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63329

Rules and Regulations

Federal Register
Vol. 73, No. 207
Friday, October 24, 2008

This section of the FEDERAL REGISTER
contains regulatory documents having general
applicability and legal effect, most of which
are keyed to and codified in the Code of
Federal Regulations, which is published under
50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by
the Superintendent of Documents. Prices of
new books are listed in the first FEDERAL
REGISTER issue of each week.

FEDERAL RESERVE SYSTEM
12 CFR Part 203
[Regulation C; Docket No. R–1321]

Home Mortgage Disclosure
Board of Governors of the
Federal Reserve System.
ACTION: Final rule; official staff
interpretation.

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AGENCY:

SUMMARY: The Board is publishing final
rules to amend Regulation C (Home
Mortgage Disclosure) to revise the rules
for reporting price information on
higher-priced loans. The rules are being
conformed to the definition of ‘‘higherpriced mortgage loan’’ adopted by the
Board under Regulation Z (Truth in
Lending) in July of 2008. Since 2004,
Regulation C has required lenders to
collect and report the spread between
the annual percentage rate (APR) on a
loan and the yield on Treasury
securities of comparable maturity if the
spread is equal to or greater than 3.0
percentage points for a first-lien loan (or
5.0 percentage points for a subordinatelien loan). Under the final rule, a lender
will report the spread between the
loan’s APR and a survey-based estimate
of APRs currently offered on prime
mortgage loans of a comparable type if
the spread is equal to or greater than 1.5
percentage points for a first-lien loan (or
3.5 percentage points for a subordinatelien loan).
DATES: The final rule is effective
October 1, 2009. Compliance is
mandatory for loan applications taken
on and after that date and for loans that
close on and after January 1, 2010
(regardless of their application dates).
FOR FURTHER INFORMATION CONTACT: John
C. Wood, Counsel, or Paul Mondor,
Senior Attorney, Division of Consumer
and Community Affairs, Board of
Governors of the Federal Reserve
System, Washington, DC 20551, at (202)
452–2412 or (202) 452–3667. For users

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of Telecommunications Device for the
Deaf (TDD) only, contact (202) 263–
4869.
SUPPLEMENTARY INFORMATION:
I. Background on HMDA and
Regulation C
The Home Mortgage Disclosure Act
(HMDA), enacted in 1975, requires
depository and certain for-profit,
nondepository institutions to collect,
report to regulators, and disclose to the
public data about originations and
purchases of home mortgage loans
(home purchase and refinancing) and
home improvement loans, as well as
loan applications that do not result in
originations (for example, applications
that are denied or withdrawn). HMDA
data can be used to help determine
whether institutions are serving the
housing needs of their communities.
The data help public officials target
public investment to attract private
investment where it is needed. HMDA
data also assist in identifying possible
discriminatory lending patterns and in
enforcing antidiscrimination statutes.
The Board’s Regulation C implements
HMDA. The data reported under
Regulation C include, among other
items, application date; loan type,
purpose, and amount; the property
location and type; the race, ethnicity,
sex, and annual income of the loan
applicant; the action taken on the loan
application (approved, denied,
withdrawn, etc.), and the date of that
action; whether a loan is covered by the
Home Ownership and Equity Protection
Act (HOEPA); lien status (first lien,
subordinate lien, or unsecured); and
certain loan price information.1
Regulation C’s requirement to report
loan price information took effect
beginning with the collection of data for
calendar year 2004. 67 FR 7222 (Feb. 15,
2002); 67 FR 30771 (May 8, 2002); and
67 FR 43218 (June 27, 2002).
Institutions must report the difference
1 Institutions report these data to their
supervisory agencies on an application-byapplication basis using a register format.
Institutions must make their loan/application
registers available to the public, with certain fields
redacted to preserve applicants’ privacy. The
Federal Financial Institutions Examination Council
(FFIEC), on behalf of the supervisory agencies,
compiles the reported data and prepares an
individual disclosure statement for each institution,
aggregate reports for all covered institutions in each
metropolitan area, and other reports. These
disclosure statements and reports are also available
to the public.

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between a loan’s APR and the yield on
Treasury securities of comparable
maturity if that difference is equal to or
greater than 3.0 percentage points for a
first-lien loan, or 5.0 percentage points
for a subordinate-lien loan. This
difference is known as the rate spread.
The Treasury yield used is as of the 15th
day of the month most closely preceding
the date the loan’s interest rate was set
by the institution for the final time
before closing (rate-lock date). The
Board provides Treasury yields for
various maturities, via the Federal
Financial Institutions Examination
Council (FFIEC) Web site, to assist
institutions in calculating the rate
spread.
II. Summary of Final Rule
On July 30, 2008, the Board published
a proposed rule that would amend
Regulation C’s requirement to report
price information. 73 FR 44189 (July 30,
2008). The Board is publishing final
amendments to Regulation C to adopt a
method for determining when the rate
spread is reported that is similar in
concept to Regulation C’s current
method but different in the particulars.
The final rule, like the current rule, sets
a threshold above a market rate to
trigger reporting. But the market rate the
Board is adopting is different, and
therefore so is the threshold. Instead of
yields on Treasury securities of
comparable maturity, the rule uses a
survey-based estimate of market APRs
for the lowest-risk prime mortgages,
referred to as the ‘‘average prime offer
rate,’’ for comparable types of
transactions.
The survey the Board will rely on for
the foreseeable future is the Primary
Mortgage Market Survey (PMMS)
conducted by Freddie Mac. The Board
will conduct its own survey if it
becomes appropriate or necessary to do
so. The reporting threshold is set at 1.5
percentage points above the applicable
average prime offer rate for first-lien
loans, and 3.5 points above the
applicable average prime offer rate for
subordinate-lien loans. The lender
reports the difference between the
transaction’s APR and the average prime
offer rate on a comparable type of
transaction if the difference is equal to
or greater than the threshold.
The final rule will provide pricing
data on higher-priced mortgage loans
reported under Regulation C that are

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Federal Register / Vol. 73, No. 207 / Friday, October 24, 2008 / Rules and Regulations

more consistent with prevailing
mortgage market pricing over time,
which will make data reporting more
predictable. The rule also will facilitate
regulatory compliance by conforming
the test for rate spread reporting under
Regulation C to the definition of higherpriced mortgage loans under Regulation
Z.

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III. Reasons for Improving HMDA Rate
Spread Reporting
When the Board first adopted
Regulation C’s rate spread reporting
requirement, the objective was to cover
substantially all of the subprime
mortgage market while generally
avoiding coverage of prime loans. Since
the requirement went into effect, HMDA
reporters and others have on various
occasions identified shortcomings of the
Treasury yield benchmark. In July of
2008, the Board proposed changing the
rate spread reporting benchmark. The
proposed new benchmark was a marketbased estimated average of prime
mortgage rates, derived from the PMMS.
A lender would report the spread
between the loan’s APR and the surveybased estimate of average APRs
currently offered on prime mortgage
loans of a comparable type if the spread
is equal to or greater than 1.5 percentage
points for a first-lien loan (or 3.5
percentage points for a subordinate-lien
loan). This approach would track the
pricing-based coverage test for the new
protections for higher-priced mortgage
loans under Regulation Z, adopted by
the Board in July of 2008. 73 FR 44522
(July 30, 2008).
A. Drawbacks of Using Treasury
Security Yields
Although there are advantages to
using Treasury yields to set the
threshold for reporting price
information, there also are significant
drawbacks. Advantages include the facts
that Treasuries are traded in a highly
liquid market, Treasury yield data are
published for many different maturities
and can easily be calculated for other
maturities, and the integrity of
published yields is not subject to
question. For these reasons, Treasuries
are also commonly used in federal
statutes for benchmarking purposes.
As recent events have highlighted,
using Treasury yields to set the APR
threshold for HMDA rate spread
reporting has two major disadvantages.
The most significant disadvantage is
that the spread between Treasuries and
mortgage rates changes in both the short
term and in the long term. Moreover, the
truly comparable Treasury security for a
given mortgage loan can be difficult to
determine accurately.

