1026.19(f), pursuant to Regulation Z, 12 CFR 1026.19(f)(2), the 
financial institution complies with Sec.  1003.4(a)(18) by reporting 
the revised amount, provided that the revised disclosure was 
provided to the borrower during the same reporting period in which 
closing occurred. For example, in the case of a financial 
institution's quarterly submission made pursuant to Sec.  
1003.5(a)(1)(ii), if the financial institution provides a corrected 
disclosure to reflect a refund made pursuant to Regulation Z, 12 CFR 
1026.19(f)(2)(v), the financial institution reports the corrected 
amount of origination charges only if the corrected disclosure was 
provided prior to the end of the quarter in which closing occurred. 
The financial institution does not report the corrected amount of 
origination charges in its quarterly submission if the corrected 
disclosure was provided after the end of the quarter, even if the 
corrected disclosure was provided prior to the deadline for timely 
submission of the financial institution's quarterly data. However, 
the financial institution reports the corrected amount of 
origination charges on its annual loan/application register.

Paragraph 4(a)(19)

    1. Discount points--not applicable. Section 1003.4(a)(19) does 
not require financial institutions to report the discount points for 
applications, or for transactions not subject to Regulation Z, 12 
CFR 1026.19(f), such as open-end lines of credit, reverse mortgages, 
or loans or lines of credit made primarily for business or 
commercial purposes. In these cases, a financial institution 
complies with Sec.  1003.4(a)(19) by reporting that the requirement 
is not applicable to the transaction.
    2. Purchased loans--applications received prior to the 
integrated disclosure effective date. For purchased covered loans 
subject to this reporting requirement for which applications were 
received by the selling entity prior to the effective date of 
Regulation Z, 12 CFR 1026.19(f), a financial institution complies 
with Sec.  1003.4(a)(19) by reporting that the requirement is not 
applicable to the transaction.
    3. Revised disclosures. If the amount of discount points changes 
because a financial institution provides a revised version of the 
disclosures required under Regulation Z, 12 CFR 1026.19(f), pursuant 
to Regulation Z, 12 CFR 1026.19(f)(2), the financial institution 
complies with Sec.  1003.4(a)(19) by reporting the revised amount, 
provided that the revised disclosure was provided to the borrower 
during the same reporting period in which closing occurred. For 
example, in the case of a financial institution's quarterly 
submission made pursuant to Sec.  1003.5(a)(ii), if the financial 
institution provides a corrected

[[Page 66333]]

disclosure to reflect a refund made pursuant to Regulation Z, 12 CFR 
1026.19(f)(2)(v), the financial institution reports the corrected 
amount of discount points only if the corrected disclosure was 
provided prior to the end of the quarter in which closing occurred. 
The financial institution does not report the corrected amount of 
discount points in its quarterly submission if the corrected 
disclosure was provided after the end of the quarter, even if the 
corrected disclosure was provided prior to the deadline for timely 
submission of the financial institution's quarterly data. However, 
the financial institution reports the corrected amount of discount 
points on its annual loan/application register.

Paragraph 4(a)(20)

    1. Lender credits--not applicable. Section 1003.4(a)(20) does 
not require financial institutions to report lender credits for 
applications, or for transactions not subject to Regulation Z, 12 
CFR 1026.19(f), such as open-end lines of credit, reverse mortgages, 
or loans or lines of credit made primarily for business or 
commercial purposes. In these cases, a financial institution 
complies with Sec.  1003.4(a)(20) by reporting that the requirement 
is not applicable to the transaction.
    2. Purchased loans--applications received prior to the 
integrated disclosure effective date. For purchased covered loans 
subject to this reporting requirement for which applications were 
received by the selling entity prior to the effective date of 
Regulation Z, 12 CFR 1026.19(f), a financial institution complies 
with Sec.  1003.4(a)(20) by reporting that the requirement is not 
applicable to the transaction.
    3. Revised disclosures. If the amount of lender credits changes 
because a financial institution provides a revised version of the 
disclosures required under Regulation Z, 12 CFR 1026.19(f), pursuant 
to Regulation Z, 12 CFR 1026.19(f)(2), the financial institution 
complies with Sec.  1003.4(a)(20) by reporting the revised amount, 
provided that the revised disclosure was provided to the borrower 
during the same reporting period in which closing occurred. For 
example, in the case of a financial institution's quarterly 
submission made pursuant to Sec.  1003.5(a)(1)(ii), if the financial 
institution provides a corrected disclosure to reflect a refund made 
pursuant to Regulation Z, 12 CFR 1026.19(f)(2)(v), the financial 
institution reports the corrected amount of lender credits only if 
the corrected disclosure was provided prior to the end of the 
quarter in which closing occurred. The financial institution does 
not report the corrected amount of lender credits in its quarterly 
submission if the corrected disclosure was provided after the end of 
the quarter, even if the corrected disclosure was provided prior to 
the deadline for timely submission of the financial institution's 
quarterly data. However, the financial institution reports the 
corrected amount of lender credits on its annual loan/application 
register.

Paragraph 4(a)(21)

    1. Interest rate--disclosures. Section 1003.4(a)(21) requires a 
financial institution to identify the interest rate applicable to 
the approved application, or to the covered loan at closing or 
account opening. For covered loans or applications subject to the 
disclosure requirements of Regulation Z, 12 CFR 1026.19(e) or (f), a 
financial institution complies with Sec.  1003.4(a)(21) by reporting 
the interest rate disclosed on the applicable disclosure. For 
covered loans for which disclosures were provided pursuant to both 
12 CFR 1026.19(e) and 12 CFR 1026.19(f), a financial institution 
reports the interest rate disclosed pursuant to 12 CFR 1026.19(f). A 
financial institution may rely on the definitions and commentary to 
the sections of Regulation Z relevant to the disclosure of the 
interest rate pursuant to 12 CFR 1026.19(e) or 12 CFR 1026.19(f).
    2. Applications. In the case of an application, Sec.  
1003.4(a)(21) requires a financial institution to report the 
applicable interest rate only if the application has been approved 
by the financial institution but not accepted by the borrower. In 
such cases, a financial institution reports the interest rate 
applicable at the time that the application was approved by the 
financial institution. A financial institution may report the 
interest rate appearing on the disclosure provided pursuant to 12 
CFR 1026.19(e) or (f) if such disclosure accurately reflects the 
interest rate at the time the application was approved. For 
applications that have been denied or withdrawn, or files closed for 
incompleteness, a financial institution reports that no interest 
rate was applicable to the application.
    3. Adjustable rate--interest rate unknown. Except as provided in 
comment 4(a)(21)-1, for adjustable-rate covered loans or 
applications, if the interest rate is unknown at the time that the 
application was approved, or at closing or account opening, a 
financial institution reports the fully-indexed rate based on the 
index applicable to the covered loan or application. For purposes of 
Sec.  1003.4(a)(21), the fully-indexed rate is the index value and 
margin at the time that the application was approved, or, for 
covered loans, at closing or account opening.

