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Federal Reserve bank
of

Dallas

ROBERT D. McTEER, JR.

DALLAS, TEXAS
75265-5906

P R E S ID E N T
AN D C H IE F E X E C U T I V E O F F I C E R

April 17, 1998

Notice 98-32

TO:

The Chief Executive Officer of each
financial institution and others concerned
in the Eleventh Federal Reserve District

SUBJECT
Reviews of Regulation B (Equal Credit Opportunity) and
Regulation C (Home Mortgage Disclosure)
DETAILS
The Board of Governors of the Federal Reserve System has requested public
comment on reviews of two of its consumer protection regulations: Regulation B (Equal Credit
Opportunity) and Regulation C (Home Mortgage Disclosure). The review of Regulation B will
determine whether it should be revised to address technological and other developments, identify
areas in the regulation that could be revised to better balance consumer protections and industry
burden, and delete obsolete provisions. The purpose of the Regulation C review is to identify
ways in which the Board could revise it to clarify and simplify the regulatory language, respond
to technological and other developments, reduce undue regulatory burden on the industry, delete
obsolete provisions, and improve the quality and usefulness of the data.
The Board must receive comments about the reviews of Regulation B (refer to
Docket No. R-1008) and/or Regulation C (refer to Docket No. R-1001) by May 29, 1998. Please
address comments to William W. Wiles, Secretary, Board of Governors of the Federal Reserve
System, 20th Street and Constitution Avenue, N.W., Washington, DC 20551.
ATTACHMENTS
Copies of the Board’s notices as they appear on pages 12326-29 (Regulation B) and
pages 12329-31 (Regulation C), Vol. 63, No. 48 of the Federal Register dated March 12, 1998,
are attached.

For additional copies, bankers and others are encouraged to use one of the following toll-free numbers in contacting the Federal
Reserve Bank of Dallas: Dallas Office (800) 333-4460; El Paso Branch Intrastate (800) 592-1631, Interstate (800) 351-1012;
Houston Branch Intrastate (800) 392-4162, Interstate (800) 221-0363; San Antonio Branch Intrastate (800) 292-5810.

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)

MORE INFORMATION
For more information, please contact Eugene Coy at (214) 922-6201. For additional
copies of this Bank’s notice, please contact the Public Affairs Department at (214) 922-5254.
Sincerely yours,

Thursday
March 12, 1998

Part V

Federal Reserve
System
12 CFR Parts 202 and 203
Equal Credit Opportunity and Home
Mortgage Disclosure; Proposed Rules

12326

Federal Register/Vol. 63, No. 4 8 /Thursday, March 12, 1998/Proposed Rules

FEDERAL RESERVE SYSTEM
12 CFR Part 202
[Regulation B; Docket No. R -1008]

Equal Credit Opportunity
B oard of G overnors of the
F ederal Reserve System .
ACTION: A dv ance n o tice of p ro p o sed
rulem aking.
AGENCY:

SUMMARY: P u rsu a n t to its Regulatory
P lan n in g a n d R eview Program , the
F ederal Reserve B oard (the “ B oard”) is
u n d e rta k in g a rev iew of R egulation B,
w h ic h carries out th e p ro vision s of the
Equal C redit O p p o rtu n ity A ct (the
“ ECOA”). T he ECOA m akes it u n la w fu l
for credito rs to disc rim in a te again st an
a p p lic a n t in an y aspect of a credit
tran sa ctio n on th e basis of race, color,
religion, n atio n al origin, sex, m arital
status, age, a n d o th er specified bases.
T he rev iew w ill d eterm in e w h e th e r
R egulation B sh o u ld b e rev ise d to
ad d ress tech nolog ical an d o th er
develo pm ents; id e n tify areas in the
reg u la tio n th a t c o u ld be rev ise d to better
b alan c e co n su m er p rotection s a n d
in d u stry b u rd en ; a n d delete obsolete
provisions. To gather inform ation
n ecessary for th is review a n d to en su re
th e p artic ip a tio n of in tereste d parties,
th e B oard is soliciting co m m en t on
several specific issues, w h ile also
soliciting co m m en t generally on
p o te n tia l revision s to th e regulation.
DATES: C om m ents m u st be receiv ed by
M ay 29, 1998.
ADDRESSES: C om m ents sh o u ld refer to
D ocket No. R—1008, a n d m ay be m ailed
to W illiam W. W iles, Secretary, B oard of
G overnors of th e F ederal Reserve
System , 20th Street a n d C o n stitu tio n
A venue, N.W., W ashington, DC 20551.
C om m ents also m ay be d eliv ere d to
Room B -2222 of th e Eccles B uilding
b e tw e en 8:45 a.m. an d 5:15 p.m .
w eekdays, or to th e gu ard sta tio n in the
Eccles B uilding c o u rty a rd on 20th
Street, N.W. (betw een C o n stitu tio n
A v en u e a n d C Street) an y tim e.
C om m ents m ay be in sp e c te d in Room
M P -5 0 0 of th e M artin B uilding b etw een
9:00 a.m. a n d 5:00 p.m . w eekdays,
except as p ro v id e d in 12 CFR section
261.12 of th e B oard ’s R ules Regarding
A vailab ility of Inform ation.
FOR FURTHER INFORMATION CONTACT:

N atalie E. T aylor or S h eilah G oodm an,
Staff A ttorneys, or Jane Jensen Gell,
S enior A ttorney, D ivision of C o nsum er
and C om m unity Affairs, B oard of
G overnors of th e F ederal Reserve
System , W ashington, DC 20551, at (202)
4 5 2 -2 4 1 2 or 452 -36 67; for th e h earin g
im p aired only, con tact D iane Jenkins,

T eleco m m u n icatio n s D evice for th e D eaf
(TDD), at (202) 452-3544.
SUPPLEMENTARY INFORMATION:

I. Background on ECOA and Regulation
B
T he E qual C redit O p p o rtu n ity Act, 15
U.S.C. 1691, en acted in 1974, m akes it
u n la w fu l for a cred itor to disc rim in a te
against a n ap p lic a n t in an y aspect of a
cred it tran sa ctio n on th e basis of sex or
m arital status. In 1975, p u rs u a n t to
sectio n 703 of th e ECOA, the Board
issu e d R egulation B to im p le m e n t the
ECOA. T h e Congress a m e n d e d the
ECOA in 1976 to p ro h ib it
d isc rim in a tio n on th e a d d itio n a l bases
of race, color, religion, n atio n al origin,
age (pro vided th e a p p lic a n t has th e
capacity to contract), rec eip t of p u b lic
assistan ce benefits, an d good faith
exercise of a righ t u n d e r th e C onsum er
C redit P rotection Act. T h e B oard issu ed
an am en d e d R egulation B in 1976 to
reflect th e am en d m en ts.
U n d er the B oard’s R egulatory
P lan n in g an d Review Program , w h ich
req u ires p erio d ic rev iew of th e B oard’s
regulations, th e B oard rev iew ed
R egulation B a n d revised it in 1985 (50
FR 48018, N ovem ber 20, 1985). In 1989,
th e B oard m o d ifie d R egulation B to
im p le m e n t am en d m e n ts to th e ECOA
c o n ta in e d in th e W o m en ’s B usiness
O w n e rsh ip A ct of 1988. T hose
am en d m e n ts re q u ire d th a t creditors give
w ritte n no tice to b u sin e ss a p p lica n ts of
th e righ t to a w ritte n statem en t of
reasons for a credit denial, a n d im po sed
a reco rd re te n tio n req u irem en t for
reco rds relating to b u sin e ss cred it
ap p lica tio n s (54 FR 50482, D ecem ber 7,
1989). The B oard further m o d ifie d th e
reg u latio n in 1993 to im p lem en t
a m en d m e n ts to th e ECOA c o n ta in e d in
th e F ederal D eposit Insuran ce
C orp oration Im p ro v em en t A ct of 1991.
T he am en d m e n ts p ro v id ed ap p lica n ts
w ith a right to obtain a copy of the
ap p ra isal re p o rt u se d in a n a p p lica tio n
se cu red b y re sid e n tia l real p ro p erty , an d
ex p a n d e d th e enfo rcem en t
resp o n sib ilities of th e federal financial
su p erv iso ry agencies w h e n inform ation
ab o u t p o ssib le v io lation s of th e ECOA
becom es k n o w n (58 FR 65657,
D ecem ber 16, 1993). The B oard also
m o d ified th e regu lation in 1997 to
im p le m e n t am en d m e n ts to th e ECOA
c o n ta in e d in th e E conom ic G row th an d
Regulatory P aperw ork R ed u ctio n A ct of
1996. T he am en d m e n ts created a
privilege for in fo rm atio n d ev elo p ed by
creditors as a re su lt of “ self-tests” they
c o n d u c t (62 FR 66412, D ecem ber 18,
1997).