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The Treasury-mortgage spread can
change for at least three different
reasons. First, credit risk may change on
mortgages, even for the highest-quality
borrowers. For example, credit risk may
increase during economic downturns.
Second, competition for prime
borrowers can increase, tightening
spreads, or decrease, allowing lenders to
charge wider spreads. Third,
movements in financial markets can
affect Treasury yields but have no effect
on lenders’ cost of funds or, therefore,
on mortgage rates. For example,
Treasury yields fall disproportionately
more than mortgage rates during a
‘‘flight to quality.’’
Recent events illustrate how much the
Treasury-mortgage spread can swing.
The spread averaged about 170 basis
points in 2007 but increased to an
average of about 220 basis points in the
first half of 2008. In addition, the spread
was highly volatile in this period,
swinging as much as 25 basis points in
a week. Thus, the spread may vary
significantly from time to time, and
long-term predictions of future spreads
are highly uncertain. Such changes in
the Treasury-mortgage spread mean that
rate spreads for loans with identical
credit risk are reported in some periods
but not in others, contrary to the
objective of consistent and predictable
coverage over time.
Adverse consequences of volatility in
the spread between mortgage rates and
Treasuries could be reduced simply by
setting the regulatory threshold at a high
enough level to ensure exclusion of all
prime loans. But a threshold high
enough to accomplish this objective
would likely fail to meet another,
equally important objective of covering
essentially all of the subprime market.
Instead, the Board is adopting a
benchmark index that more closely
follows mortgage market rates and
therefore should make reporting more
consistent and predictable.
The second major disadvantage of
using Treasury yields to set the
threshold is that the truly comparable
Treasury security for a given mortgage
loan can be difficult to determine
accurately. Regulation C approximates
the ‘‘comparable’’ Treasury security on
the basis of maturity: a loan is matched
to a Treasury security with the same
contract term to maturity. For example,
the regulation matches a 30-year
mortgage loan to a 30-year Treasury
security. This method, however, does
not account for the fact that very few
loans reach their full maturity, and it
causes significant distortions when the

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yield curve changes shape.2 These
distortions can bias coverage, sometimes
in unpredictable ways, and
consequently might influence the
preferences of lenders to offer certain
loan products in certain environments.
For example, variable-rate mortgage
loans typically are priced based on
expected maturities that are closer to the
loans’ initial, fixed-rate periods than to
their full, nominal terms. Especially in
a sharply rising yield curve
environment, lenders may be biased
toward offering such products because
their pricing terms are established by
reference to their expected actual
maturities and, therefore, would tend to
remain well below a set threshold over
yields on Treasury securities that match
their much longer, nominal maturities.
By adopting benchmarks that more
closely track mortgage market rates and
matching loans to benchmarks by
product type, rather than solely by
contractual term to maturity, the Board
expects to reduce such disparities
between mortgage loan pricing and the
applicable benchmarks because those
benchmarks already will reflect the
expected maturities on which lenders
base their pricing.
B. Reasons for Following the Regulation
Z Final Rule
As noted above, the Board’s objective
in setting the rate spread reporting
threshold has been to cover subprime
mortgages and generally to avoid
covering prime mortgages. The same
purpose underlies the definition of
‘‘higher-priced mortgage loan’’ that the
Board adopted under Regulation Z. For
the reasons discussed above, the Board
believes the definition adopted under
Regulation Z, when applied to
Regulation C, will better achieve this
purpose and ensure more consistent and
more useful HMDA data. Moreover,
using the same definition in both
Regulation Z and Regulation C will
reduce compliance burdens.
IV. The Board’s Final Rule
A. Public Comment on the Proposed
Rule
The Board requested comment on (1)
the proposal to change the reporting
benchmark from Treasury yields to
average prime offer rates; (2) the Board’s
plan to use the Freddie Mac PMMS to
estimate average prime offer rates,
including comment on whether there
are more appropriate sources of data; (3)
2 Robert B. Avery, Kenneth P. Brevoort, and
Glenn B. Canner (2006), ‘‘Higher-Priced Home
Lending and the 2005 HMDA Data,’’ Federal
Reserve Bulletin, vol. 92 (September 8), pp. A123–
66.

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Federal Register / Vol. 73, No. 207 / Friday, October 24, 2008 / Rules and Regulations

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the method the Board proposed to use
to derive average prime offer rates from
the PMMS data, which was published as
Attachment I to the proposal; (4) the
proposed 1.5 and 3.5 percentage point
thresholds; (5) the proposed timing for
rate spread determination (rate-lock
date, with weekly updating of the
average prime offer rate benchmarks);
(6) the proposed implementation date of
the amendments; and (7) the costs and
benefits of the proposal generally.
The Board received 21 comment
letters on the proposal. Commenters
were virtually unanimous in support of
changing the reporting benchmark from
Treasury yields to average prime offer
rates, as well as the use of the PMMS
to estimate average prime offer rates.
Industry commenters largely agreed that
use of the same test under Regulations
C and Z would reduce regulatory
burden. Nearly all commenters agreed
that the proposed changes would result
in more accurate HMDA data. And most
commenters agreed with the proposed
thresholds over average prime offer rates
of 1.5 and 3.5 percentage points for firstlien and second-lien loans, respectively.
Finally, the majority of commenters
favored, or did not object to, the
continued use of the rate-lock date as
the best time for rate spread
determinations. Some industry
commenters expressed concern that
weekly updates of average prime offer
rates would increase burdens on HMDA
reporters. These commenters were not
opposed to weekly updating, per se, but
rather as an additional aspect of the
substantial, overall burden arising from
the proposal.
Industry commenters strongly
opposed the proposed implementation
date of January 1, 2009. A joint
comment letter filed by five industry
trade associations argued that their
members would be unable to implement
all the necessary systems changes and
conduct necessary staff training by the
proposed effective date. Industry
commenters also raised various issues
relating to timing and calculation
methodology under the Board’s
proposal for deriving average prime
offer rates from the PMMS data. The
timing and methodology issues are
discussed below, in parts IV.D and IV.E,
respectively. The implementation date
is discussed in part V.
B. Rates From the Prime Mortgage
Market
To address the principal drawbacks of
Treasury security yields, discussed
above, the Board proposed a rule that
relies instead on benchmarks that more
closely track rates in the prime mortgage
market. The Board is adopting the use

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of average prime offer rates substantially
as proposed. The final rule defines an
‘‘average prime offer rate’’ as an APR
derived from average interest rates,
points, and other pricing terms offered
by a representative sample of creditors
for mortgage transactions that have lowrisk pricing characteristics. Comparing a
transaction’s APR to this average prime
offer rate (defined as an APR), rather
than to an average offered contract
interest rate, should make reporting
more accurate and consistent because
both rates, rather than just one of them,
will reflect the total cost of credit that
an APR represents. If the spread
between a loan’s APR and the average
prime offer rate for a comparable
transaction is equal to or greater than
1.5 percentage points for a first-lien
loan, or 3.5 percentage points for a
subordinate-lien loan, the lender must
report the difference under Regulation
C. The basis for selecting these
thresholds is explained further below,
in part IV.C.
To facilitate compliance, the final rule
and commentary provide that the Board
will derive average prime offer rates
from survey data according to a
methodology it will make publicly
available, and the Board will publish
these rates in two tables (one each for
variable-rate and non-variable-rate
loans) on the FFIEC’s Web site on at
least a weekly basis. The methodology
published as Attachment I to this
Federal Register notice, which will
appear together with the tables on the
Web site, provides that comparable
transactions are determined by the
initial, fixed-rate period for variable-rate
loans and by term to maturity for nonvariable rate loans. The tables will set
forth average prime offer rates for each
of 14 products (six variable-rate and
eight non-variable-rate loans), and the
methodology provides assignment rules
for all other initial, fixed-rate periods or
terms to maturity, as applicable. The
methodology will remain on the Web
site along with the tables. Should it be
revised in the future, the Board will
republish it as revised at least several
months before such revisions become
effective.
As noted above, the survey the Board
intends to use for the foreseeable future
is Freddie Mac’s PMMS, which contains
weekly average rates and points offered
by a representative sample of creditors
to prime borrowers seeking a first-lien,
conventional, conforming mortgage and
who would have at least 20 percent
equity. The PMMS contains pricing data
for four types of transactions: ‘‘1-year
ARM,’’ ‘‘5/1-year ARM,’’ ‘‘30-year
fixed,’’ and ‘‘15-year fixed.’’ PMMS
pricing data for ARMs are based on