Paragraph 4(a)(22)

    1. Prepayment penalty term--not applicable. Section 
1003.4(a)(22) does not require financial institutions to report the 
term of any prepayment penalty for transactions not subject to 
Regulation Z, 12 CFR part 1026, such as loans or lines of credit 
made primarily for business or commercial purposes, or for reverse 
mortgages or purchased covered loans. In these cases, a financial 
institution complies with Sec.  1003.4(a)(22) by reporting that the 
requirement is not applicable to the transaction.
    2. Transactions for which no prepayment penalty exists. For 
covered loans or applications that have no prepayment penalty, a 
financial institution complies with Sec.  1003.4(a)(22) by reporting 
that the requirement is not applicable to the transaction. A 
financial institution may rely on the definitions and commentary to 
Regulation Z, 12 CFR 1026.32(b)(6)(i) or (ii) in determining whether 
the terms of a transaction contain a prepayment penalty.

Paragraph 4(a)(23)

    1. General. For covered loans that are not purchased covered 
loans, Sec.  1003.4(a)(23) requires a financial institution to 
report the ratio of the applicant's or borrower's total monthly debt 
to total monthly income (debt-to-income ratio) relied on in making 
the credit decision. For example, if a financial institution 
calculated the applicant's or borrower's debt-to-income ratio 
twice--once according to the financial institution's own 
requirements and once according to the requirements of a secondary 
market investor--and the financial institution relied on the debt-
to-income ratio calculated according to the secondary market 
investor's requirements in making the credit decision, Sec.  
1003.4(a)(23) requires the financial institution to report the debt-
to-income ratio calculated according to the requirements of the 
secondary market investor.
    2. Transactions for which a debt-to-income ratio was one of 
multiple factors. A financial institution relies on the ratio of the 
applicant's or borrower's total monthly debt to total monthly income 
(debt-to-income ratio) in making the credit decision if the debt-to-
income ratio was a factor in the credit decision even if it was not 
a dispositive factor. For example, if the debt-to-income ratio was 
one of multiple factors in a financial institution's credit 
decision, the financial institution has relied on the debt-to-income 
ratio and complies with Sec.  1003.4(a)(23) by reporting the debt-
to-income ratio, even if the financial institution denied the 
application because one or more underwriting requirements other than 
the debt-to-income ratio were not satisfied.
    3. Transactions for which no credit decision was made. If a file 
was closed for incompleteness, or if an application was withdrawn 
before a credit decision was made, a financial institution complies 
with Sec.  1003.4(a)(23) by reporting that the requirement is not 
applicable, even if the financial institution had calculated the 
ratio of the applicant's total monthly debt to total monthly income 
(debt-to-income ratio). For example, if a file was closed for 
incompleteness and was so reported in accordance with Sec.  
1003.4(a)(8), the financial institution complies with Sec.  
1003.4(a)(23) by reporting that the requirement is not applicable, 
even if the financial institution had calculated the applicant's 
debt-to-income ratio. Similarly, if an application was withdrawn by 
the applicant before a credit decision was made, the financial 
institution complies with Sec.  1003.4(a)(23) by reporting that the 
requirement is not applicable, even if the financial institution had 
calculated the applicant's debt-to-income ratio.
    4. Transactions for which no debt-to-income ratio was relied on. 
Section 1003.4(a)(23) does not require a financial institution to 
calculate the ratio of an applicant's or borrower's total monthly 
debt to total monthly income (debt-to-income ratio), nor does it 
require a financial institution to rely on an applicant's or 
borrower's debt-to-income ratio in making a credit decision. If a 
financial institution made a credit decision without relying on the 
applicant's or borrower's debt-to-income ratio, the financial 
institution complies with

[[Page 66334]]

Sec.  1003.4(a)(23) by reporting that the requirement is not 
applicable since no debt-to-income ratio was relied on in connection 
with the credit decision.
    5. Non-natural person. A financial institution complies with 
Sec.  1003.4(a)(23) by reporting that the requirement is not 
applicable when the applicant and co-applicant, if applicable, are 
not natural persons.
    6. Multifamily dwellings. A financial institution complies with 
Sec.  1003.4(a)(23) by reporting that the requirement is not 
applicable for a covered loan secured by, or an application proposed 
to be secured by, a multifamily dwelling.
    7. Purchased covered loans. A financial institution complies 
with Sec.  1003.4(a)(23) by reporting that the requirement is not 
applicable when reporting a purchased covered loan.

Paragraph 4(a)(24)

    1. General. Section 1003.4(a)(24) requires a financial 
institution to report, except for purchased covered loans, the ratio 
of the total amount of debt secured by the property to the value of 
the property (combined loan-to-value ratio) relied on in making the 
credit decision. For example, if a financial institution calculated 
a combined loan-to-value ratio twice--once according to the 
financial institution's own requirements and once according to the 
requirements of a secondary market investor--and the financial 
institution relied on the combined loan-to-value ratio calculated 
according to the secondary market investor's requirements in making 
the credit decision, Sec.  1003.4(a)(24) requires the financial 
institution to report the combined loan-to-value ratio calculated 
according to the requirements of the secondary market investor.
    2. Transactions for which a combined loan-to-value ratio was one 
of multiple factors. A financial institution relies on the total 
amount of debt secured by the property to the value of the property 
(combined loan-to-value ratio) in making the credit decision if the 
combined loan-to-value ratio was a factor in the credit decision 
even if it was not a dispositive factor. For example, if the 
combined loan-to-value ratio is one of multiple factors in a 
financial institution's credit decision, the financial institution 
has relied on the combined loan-to-value ratio and complies with 
Sec.  1003.4(a)(24) by reporting the combined loan-to-value ratio, 
even if the financial institution denies the application because one 
or more underwriting requirements other than the combined loan-to-
value ratio are not satisfied.
    3. Transactions for which no credit decision was made. If a file 
was closed for incompleteness, or if an application was withdrawn 
before a credit decision was made, a financial institution complies 
with Sec.  1003.4(a)(24) by reporting that the requirement is not 
applicable, even if the financial institution had calculated the 
ratio of the total amount of debt secured by the property to the 
value of the property (combined loan-to-value ratio). For example, 
if a file is closed for incompleteness and is so reported in 
accordance with Sec.  1003.4(a)(8), the financial institution 
complies with Sec.  1003.4(a)(24) by reporting that the requirement 
is not applicable, even if the financial institution had calculated 
a combined loan-to-value ratio. Similarly, if an application was 
withdrawn by the applicant before a credit decision was made and is 
so reported in accordance with Sec.  1003.4(a)(8), the financial 
institution complies with Sec.  1003.4(a)(24) by reporting that the 
requirement is not applicable, even if the financial institution had 
calculated a combined loan-to-value ratio.
    4. Transactions for which no combined loan-to-value ratio was 
relied on. Section 1003.4(a)(24) does not require a financial 
institution to calculate the ratio of the total amount of debt 
secured by the property to the value of the property (combined loan-
to-value ratio), nor does it require a financial institution to rely 
on a combined loan-to-value ratio in making a credit decision. If a 
financial institution makes a credit decision without relying on a 
combined loan-to-value ratio, the financial institution complies 
with Sec.  1003.4(a)(24) by reporting that the requirement is not 
applicable since no combined loan-to-value ratio was relied on in 
making the credit decision.
    5. Purchased covered loan. A financial institution complies with 
Sec.  1003.4(a)(24) by reporting that the requirement is not 
applicable when the covered loan is a purchased covered loan.