II. R eview o f Regulation B
T he B oard w ill rev iew R egulation B
w ith th ree goals in m in d : (1) To
d eterm in e w h e th e r regulatory
am en d m e n ts are n e e d e d to add ress
tech nological a n d other d evelopm ents;
(2) to id e n tify areas in th e regulation
th a t c o u ld be rev ise d to b etter balance
co n su m er p rotection s a n d in d u stry
b u rd en ; a n d (3) to d elete obsolete
provisions.
T his A d v an ce N otice of P rop osed
R ulem aking is in te n d e d to gather
in fo rm atio n a b o u t b ro ad p o licy issues
th a t c o u ld be ad d re ssed b y revisio ns to
th e regulation. T he B oard is soliciting
co m m en t on several specific issues, b u t
also req uests suggestions generally on
o th e r issues th a t com m enters believe
sh o u ld be ad d re ssed or clarified. T he
B oard w ill p u b lish a p ro p o se d ru le after
evalu atin g th e com m ents a n d further
analysis.
C oncurrently, th e B oard is
u n d erta k in g a rev iew of R egulation C
(Home M ortgage D isclosure); an
adv an ce n otice of p ro p o se d rulem ak in g
is p u b lish e d elsew here in to d a y ’s
Federal Register.
C om m ent is specifically solicited on
the follow ing issues:
1. P reapplication M arketing P ractices
T he ECOA an d R egulation B p ro h ib it
d isc rim in a tio n by a cre d ito r against an
a p p lica n t— a p erso n w h o h as req u e sted
or receiv ed credit—on a p ro h ib ite d basis
regarding an y asp ect of a cred it
tran saction. Credit tran sa ctio n is
defin ed in th e regu lation as every aspect
of an a p p lic a n t’s dealings w ith a
cred itor b eg in nin g w ith inform ation
req u irem en ts. T hus, th e coverage of th e
ECOA is generally lim ite d to a p erso n
w h o has, at a m in im u m , soug ht cred it
inform ation. H ow ever, th e Board
recognizes th a t a p erso n c o u ld be
d isco uraged from seeking cre d it or
cred it inform ation. A ccordingly, the
regu lation exp ressly p ro h ib its a creditor
from engaging in any practice th at
w o u ld discourage a reaso nable p erso n
(on a p ro h ib ite d basis) from ap p ly in g for
credit. T he official staff com m entary
provides th a t a creditor is p ro h ib ite d
from u sin g w ords, sym bols, or other
form s o f c o m m u n ic atio n in adv ertisin g
th a t express, im ply, or suggest a
discrim in ato ry preference or a policy of
exclusion, althou gh a cre d ito r is
p e rm itte d to engage in affirm ative
advertising to so licit or encourage
trad itio n a lly d isad v an tag ed groups to
a p p ly for credit.
A side from th e p ro h ib itio n against
discou ragem en t, th e ECOA has n o t b ee n
in te rp re te d to a p p ly to a cre d ito r’s
p re a p p lic a tio n m arketing p ractices—

Federal Register/Vol. 63, No. 4 8 /Thursday, March 12, 1998/Proposed Rules
su c h as th e selectio n of p ersons
so licited for a cre d it c a rd .1 C reditors use
a n u m b e r of te ch n iq u e s to decid e to
w h o m solicitations w ill b e sent. For
in stance, credito rs w ill often specify
criteria to cre d it b u reau s, w h ic h th e n
u tiliz e cred it rep o rts to co m p ile m ailin g
lists th a t id e n tify p o te n tia l ap p lica n ts
w h o m e et th o se criteria. T his m arketing
te c h n iq u e — inv olvin g p resc re en e d
so licitatio n s—is u su a lly carried o u t
th ro u g h m a ile d so licitation s as w ell as
by telem arketing. B ecause in d iv id u a ls
selected th ro u g h th e prescreenin g
process have n o t req u e sted credit, they
are n o t d ee m e d to be a p p lica n ts for
p u rp o ses of R egulation B w h e n th e
prescreen in g occurs. It is on ly after the
in d iv id u a ls re sp o n d to a c re d ito r’s
in v itatio n th a t th e reg u latio n applies.
D uring th e 1985 rev iew of R egulation
B, the B oard c o n sid ered w h e th e r
p resc re en e d so licitation s sh o u ld be
covered b y th e regulation. It w as
generally reco gnized th a t p resc re en e d
solicitations c o u ld re su lt in a greater
availability o f cre d it for consum ers.
A lso, th e re w as no evidence at th a t tim e
th a t creditors w ere im p ro p e rly m aking
use of p ro h ib ite d ch aracteristics.
T herefore, th e B oard d ee m e d it
u n n ec essary to m odify th e regulation.
T he B oard recognizes th a t
prescreen in g o n a p ro h ib ite d basis m ay
facilitate th e id e n tific atio n of p o ten tial
custom ers a n d p ro v id e greater access to
cre d it for som e consum ers. For exam ple,
som e creditors h av e u se d age to target
“ o ld e r” in d iv id u a ls for cred it
solicitations a n d related fin ancial
services. H ow ever, th e B oard a n d the
o th er b anking agencies h av e also found
instances in w h ic h creditors, p rim arily
in th e cre d it card in d u stry , h av e u se d
age to ex clude y o u th a n d eld erly
p erso n s from receiving solicitatio ns for
p rea p p ro v e d credit. G iven th e p ote n tia l
for u sin g p ro h ib ite d bases in
p rescreen in g to im p ro p e rly exclud e
certain categories of in d iv id u als, the
B oard seeks to gain a better
u n d e rsta n d in g of c u rren t p ractices, an d
solicits co m m en t on h o w a n d to w hat
extent creditors are u sing an y p ro h ib ite d
bases in p re a p p lic a tio n m arketing.
2. In q u iry v. A p p lic a tio n
R egulation B allow s creditors to
estab lish th e ir o w n ap p lica tio n
pro ced u res, in c lu d in g w h a t a n d h o w
m u c h in fo rm atio n to p rov id e to
consum ers w h o req u e st in form ation
1The Fair Housing Act (FHA), w hich bars
discrim ination in housing-related transactions,
differs in its treatm ent of prescreened solicitations.
The FHA has been interpreted to prohibit persons
from prescreening on a prohibited basis, whereas
the ECOA perm its any prescreening since only
“applicants” receive the protections of the act.