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63331

ARMs that adjust according to the yield
on one-year Treasury securities; the
pricing data include the margin and the
initial rate. These data are updated
every week and are published on
Freddie Mac’s Web site (see http://
www.freddiemac.com/dlink/html/
PMMS/display/PMMSOutputYr.jsp).
The Board will use the pricing terms
from the PMMS, such as interest rate
and points, to calculate an APR
(consistent with Regulation Z, 12 CFR
226.22) for each of the four types of
transactions that the PMMS reports.
These APRs will be the average prime
offer rates for transactions of those
types. The Board will derive APRs for
other types of transactions from the loan
pricing terms available in the survey.
The method of derivation the Board will
use is being published as Attachment I
to this Federal Register notice and will
be published on the FFIEC’s Web site
along with the tables of average prime
offer rates.
The methodology statement in
Attachment I will be implemented
substantially as it was proposed, except
that some further details have been
added for additional clarity and to
address some technical issues raised by
commenters. These technical issues are
discussed below, in parts IV.E and IV.F.
The Board will continue to review the
methodology statement following
publication of this Federal Register
notice, to ensure that it is as clear and
useable as possible, and may make
further revisions before it is published
on the FFIEC’s Web site along with the
tables of average prime offer rates. The
Board expects to publish both the tables
and the methodology statement, as it
will be implemented when this final
rule becomes effective on October 1,
2009, on the FFIEC’s Web site by early
January of 2009.
C. Thresholds for Rate Spread Reporting
The Board is adopting thresholds of
1.5 percentage points above the average
prime offer rate for a comparable
transaction for first-lien loans and 3.5
percentage points for second-lien loans,
as proposed. These thresholds are the
same as those adopted under Regulation
Z’s definition of ‘‘higher-priced
mortgage loan’’ in the July final rule. 73
FR 44522 (July 30, 2008).
As discussed above, the rate spread
reporting requirement was intended to
cover the subprime market and
generally exclude the prime market, and
in the face of uncertainty it is
appropriate to err on the side of
covering somewhat more than the
subprime market. Based on available
data, it appears that the existing
thresholds capture all of the subprime

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Federal Register / Vol. 73, No. 207 / Friday, October 24, 2008 / Rules and Regulations

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market and a portion of the alt-A
market. Based also on available data, the
Board believes that the thresholds it is
adopting also will cover all of the
subprime market and a portion of the
alt-A market. The Board considered
loan-level origination data for the period
2004 to 2007 for subprime and alt-A
securitized pools. The proprietary
source of these data is FirstAmerican
Loan Performance.3 The Board also
ascertained from a proprietary database
of mostly government-backed and prime
loans (McDash Analytics) that coverage
of the prime market during the first
three quarters of 2007 at these
thresholds would have been very
limited. The Board recognizes that the
recent mortgage market disruption
began at the end of this period, but it is
the latest period the Board has been able
to study in this database.
The Board is adopting a threshold for
subordinate-lien loans of 3.5 percentage
points. This is consistent with the
existing rule under Regulation C, which
sets the threshold over Treasury yields
for these loans two percentage points
above the threshold for first-lien loans.
See 12 CFR 203.4(a)(12). The Board
recognizes that it would be preferable to
set a threshold for second-lien loans
above a measure of market rates for
second-lien loans, but a suitable
measure of this kind does not appear to
exist. Although data are very limited,
the Board believes it remains
appropriate to apply the same difference
of two percentage points to the
thresholds above market mortgage rates.
Commenters explicitly endorsed, or at
least raised no objection to, this
approach.
Some commenters raised issues
relating to the scope of coverage for
‘‘higher-priced mortgage loans’’ under
Regulation Z. For example, commenters
suggested either exempting from
coverage, or providing higher thresholds
for, certain loan product types, such as
loans exceeding the Fannie Mae and
Freddie Mac maximum loan size (jumbo
loans) and loans under Federal Housing
Administration (FHA) programs.
Suggestions relating to the scope of
coverage were considered and
addressed in the Board’s final rule
under Regulation Z. 73 FR 44522,
44536–44537; 44539 (July 30, 2008).
3 Annual percentage rates were estimated from
the contract rates in these data using formulas
derived from a separate proprietary database of
subprime loans that collects contract rates, points,
and annual percentage rates. This separate database,
which contains data on the loan originations of
eight subprime mortgage lenders, is maintained by
the Financial Services Research Program at George
Washington University.

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The Board remains aware that the
spread between prime conforming and
prime jumbo loans currently is
unusually wide. If this spread remains
wider than it historically has been when
the final rule takes effect, the rule will
cover some prime jumbo loans. While
covering prime jumbo loans is not the
Board’s objective, the Board does not
believe that it should set the threshold
at a higher level to avoid what may be
only temporary coverage of these loans
relative to the long-time horizon for this
rule. The Board also continues to
believe that establishing various
thresholds for various different product
types would make the regulation
inordinately complicated and subject it
to frequent revision, which would not
be in the interests of those who report
HMDA data or those who use them. The
Board will continue to monitor the
overall market and relative pricing
spreads between submarkets to ensure
that the benefits of simplicity and
stability offered by the rule as adopted
continue to outweigh the disadvantages
of sometimes inadvertently capturing
rate spread data on loans to which the
rule is not intended to apply.

Attachment I to this Federal Register
notice. For example, new average prime
offer rates applicable during the week of
Monday through Sunday, October 12–
18, 2009, would be posted on the
FFIEC’s Web site on Friday, October 9,
but they would be dated October 12.
Loans that are locked in on October 9
through 11, including loans locked in
on October 9 after the benchmarks dated
October 12 have been posted, would be
compared to the average prime offer
rates for comparable transactions dated
October 5 (assuming the loan
application was made on or after
October 1). In unusual situations, such
as public holidays falling on a Friday,
the Board may not publish new
benchmarks on that day. Whenever new
benchmarks are published, however,
they always will be dated subsequent to
the date of publication, so that lenders
will not be required to apply new
benchmarks the same day they are
published. For consistency’s sake,
lenders may not apply new benchmarks
before the Monday following
publication, even if their systems are
capable of applying the new
benchmarks earlier.