Paragraph 4(a)(25)

    1. Amortization and maturity. For a fully amortizing covered 
loan, the number of months after which the legal obligation matures 
is the number of months in the amortization schedule, ending with 
the final payment. Some covered loans do not fully amortize during 
the maturity term, such as covered loans with a balloon payment; 
such loans should still be reported using the maturity term rather 
than the amortization term, even in the case of covered loans that 
mature before fully amortizing but have reset options. For example, 
a 30-year fully amortizing covered loan would be reported with a 
term of ``360,'' while a five year balloon covered loan would be 
reported with a loan term of ``60.''
    2. Non-monthly repayment periods. If a covered loan or 
application includes a schedule with repayment periods measured in a 
unit of time other than months, the financial institution should 
report the covered loan or application term using an equivalent 
number of whole months without regard for any remainder.
    3. Purchased loans. For a covered loan that was purchased, a 
financial institution reports the number of months after which the 
legal obligation matures as measured from the covered loan's 
origination.
    4. Open-end line of credit. For an open-end line of credit with 
a definite term, a financial institution reports the number of 
months from origination until the account termination date, 
including both the draw and repayment period.
    5. Loan or application without a definite term. For a covered 
loan or application without a definite term, such as a reverse 
mortgage, a financial institution complies with Sec.  1003.4(a)(25) 
by reporting that the requirement is not applicable.

Paragraph 4(a)(26)

    1. Types of introductory rates. Section 1003.4(a)(26) requires a 
financial institution to report the number of months, or proposed 
number of months in the case of an application, from closing or 
account opening until the first date the interest rate may change. 
For example, assume an open-end line of credit contains an 
introductory or ``teaser'' interest rate for two months after the 
date of account opening, after which the interest rate may adjust. 
In this example, the financial institution complies with Sec.  
1003.4(a)(26) by reporting the number of months as ``2.'' Section 
1003.4(a)(26) requires a financial institution to report the number 
of months based on when the first interest rate adjustment may 
occur, even if an interest rate adjustment is not required to occur 
at that time and even if the rates that will apply, or the periods 
for which they will apply, are not known at closing or account 
opening. For example, if a closed-end mortgage loan with a 30-year 
term has an adjustable-rate product with an introductory interest 
rate for the first 60 months, after which the interest rate is 
permitted, but not required to vary, according to the terms of an 
index rate, the financial institution complies with Sec.  
1003.4(a)(26) by reporting the number of months as ``60.'' 
Similarly, if a closed-end mortgage loan with a 30-year term is a 
step-rate product with an introductory interest rate for the first 
24 months, after which the interest rate will increase to a 
different known interest rate for the next 36 months, the financial 
institution complies with Sec.  1003.4(a)(26) by reporting the 
number of months as ``24.''
    2. Preferred rates. Section 1003.4(a)(26) does not require 
reporting of introductory interest rate periods based on preferred 
rates unless the terms of the legal obligation provide that the 
preferred rate will expire at a certain defined date. Preferred 
rates include terms of the legal obligation that provide that the 
initial underlying rate is fixed but that it may increase or 
decrease upon the occurrence of some future event, such as an 
employee leaving the employ of the financial institution, the 
borrower closing an existing deposit account with the financial 
institution, or the borrower revoking an election to make automated 
payments. In these cases, because it is not known at the time of 
closing or account opening whether the future event will occur, and 
if so, when it will occur, Sec.  1003.4(a)(26) does not require 
reporting of an introductory interest rate period.
    3. Loan or application with a fixed rate. A financial 
institution complies with Sec.  1003.4(a)(26) by reporting that the 
requirement is not applicable for a covered loan with a fixed rate 
or an application for a covered loan with a fixed rate.
    4. Purchased loan. A financial institution complies with Sec.  
1003.4(a)(26) by reporting that requirement is not applicable when 
the covered loan is a purchased covered loan with a fixed rate.

Paragraph 4(a)(27)

    1. General. Section 1003.4(a)(27) requires reporting of 
contractual features that would allow payments other than fully 
amortizing payments. Section 1003.4(a)(27) defines the

[[Page 66335]]

contractual features by reference to Regulation Z, 12 CFR part 1026, 
but without regard to whether the covered loan is consumer credit, 
as defined in Sec.  1026.2(a)(12), is extended by a creditor, as 
defined in Sec.  1026.2(a)(17), or is extended to a consumer, as 
defined in Sec.  1026.2(a)(11), and without regard to whether the 
property is a dwelling as defined in Sec.  1026.2(a)(19). For 
example, assume that a financial institution originates a business-
purpose transaction that is exempt from Regulation Z pursuant to 12 
CFR 1026.3(a)(1), to finance the purchase of a multifamily dwelling, 
and that there is a balloon payment, as defined by Regulation Z, 12 
CFR 1026.18(s)(5)(i), at the end of the loan term. The multifamily 
dwelling is a dwelling under Sec.  1003.2(f), but not under 
Regulation Z, 12 CFR 1026.2(a)(19). In this example, the financial 
institution should report the business-purpose transaction as having 
a balloon payment under Sec.  1003.4(a)(27)(i), assuming the other 
requirements of this part are met. Aside from these distinctions, 
financial institutions may rely on the definitions and related 
commentary provided in the appropriate sections of Regulation Z 
referenced in Sec.  1003.4(a)(27) of this part in determining 
whether the contractual feature should be reported.

Paragraph 4(a)(28).

    1. General. A financial institution reports the property value 
relied on in making the credit decision. For example, if the 
institution relies on an appraisal or other valuation for the 
property in calculating the loan-to-value ratio, it reports that 
value; if the institution relies on the purchase price of the 
property in calculating the loan-to-value ratio, it reports that 
value.
    2. Multiple property values. When a financial institution 
obtains two or more valuations of the property securing or proposed 
to secure the covered loan, the financial institution complies with 
Sec.  1003.4(a)(28) by reporting the value relied on in making the 
credit decision. For example, when a financial institution obtains 
an appraisal, an automated valuation model report, and a broker 
price opinion with different values for the property, it reports the 
value relied on in making the credit decision. Section Sec.  
1003.4(a)(28) does not require a financial institution to use a 
particular property valuation method, but instead requires a 
financial institution to report the valuation relied on in making 
the credit decision.
    3. Transactions for which no credit decision was made. If a file 
was closed for incompleteness or the application was withdrawn 
before a credit decision was made, the financial institution 
complies with Sec.  1003.4(a)(28) by reporting that the requirement 
is not applicable, even if the financial institution had obtained a 
property value. For example, if a file is closed for incompleteness 
and is so reported in accordance with Sec.  1003.4(a)(8), the 
financial institution complies with Sec.  1003.4(a)(28) by reporting 
that the requirement is not applicable, even if the financial 
institution had obtained a property value. Similarly, if an 
application was withdrawn by the applicant before a credit decision 
was made and is so reported in accordance with Sec.  1003.4(a)(8), 
the financial institution complies with Sec.  1003.4(a)(28) by 
reporting that the requirement is not applicable, even if the 
financial institution had obtained a property value.
    4. Transactions for which no property value was relied on. 
Section 1003.4(a)(28) does not require a financial institution to 
obtain a property valuation, nor does it require a financial 
institution to rely on a property value in making a credit decision. 
If a financial institution makes a credit decision without relying 
on a property value, the financial institution complies with Sec.  
1003.4(a)(28) by reporting that the requirement is not applicable 
since no property value was relied on in making the credit decision.