before ap p ly in g for credit. C reditors a n d
others h av e ex pressed co n cern th a t th e
cu rren t d istin c tio n u n d e r R egulation B
b etw e en an in q u iry an d an a p p lica tio n
is difficult to apply. T he ru le
d istin g u ish es b etw een an in q u iry a n d an
a p p lic a tio n b ased on w h a t th e credito r
co m m u nicates to th e con sum er. W h en a
co n su m er req u ests cre d it inform ation,
th is in q u iry m ay entail a d isc u ssio n of
th e c o n su m e r’s cre d it characteristics.
Creditors have suggested th a t u n d e r the
reg u latio n it is u n clea r w h e n a credito r
is sim p ly p ro v id in g in fo rm atio n rath er
th a n co m m u n icatin g a cre d it d ecisio n —
for exam ple, w h e n th e cre d ito r explains
its u n d e rw ritin g sta n d ard s in the
context of th e a p p lic a n t’s credit
characteristics. A cred itor is req u ired to
no tify a co n su m er of action taken
(including, as ap p ro p riate, a n o tice of
adverse action) if in resp o n se to a
co n su m e r’s requ est for cred it
in fo rm atio n th e cre d ito r com m unicates
a d ecisio n n o t to ex ten d credit.
C reditors say th a t it is b u rd e n so m e to
p ro v id e a n adv erse action n o tice to
every co n su m er w h o is p ro v id e d w ith
negative in fo rm atio n in th e inform ationgathering process. A lso, th e y suggest
th a t som e co nsum ers m ig h t be
co n cern ed ab out receiving adverse
action notices w h e n th e y are m erely in
th e process of gathering in fo rm atio n to
sh o p for a loan.
M ost q uestions th a t th e Board
receives regarding th e d istin ctio n
b etw e en a n in q u iry a n d an ap p lica tio n
arise in m ortgage processes. W ith the
in creased u se of p requ alificatio ns,
preap p ro v als, a n d in teractiv e loancalcu latio n tools p ro v id ed over the
In ternet, creditors have h a d difficulty
determ in in g w h e th e r a n o tice is
requ ired . Som etim es, w h a t begins w ith
a creditor pro v id in g in fo rm atio n tu rn s
into an ev alu atio n of cred itw orthiness.
W ith p req u alificatio n s or
preap p ro v als, co n su m ers begin th e ir
lo a n -sh o p p in g by ap p ro a ch in g a len d er
to d eterm in e th e p rice of a h o m e they
co u ld afford. In th is process, creditors
often o btain a n d rev iew th e c o n su m er’s
cred it rep o rt for a m ore accurate p ictu re
of th e c o n su m e r’s deb t obligations an d
cred it history. In m o st cases, the
co n su m er has n o t id e n tifie d a specific
property, n o r is th e co nsum er
n ecessarily rea d y to seek a lo an from a
p a rticu la r creditor.
Som e creditors p ro v id e loancalcu latio n tools o n th e ir h o m e page on
th e Internet; a n d co n su m ers are able to
calcu late th e p rice of a h o m e th e y co u ld
afford b y entering info rm atio n about
inco m e an d other data. Som e program s
w ill calcu late th e m a x im u m am o u n t for
w h ic h th e co n su m er co u ld qualify.
O ther program s encourage th e consum er

12327

to call th e financial in stitu tio n w h e n
in fo rm atio n h as b een en tered a n d it
ap p ears from th e calcu latio n th a t th e
co n su m er w o u ld n o t qualify for a
m ortgage d u e to, for exam ple, low
inco m e an d high debt. Som e cre d ito rs’
h o m e pages enable th e co n su m er to take
th e n ex t step of ap p ly in g to th e financial
in stitu tio n for a h o m e loan.
In determ in in g w h e th e r it is possible
to p ro v id e a d d itio n a l g u id an ce to clarify
th e d istin c tio n b etw een an in q u iry an d
ap p lica tio n , th e B oard believes it is
im p o rta n t to encourage creditors to
p ro v id e inform ation, counseling, a n d
assistan ce to co nsum ers seeking credit
inform ation. T he sharing of info rm ation
th ro u g h co u n seling program s, su c h as
ho m e -o w n e rsh ip counseling, is a p rim e
exam ple. In h o m e-o w n ersh ip
counseling, a th ird -p a rty organization
a n d financial in stitu tio n m ay p artn e r to
co u n sel p o te n tia l h o m e b uyers—
ty p ically first-tim e h o m e buy ers and,
often b u t n o t necessarily, low -incom e
ho m e b u y ers—on h o w to ob tain a
mortgage. A credit re p o rt is often
o b tain ed to determ in e th e c o n su m e r’s
financial p o sitio n an d to assist in an
ongoing coun seling process th a t co u ld
sp a n a y ear or longer. In som e program s,
th e th ird -p arty organ izatio n m ay n o t
on ly p ro v id e cou nseling services, b u t
also m ay p resc re en a p p lica n ts for the
lender. T he B oard solicits com m ent on
w h e th e r th e m ore form al th e process
becom es in pro v id in g inform ation,
counseling, a n d assisting po te n tia l
ap p lica n ts— for exam ple, verifying
cred it inform ation, or prescreen ing
ap p lica n ts— th e m ore th e process
sh o u ld be trea te d as a n ap plicatio n. The
Board also solicits co m m en t on th e
follow ing:
(1) S h o u ld th e B oard devise a
different test for determ in in g w h e n an
inform al d isc u ssio n becom es an
ap plicatio n? If yes, w h a t sh o u ld be th e
test?
(2) S h o u ld th e B oard seek to establish
a “b rig h t-lin e” test? For exam ple,
sh o u ld a n in q u iry becom e an
a p p lica tio n w h e n a cred itor evaluates or
verifies credit in fo rm atio n throu gh
th ird -p arty info rm ation (such as by
obtaining a cre d it re p o rt or credit
score)?
(3) W hen, if at all, w o u ld th e use of
an interactiv e lo an -calcu latio n tool
co n stitu te an app lication ?
(4) Is it possib le or desirable to ap p ly
th e cu rren t n o tification ru les to hom eo w n ersh ip co u nselin g program s? If not,
h o w sh o u ld th e ru les be d esign ed to
d istin g u ish ed u catio n -o rien ted
co u nseling from adv ice offered b y a
len der, for exam ple, to a consum er
requ estin g a p req u alificatio n decision?