D. Timing of Determining the Rate
Spread

When the Rate Is Set

When Benchmarks Become Effective
Regulation C currently determines the
Treasury yield benchmark as of the 15th
of the month before the rate-lock date.
This rule will determine the applicable
benchmark for a transaction more
frequently. The final rule requires a
creditor to use the most recently
available average prime offer rate as of
the rate-lock date. As the PMMS is
updated weekly, the Board will also
update average prime offer rates weekly.
The Board expects that using a more
current benchmark will improve
reporting accuracy without significantly
increasing regulatory burden.
To address concerns raised by
industry commenters over their ability
to apply timely the most recent
benchmarks, the final rule includes
additional explanation, in appendix A,
as to the meaning of ‘‘most recently
available.’’ The Board generally will
update the tables each Friday morning,
but the new benchmarks will be dated
to indicate when they are effective, and
the effective date will be subsequent to
the date of publication. The ‘‘most
recently available’’ average prime offer
rates are those most recently effective as
of the date the rate is set. The Board’s
intention is that updates to the tables
made each Friday will be effective the
following Monday, as reflected in the
methodology statement published as

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Industry commenters suggested that
the time the rate is set should be flexible
enough to accommodate differing
methods of locking in rates used by
mortgage lenders. Specifically, they
stated that some lenders employ a ‘‘base
rate plus rate adjusters’’ system,
whereby a lender may lock in the ‘‘base
rate’’ as well as various ‘‘rate adjusters’’
that may or may not apply, depending
on loan factors to be determined
subsequently (such as an appraisal that
results in a different loan-to-value ratio
than previously expected). Thus,
although the ‘‘base rate’’ has been
locked in on a certain date, and all
potentially applicable ‘‘rate adjusters’’
also may be locked in, the rate still may
change afterwards if the applicability of
any ‘‘rate adjuster’’ changes.
The Board’s intent was not to alter the
current meaning of when the rate is set
for the final time before closing. If a
loan’s rate may change, for any reason,
then it has not yet been set for the final
time before closing. Accordingly, the
Board’s final rule leaves the relevant
discussion of when the rate is set, in
appendix A, unchanged in this regard.
E. Determination of ‘‘Comparable
Transaction’’
Assignment Rules
The proposal stated that the Board’s
tables of average prime offer rates would
indicate how to determine what

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Federal Register / Vol. 73, No. 207 / Friday, October 24, 2008 / Rules and Regulations
constitutes a ‘‘comparable transaction’’
for purposes of matching a mortgage
loan’s APR to the appropriate
benchmark. Some commenters
interpreted the methodology statement’s
assignment rules as matching loans for
which the tables contain no exact match
to the benchmark of the next longest
term. This interpretation was not the
Board’s intent.
The Board’s intent was to preserve the
assignment rules currently applicable
under HMDA. Under those rules, a loan
with a term not represented among the
Treasury security terms listed in the
table matches to the Treasury security
with the term closest to the loan’s term,
and when a loan has a term exactly
halfway between two Treasury security
terms it matches to the Treasury
security with the shorter of the two
terms. The methodology statement that
is published with this final rule
(Attachment I to this Federal Register
notice) and that will accompany the
tables on the FFIEC’s Web site is revised
to clarify the correct assignment rules
for the new tables of average prime offer
rates, which track the existing
assignment rules for the existing table of
Treasury yields.

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Interpolation Methodology
Industry commenters also
recommended a revision to the
proposed method for interpolating
estimated APRs for loan products for
which PMMS data are not available. The
methodology requires calculating
‘‘Treasury spreads’’ (the difference
between the PMMS-reported rates and
corresponding Treasury yields) as a first
step towards estimating rates for other
products, before ultimately calculating
APRs for those other products. The
Board proposed calculating the
necessary Treasury spreads as the
PMMS-reported initial rates for one- and
five-year variable-rate loans minus the
average yields on one- and five-year
Treasury securities, respectively. These
one- and five-year spreads are used as
inputs in estimating APRs for loan
products not included in the PMMS
survey. These commenters suggested
instead calculating a ‘‘relative’’ spread
by dividing the PMMS-reported rates by
the corresponding Treasury yields. In
structuring the calculation of Treasury
spreads as absolute rather than
proportional, the Board intended to
mirror the manner in which the
mortgage industry builds incremental
prepayment and credit risk into loan
pricing. For this reason, the Board is
retaining the calculation as proposed.

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Unusual Loan Products
Some commenters sought clarification
on how to determine comparable
transactions for certain unusual loan
product types, such as step-rate loans,
loans with balloon payments, and loans
with temporary, interest-only payment
terms. The Board believes that the rule
as structured addresses all loan product
types. Regulation Z already provides
guidance for the calculation of APRs on
loans with unusual payment terms. The
APR calculated and disclosed according
to those rules is to be compared to the
average prime offer rate for comparable
transactions. If the APR is higher than
it would be in the absence of any
unusual payment terms, the Board sees
no reason for establishing special rules
for such products under the new rate
spread reporting test. Determination of
‘‘comparable transactions’’ depends
solely on two factors: (i) Whether the
loan is variable-rate or not; and (ii) the
length of the initial, fixed-rate period (if
variable-rate) or the term to maturity (if
non-variable-rate).
F. Technical Issues
APR Calculation—Payment Schedule
Assumptions
In the methodology statement for
deriving and estimating APRs from
PMMS data the Board included an
assumption that monthly payments
would be rounded to whole cents, thus
likely requiring an odd final payment
amount. The Board’s intent was to track
the way mortgage lenders actually
calculate APRs on their transactions.
But rounding payment amounts to
whole cents necessarily requires having
a loan amount, which is not the case for
the hypothetical transaction underlying
the PMMS data. Therefore the Board is
revising the methodology statement to
provide that the calculation should
assume all payments are equal, even if
this results in payment amounts that
include fractions of cents. This revision
applies only to the calculation of
hypothetical APRs from PMMS data for
use as average prime offer rates; it does
not affect lenders’ ability to calculate
APRs for disclosure purposes using
payment amounts in whole cents,
pursuant to Regulation Z. See 12 CFR
226.17(c)(3)(i).
HOEPA Status Reporting—§ 203.4(a)(13)
Although the Board did not propose
to revise § 203.4(a)(13), some
commenters pointed out that, as a result
of the amendments to Regulation Z in
the Board’s July 30, 2008 final rule, the
language in § 203.4(a)(13) now could be
considered ambiguous. Section
203.4(a)(13) requires the reporting of

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‘‘[w]hether the loan is subject to the
Home Ownership and Equity Protection
Act of 1994.’’ Until the July 30, 2008
final rule, this unambiguously referred
to loans subject to the original
protections of HOEPA, implemented
through Regulation Z’s § 226.32, 12 CFR
226.32. The July final rule, however,
created a new § 226.35 of Regulation Z,
12 CFR 226.35, which affords certain
protections for mortgage loans that meet
or exceed its coverage test (the same test
that is implemented for HMDA rate
spread reporting purposes by this final
rule). As the Board created the § 226.35
protections pursuant to its authority
under HOEPA, 15 U.S.C. 1639(l)(2), the
commenters expressed concern that
loans that are subject to those new
protections could be seen as being
‘‘subject to’’ HOEPA.
Appendix A to Regulation C,
Paragraph I.G.3, requires reporting if a
loan is subject to HOEPA, ‘‘as
implemented in Regulation Z (12 CFR
226.32).’’ To eliminate any possibility of
misinterpretation, however, the Board is
revising the language of § 203.4(a)(13) to
conform to the existing rule, as
expressed in appendix A.
V. Effective Date
The Board proposed an effective date
of January 1, 2009. Industry commenters
expressed serious concerns, however,
that the proposed effective date would
afford too little time, and would
generate substantial costs, to implement
the necessary systems changes and staff
training. For the following reasons, the
Board is adopting an effective date of
October 1, 2009.
Under the July 30, 2008 final rule, the
Regulation Z amendments concerning
higher-priced mortgage loans are
effective on October 1, 2009 and apply
to loans for which applications are
taken on or after that date. In the
proposed rule, the Board sought to
avoid changing rules for HMDA rate
spread reporting during a calendar year.
But, as the proposal noted, if the Board
were to make compliance with this final
rule mandatory January 1, 2010, from
October through December of 2009
lenders would have to comply with two
different rules for identifying higherpriced mortgage loans. These reasons
led the Board to propose a January 1,
2009 effective date.
The Board recognizes that several
factors would make compliance by
January 1, 2009 especially difficult and
costly for industry. First, as commenters
pointed out, HMDA reporters must
capture two additional data elements to
apply the new test: (i) Whether the loan
is variable-rate or not; and (ii) if
variable-rate, the initial, fixed-rate