Paragraph 4(a)(29)

    1. Classification under State law. A financial institution 
should report a covered loan that is or would have been secured only 
by a manufactured home but not the land on which it is sited as 
secured by a manufactured home and not land, even if the 
manufactured home is considered real property under applicable State 
law.
    2. Manufactured home community. A manufactured home community 
that is a multifamily dwelling is not considered a manufactured home 
for purposes of Sec.  1003.4(a)(29).
    3. Multiple properties. See comment 4(a)(9)-2 regarding 
transactions involving multiple properties with more than one 
property taken as security.
    4. Scope of requirement. A financial institution reports that 
the requirement is not applicable for a covered loan where the 
dwelling related to the property identified in Sec.  1003.4(a)(9) is 
not a manufactured home.

Paragraph 4(a)(30)

    1. Indirect land ownership. Indirect land ownership can occur 
when the applicant or borrower is or will be a member of a resident-
owned community structured as a housing cooperative in which the 
occupants own an entity that holds the underlying land of the 
manufactured home community. In such communities, the applicant or 
borrower may still have a lease and pay rent for the lot on which 
his or her manufactured home is or will be located, but the property 
interest type for such an arrangement should be reported as indirect 
ownership if the applicant is or will be a member of the cooperative 
that owns the underlying land of the manufactured home community. If 
an applicant resides or will reside in such a community but is not a 
member, the property interest type should be reported as a paid 
leasehold.
    2. Leasehold interest. A leasehold interest could be formalized 
in a lease with a defined term and specified rent payments, or could 
arise as a tenancy at will through permission of a land owner 
without any written, formal arrangement. For example, assume a 
borrower will locate the manufactured home in a manufactured home 
community, has a written lease for a lot in that park, and the lease 
specifies rent payments. In this example, a financial institution 
complies with Sec.  1003.4(a)(30) by reporting a paid leasehold. 
However, if instead the borrower will locate the manufactured home 
on land owned by a family member without a written lease and with no 
agreement as to rent payments, a financial institution complies with 
Sec.  1003.4(a)(30) by reporting an unpaid leasehold.
    3. Multiple properties. See comment 4(a)(9)-2 regarding 
transactions involving multiple properties with more than one 
property taken as security.
    4. Manufactured home community. A manufactured home community 
that is a multifamily dwelling is not considered a manufactured home 
for purposes of Sec.  1003.4(a)(30).
    5. Direct ownership. An applicant or borrower has a direct 
ownership interest in the land on which the dwelling is or is to be 
located when it has a more than possessory real property ownership 
interest in the land such as fee simple ownership.
    6. Scope of requirement. A financial institution reports that 
the requirement is not applicable for a covered loan where the 
dwelling related to the property identified in Sec.  1003.4(a)(9) is 
not a manufactured home.

Paragraph 4(a)(31)

    1. Multiple properties. See comment 4(a)(9)-2 regarding 
transactions involving multiple properties with more than one 
property taken as security.
    2. Manufactured home community. For an application or covered 
loan secured by a manufactured home community, the financial 
institution should include in the number of individual dwelling 
units the total number of manufactured home sites that secure the 
loan and are available for occupancy, regardless of whether the 
sites are currently occupied or have manufactured homes currently 
attached. A financial institution may include in the number of 
individual dwelling units other units such as recreational vehicle 
pads, manager apartments, rental apartments, site-built homes or 
other rentable space that are ancillary to the operation of the 
secured property if it considers such units under its underwriting 
guidelines or the guidelines of an investor, or if it tracks the 
number of such units for its own internal purposes. For a loan 
secured by a single manufactured home that is or will be located in 
a manufactured home community, the financial institution should 
report one individual dwelling unit.
    3. Condominium and cooperative projects. For a covered loan 
secured by a condominium or cooperative property, the financial 
institution reports the total number of individual dwelling units 
securing the covered loan or proposed to secure the covered loan in 
the case of an application. For example:
    i. Assume that a loan is secured by the entirety of a 
cooperative property. The financial institution would report the 
number of individual dwelling units in the cooperative property.
    ii. Assume that a covered loan is secured by 30 individual 
dwelling units in a condominium property that contains 100 
individual dwelling units and that the loan is not exempt from 
Regulation C under Sec.  1003.3(c)(3). The financial institution 
reports 30 individual dwelling units.

[[Page 66336]]

    4. Best information available. A financial institution may rely 
on the best information readily available to the financial 
institution at the time final action is taken and on the financial 
institution's own procedures in reporting the information required 
by Sec.  1003.4(a)(31). Information readily available could include, 
for example, information provided by an applicant that the financial 
institution reasonably believes, information contained in a property 
valuation or inspection, or information obtained from public 
records.

Paragraph 4(a)(32)

    1. Affordable housing income restrictions. For purposes of Sec.  
1003.4(a)(32), affordable housing income-restricted units are 
individual dwelling units that have restrictions based on the income 
level of occupants pursuant to restrictive covenants encumbering the 
property. Such income levels are frequently expressed as a 
percentage of area median income by household size as established by 
the U.S. Department of Housing and Urban Development or another 
agency responsible for implementing the applicable affordable 
housing program. Such restrictions are frequently part of compliance 
with programs that provide public funds, special tax treatment, or 
density bonuses to encourage development or preservation of 
affordable housing. Such restrictions are frequently evidenced by a 
use agreement, regulatory agreement, land use restriction agreement, 
housing assistance payments contract, or similar agreement. Rent 
control or rent stabilization laws, and the acceptance by the owner 
or manager of a multifamily dwelling of Housing Choice Vouchers (24 
CFR part 982) or other similar forms of portable housing assistance 
that are tied to an occupant and not an individual dwelling unit, 
are not affordable housing income-restricted dwelling units for 
purposes of Sec.  1003.4(a)(32).
    2. Federal affordable housing sources. Examples of Federal 
programs and funding sources that may result in individual dwelling 
units that are reportable under Sec.  1003.4(a)(32) include, but are 
not limited to:
    i. Affordable housing programs pursuant to Section 8 of the 
United States Housing Act of 1937 (42 U.S.C. 1437f);
    ii. Public housing (42 U.S.C. 1437a(b)(6));
    iii. The HOME Investment Partnerships program (24 CFR part 92);
    iv. The Community Development Block Grant program (24 CFR part 
570);
    v. Multifamily tax subsidy project funding through tax-exempt 
bonds or tax credits (26 U.S.C. 42; 26 U.S.C. 142(d));
    vi. Project-based vouchers (24 CFR part 983);
    vii. Federal Home Loan Bank affordable housing program funding 
(12 CFR part 1291); and
    viii. Rural Housing Service multifamily housing loans and grants 
(7 CFR part 3560).
    3. State and local government affordable housing sources. 
Examples of State and local sources that may result in individual 
dwelling units that are reportable under Sec.  1003.4(a)(32) 
include, but are not limited to: State or local administration of 
Federal funds or programs; State or local funding programs for 
affordable housing or rental assistance, including programs operated 
by independent public authorities; inclusionary zoning laws; and tax 
abatement or tax increment financing contingent on affordable 
housing requirements.
    4. Multiple properties. See comment 4(a)(9)-2 regarding 
transactions involving multiple properties with more than one 
property taken as security.
    5. Best information available. A financial institution may rely 
on the best information readily available to the financial 
institution at the time final action is taken and on the financial 
institution's own procedures in reporting the information required 
by Sec.  1003.4(a)(32). Information readily available could include, 
for example, information provided by an applicant that the financial 
institution reasonably believes, information contained in a property 
valuation or inspection, or information obtained from public 
records.
    6. Scope of requirement. A financial institution reports that 
the requirement is not applicable if the property securing the 
covered loan or, in the case of an application, proposed to secure 
the covered loan is not a multifamily dwelling.