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Federal Register/Vol. 63, No. 48/Thursday, March 12, 1998/Proposed Rules

(5) A re th e re som e h o m e-o w n ersh ip
co unseling program s th a t h av e elem ents
of b o th co u nseling an d ap p lica tio n s
su c h th a t they sh o u ld be d istin g u ish e d
from ed u c atio n -o rie n te d counseling?
(6) Does th e issu e of d istin g u ish in g an
in q u iry from a n ap p lic a tio n also arise in
nonm ortgage processes? If so, w h a t are
som e of th e d istin g u ish in g
characteristics of su c h processes?
W o u ld a test d ev e lo p e d for mortgage
processes be effective for nonm ortgage
processes?
3. V o lu n ta ry Data C ollection
R egulation B generally pro h ib its
creditors from in q u irin g abo ut an
a p p lic a n t’s sex, m arital status, race,
color, religion, an d n atio n al origin. T his
p ro v isio n w as in c lu d e d in th e
reg u latio n in th e b elief th a t if creditors
d id n o t h av e th is inform ation , they
c o u ld n o t u se it to disc rim in a te against
ap p lican ts. A t th e sam e tim e, excep tio ns
to th is p ro h ib itio n w ere also in c lu d e d in
R egulation B. T he regu lation requires
creditors to collect “m o nito rin g
in fo rm atio n ” (age, sex, m arital status,
an d race or n atio n al origin) for mortgage
lo an ap p lican ts. T his req u irem en t w as
a d d e d b ecau se of th e specific co n cern
th a t th e d ata w as n e e d e d to h e lp detect
m ortgage le n d in g d iscrim in atio n .
T he reg u latio n also allow s cred itors to
collect d ata if re q u ire d b y an o th er
regulation, order, or agreem ent of a
court or enforcem ent agency to m o n ito r
or enforce co m p lia n ce w ith th e ECOA,
R egulation B, or an y o th er federal or
state statute or regulation. T his
ex cep tio n w as in c lu d e d in th e
reg u latio n so th a t le n d ers w o u ld n o t
hav e to choose b e tw e en com peting
regu lation s or statutes. For exam ple,
creditors can co llect d ata p u rs u a n t to
th e H om e M ortgage D isclosure A ct
w ith o u t co ncern s abo ut violating
R egulation B.
In A p ril 1995, th e B oard p u b lish e d for
co m m en t a p ro p o sed a m e n d m e n t to
R egulation B th a t w o u ld h av e allow ed,
b u t n o t req u ired , cred itors to collect
in fo rm atio n ab ou t a n a p p lic a n t’s sex,
m arital status, race, color, a n d n atio n al
origin for nonm ortgage cre d it pro ducts.
T he reg u latio n w o u ld h av e c o n tin u e d to
b ar cred itors from co n sid erin g this
in fo rm atio n in a cre d it decision. In
D ecem ber 1996, th e B oard w ith d re w the
p ro p o se d am en d m e n t, no tin g th a t this
issu e m ig h t be m ore a p p ro p riate for the
Congress to consider.
S ince issu an ce of th e final action, the
B oard has rec eiv e d req uests from th e
other federal fin an cial regulatory
agencies, creditors, a n d co m m u n ity
groups asking for fu rth e r co n sid eratio n
of th is m atter. T he B oard believes th at
in light of th e overall rev iew of

R egulation B it is ap p ro p riate to
evalu ate w h e th e r th e p ro h ib itio n on
data co llectio n sh o u ld be changed. The
B oard solicits co m m en t o n w h e th e r to
co n sid er a m en d in g R egulation B to
rem ov e th e p ro h ib itio n b arring creditors
from collecting certain info rm atio n
abou t a p p lica n ts for nonm ortgage credit
produ cts.
4. D efinition o f Creditor
T he ECOA an d R egulation B p ro h ib it
a credito r from disc rim in a tin g against
a n a p p lic a n t o n a p ro h ib ite d basis
regarding an y asp ect of a credit
tran saction . T he ECOA’s d efin itio n of
cred itor in c lu d e s any one w h o “regularly
e x te n d s” or “regularly arranges for” th e
ex ten sio n of credit. R egulation B
com bines th e co ncep ts a n d defines a
cred itor as a p erso n w ho, in the
ord in ary cou rse of b usin ess, regularly
p articip a te s in th e d ecisio n of w h e th e r
or n o t to ex ten d credit, in c lu d in g
p erso n s su c h as a p o te n tia l p u rc h a se r of
an obligation w h o in fluences th e
d ecisio n of w h e th e r or n o t to exten d
credit. For p u rp o ses of §§ 202.4 an d
202.5(a) (the p ro h ib itio n s against
d isc rim in a tio n an d discouragem ent),
brokers or others w h o regularly refer
ap p lica n ts to creditors (or w h o select or
offer to select creditors to w h o m
a p p lica tio n s ca n be m ade) are also
d ee m e d creditors.
As creditors ex p a n d th e ir d istrib u tio n
system s for le n d in g services a n d
p ro d u cts, th e y have in creasin gly asked
for g u id an ce abou t h o w th e d efin itio n of
“ cre d ito r” ap p lies w h e n a le n d e r acts in
co n ju n ctio n w ith oth er p arties a n d
d isc rim in a tio n occurs. T he q uestion
co u ld arise in th e co ntex t of tran sactions
in w h ic h a m ortgage broker
d iscrim in ates in originating loans th a t
are fu n d ed by or closed in th e nam e of
th e lender, for exam ple, an d also cou ld
arise in o th er types of lend in g, su ch as
auto m obile financing.
R egulation B pro v id es th a t a p erso n
(w ho m ay o th erw ise be a creditor) is n o t
a credito r regarding a vio latio n of th e
ECOA or th e reg u latio n co m m itted by
a n o th er credito r un le ss th e p erso n kn ew
or h a d reason ab le n otice of th e act,
practice, or p o licy th a t c o n stitu ted the
v iolation before becom ing in v olv ed in
th e cre d it transaction. T he B oard solicits
co m m en t o n w h e th e r it is desirable or
feasible to p ro v id e fu rth er g u id an ce in
th is area, su c h as th e circu m stances
u n d e r w h ic h a credito r is d eem ed to
have k now ledge of th e acts of other
p arties w h e n th e credito r has
p articip a te d in th e decision to extend
cre d it or set th e cre d it term s.
C om m ent is so licited o n th e
follow ing:

(1) Is it feasible for th e reg u latio n to
p ro v id e m ore specific g u id a n ce given
th a t m ost issu es w ill d e p e n d on th e
facts of a p a rtic u la r case?
(2) S h o u ld th e c u rren t test— w h ic h
relies on w h e th e r a p erso n k n e w or h a d
reasonab le n o tice of an act of
d isc rim in a tio n —be m odified ? If so, in
w h a t w ay?
(3) S h o u ld th e reg u latio n address
w h eth er, an d u n d e r w h at
circum stan ces, a creditor m u st m o n ito r
th e pricing or oth er cre d it term s w h e n
an o th er cred itor (for exam ple, a broker)
p articip ates in th e transactio ns?
5. D o cu m en ta tio n fo r B u sin e ss Credit
C urrently, R egulation B requires
w ritte n ap p lica tio n s if th e cre d it is
p rim a rily for th e p u rch a se or
refinancing of an a p p lic a n t’s p rin c ip a l
dw elling. T his ru le does n o t ap p ly to
b u sin e ss credit. M any requ ests for
bu sin ess cre d it are m a d e orally or
w ith o u t a form al w ritte n ap p licatio n . In
su ch cases, a cred itor u su a lly req uests
th a t th e a p p lic a n t su b m it a financial
statem en t for evaluation. As a general
rule, R egulation B p ro h ib its creditors
from req u irin g th e signature of a p erso n
other th a n th e ap p lic a n t on an y credit
in stru m e n t w h ere th e ap p lic a n t is
in d iv id u a lly creditw o rth y. W here the
financial statem en t offered to su p p o rt
th e b usin ess cre d it lists join tly h eld
p ro p erty an d is signed by b o th ow ners,
som e cred itors are treatin g th e financial
sta te m en t as a join t app lication.
A ccordingly, b o th o w ners often are
req u ired to sign the n o te—even w here
th e req u e st for cre d it is being m a d e by
o nly one of th e p ro p erty ow ners. The
B oard does n o t b elieve th a t a joint
p ro p erty o w n e r’s signature on a
financial sta te m en t to attest to the
accuracy or veracity of in fo rm atio n is
definitive ev idence of a joint
a p plicatio n.
W ith o u t d o c u m en ta tio n in th e files
other th a n th e fin an cial statem ent,
in stitu tio n s m ay be re q u ire d to sp e n d
c o nsid erable tim e an d expense
estab lish in g th a t an ap p lic a tio n w as for
joint, rath e r th a n in d iv id u al, credit. In
ad d itio n , agencies th a t exam ine for
com pliance w ith R egulation B m ay
im p ose costs an d other b u rd e n s on
in stitu tio n s w h e n it is difficu lt to
d eterm in e w h e th e r a joint p ro p erty
o w n er actu ally in te n d e d to be a joint
ap p lican t. A ccordingly, th e B oard has
b een asked to revise th e reg u latio n to
p ro v id e g u id an ce o n w h a t m e ch an ism s
m ay be u se d by creditors to establish a
jo in t p ro p erty o w n e r’s in te n t to ap p ly
for joint b u sin e ss credit.
T he B oard solicits co m m en t on the
follow ing:

Federal Register/Vol. 63, No. 4 8 / Thursday, March 12, 1998/Proposed Rules
(1) W hat are som e m ech an ism s
th ro u g h w h ic h ev id en ce of an
a p p lica tio n for jo in t cre d it can be
established?
(2) S h o u ld th e B oard pro v id e
gu id an ce to clarify th e m e ch a n ism s
th ro u g h w h ic h a n a p p lica tio n for joint
cre d it can be ev idenced? If not, h o w can
creditors en su re th a t th e ir p ractices do
n o t violate th e regulation?
6. B u sin e ss Credit E x e m p tio n s
T he ECOA au th o rizes th e B oard to
ex em p t a class of tran sactio n s, or a
p a rtic u la r ty p e o f tran sa ctio n w ith in a
class, if th e B oard d eterm in es th a t the
ap p lic a tio n of all or part of the
reg u latio n to su c h tran sa ctio n s w o u ld
n o t co n trib u te su b stan tially to
effectuating th e p u rp o ses of th e
regulation. P u rsu a n t to S ection 703 of
th e ECOA, th e B oard h as exercised its
a u th o rity to ex em p t b u sin e ss c re d it from
certain n o tific atio n an d rec o rd rete n tio n
req u irem en ts for co n su m er cre d it if the
b u sin e ss h a d gross rev en u es in excess of
$1 m illio n in its p reced in g fiscal year,
or if the busin ess req u e sted an extensio n
of trad e credit, cred it in c id e n t to a
factoring agreem ent, or o th e r sim ilar
ty p es of b u sin e ss credit.
A m en d m en ts to th e ECOA co n tain e d
in th e W o m en ’s B usiness O w n ersh ip
A ct of 1988 req u ire th e B oard to review
exem p tio n s after five years to d eterm in e
w h e th e r a n ad d itio n a l ex ten sio n is
appro priate. W h ile th e exem p tio n s for
certain b u sin e ss credit do n o t affect th e
b asic p ro h ib itio n against d isc rim in a tio n
in cre d it tran sactio n s, th e exem ption s
do red u c e b u rd e n for credito rs by
m odifying th e n otice req u irem en ts of
th e reg u latio n u n d e r § 202.9(a)(3) an d
th e reco rd re te n tio n ru les u n d e r
§ 202.12(b)(5). T h e B oard solicits
co m m en t on w h e th e r th e se exem p tions
are still appro priate.
7. O ther Issues
T he B oard solicits com m ents on an y
o th e r b ro ad p o licy issues th a t sh o u ld be
ad d re ssed in th e regulation.
By order of the Board of Governors of the
Federal Reserve System, M arch 6, 1998.
William W. Wiles,
Secretary o f the Board.
[FR Doc. 98-6325 Filed 3-11-98; 8:45 am]
BILLING CODE 6210-01-P

FEDERAL RESERVE SYSTEM
12 CFR Part 203
[Regulation C; Docket No. R-1001]

Home Mortgage Disclosure
B oard of G overnors of the
F ederal Reserve System .

AGENCY:

A d vance n otice of p ro p o sed
rulem aking.

ACTION:

SUMMARY: P u rsu a n t to its Regulatory
P lan n in g a n d R eview Program , the
B oard is u n d erta k in g a rev ie w of
R egulation C (Home M ortgage
D isclosure). T he p u rp o se of th e review
is to id en tify w ays in w h ic h th e Board
co u ld revise R egulation C to clarify an d
sim p lify th e regu lato ry language;
re sp o n d to techno log ical a n d other
dev elop m en ts; red u c e u n d u e regulatory
b u rd e n o n th e in dustry; d elete obsolete
provisions; a n d im p rov e th e q u ality an d
u sefulness of th e data. To gather
in fo rm atio n n ecessary for th is review
a n d to en su re th e p a rtic ip a tio n of
in tereste d parties, th e B oard is soliciting
co m m en t o n several specific issues,
w h ile also soliciting co m m en t generally
o n p o te n tia l revision s to th e regulation.
DATES: C om m ents m u st b e receiv ed by
M ay 29, 1998.
ADDRESSES: C om m ents sh o u ld refer to
Docket No. R -1 00 1, an d m ay be m ailed
to W illiam W. W iles, Secretary, B oard of
G overnors of th e F ederal Reserve
System , 20th Street a n d C onstitution
A venue, N.W., W ashington, D.C. 20551.
C om m ents also m ay b e d eliv ere d to
Room B -222 2 of th e Eccles B uilding
b etw een 8:45 a.m. an d 5:15 p.m.
w eekd ay s, or to th e g u ard statio n in th e
Eccles B u ilding c o u rty a rd on 20th
Street, N.W . (betw een C o nstitution
A v en ue a n d C Street) at an y tim e.
C om m ents received w ill be available for
in sp e ctio n in Room M P -5 0 0 of the
M artin B u ilding b e tw e en 9:00 a.m. an d
5:00 p.m . w eekdays, ex cept as p ro v id ed
in 12 CFR 261.12 of th e B oard’s Rules
R egarding A vailability of Inform ation.
FOR FURTHER INFORMATION CONTACT: Jane
Jensen Gell or John C. W ood, Senior
A ttorneys, or P am ela M orris
B lum enthal, Staff A ttorney, D ivision of
C onsu m er a n d C o m m u nity Affairs,
B oard of G overnors of th e F ederal
Reserve System , at (202) 4 5 2 -3 6 6 7 or
(202) 45 2-2 412 ; for th e h earing
im p aired only, D iane Jenkins,
T eleco m m u n icatio n s D evice for the
Deaf, at (202) 452-3544.
SUPPLEMENTARY INFORMATION:

I. Background on HMD A and
R egulation C
T he H om e M ortgage D isclosure A ct of
1975 (HMDA) (12 U.S.C. 2801 et seq.)
requires in stitu tio n s to collect an d
rep o rt d ata abou t h o m e p u rch a se an d
h o m e im p ro v e m en t loans. In stitu tio n s
m u st rep o rt data for loans orig in ated or
p u rch a sed , as w ell as for loan
ap p lica tio n s th a t do n o t re su lt in an
origination. R egulation C, w h ic h carries
ou t th e act, requires in stitu tio n s to