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period. While these data usually reside
in lenders’ origination systems, they
may be difficult to access, capture, and
import into HMDA compliance systems;
many industry commenters indicated
that these are two separate, nonintegrated systems and that creating the
necessary interfaces between them will
be an extensive and costly project.
Second, industry commenters stated
that the period over the end of one year
and the beginning of the next year is a
particularly challenging timeframe in
which to implement changes to HMDA
reporting systems, as it coincides with
annual reporting under HMDA and
other laws and regulations. During this
period, lenders generally ‘‘freeze’’ their
systems to ensure that their reports for
the just-completed year are complete
and accurate, in compliance with
current rules, thus introducing new
rules is particularly challenging in this
timeframe. Third, mortgage lenders face
a number of other compliance-driven
systems changes during the proposed
timeframe.4
As noted above, the new protections
for higher-priced mortgage loans under
Regulation Z become effective October
1, 2009. As the coverage test necessary
to determine whether those protections
apply is identical to the HMDA rate
spread reporting test adopted here, the
Board has concluded that making the
HMDA test effective on the same date
will impose little additional burden on
HMDA reporters.
For the foregoing reasons, the Board is
adopting an effective date of October 1,
2009. Lenders will use the new rate
spread reporting test on loans for which
applications are taken on and after
October 1, 2009 and for all loans
consummated on or after January 1,
2010 (regardless of their application
dates). To help data users identify loans
closed in 2009 and reported using the
new rule, the Board will add a notation
to each such loan in the publicly
available data reported for 2009. The
mandatory compliance with the new
rule for all loans consummated on and
after January 1, 2010 will eliminate the
need for such notations in years after
2009. Thus, for loans for which
applications were taken before October
1, 2009 and that are consummated in
2009, the revised rules do not apply.
Lenders will apply the existing rate
4 The joint, industry trade groups’ comment letter
recited six other current sources of significant
compliance systems changes, including certain
FHA program changes, changes to Regulation Z
necessitated by the Mortgage Disclosure
Improvement Act of 2008, Title V of Division B of
the Housing and Economic Recovery Act of 2008,
Public Law 110–289, 122 Stat. 2654, approved July
30, 2008, and numerous state law changes.

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spread reporting test, using Treasury
security yield benchmarks, for those
loans. For loans for which applications
were taken before October 1, 2009 and
that are consummated in 2010 or later,
the revised rules apply.
VI. Paperwork Reduction Act
In accordance with section 3506 of
the Paperwork Reduction Act of 1995
(44 U.S.C. Ch. 35; 5 CFR Part 1320
Appendix A.1), the Board has reviewed
the final rule under the authority
delegated to the Board by Office of
Management and Budget (OMB). The
Federal Reserve may not conduct or
sponsor, and an organization is not
required to respond to, this information
collection unless it displays a currently
valid OMB number. The OMB control
number is 7100–0247.
The information collection
requirements of this rule appear in 12
CFR part 203. The information
collection is mandatory under 12 U.S.C.
2801–2810. It generates data used to
help determine whether financial
institutions are serving the housing
needs of their communities, to help
target investment, to promote private
investment where it is needed, and to
provide data to assist in identifying
possibly discriminatory lending patterns
and in enforcing antidiscrimination
statutes.
The respondents are all types of
financial institutions that meet the tests
for coverage under the regulation. Under
the Paperwork Reduction Act (PRA),
however, the Federal Reserve accounts
for the burden of the paperwork
associated with the regulation only for
state member banks, their subsidiaries,
subsidiaries of bank holding companies,
U.S. branches and agencies of foreign
banks (other than federal branches,
federal agencies, and insured state
branches of foreign banks), commercial
lending companies owned or controlled
by foreign banks, and organizations
operating under section 25 or 25A of the
Federal Reserve Act (12 U.S.C. 601–
604a; 611–631). Other federal agencies
account for the paperwork burden for
the institutions they supervise.
Respondents must maintain their loan/
application registers and modified
registers for three years, and their
disclosure statements for five years.
The Board has determined that the
data collection and reporting are
required by law; completion of the loan/
application register, submission to the
Board, and disclosure to the public
upon request are mandatory. The data,
as modified according to the regulation,
are made publicly available and are not
considered confidential. Information
that might identify an individual

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borrower or applicant is given
confidential treatment under exemption
6 of the Freedom of Information Act, 5
U.S.C. 552(b)(6).
On July 30, 2008, a notice of proposed
rulemaking (NPR) was published in the
Federal Register. 73 FR 44189 (July 30,
2008). The NPR indicated that current
burden estimates for Regulation C
would not change, other than a one-time
increase in burden to modify HMDA
reporters’ systems. No comments
specifically addressing the burden
estimate were received. Therefore, the
current burden estimates will remain
unchanged. The current total annual
burden to comply with the provisions of
Regulation C continues to be estimated
at 156,910 hours for 680 Federal
Reserve-regulated institutions that are
deemed to be respondents for the
purposes of the PRA. The reporting,
recordkeeping, and disclosure burden
for this information collection is
estimated to vary from 12 to 12,000
hours per respondent per year, with an
average of 242 hours for state member
banks and an average of 192 hours for
mortgage banking subsidiaries and other
respondents. This estimated burden
includes time to gather and maintain the
data needed, review the instructions,
and complete the register. The Board
estimates that respondents regulated by
the Federal Reserve will take, on
average, 16 hours (two business days) to
revise and update their systems to
comply with the new threshold for rate
spread reporting. This one-time revision
will increase the burden by 10,880
hours to 167,790.
The Board has a continuing interest in
the public’s opinions of its collections
of information. At any time, comments
regarding the burden estimate, or any
other aspect of this collection of
information, including suggestions for
reducing the burden, may be sent to:
Secretary, Board of Governors of the
Federal Reserve System, 20th and C
Streets, NW., Washington, DC 20551,
with copies of such comments sent to
the Office of Management and Budget,
Paperwork Reduction Project (7100–
0247), Washington, DC 20503.
VII. Regulatory Flexibility Analysis
In accordance with section 4 of the
Regulatory Flexibility Act (RFA), 5
U.S.C. 601–612, the Board is publishing
a final regulatory flexibility analysis for
the proposed amendments to Regulation
C. The RFA requires an agency either to
provide a final regulatory flexibility
analysis with a final rule or certify that
the final rule will not have a significant
economic impact on a substantial
number of small entities. An entity is
considered ’’small’’ if it has $165

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Federal Register / Vol. 73, No. 207 / Friday, October 24, 2008 / Rules and Regulations
million or less in assets for banks and
other depository institutions; and $6.5
million or less in revenues for non-bank
mortgage lenders, mortgage brokers, and
loan servicers. The Board did not
receive any comments contending that
the proposed rule would have a
significant impact on various businesses
or on its initial regulatory flexibility
analysis. Based on its analysis and for
the reasons stated below, the Board
believes that this final rule will not have
a significant economic impact on a
substantial number of small entities.

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A. Statement of the Need for, and
Objectives of, the Final Rule
The Board is adopting amendments to
Regulation C to make the rules for
reporting higher-priced loans in the
annual HMDA data consistent with the
definition of ‘‘higher-priced mortgage
loan’’ in the amendments to Regulation
Z (Truth in Lending) that the Board
adopted in final form on July 30, 2008.
The amendments are intended to reduce
regulatory burden by allowing mortgage
lenders to use a single definition of
higher-priced loan, rather than different
definitions under the two regulations.
The amendments are also intended to
result in more useful HMDA data
because the new definition of higherpriced loan uses a survey-based estimate
of market mortgage rates as the
benchmark for reporting.
The purpose of HMDA is to provide
to public officials, and to the public,
information to enable them to determine
whether lending institutions are
fulfilling their obligations to serve the
housing needs of their communities.
The purpose of the law is also to assist
public officials in determining the
distribution of public sector investments
in a manner designed to improve the
private investment environment. 12
U.S.C. 2801(b). HMDA data also assist
in identifying possibly discriminatory
lending patterns and in enforcing
antidiscrimination statutes. HMDA
authorizes the Board to prescribe
regulations to carry out the purposes of
the statute. 12 U.S.C. 2804(a).
The act expressly states that the
Board’s regulations may contain ‘‘such
classifications, differentiations, or other
provisions * * * as in the judgment of
the Board are necessary and proper to
effectuate the purposes of [HMDA], and
prevent circumvention or evasion
thereof, or to facilitate compliance
therewith.’’ 12 U.S.C. 2804(a). The
Board believes that the amendments to
Regulation C discussed above are within
Congress’s broad grant of authority to
the Board to adopt provisions that carry
out the purposes of the statute.