Paragraph 4(a)(33)

    1. Agents. If a financial institution is reporting actions taken 
by its agent consistent with comment 4(a)-4, the agent is not 
considered the financial institution for the purposes of Sec.  
1003.4(a)(33). For example, assume that an applicant submitted an 
application to Financial Institution A, and Financial Institution A 
made the credit decision acting as Financial Institution B's agent 
under State law. A covered loan was originated and the obligation 
arising from a covered loan was initially payable to Financial 
Institution A. Financial Institution B purchased the loan. Financial 
Institution B reports the origination and not the purchase, and 
indicates that the application was not submitted directly to the 
financial institution and that the transaction was not initially 
payable to the financial institution.

Paragraph 4(a)(33)(i)

    1. General. Section 4(a)(33)(i) requires a financial institution 
to indicate whether the applicant or borrower submitted the 
application directly to the financial institution that is reporting 
the covered loan or application. The following scenarios demonstrate 
whether an application was submitted directly to the financial 
institution that is reporting the covered loan or application.
    i. The application was submitted directly to the financial 
institution if the mortgage loan originator identified pursuant to 
Sec.  1003.4(a)(34) was an employee of the reporting financial 
institution when the originator performed the origination activities 
for the covered loan or application that is being reported.
    ii. The application was also submitted directly to the financial 
institution reporting the covered loan or application if the 
reporting financial institution directed the applicant to a third-
party agent (e.g., a credit union service organization) that 
performed loan origination activities on behalf of the financial 
institution and did not assist the applicant with applying for 
covered loans with other institutions.
    iii. If an applicant contacted and completed an application with 
a broker or correspondent that forwarded the application to a 
financial institution for approval, an application was not submitted 
to the financial institution.

Paragraph 4(a)(33)(ii)

    1. General. Section 1003.4(a)(33)(ii) requires financial 
institutions to report whether the obligation arising from a covered 
loan was or, in the case of an application, would have been 
initially payable to the institution. An obligation is initially 
payable to the institution if the obligation is initially payable 
either on the face of the note or contract to the financial 
institution that is reporting the covered loan or application. For 
example, if a financial institution reported an origination of a 
covered loan that it approved prior to closing, that closed in the 
name of a third-party, such as a correspondent lender, and that the 
financial institution purchased after closing, the covered loan was 
not initially payable to the financial institution.
    2. Applications. A financial institution complies with Sec.  
1003.4(a)(33)(ii) by reporting that the requirement is not 
applicable if the institution had not determined whether the covered 
loan would have been initially payable to the institution reporting 
the application when the application was withdrawn, denied, or 
closed for incompleteness.

Paragraph 4(a)(34)

    1. NMLSR ID. Section 1003.4(a)(34) requires a financial 
institution to report the Nationwide Mortgage Licensing System and 
Registry unique identifier (NMLSR ID) for the mortgage loan 
originator, as defined in Regulation G, 12 CFR 1007.102, or 
Regulation H, 12 CFR 1008.23, as applicable. The NMLSR ID is a 
unique number or other identifier generally assigned to individuals 
registered or licensed through NMLSR to provide loan originating 
services. For more information, see the Secure and Fair Enforcement 
for Mortgage Licensing Act of 2008, title V of the Housing and 
Economic Recovery Act of 2008 (S.A.F.E. Act), 12 U.S.C. 5101 et 
seq., and its implementing regulations (12 CFR part 1007 and 12 CFR 
part 1008).
    2. Mortgage loan originator without NMLSR ID. An NMLSR ID for 
the mortgage loan originator is not required by Sec.  1003.4(a)(34) 
to be reported by a financial institution if the mortgage loan 
originator is not required to obtain and has not been assigned an 
NMLSR ID. For example, certain individual mortgage loan originators 
may not be required to obtain an NMLSR ID for the particular 
transaction being reported by the financial institution, such as a 
commercial loan. However, some mortgage loan originators may have 
obtained an NMLSR ID even if they are not required to obtain one for 
that particular transaction. If a mortgage loan originator has been 
assigned an NMLSR ID, a financial institution complies with Sec.  
1003.4(a)(34) by reporting the mortgage loan originator's NMLSR ID 
regardless of

[[Page 66337]]

whether the mortgage loan originator is required to obtain an NMLSR 
ID for the particular transaction being reported by the financial 
institution. In the event that the mortgage loan originator is not 
required to obtain and has not been assigned an NMLSR ID, a 
financial institution complies with Sec.  1003.4(a)(34) by reporting 
that the requirement is not applicable.
    3. Multiple mortgage loan originators. If more than one 
individual associated with a covered loan or application meets the 
definition of a mortgage loan originator, as defined in Regulation 
G, 12 CFR 1007.102, or Regulation H, 12 CFR 1008.23, a financial 
institution complies with Sec.  1003.4(a)(34) by reporting the NMLSR 
ID of the individual mortgage loan originator with primary 
responsibility for the transaction as of the date of action taken 
pursuant to Sec.  1003.4(a)(8)(ii). A financial institution that 
establishes and follows a reasonable, written policy for determining 
which individual mortgage loan originator has primary responsibility 
for the reported transaction as of the date of action taken complies 
with Sec.  1003.4(a)(34).

Paragraph 4(a)(35)