12329

rep o rt in fo rm atio n ab out th e a p p lica tio n
or loan: th e ap p lic a tio n date, th e actio n
tak en a n d th e date of th a t action, the
loan am o unt, an d th e loan type an d
pu rp o se. In stitu tio n s m u st also rep o rt
data a b o u t a p p lica n ts or borrow ers: th e ir
race, sex, an d incom e. Finally,
in stitu tio n s m u st rep o rt th e p rop erty
location a n d o cc u p an c y status, an d
id en tify th e ty p e of p u rc h a se r for loans
th a t th e y sell.
In stitu tio n s rep o rt th is in fo rm atio n to
th e ir sup erv isory agencies on an
ap p lica tio n -b y -ap p lica tio n basis u sin g a
register form at. In stitu tio n s m u st m ake
th is register available to th e pu blic, w ith
certain fields red a cte d to preserve
a p p lic a n ts’ privacy. In ad d itio n , the
F ederal F in an c ial In stitu tio n s
E x am in atio n C ouncil (FFIEC), o n b eh a lf
of th e su p erv iso ry agencies, com piles
th is in fo rm atio n an d prepares
in d iv id u a l d isclo su re statem ents for
each in stitu tio n , aggregate rep o rts for all
covered in stitu tio n s in each
m e tro p o lita n statistical area (MSA), a n d
o th e r reports. In d iv id u a l disclosure
statem ents are available to th e p u b lic
from each in stitu tio n , an d disclosu re
statem ents an d aggregate rep orts are
available at cen tral d ep ositories in each
MSA.
T he p u rp o se of HMDA is threefold.
O ne p u rp o se is to p ro v id e th e p u b lic
a n d g o v ern m en t officials w ith
in fo rm atio n th a t w ill h elp sh ow
w h e th e r fin an cial in stitu tio n s are
serving th e h o u sin g n ee d s of th e
n eig hbo rho ods a n d co m m u n ities in
w h ic h th e y are located. A seco nd
p u rp o se is to h elp p u b lic officials target
p u b lic in v estm en ts to prom o te p rivate
in v e stm e n ts in n eig hbo rho ods w h ere
in v e stm e n t is need ed . F inally, th e
collectio n a n d disclosure requ irem en ts
p ro v id e data th at assist in identifying
po ssible discrim in ato ry le n d in g p attern s
a n d enforcing a n tid isc rim in a tio n
statutes.
HMDA specifies th e data th at
in stitu tio n s m u st collect a n d report.
Because of th e v o lu m e of info rm atio n
th a t m u st be aggregated (in 1996, th e
data reflected 14.8 m illio n loans an d
applications) in stitu tio n s m u st
sta n d ard iz e th e d ata rep orts an d
generally su b m it th e m to th e ir
sup erv isory agency in a m achinereadable form. T he B oard has im p o sed
few ad d itio n a l item s of d ata collection
b e y o n d th o se in the statute. To facilitate
data retrieval, each en try in th e
in s titu tio n ’s HMDA lo a n /a p p lic a tio n
register (HMDA-LAR) m u st co n tain a
u n iq u e identifier. E ach entry m u st also
co n tain th e ap p lic a tio n date a n d the
ac tio n ta k en date. In stitu tio n s m u st
d istin g u ish lo an s to p u rch a se or
im p ro v e m u ltifam ily dw ellin gs from

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Federal Register/Vol. 63, No. 4 8 /Thursday, March 12, 1998/Proposed Rules

other h o m e p u rc h a se or hom e
im p ro v e m en t loans.
II. R eview o f R egulation C
P u rsu a n t to th e B oard ’s R egulatory
P lan n in g an d R eview Program , the
B oard has u n d e rta k e n a rev iew of
R egulation C to determ in e w h e th e r
rev isio n s m ig h t be m a d e to im pro ve th e
regulation. T h e reg u la tio n w as last
rev ie w ed in 1988, w h e n th e B oard m ade
organizatio nal an d te ch n ic al changes to
red u c e b u rd en . As d isc u sse d below , the
Board h as id e n tifie d several possib le
areas for revision. T h e B oard invites
com m en ts on th e se a n d any o th er issues
th a t m ig h t w a rra n t review . A fter
evalu atin g th e com m ents, th e B oard w ill
p u b lish a p ro p o se d ru le for p u b lic
com m ent.
C o ncurren tly, th e B oard is also
u n d erta k in g a rev iew of R egulation B
(Equal C redit O pportunity); an advance
n o tice of p ro p o sed ru lem aking is
p u b lish e d elsew h ere in to d a y ’s Federal
Register.
C om m ent is specifically so licited on
th e follow ing issues:
1. R eporting P reapprovals
HMDA an d R egulation C requ ire
le n d ers to rep o rt data regarding
a p p lica tio n s for m ortgage loans th a t do
n o t re su lt in originations. U n d er
R egulation C, a n ap p lic a tio n is d efin ed
as a n oral or w ritte n req u e st for a h om e
p u rc h a se or h o m e im p ro v e m en t loan
th a t is m ade accord in g to th e p ro ced u res
estab lish ed b y th e le n d er for th e ty p e of
cre d it requested. C urrently, a credito r
th a t m akes a p relim in a ry d ecisio n about
a p o te n tia l a p p lic a n t’s cre d itw o rth in ess
before receiving a form al a p p lica tio n
does n o t rep o rt th e decisio n— w h eth e r
th e d ecisio n involves a
“p re q u a lifica tio n ” follow ing a cursory
rev ie w or involves co m p reh en siv e
u n d e rw ritin g th a t co u ld re su lt in an
ap p ro v a l subject to th e a p p lic a n t’s
finding a n acceptab le p ro p erty (a
“p re a p p ro v a l”). F ollow ing a
p reap p ro v al, h o m e bu yers id e n tify th e
p ro p erty th ey w ish to p u rch a se an d
le n d ers evalu ate in fo rm atio n relatin g to
th e p ro p erty offered as security for the
loan. P reapp rovals th a t lead to an
o rigination are rep o rted o n th e H M D A LAR. C urrently, requ ests for
p reap p ro v als th a t re su lt in d en ials are
n o t reported.
To tn e extent th a t reliance on
p rea p p ro v a ls beco m es sta n d ard in d u stry
practice, th e ap p lic a tio n d ata cou ld
becom e less u se fu l for th e in te n d e d
p u rp o se of p ro v id in g a basis for
c o m p ariso n regarding a c re d ito r’s
le n d in g decisions. If p o te n tia l borrow ers
are d e n ie d at th e p rea p p ro v a l stage an d
p rea p p ro v a l d ecisions are n o t repo rted ,