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B. Summary of Issues Raised by
Comments in Response to the Initial
Regulatory Flexibility Analysis
The Board did not receive any
comments contending that the proposed
rule would have a significant impact on
various businesses or on its initial
regulatory flexibility analysis.
C. Description and Estimate of Small
Entities To Which the Proposed Rule
Would Apply
The final rule will apply to all
institutions that are required to report
under HMDA. The Board does not have
complete data on the asset sizes of all
HMDA reporting institutions. Through
data from Reports of Condition and
Income (‘‘Call Reports’’) of depository
institutions and certain subsidiaries of
banks and bank holding companies,
however, the Board can determine
numbers of small entities among those
categories. For the majority of HMDA
respondents that are non-depository
institutions exact asset size information
is not available. The Board has
somewhat reliable estimates based in
large measure on self-reporting from
approximately five percent of the nondepository respondents. Based on the
best information available for each
category of respondent, the Board makes
the following estimate of small entities
that will be affected by this final rule:
Of all HMDA respondents in 2008 (for
2007 activities), which number
approximately 8,625, approximately
4,520 had total domestic assets of $165
million or less and thus would be
considered small entities for purposes of
the Regulatory Flexibility Act. The
Board believes that the economic impact
on these small entities is not significant.
D. Reporting, Recordkeeping, and Other
Compliance Requirements
HMDA reporting is a routine activity
for all HMDA respondents, large and
small. The changes implemented by this
final rule impose a new requirement on
HMDA respondents to obtain a publicly
available index (average prime offer
rates derived from PMMS data) and use
it to apply a reporting threshold test to
their loan originations. That
requirement, however, replaces an
existing requirement that is very similar
but for the index used. The burden of
complying with the new requirement
should not differ significantly from the
existing burden of complying with the
requirement it replaces; that existing
burden is addressed in the PRA
discussion in part VI above. As is also
discussed in the PRA analysis, the
Board expects the one-time burden of
converting HMDA respondents’ systems

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63335

to employ the new index to average 16
hours (two business days).
E. Steps Taken To Minimize the
Economic Impact on Small Entities
The Board solicited comment on any
significant alternatives that may provide
additional ways to reduce regulatory
burden associated with the proposed
rule. No comments were received.
List of Subjects in 12 CFR Part 203
Banks, Banking, Federal Reserve
System, Mortgages, Reporting and
recordkeeping requirements.
Authority and Issuance
For the reasons set forth in the
preamble, the Board amends 12 CFR
part 203 as follows:

■

PART 203—HOME MORTGAGE
DISCLOSURE (REGULATION C)
1. The authority citation for part 203
continues to read as follows:

■

Authority: 12 U.S.C. 2801–2810.

2. Section 203.4 is amended by
revising paragraphs (a)(12) and (a)(13) to
read as follows:

■

§ 203.4

Compilation of loan data.

(a) * * *
(12)(i) For originated loans subject to
Regulation Z, 12 CFR part 226, the
difference between the loan’s annual
percentage rate (APR) and the average
prime offer rate for a comparable
transaction as of the date the interest
rate is set, if that difference is equal to
or greater than 1.5 percentage points for
loans secured by a first lien on a
dwelling, or equal to or greater than 3.5
percentage points for loans secured by
a subordinate lien on a dwelling.
(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 Board 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 Board uses to derive
these rates.
(13) Whether the loan is subject to the
Home Ownership and Equity Protection
Act of 1994, as implemented in
Regulation Z (12 CFR 226.32).
*
*
*
*
*
■ 3. In Appendix A to Part 203, under
I. Instructions for Completion of Loan/
Application Register, paragraphs
I.G.1.a., I.G.1.d., I.G.1.e., and I.G.2. are
revised to read as follows:

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Appendix A to Part 203—Form and
Instructions for Completion of HMDA
Loan/Application Register
*

*

*

*

*

I. Instructions for Completion of Loan/
Application Register

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*

*

*

*

*

G. Pricing-Related Data
1. Rate Spread
a. For a home-purchase loan, a refinancing,
or a dwelling-secured home improvement
loan that you originated, report the spread
between the annual percentage rate (APR)
and the average prime offer rate for a
comparable transaction if the spread is equal
to or greater than 1.5 percentage points for
first-lien loans or 3.5 percentage points for
subordinate-lien loans. To determine
whether the rate spread meets this threshold,
use the average prime offer rate in effect for
the type of transaction as of the date the
interest rate was set, and use the APR for the
loan, as calculated and disclosed to the
consumer under § 226.6 or 226.18, as
applicable, of Regulation Z (12 CFR part 226).
Current and historic average prime offer rates
are set forth in the tables published on the
FFIEC’s Web site (http://www.ffiec.gov/
hmda) entitled ‘‘Average Prime Offer Rates—
Fixed’’ and ‘‘Average Prime Offer Rates—
Adjustable.’’ Use the most recently available
average prime offer rate. ‘‘Most recently
available’’ 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. Do not use an average prime
offer rate before its effective date.
d. Enter the rate spread to two decimal
places, and use a leading zero. For example,
enter 03.29. If the difference between the
APR and the average prime offer rate is a
figure with more than two decimal places,
round the figure or truncate the digits beyond
two decimal places.
e. If the difference between the APR and
the average prime offer rate is less than 1.5
percentage points for a first-lien loan and less
than 3.5 percentage points for a subordinatelien loan, enter ‘‘NA.’’
2. Date the interest rate was set. The
relevant date to use to determine the average
prime offer rate for a comparable transaction
is the date on which the loan’s interest rate
was set by the financial institution for the
final time before closing. If an interest rate is
set pursuant to a ‘‘lock-in’’ agreement
between the lender and the borrower, then
the date on which the agreement fixes the
interest rate is the date the rate was set. If a
rate is re-set 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 rate is re-set for the final time
before closing. 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.

*

*
*
*
*
4. In Supplement I to Part 203, under
Section 203.4—Compilation of Loan
Data, 4(a) Data Format and Itemization,

■

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Paragraph 4(a)(12) Rate spread
information, paragraph 4(a)(12)–1 is
removed, and new heading Paragraph
4(a)(12)(ii) and new paragraphs
4(a)(12)(ii)–1, 4(a)(12)(ii)–2, and
4(a)(12)(ii)–3 are added to read as
follows:
Supplement I to Part 203—Staff
Commentary
*

*

*

*

*

Section 203.4—Compilation of Loan Data
4(a) Data Format and Itemization

*

*

*

*

*

Paragraph 4(a)(12) Rate spread
information.
Paragraph 4(a)(12)(ii).
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 loanto-value ratio, owner-occupant status, and
purpose of the transaction. To obtain average
prime offer rates, the Board uses a survey of
lenders that both meets the criteria of
§ 203.4(a)(12)(ii) and provides pricing terms
for at least two types of variable-rate
transactions and at least two types of nonvariable-rate transactions. An example of
such a survey is the Freddie Mac Primary
Mortgage Market Survey.
2. Comparable transaction. The rate spread
reporting requirement applies to a reportable
loan with an annual percentage rate that
exceeds by the specified margin (or more) the
average prime offer rate for a comparable
transaction as of the date the interest rate is
set. The tables of average prime offer rates
published by the Board (see comment
4(a)(12)(ii)–3) indicate how to identify the
comparable transaction.
3. Board tables. The Board publishes on
the FFIEC’s Web site (http://www.ffiec.gov/
hmda), in table form, average prime offer
rates for a wide variety of transaction types.
The Board calculates an annual percentage
rate, consistent with Regulation Z (see 12
CFR 226.22 and part 226, appendix J), for
each transaction type for which pricing terms
are available from the survey described in
comment 4(a)(12)(ii)–1. The Board estimates
annual percentage rates for other types of
transactions for which direct survey data are
not available based on the loan pricing terms
available in the survey and other
information. The Board publishes on the
FFIEC’s Web site the methodology it uses to
arrive at these estimates.