    1. Automated underwriting system data--general. A financial 
institution complies with Sec.  1003.4(a)(35) by reporting, except 
for purchased covered loans, the name of the automated underwriting 
system (AUS) used by the financial institution to evaluate the 
application and the result generated by that AUS. The following 
scenarios illustrate when a financial institution reports the name 
of the AUS used by the financial institution to evaluate the 
application and the result generated by that AUS.
    i. A financial institution that uses an AUS, as defined in Sec.  
1003.4(a)(35)(ii), to evaluate an application, must report the name 
of the AUS used by the financial institution to evaluate the 
application and the result generated by that system, regardless of 
whether the AUS was used in its underwriting process. For example, 
if a financial institution uses an AUS to evaluate an application 
prior to submitting the application through its underwriting 
process, the financial institution complies with Sec.  1003.4(a)(35) 
by reporting the name of the AUS it used to evaluate the application 
and the result generated by that system.
    ii. A financial institution that uses an AUS, as defined in 
Sec.  1003.4(a)(35)(ii), to evaluate an application, must report the 
name of the AUS it used to evaluate the application and the result 
generated by that system, regardless of whether the financial 
institution intends to hold the covered loan in its portfolio or 
sell the covered loan. For example, if a financial institution uses 
an AUS developed by a securitizer to evaluate an application and 
intends to sell the covered loan to that securitizer but ultimately 
does not sell the covered loan and instead holds the covered loan in 
its portfolio, the financial institution complies with Sec.  
1003.4(a)(35) by reporting the name of the securitizer's AUS that 
the institution used to evaluate the application and the result 
generated by that system. Similarly, if a financial institution uses 
an AUS developed by a securitizer to evaluate an application to 
determine whether to originate the covered loan but does not intend 
to sell the covered loan to that securitizer and instead holds the 
covered loan in its portfolio, the financial institution complies 
with Sec.  1003.4(a)(35) by reporting the name of the securitizer's 
AUS that the institution used to evaluate the application and the 
result generated by that system.
    iii. A financial institution that uses an AUS, as defined in 
Sec.  1003.4(a)(35)(ii), that is developed by a securitizer to 
evaluate an application, must report the name of the AUS it used to 
evaluate the application and the result generated by that system, 
regardless of whether the securitizer intends to hold the covered 
loan it purchased from the financial institution in its portfolio or 
securitize the covered loan. For example, if a financial institution 
uses an AUS developed by a securitizer to evaluate an application 
and the financial institution sells the covered loan to that 
securitizer but the securitizer holds the covered loan it purchased 
in its portfolio, the financial institution complies with Sec.  
1003.4(a)(35) by reporting the name of the securitizer's AUS that 
the institution used to evaluate the application and the result 
generated by that system.
    iv. A financial institution, which is also a securitizer, that 
uses its own AUS, as defined in Sec.  1003.4(a)(35)(ii), to evaluate 
an application, must report the name of the AUS it used to evaluate 
the application and the result generated by that system, regardless 
of whether the financial institution intends to hold the covered 
loan it originates in its portfolio, purchase the covered loan, or 
securitize the covered loan. For example, if a financial 
institution, which is also a securitizer, has developed its own AUS 
and uses that AUS to evaluate an application that it intends to 
originate and hold in its portfolio and not purchase or securitize 
the covered loan, the financial institution complies with Sec.  
1003.4(a)(35) by reporting the name of its AUS that it used to 
evaluate the application and the result generated by that system.
    2. Definition of automated underwriting system. A financial 
institution must report the information required by Sec.  
1003.4(a)(35)(i) if the financial institution uses an automated 
underwriting system (AUS), as defined in Sec.  1003.4(a)(35)(ii), to 
evaluate an application. In order for an AUS to be covered by the 
definition in Sec.  1003.4(a)(35)(ii), the system must be an 
electronic tool that has been developed by a securitizer, Federal 
government insurer, or a Federal government guarantor. For example, 
if a financial institution has developed its own proprietary system 
that it uses to evaluate an application and the financial 
institution is also a securitizer, then the financial institution 
complies with Sec.  1003.4(a)(35) by reporting the name of that 
system and the result generated by that system. On the other hand, 
if a financial institution has developed its own proprietary system 
that it uses to evaluate an application but the financial 
institution is not a securitizer, then the financial institution is 
not required by Sec.  1003.4(a)(35) to report the use of that system 
and the result generated by that system. In addition, in order for 
an AUS to be covered by the definition in Sec.  1003.4(a)(35)(ii), 
the system must provide a result regarding both the credit risk of 
the applicant and the eligibility of the covered loan to be 
originated, purchased, insured, or guaranteed by the securitizer, 
Federal government insurer, or Federal government guarantor that 
developed the system being used to evaluate the application. For 
example, if a system is an electronic tool that provides a 
determination of the eligibility of the covered loan to be 
originated, purchased, insured, or guaranteed by the securitizer, 
Federal government insurer, or Federal government guarantor that 
developed the system being used by a financial institution to 
evaluate the application, but the system does not also provide an 
assessment of the creditworthiness of the applicant--such as, an 
evaluation of the applicant's income, debt, and credit history--then 
that system does not qualify as an AUS, as defined in Sec.  
1003.4(a)(35)(ii). A financial institution that uses a system that 
is not an AUS, as defined in Sec.  1003.4(a)(35)(ii), to evaluate an 
application does not report the information required by Sec.  
1003.4(a)(35)(i).
    3. Reporting automated underwriting system data--multiple 
results. When a financial institution uses one or more automated 
underwriting systems (AUS) to evaluate the application and the 
system or systems generate two or more results, the financial 
institution complies with Sec.  1003.4(a)(35) by reporting, except 
for purchased covered loans, the name of the AUS used by the 
financial institution to evaluate the application and the result 
generated by that AUS as determined by the following principles. To 
determine what AUS (or AUSs) and result (or results) to report under 
Sec.  1003.4(a)(35), a financial institution follows each of the 
principles that is applicable to the application in question, in the 
order in which they are set forth below.
    i. If a financial institution obtains two or more AUS results 
and the AUS generating one of those results corresponds to the loan 
type reported pursuant to Sec.  1003.4(a)(2), the financial 
institution complies with Sec.  1003.4(a)(35) by reporting that AUS 
name and result. For example, if a financial institution evaluates 
an application using the Federal Housing Administration's (FHA) 
Technology Open to Approved Lenders (TOTAL) Scorecard and 
subsequently evaluates the application with an AUS used to determine 
eligibility for a non-FHA loan, but ultimately originates an FHA 
loan, the financial institution complies with Sec.  1003.4(a)(35) by 
reporting TOTAL Scorecard and the result generated by that system. 
If a financial institution obtains two or more AUS results and more 
than one of those AUS results is generated by a system that 
corresponds to the loan type reported pursuant to Sec.  
1003.4(a)(2), the financial institution identifies which AUS result 
should be reported by following the principle set forth below in 
comment 4(a)(35)-3.ii.
    ii. If a financial institution obtains two or more AUS results 
and the AUS generating one of those results corresponds to the 
purchaser, insurer, or guarantor, if any, the financial institution 
complies with Sec.  1003.4(a)(35) by reporting that AUS name

[[Page 66338]]

and result. For example, if a financial institution evaluates an 
application with the AUS of Securitizer A and subsequently evaluates 
the application with the AUS of Securitizer B, but the financial 
institution ultimately originates a covered loan that it sells 
within the same calendar year to Securitizer A, the financial 
institution complies with Sec.  1003.4(a)(35) by reporting the name 
of Securitizer A's AUS and the result generated by that system. If a 
financial institution obtains two or more AUS results and more than 
one of those AUS results is generated by a system that corresponds 
to the purchaser, insurer, or guarantor, if any, the financial 
institution identifies which AUS result should be reported by 
following the principle set forth below in comment 4(a)(35)-3.iii.
    iii. If a financial institution obtains two or more AUS results 
and none of the systems generating those results correspond to the 
purchaser, insurer, or guarantor, if any, or the financial 
institution is following this principle because more than one AUS 
result is generated by a system that corresponds to either the loan 
type or the purchaser, insurer, or guarantor, the financial 
institution complies with Sec.  1003.4(a)(35) by reporting the AUS 
result generated closest in time to the credit decision and the name 
of the AUS that generated that result. For example, if a financial 
institution evaluates an application with the AUS of Securitizer A, 
subsequently again evaluates the application with Securitizer A's 
AUS, the financial institution complies with Sec.  1003.4(a)(35) by 
reporting the name of Securitizer A's AUS and the second AUS result. 
Similarly, if a financial institution obtains a result from an AUS 
that requires the financial institution to underwrite the loan 
manually, but the financial institution subsequently processes the 
application through a different AUS that also generates a result, 
the financial institution complies with Sec.  1003.4(a)(35) by 
reporting the name of the second AUS that it used to evaluate the 
application and the AUS result generated by that system.
    iv. If a financial institution obtains two or more AUS results 
at the same time and the principles in comment 4(a)(35)-3.i through 
.iii do not apply, the financial institution complies with Sec.  
1003.4(a)(35) by reporting the name of all of the AUSs used by the 
financial institution to evaluate the application and the results 
generated by each of those systems. For example, if a financial 
institution simultaneously evaluates an application with the AUS of 
Securitizer A and the AUS of Securitizer B, the financial 
institution complies with Sec.  1003.4(a)(35) by reporting the name 
of both Securitizer A's AUS and Securitizer B's AUS and the results 
generated by each of those systems. In any event, however, the 
financial institution does not report more than five AUSs and five 
results. If more than five AUSs and five results meet the criteria 
in this principle, the financial institution complies with Sec.  
1003.4(a)(35) by choosing any five among them to report.
    4. Transactions for which an automated underwriting system was 
not used to evaluate the application. Section 1003.4(a)(35) does not 
require a financial institution to evaluate an application using an 
automated underwriting system (AUS), as defined in Sec.  
1003.4(a)(35)(ii). For example, if a financial institution only 
manually underwrites an application and does not use an AUS to 
evaluate the application, the financial institution complies with 
Sec.  1003.4(a)(35) by reporting that the requirement is not 
applicable since an AUS was not used to evaluate the application.
    5. Purchased covered loan. A financial institution complies with 
Sec.  1003.4(a)(35) by reporting that the requirement is not 
applicable when the covered loan is a purchased covered loan.
    6. Non-natural person. When the applicant and co-applicant, if 
applicable, are not natural persons, a financial institution 
complies with Sec.  1003.4(a)(35) by reporting that the requirement 
is not applicable.