th e rep o rted d en ials m ay n o t be fully
rep rese n ta tiv e of a le n d e r’s credit
decisions. T he B oard h as b ee n asked to
co n sid er req u irin g creditors to collect
a n d rep o rt p reap pro vals, u sin g a special
code to d istin g u ish th e m from form al
ap p licatio n s. C om m ent is req u e sted on
all aspects of th e issue in c lu d in g th e
follow ing:
(1) H as th e p ractice of p reap p ro v als
becom e co m m on en o u g h to suggest the
n ee d for coverage u n d e r R egulation C?
(2) In p rea p p ro v a l tran sactions, th e
cre d ito r m ay lack som e of th e data
called for by th e HM DA-LAR. For
exam ple, th e loan am o u n t m ay be
p relim in a ry a n d th e co n su m er often has
n o t id e n tifie d a p ro p erty address. W hat
level of in fo rm atio n w o u ld m ake th e
rep o rtin g of data o n preap p ro v als
useful? M ore generally, at w h at stage in
th e loan a p p lica tio n process w o u ld data
regarding th e se d ecision s better reflect
th e p a tte rn of a cre d ito r’s len d in g
practices?
(3) Does rep o rtin g p reap p ro v al
req u ests re p re se n t a p o te n tia lly greater
b u rd e n th a n rep o rtin g other
tran saction s? A re th ere reporting
d istin ctio n s, in e ith er th e lev el of
in fo rm atio n or th e type of p reapp rov als,
th a t w o u ld m in im iz e the b urd en ?
(4) H om e-ow n ersh ip counseling
program s som etim es share sim ilarities
w ith p reap p ro v al program s. Some
h o m e -o w n e rsh ip co u nselin g program s
m ay target low - a n d m od erate-in co m e
consum ers; others are available to any
first-tim e h o m e b u y er a n d have
elem ents of b o th co u nselin g a n d credit
evaluation. T he m ore form al th e process
of p ro v id in g in fo rm atio n a n d assistance
becom es— for exam ple, by verifying
cre d it in fo rm atio n —th e m ore the
co unseling p ro cess resem bles a
preapp rov al. T he B oard b elieves it is
im p o rta n t to e n su re th a t credito rs are
n o t d isco uraged from p ro v id in g
assistance to co n su m ers seeking credit
inform ation th ro u g h counseling
program s. C onsequently, th e B oard
solicits co m m en t on w ays to distin g u ish
co u nseling program s from p reap p ro v al
program s so as n o t to discourage
creditors from p ro v id in g inform ation,
assistance, a n d co u n seling to consu m ers
sh o p p in g for credit.
(5) O ne ap p ro a ch for rep ortin g
p reap p ro v al decisio ns w o u ld be to track
th e req u irem en ts of R egulation B (Equal
C redit O p portun ity) an d req uire
rep o rtin g of all requ ests th a t req uire an
adverse actio n n o tice u n d e r Regulation
B. If a cred itor evaluates in form ation
a b out a co nsum er, d ecid es to decline
th e request, a n d co m m u n icates the
d ecisio n to th e con su m er, R egulation B
requ ires th e cred itor to treat th e request
as an a p p lica tio n an d sen d a notice of

adverse action. C urren tly u n d e r
R egulation C, credito rs are in stru c ted
n o t to rep o rt p rea p p ro v a l decisions,
even if u n d e r R egulation B th e y are
req u ired to give adverse action notices
on p rea p p ro v a l requ ests th a t are denied.
O ne disadv an tage to th is ap p ro a ch is
th a t o nly d en ials w o u ld be reported.
(6) W o u ld tracking th e requ irem en ts
of R egulation B w o rk b etter if th at
regulatio n w ere rev ise d along w ith
R egulation C to establish a “b rig h t-lin e”
te st th a t d istin g u ish e d b e tw e en an
in q u iry a n d a n ap p licatio n ? S u p p o se
that, u n d e r b o th regulations, a n in q u iry
(or request for a preapproval) w o u ld be
treated as a n ap p lic a tio n o n ly if a
cred itor ev alu ated or verified credit
inform atio n th ro u g h th ird p arty
in fo rm atio n (such as by obtaining a
cre d it rep o rt or cre d it score).
2. R ep o rtin g R efin a n cin g s a n d H o m e
Im p ro v e m e n t L oans
R egulation C pro v id es co nsiderable
flexibility in th e rep o rtin g of refinancing
tran sactio n s in o rd er to m in im ize
co m p lian ce b u rd en . A creditor, at its
option , m ay rep o rt a refin an cing
tran sa ctio n u n d e r one of several tests: if
th e existing obligation w as a reportable
tran sa ctio n u n d e r R egulation C; if the
existing obligation w as se cu red by a lien
o n a dw elling; or if th e n ew tran sa ctio n
w ill be se cu red b y a lie n o n a dw elling.
T his ap proach, a d o p ted in 1995, is
in te n d e d to facilitate co m p lian ce by
allow ing le n d ers to rep o rt all dw ellingsecu red refinances.
Som e rep o rtin g in stitu tio n s as w ell as
users of th e HMDA d ata believe th is rule
m akes th e resu ltin g data difficult to
analyze an d of lim ite d value. T hey note
th a t th e data m erge refinancings to
red u c e th e b o rro w er’s in terest rate on a
h o m e m ortgage w ith n ew ly hom ese cu red loans u se d by th e b orrow er to
co n so lid ate an d replace p reviously
u n se c u re d co n su m er loans su ch as
cre d it card debt.
T he H om e M ortgage D isclosure A ct
requ ires th e reporting of inform ation
a b out m ortgage loans in p art to
d eterm in e w h e th e r lenders are m eeting
th e h o u sin g n eed s of th e ir com m unities.
T he act defines a “ mortgage lo a n ” as (1)
a lo an se cu red b y resid e n tia l real
p ro p erty or (2) a h o m e im p ro v e m en t
loan. R egulation C im p lem en ts the act
by establishing a “ p u rp o se te st” an d
requiring le n d ers to re p o rt loans for the
p u rp o se of h o m e p u rch a se or hom e
im p rov em ent, an d th e refinancings of
th o se loans. By e x p a n d in g th e d efin itio n
of “refin an c in g ,” th e B oard b ro ad e n ed
th a t category to in c lu d e — at the
in s titu tio n ’s o p tio n — all dw ellingse cu red loans, regardless of th e p u rp o se
of th e original loan. T he Board solicits

Federal Register/Vol. 63, No. 4 8 /Thursday, March 12, 1998/Proposed Rules
co m m en t on w h e th e r th e repo rting
categories sh o u ld be fu rth e r m odified.
C om m ent is req u e sted on all aspects of
th e issue in c lu d in g th e follow ing:
(1) W o u ld a change in th e rep o rtin g
categories im p ro v e th e u sefu ln ess of th e
data?
(2) W o u ld a change in th e rep ortin g
categories m ake co m p lian ce easier an d
red u c e b u rd en ?
(3) W o u ld th e cost of a change in th e
rep o rtin g categories o utw eigh any
p o ssible benefits?
3. P urchased Loans
U n d er HMDA an d R egulation C,
in stitu tio n s m u st rep o rt all lo an s th at
th e y pu rch ase, ev en th o se p u rc h a se d in
b u lk or in th e co n tex t of th e p u rch a se
of a b ranch. In som e circu m stances, this
re q u ire m e n t m a y im p o se a b u rd en . For
exam ple, som e in stitu tio n s b elieve th at
obtaining th e correct geographic
rep o rtin g d ata is m ore costly if th e loans
w ere originated m a n y years ago an d the
en tity th a t o rig in ated a n d so ld th e loans
w as n o t a HMDA reporter.
T he staff co m m entary to R egulation C
pro v id es th a t a HMDA rep o rter n e e d n o t
rep o rt loans ac q u ired th ro u g h a merger.
T he B oard h as receiv ed req uests to
ex ten d th is m erger ex c ep tio n to loans
ac q u ired th ro u g h th e a c q u isitio n of a
b ran ch . T he B oard h as also received
requ ests to ex c lu d e “ se a so n e d ”
p u rc h a se d loans, or tho se th a t w ere n o t
p u rc h a se d at or sh o rtly after th e
origination of th e loan. C om m ent is
req u e sted on all asp ects of th e issue
in c lu d in g th e follow ing:
(1) H ow u sefu l is p u b lic d isclo su re of
d ata o n loans p u rc h a se d as p art of a
b ra n c h acquisition ? To w h a t extent, if
any, is it m ore b u rd en so m e to rep o rt
loans p u rc h a se d as p art of a b ra n c h
acq u isitio n th a n oth er p u rc h a se d loans?
If th e B oard w ere to ex c lu d e loans
p u rc h a se d as p art of a b ra n c h
acq uisition , sh o u ld th e ex c lu sio n be
lim ite d to a p u rch a se invo lving “bricks
a n d m ortar?” W hat if an in stitu tio n
p u rc h a se d th e assets of a b ra n c h b u t n o t
th e liabilities?
(2) Is th e re som e o th e r w ay to m odify
th e p u rc h a se d lo a n category th a t w o u ld
im p rov e th e data quality an d red u c e
bu rd en ?
4. T em p o ra ry F inancing
R egulation C exclu des certain data
from HMDA reporting, in c lu d in g
tem p o rary financin g su ch as
co n stru c tio n or bridge loans. Some
in stitu tio n s th a t m ake a co nsid erable
n u m b e r of co n stru c tio n lo an s w o u ld
like to in c lu d e th e m w ith th e ir HMDA
data. M ore generally, a n u m b e r of