*

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*

*

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*

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*

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By order of the Board of Governors of the
Federal Reserve System, October 20, 2008.
Jennifer J. Johnson,
Secretary of the Board.

Attachment I—Methodology for
Determining Average Prime Offer Rates
The calculation of average prime offer
rates is based on the Freddie Mac
Primary Mortgage Market Survey
(PMMS). The survey collects data for a
hypothetical, ‘‘best quality,’’ 80% loanto-value, first-lien loan for four mortgage
products: (1) 30-year fixed-rate; (2) 15year fixed-rate; (3) one-year variablerate; and (4) five-year variable-rate.5
Each of the variable-rate products
adjusts to an index based on the oneyear Treasury rate plus a margin and
adjusts annually after the initial, fixedrate period. This Methodology first
describes all the steps necessary to
calculate average prime offer rates and
then provides a numerical example
illustrating each step with the data from
the week of May 19, 2008.
The PMMS collects nationwide
average offer prices during the Monday
through Wednesday period each week
and publicly releases the averages on
Thursday. For each loan type the
average commitment loan rate and total
fees and points (‘‘points’’) are reported,
with the points expressed as
percentages of the initial loan balance.
For the fixed-rate products, the
commitment rate is the contract rate on
the loan; for the variable-rate products
it is the initial contract rate. For the
variable-rate products, the average
margin is also reported.
The PMMS data are used to compute
an annual percentage rate (APR) for the
30- and 15-year fixed-rate products. For
the two variable-rate products, an
estimate of the fully-indexed rate (the
sum of the index and margin) is
calculated as the margin (collected in
the survey) plus the current one-year
Treasury rate, which is estimated as the
average of the close-of-business, oneyear Treasury rates for Monday,
Tuesday, and Wednesday of the survey
week. If data are available for fewer than
three days, only yields for the available
days are used for the average. Survey
data on the initial interest rate and
points, and the estimated fully indexed
rate, are used to compute a composite
APR for the one- and five-year variablerate mortgage products. See Regulation
Z official staff commentary, 12 CFR part
5 The ‘‘30-year’’ and ‘‘15-year’’ fixed-rate product
designations refer to those products’ terms to
maturity. The ‘‘one-year’’ and ‘‘five-year’’ variablerate product designations, on the other hand, refer
to those products’ initial, fixed-rate periods. All
variable-rate products discussed in this
Methodology have 30-year terms to maturity.

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Federal Register / Vol. 73, No. 207 / Friday, October 24, 2008 / Rules and Regulations
226, Supp. I, comment 17(c)(1)–10
(creditors to compute a composite APR
where initial rate on variable-rate
transaction not determined by reference
to index and margin).
In computing the APR for all four
PMMS products, a fully amortizing loan
is assumed, with monthly
compounding. A two-percentage-point
cap on the annual interest rate
adjustments is assumed for the variablerate products. For all four products, the
APR is calculated using the actuarial
method, pursuant to appendix J to
Regulation Z. A payment schedule is
used that assumes equal monthly
payments (even if this entails fractions
of cents), assumes each payment due
date to be the 1st of the month
regardless of the calendar day on which
it falls, treats all months as having 30
days, and ignores the occurrence of leap
years. See 12 CFR 226.17(c)(3). The APR
calculation also assumes no irregular
first period or per diem interest
collected.
The PMMS data do not cover fixedrate loans with terms to maturity of
other than 15 or 30 years and do not
cover variable-rate mortgages with
initial, fixed-rate periods of other than
one or five years. The Board uses
interpolation techniques to estimate
APRs for ten additional products
(two-, three-, seven-, and ten-year
variable-rate loans and one-, two-,
three-, five-, seven-, and ten-year fixedrate loans) to use along with the four
products directly surveyed in the
PMMS.
The Treasury Department makes
available yields on its securities with
terms to maturity of, among others, one,
two, three, five, seven, and ten years
(see http://www.treas.gov/offices/
domestic-finance/debt-management/
interest-rate/yield.shtml). The Board
uses these data to estimate APRs for
two-, three-, seven-, and ten-year
variable-rate mortgages. These
additional variable-rate products are
assumed to have the same terms and
features as the one- and five-year
variable-rate products surveyed in the
PMMS other than the length of the
initial, fixed-rate period.
The margin and points for the twoand three-year variable-rate products are
estimated as weighted averages of the
margins and points of the one-year and
five-year variable-rate products reported
in the PMMS. For the two-year variablerate loan the weights are 3⁄4 for the oneyear variable-rate and 1⁄4 for the fiveyear variable-rate. For the three-year
variable-rate product, the weights are 1⁄2
each for the one-year and the five-year
variable rate. For the seven- and tenyear variable-rate products, because

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they fall outside of the range between
the one- and five-year PMMS variablerate products, the margin and points of
the five-year variable-rate product
reported in the PMMS are used instead
of calculating a weighted average.
The initial interest rate for each of the
interpolated variable-rate products is
estimated by a two-step process. First,
‘‘Treasury spreads’’ are computed for
the two- and three-year variable-rate
loans as the weighted averages of the
spreads between the initial interest rates
on the one- and five-year PMMS
variable-rate products and the one- and
five-year Treasury yields, respectively.
The weights used are the same as those
used in the calculation of margins and
points. For seven- and ten-year variablerate loans, because they fall outside of
the range between the one- and five-year
PMMS variable-rate products, the
spread between the initial interest rate
on the five-year PMMS variable-rate
product and the five-year Treasury yield
is used as the Treasury spread instead
of calculating a weighted average. The
second step is to add the appropriate
Treasury spread to the Treasury yield
for the appropriate initial, fixed-rate
period. All Treasury yields used in this
two-step process are the MondayWednesday close-of-business averages,
as described above. Thus, for example,
for the two-year variable-rate product
the estimated, two-year Treasury spread
is added to the average two-year
Treasury rate, and for the ten-year
variable-rate product the five-year
Treasury spread is added to the average
ten-year Treasury rate.
Thus estimated, the initial rates,
margins, and points are used to
calculate a fully-indexed rate and
ultimately an APR for the two-, three-,
seven- and ten-year variable-rate
products. To estimate APRs for one-,
two-, three-, five-, seven-, and ten-year
fixed-rate loans, respectively, the Board
uses the initial interest rates and points,
but not the fully-indexed rates, of the
one-, two-, three-, five-, seven-, and tenyear variable-rate loan products
calculated above.
For any loan for which an APR of the
same term to maturity or initial, fixedrate period, as applicable, (collectively,
for purposes of this paragraph, ‘‘term’’)
is not included among the 14 products
derived or estimated from the PMMS
data by the calculations above, the
comparable transaction is identified by
the following assignment rules: For a
loan with a shorter term than the
shortest applicable term for which an
APR is derived or estimated above, the
APR of the shortest term is used. For a
loan with a longer term than the longest
applicable term for which an APR is