Paragraph 4(a)(37)

    1. Open-end line of credit. Section 1003.4(a)(37) requires a 
financial institution to identify whether the covered loan or the 
application is for an open-end line of credit. See comments 2(o)-1 
and -2 for a discussion of open-end line of credit and extension of 
credit.

Paragraph 4(a)(38)

    1. Primary purpose. Section 1003.4(a)(38) requires a financial 
institution to identify whether the covered loan is, or the 
application is for a covered loan that will be, made primarily for a 
business or commercial purpose. See comment 3(c)(10)-2 for a 
discussion of how to determine the primary purpose of the 
transaction and the standard applicable to financial institution's 
determination of the primary purpose of the transaction. See 
comments 3(c)(10)-3 and -4 for examples of excluded and reportable 
business- or commercial-purpose transactions.

4(f) Quarterly Recording of Data

    1. General. Section 1003.4(f) requires a financial institution 
to record the data collected pursuant to Sec.  1003.4 on a loan/
application register within 30 calendar days after the end of the 
calendar quarter in which final action is taken. Section 1003.4(f) 
does not require a financial institution to record data on a single 
loan/application register on a quarterly basis. Rather, for purposes 
of Sec.  1003.4(f), a financial institution may record data on a 
single loan/application register or separately for different 
branches or different loan types (such as home purchase or home 
improvement loans, or loans on multifamily dwellings).
    2. Agency requirements. Certain State or Federal regulations may 
require a financial institution to record its data more frequently 
than is required under Regulation C.
    3. Form of quarterly records. A financial institution may 
maintain the records required by Sec.  1003.4(f) in electronic or 
any other format, provided the institution can make the information 
available to its regulatory agency in a timely manner upon request.

Section 1003.5--Disclosure and Reporting

5(a) Reporting to Agency

    1. [Reserved]
    2. [Reserved]
    3. [Reserved]
    4. [Reserved]
    5. Change in appropriate Federal agency. If the appropriate 
Federal agency for a covered institution changes (as a consequence 
of a merger or a change in the institution's charter, for example), 
the institution must report data to the new appropriate Federal 
agency beginning with the year of the change.
    6. Subsidiaries. An institution is a subsidiary of a bank or 
savings association (for purposes of reporting HMDA data to the same 
agency as the parent) if the bank or savings association holds or 
controls an ownership interest that is greater than 50 percent of 
the institution.
    7. Transmittal sheet--additional data submissions. If an 
additional data submission becomes necessary (for example, because 
the institution discovers that data were omitted from the initial 
submission, or because revisions are called for), that submission 
must be accompanied by a transmittal sheet.
    8. Transmittal sheet--revisions or deletions. If a data 
submission involves revisions or deletions of previously submitted 
data, it must state the total of all line entries contained in that 
submission, including both those representing revisions or deletions 
of previously submitted entries, and those that are being 
resubmitted unchanged or are being submitted for the first time. 
Depository institutions must provide a list of the MSAs or 
Metropolitan Divisions in which they have home or branch offices.

5(b) Disclosure Statement

    1. Business day. For purposes of Sec.  1003.5(b), a business day 
is any calendar day other than a Saturday, Sunday, or legal public 
holiday.
    2. Format of notice. A financial institution may make the 
written notice required under Sec.  1003.5(b)(2) available in paper 
or electronic form.
    3. Notice--suggested text. A financial institution may use any 
text that meets the requirements of Sec.  1003.5(b)(2). The 
following language is suggested but is not required:

Home Mortgage Disclosure Act Notice

    The HMDA data about our residential mortgage lending are 
available online for review. The data show geographic distribution 
of loans and applications; ethnicity, race, sex, age, and income of 
applicants and borrowers; and information about loan approvals and 
denials. These data are available online at the Consumer Financial 
Protection Bureau's Web site (www.consumerfinance.gov/hmda). HMDA 
data for many other financial institutions are also available at 
this Web site.
    4. Combined notice. A financial institution may use the same 
notice to satisfy the requirements of both Sec.  1003.5(b)(2) and 
Sec.  1003.5(c).

5(c) Modified loan/application Register

    1. Format of notice. A financial institution may make the 
written notice required under Sec.  1003.5(c)(1) available in paper 
or electronic form.
    2. Notice--suggested text. A financial institution may use any 
text that meets the requirements of Sec.  1003.5(c)(1). The 
following language is suggested but is not required:

[[Page 66339]]

Home Mortgage Disclosure Act Notice

    The HMDA data about our residential mortgage lending are 
available online for review. The data show geographic distribution 
of loans and applications; ethnicity, race, sex, age, and income of 
applicants and borrowers; and information about loan approvals and 
denials. These data are available online at the Consumer Financial 
Protection Bureau's Web site (www.consumerfinance.gov/hmda). HMDA 
data for many other financial institutions are also available at 
this Web site.
    3. Combined notice. A financial institution may use the same 
notice to satisfy the requirements of both Sec.  1003.5(c) and Sec.  
1003.5(b)(2).

5(e) Posted Notice of Availability of Data

    1. Posted notice--suggested text. A financial institution may 
post any text that meets the requirements of Sec.  1003.5(e). The 
Bureau or other appropriate Federal agency for a financial 
institution may provide a notice that the institution can post to 
inform the public of the availability of its HMDA data, or an 
institution may create its own notice. The following language is 
suggested but is not required:

Home Mortgage Disclosure Act Notice

    The HMDA data about our residential mortgage lending are 
available online for review. The data show geographic distribution 
of loans and applications; ethnicity, race, sex, age, and income of 
applicants and borrowers; and information about loan approvals and 
denials. HMDA data for many other financial institutions are also 
available online. For more information, visit the Consumer Financial 
Protection Bureau's Web site (www.consumerfinance.gov/hmda).

Section 1003.6--Enforcement

6(b) Bona Fide Errors

    1. Bona fide error--information from third parties. An 
institution that obtains the property-location information for 
applications and loans from third parties (such as appraisers or 
vendors of ``geocoding'' services) is responsible for ensuring that 
the information reported on its HMDA/LAR is correct.