HMDA repo rters have req u e sted th a t the
B oard define “tem p o rary fin an cin g .”
C om m ent is req u e sted o n all aspects of
th e issue in c lu d in g th e follow ing:
(1) H ow u se fu l w o u ld it be for
creditors to disclose data on
co n stru c tio n lending? W o u ld these d ata
be m ore b u rd en so m e to collect an d
rep o rt th a n data on p e rm a n e n t
financing? If th e B oard p erm itte d
lend ers to rep o rt co n stru c tio n loans,
sh o u ld su c h loans be re p o rte d w ith
h o m e p u rch a se loans or w ith a separate
code?
(2) Regarding tem po rary financing
generally, sh o u ld th e B oard define ho m e
p u rch a se loans w ith a te rm of less th a n
a sp ecified tim e as tem porary? If so,
sh o u ld th e th re sh o ld be one year? Tw o
years?
5. M obile H o m e T ransactions
C urrently, p u rch a ses or refinan cings
of m o bile ho m es are re p o rte d together
w ith p u rch a ses or refin ancing s of
trad itio n a l hom es. H ow ever,
u n d erw ritin g stan d ard s for tran sactions
in volving m o bile hom es m ay differ
significantly from tran sa ctio n s involving
trad itio n a l hom es. Som e HMDA
repo rters a n d users of th e HMDA data
have suggested th a t th e d ata w o u ld be
m ore useful a n d easier to analyze if
tran sa ctio n s in vo lving m o b ile h om es
w ere rep o rted u sin g a separate code.
C om m ent is req u e sted on all aspects of
th e issue, in c lu d in g w h e th e r it w o u ld
red u c e b u rd e n a n d im p rov e the
u sefu ln ess of th e HMDA data to id e n tify
tran sa ctio n s involving m obile h om es
using a special code.
6. A d d itio n a l R eporting
Som e u sers believe th a t th e HMDA
d ata w o u ld be m ore u se fu l if certain
a d d itio n a l pieces of in fo rm atio n w ere
collected. F or exam ple, requ iring
in stitu tio n s to rep o rt th e reaso ns for
den ial co u ld facilitate fair lending
review s. C urrently, o n ly th ose
in stitu tio n s su p e rv ised by th e Office of
th e C om ptroller of th e C urrency an d the
Office of T hrift S u p erv isio n are req u ired
to rep o rt d en ial reasons (w h ich is
v o lu n tary u n d e r th e statute). The d ata
rep o rted v o lu n tarily sh o w th a t the level
of rep o rtin g varies by sup erv iso ry
agency. For exam ple, for d ata collected
in 1996, 84 p erc en t of th e d e n ie d loans
re p o rte d to th e F ederal D eposit
In su ran ce C orporation an d 64 p erc en t of
th e d en ied loans rep o rted to th e F ederal
Reserve in c lu d e d d en ial reasons. In
contrast, only 27 p e rc e n t of th e d en ied
loans re p o rte d to th e D ep artm en t of
H ousing a n d U rb an D evelo pm ent
c o n ta in e d d en ial reasons.

12331

O ther HMDA u sers suggest th a t the
reg u latio n sh o u ld req u ire in stitu tio n s to
rep o rt th e ap p ra ise d v alu e of the
p ro p erty p u rch a sed . T his repo rting
w o u ld allo w users of th e d ata to
calcu late a loan-to-value ratio. C om m ent
is req u e sted on all aspects of these
issu es in c lu d in g th e follow ing:
(1) W ou ld th e p u b lic d isclosu re of
data co n cern in g d enial reaso n s or
p ro p erty v alu e fu rth er th e p u rp o ses of
HMDA, a n d in w h a t way?
(2) A re th e re p ractical difficulties in
obtaining an d rep o rtin g these data?
(3) W hat costs w o u ld be in v o lv ed in
rep o rtin g den ial reaso ns or p ro p erty
value?
7. R eorganization o f th e R egulation a n d
A p p e n d ic e s
C urrently, in stitu tio n s h av e a variety
of sources to assist th e m w ith HMDA
com plian ce. A p p e n d ix A to R egulation
C pro v id es in stru c tio n s for com pleting
th e lo a n /a p p lic a tio n register, an d
A p p e n d ix B pro v id es in stru c tio n s for
com pletin g th e d ata co llectio n form. In
ad d itio n , th e B oard issu ed a staff
com m en tary (as S u p p le m e n t I to the
regulation), an d th e FFIEC p u b lish es the
G uide to H M D A R eporting: G etting it
R ight! T he B oard w ill co n sid er
reorganizing th e regu lation , ap p e n d ic es,
an d su p p le m e n t to clarify a n d sim plify
th e p rese n tatio n of th e m aterial, an d
thereby red u c e b u rd en . C om m ent is
req u ested on all aspects of th e issue
in c lu d in g th e following:
(1) W o u ld it lessen b u rd e n if the
in terp re tiv e m aterial from the
in stru c tio n s w ere in c o rp o rated into th e
com m en tary a n d th e in stru c tio n s w ere
conv erted in to sim ple code
d escrip tions?
(2) C ould th e regu lation b e organized
to p re se n t in fo rm atio n m ore clearly (for
exam ple, by co nsolid ating th e coverage
req u irem en ts c u rren tly fo u n d in b oth
th e defin itio n al sectio n a n d the
exem p tions sections in a single
“ coverage” section)? W o uld th e b u rd e n
of learning a reo rganized regulation
outw eigh th e benefits of sim plificatio n
a n d clarification?
8. O ther Issues
T he B oard solicits co m m ents on any
other b ro ad p o licy issues th a t sh o u ld be
ad d re ssed in th e regulation.
By order of the Board of Governors of the
Federal Reserve System, March 6, 1998.
William W. Wiles,

Secretary o f the Board.
[FR Doc. 98-6326 Filed 3-11-98; 8:45 am]
BILLING CODE 6 210 -01 -P