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63337

derived or estimated above, the APR of
the longest term is used. For all other
loans, the APR of the applicable term
closest to the loan’s term is used; if the
loan is exactly halfway between two
terms, the shorter of the two is used. For
example: For a loan with a term of eight
years, the applicable (fixed-rate or
variable-rate) seven-year APR is used;
with a term of six months, the
applicable one-year APR is used; with a
term of nine years, the applicable tenyear APR is used; with a term of 11
years, the applicable ten-year APR is
used; and with a term of four years, the
applicable three-year APR is used. For
a fixed-rate loan with a term of 16 years,
the 15-year fixed-rate APR is used; and
with a term of 35 years, the 30-year
fixed-rate APR is used.
The four APRs derived directly from
PMMS product data, the ten additional
APRs estimated from PMMS data in the
manner described above, and the APRs
determined by the foregoing assignment
rules are the average prime offer rates
for their respective comparable
transactions. The PMMS data needed for
the above calculations generally are
available on the Freddie Mac Web site
(http://www.freddiemac.com/dlink/
html/PMMS/display/
PMMSOutputYr.jsp) on Thursday of
each week. APRs representing average
prime offer rates for the 14 products
derived or estimated as above are posted
in tables on the FFIEC Web site the
following day. Those average prime
offer rates are effective beginning the
following Monday and until the next
posting takes effect.
Numerical Example
The week of May 19 through 25, 2008
is used to illustrate the average prime
offer rate calculation Methodology. On
Thursday May 15, Freddie Mac released
the following PMMS information
reflecting national mortgage rate
averages for the three day period May 12
through May 14 (each variable is
expressed in percentage points):
30-year fixed-rate:
Contract rate—6.01
Fees & Points—0.6
15-year fixed-rate:
Contract rate—5.60
Fees & Points—0.5
Five-year variable-rate:
Initial rate—5.57
Fees & Points—0.6
Margin—2.75
One-year variable-rate:
Initial rate—5.18
Fees & Points—0.7
Margin—2.75
The Freddie Mac survey contract rate
and points for the 30-year and 15-year

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Federal Register / Vol. 73, No. 207 / Friday, October 24, 2008 / Rules and Regulations

fixed-rate mortgages are used to
compute APRs for these two products:
30-year fixed-rate—6.07
15-year fixed-rate—5.68
As a preliminary step in calculating
APRs for the one-year and five-year
variable-rate products, average close-ofbusiness Treasury yields for the three
days in which the survey was
conducted are calculated (the three
yields summed before dividing by three
are the close-of-business yields reported
for May 12th, 13th, and 14th):
One-year Treasury—(2.01+2.08+2.11)/
3=2.07
Two-year Treasury—(2.30+2.57+2.53)/
3=2.43
Three-year Treasury—(2.54+2.70+2.78)/
3=2.67
Five-year Treasury—(3.00+3.17+3.22)/
3=3.13
Seven-year Treasury—(3.34+3.49+3.50)/
3=3.44
Ten-year Treasury—(3.78+3.90+3.92)/
3=3.87
The fully-indexed rate for the oneyear variable-rate mortgage is calculated
as the one-year Treasury yield plus the
margin: 2.07+2.75=4.82 Because both
variable-rate products in the PMMS data
use the same margin, the fully-indexed
rate for the five-year variable-rate
mortgage is the same number:
2.07+2.75=4.82 (since each adjusts to
the 1-year treasury).
The initial rate, points, and fullyindexed rate are used to compute APRs
for the one-year and five-year variablerate products:
One-year variable-rate—4.91
Five-year variable-rate—5.16
Data for the interpolated two-year and
three-year variable-rate mortgages are
calculated as weighted averages of the
figures for the one- and five-year
variable-rates, which are used in
conjunction with the yields on the twoand three-year Treasuries as follows:
Two-year variable-rate:
Initial rate—[3×(5.18–2.07)+1×(5.57–
3.13)]/4+2.43=5.37
Fees & Points—[3×.7+1×.6]/4=.7
Margin—[3×2.75+1×2.75]/4=2.75
Fully-indexed rate—2.07+2.75=4.82
Three-year variable-rate:
Initial rate—[2×(5.18–2.07)+2×(5.57–
3.13)]/4+2.67=5.45
Fees & Points—[2×.7+2×.6]/4=.7
Margin—[2×2.75+2×2.75]/4=2.75
Fully-indexed rate—2.07+2.75=4.82
The foregoing initial rates, points,
margins, and fully-indexed rates are
used to calculate APRs for the two- and
three-year variable-rate products:
Two-year variable-rate—4.97
Three-year variable-rate—5.03
Data for the seven-year and ten-year
variable-rate products are estimated

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using the survey data for the five-year
variable-rate product and yields on the
seven- and ten-year Treasuries:
Seven-year variable-rate:
Initial rate—(5.57–3.13)+3.44=5.88
Fees & Points—=.6
Margin—=2.75
Fully-indexed rate—2.07+2.75=4.82
Ten-year variable-rate:
Initial rate—(5.57–3.13)+3.87=6.31
Fees & Points—=.6
Margin—=2.75
Fully-indexed rate—2.07+2.75=4.82
The foregoing initial rates, points,
margins, and fully-indexed rates are
used to calculate APRs for the sevenand ten-year variable-rate products:
Seven-year variable-rate—5.40
Ten-year variable-rate—5.85
The initial rate and points of the
variable-rate mortgages calculated above
are used to estimate APRs for fixed-rate
products with terms to maturity of ten
years or less:
One-year fixed:
Initial rate—5.18
Fees & Points—.7
APR—6.49
Two-year fixed:
Initial rate—5.37
Fees & Points—.7
APR—6.06
Three-year fixed:
Initial rate—5.45
Fees & Points—.7
APR—5.92
Five-year fixed:
Initial rate—5.57
Fees & Points—.6
APR—5.82
Seven-year fixed:
Initial rate—5.88
Fees & Points—.6
APR—6.06
Ten-year fixed:
Initial rate—6.31
Fees & Points—.6
APR—6.44
[FR Doc. E8–25320 Filed 10–23–08; 8:45 am]
BILLING CODE 6210–01–P

FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 303
Financial Education Programs That
Include the Provision of Bank Products
and Services; Limited Opportunity To
Resubmit Comment
Federal Deposit Insurance
Corporation (FDIC).
ACTION: Notice of limited opportunity to
resubmit comment.
AGENCY:

SUMMARY: The FDIC invites the
commenter who filed a public comment

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at www.regulations.gov on July 9, 2008,
relating to the FDIC’s Interim Final Rule
and Request for Comment involving
‘‘Financial Education Programs That
Include the Provision of Bank Products
and Services’’ to resubmit to the FDIC
his or her comment relating to this
action. We are taking this action because
due to a technical software error, a
public comment submitted via
www.regulations.gov was not
transmitted to the FDIC. Therefore, the
FDIC will provide this commenter with
a limited opportunity to resubmit his or
her comment to the FDIC on or before
November 24, 2008.
DATES: The commenter whose comment
was not transmitted to the FDIC in
accordance with the situation described
above may resubmit his or her comment
on or before November 24, 2008.
ADDRESSES: The affected commenter
may submit his or her comment by any
of the following methods:
• Federal eRulemaking Portal: http://
www.regulations.gov. Follow the
instructions for submitting comments.
• Agency Web Site: http://
www.FDIC.gov/regulations/laws/federal.
Follow instructions for submitting
comments on the FDIC’s Web Site.
• E-mail: Comments@FDIC.gov.
Include ‘‘Resubmitted Comments’’ in
the subject line of the message.
• Mail: Robert E. Feldman, Executive
Secretary, Attention: Comments, Federal
Deposit Insurance Corporation, 550 17th
Street, NW., Washington, DC 20429
• Hand Delivery/Courier: Guard
Station at the rear of the 550 17th Street
Building (located on F Street) on
business days between 7 a.m. and 5 p.m.
(EST).
• Public Inspection: All comments
received will be posted without change
to http://www.fdic.gov/regulations/laws/
federal/ including any personal
information provided. Paper copies of
public comments may be ordered from
the Public Information Center by
telephone at (877) 275–3342 or (703)
562–2200.
FOR FURTHER INFORMATION CONTACT: A.
Ann Johnson, Counsel, Legal Division,
(202) 898–3573 or aajohnson@fdic.gov.
SUPPLEMENTARY INFORMATION: In January
2003, the interagency eRulemaking
Program launched www.regulations.gov
to provide citizens with an online portal
to learn about proposed regulations and
to submit their comments on the
rulemaking process. For the first time,
American citizens could access and
comment on all proposed Federal
regulations from a single Web site.
A software problem at
www.regulations.gov resulted in the
non-transmittal of public comments to

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