0
16. Effective January 1, 2019, in Supplement I to Part 1003:
    a. Under the heading Section 1003.5--Disclosure and Reporting, 
under the subheading 5(a) Reporting to Agency, paragraphs 1, 2, 3, and 
4 are added, paragraph 5 is revised, and paragraphs 6, 7, and 8 are 
removed;
    b. Under the heading Section 1003.6--Enforcement, under the 
subheading 6(b) Bona Fide Errors, paragraph 1 is revised.

    The additions and revisions read as follows:

Supplement I to Part 1003--Official Interpretations

* * * * *

Section 1003.5--Disclosure and Reporting

5(a) Reporting to Agency

    1. Quarterly reporting--coverage. i. Section 1003.5(a)(1)(ii) 
requires that, within 60 calendar days after the end of each 
calendar quarter except the fourth quarter, a financial institution 
that reported for the preceding calendar year at least 60,000 
covered loans and applications, combined, excluding purchased 
covered loans, must submit its loan/application register containing 
all data required to be recorded for that quarter pursuant to Sec.  
1003.4(f). For example, if for calendar year 2019 Financial 
Institution A reports 60,000 covered loans, excluding purchased 
covered loans, it must comply with Sec.  1003.5(a)(1)(ii) in 
calendar year 2020. Similarly, if for calendar year 2019 Financial 
Institution A reports 20,000 applications and 40,000 covered loans, 
combined, excluding purchased covered loans, it must comply with 
Sec.  1003.5(a)(1)(ii) in calendar year 2020. If for calendar year 
2020 Financial Institution A reports fewer than 60,000 covered loans 
and applications, combined, excluding purchased covered loans, it is 
not required to comply with Sec.  1003.5(a)(1)(ii) in calendar year 
2021.
    ii. In the calendar year of a merger or acquisition, the 
surviving or newly formed financial institution is required to 
comply with Sec.  1003.5(a)(1)(ii), effective the date of the merger 
or acquisition, if a combined total of at least 60,000 covered loans 
and applications, combined, excluding purchased covered loans, is 
reported for the preceding calendar year by or for the surviving or 
newly formed financial institution and each financial institution or 
branch office merged or acquired. For example, Financial Institution 
A and Financial Institution B merge to form Financial Institution C 
in 2020. Financial Institution A reports 40,000 covered loans and 
applications, combined, excluding purchased covered loans, for 2019. 
Financial Institution B reports 21,000 covered loans and 
applications, combined, excluding purchased covered loans, for 2019. 
Financial Institution C is required to comply with Sec.  
1003.5(a)(1)(ii) effective the date of the merger. Similarly, for 
example, Financial Institution A acquires a branch office of 
Financial Institution B in 2020. Financial Institution A reports 
58,000 covered loans and applications, combined, excluding purchased 
covered loans, for 2019. Financial Institution B reports 3,000 
covered loans and applications, combined, excluding purchased 
covered loans, for 2019 for the branch office acquired by Financial 
Institution A. Financial Institution A is required to comply with 
Sec.  1003.5(a)(1)(ii) in 2020 effective the date of the branch 
acquisition.
    iii. In the calendar year following a merger or acquisition, the 
surviving or newly formed financial institution is required to 
comply with Sec.  1003.5(a)(1)(ii) if a combined total of at least 
60,000 covered loans and applications, combined, excluding purchased 
covered loans, is reported for the preceding calendar year by or for 
the surviving or newly formed financial institution and each 
financial institution or branch office merged or acquired. For 
example, Financial Institution A and Financial Institution B merge 
to form Financial Institution C in 2019. Financial Institution C 
reports 21,000 covered loans and applications, combined, excluding 
purchased covered loans, each for Financial Institution A, B, and C 
for 2019, for a combined total of 63,000 covered loans and 
applications reported, excluding purchased covered loans. Financial 
Institution C is required to comply with Sec.  1003.5(a)(1)(ii) in 
2020. Similarly, for example, Financial Institution A acquires a 
branch office of Financial Institution B in 2019. Financial 
Institution A reports 58,000 covered loans and applications, 
combined, excluding purchased covered loans, for 2019. Financial 
Institution A or B reports 3,000 covered loans and applications, 
combined, excluding purchased covered loans, for 2019 for the branch 
office acquired by Financial Institution A. Financial Institution A 
is required to comply with Sec.  1003.5(a)(1)(ii) in 2020.
    2. Change in appropriate Federal agency. If the appropriate 
Federal agency for a financial institution changes (as a consequence 
of a merger or a change in the institution's charter, for example), 
the institution must identify its new appropriate Federal agency in 
its annual submission of data pursuant to Sec.  1003.5(a)(1)(i) for 
the year of the change. For example, if an institution's appropriate 
Federal agency changes in February 2018, it must identify its new 
appropriate Federal agency beginning with the annual submission of 
its 2018 data by March 1, 2019 pursuant to Sec.  1003.5(a)(1)(i). 
For an institution required to comply with Sec.  1003.5(a)(1)(ii), 
the institution also must identify its new appropriate Federal 
agency in its quarterly submission of data pursuant to Sec.  
1003.5(a)(1)(ii) beginning with its submission for the quarter of 
the change, unless the change occurs during the fourth quarter. For 
example, if the appropriate Federal agency for an institution 
required to comply with Sec.  1003.5(a)(1)(ii) changes during 
February 2020, the institution must identify its new appropriate 
Federal agency beginning with its quarterly submission pursuant to 
Sec.  1003.5(a)(1)(ii) for the first quarter of 2020. If the 
appropriate Federal agency for an institution required to comply 
with Sec.  1003.5(a)(1)(ii) changes during December 2020, the 
institution must identify its new appropriate Federal agency 
beginning with the annual submission of its 2020 data by March 1, 
2021 pursuant to Sec.  1003.5(a)(1)(i).
    3. Subsidiaries. A financial institution is a subsidiary of a 
bank or savings association (for purposes of reporting HMDA data to 
the same agency as the parent) if the bank or savings association 
holds or controls an ownership interest in the institution that is 
greater than 50 percent.
    4. Retention. A financial institution may satisfy the 
requirement under Sec.  1003.5(a)(1)(i) that it retain a copy of its 
submitted annual loan/application register for three years by 
retaining a copy of the annual loan/application register in either 
electronic or paper form.
    5. Federal Taxpayer Identification Number. Section 1003.5(a)(3) 
requires a financial institution to provide its Federal Taxpayer 
Identification Number with its data submission. If a financial 
institution obtains a new Federal Taxpayer Identification

[[Page 66340]]

Number, it should provide the new number in its subsequent data 
submission. For example, if two financial institutions that 
previously reported HMDA data under this part merge and the 
surviving institution retained its Legal Entity Identifier but 
obtained a new Federal Taxpayer Identification Number, then the 
surviving institution should report the new Federal Taxpayer 
Identification Number with its HMDA data submission.
* * * * *

Section 1003.6--Enforcement

6(b) Bona Fide Errors

    1. Information from third parties. Section 1003.6(b) provides 
that an error in compiling or recording data for a covered loan or 
application is not a violation of the Act or this part if the error 
was unintentional and occurred despite the maintenance of procedures 
reasonably adapted to avoid such an error. A financial institution 
that obtains the required data, such as property-location 
information, from third parties is responsible for ensuring that the 
information reported pursuant to Sec.  1003.5 is correct.


    Dated: October 13, 2015.
Richard Cordray,
Director, Bureau of Consumer Financial Protection.
[FR Doc. 2015-26607 Filed 10-27-15; 8:45 am]
 BILLING CODE 4810-AM-P