Sep 28, 2011 FIC Alliance â Week 9 HMDA Review on Refi's ...
Sep 28, 2011
FIC Alliance – Week 9
HMDA Review on Refi’s, Renewals, Mod’s, etc. Why are there two definitions of “refinancing” under HMDA? If dwelling secured credit replaces dwelling secured credit, is the purpose of the new transaction relevant to whether or not it is a reportable refinancing? If a dwelling-secured line of credit satisfies and replaces another dwelling-secured obligation, is the line required to be reported as a "refinancing"? If an obligation secured by a dwelling is satisfied and replaced by an obligation in which a guaranty of the credit obligation is secured by a dwelling but the new credit obligation is not secured by a dwelling, is the transaction reportable under HMDA? Is the satisfaction of a lien (mortgage) relevant to determining whether an obligation is a reportable refinancing? How should a lender code a dwelling-secured loan when the borrower uses the funds both to pay off an existing dwelling-secured loan and to make improvements to a dwelling? Should Modification’s, Extension’s and Consolidation Agreements be reported under HMDA as refinancings? When is a loan "temporary financing" such that it is exempt from reporting?
Why are there two definitions of “refinancing” under HMDA? A lender uses the reporting definition, 203.2(k)(2), to determine whether to report a particular application, origination, or purchase as a "refinancing" in the loan purpose field; a lender uses the coverage definition, 203.2(k)(1), to determine whether the institution has sufficient home purchase loan activity, including refinancings of home purchase loans, for the institution to be covered by HMDA.. See 203.2(e)(1)(iii), 203.2(e)(2)(i) and (iii). The coverage definition is not relevant to determining whether to report a particular transaction as a refinancing. 203.2(k) (k) Refinancing means a new obligation that satisfies and replaces an existing obligation by the same borrower, in which: (1) For coverage purposes, the existing obligation is a home purchase loan (as determined by the lender, for example, by reference to available documents; or as stated by the applicant), and both the existing obligation and the new obligation are secured by first liens on dwellings; and (2) For reporting purposes, both the existing obligation and the new obligation are secured by liens on dwellings. http://www.ffiec.gov/hmda/pdf/regulationc2004.pdf
If dwelling secured credit replaces dwelling secured credit, is the purpose of the replaced obligation relevant to whether the new obligation is reportable under HMDA/Regulation C? No. The definition of a reportable refinancing looks only to whether (1) an obligation satisfies and replaces another obligation and (2) each obligation is secured by a dwelling. See 203.2(k)(2). Thus, for example, a satisfaction and replacement of a loan made for a business purpose is a reportable refinancing if both the new loan and the replaced loan are secured by a dwelling. 203.2(k) (k) Refinancing means a new obligation that satisfies and replaces an existing obligation by the same borrower, in which: (1) For coverage purposes, the existing obligation is a home purchase loan (as determined by the lender, for example, by reference to available documents; or as stated by the applicant), and both the existing obligation and the new obligation are secured by first liens on dwellings; and (2) For reporting purposes, both the existing obligation and the new obligation are secured by liens on dwellings. http://www.ffiec.gov/hmda/pdf/regulationc2004.pdf
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If an obligation secured by a dwelling is satisfied and replaced by an obligation in which a guaranty of the credit obligation is secured by a dwelling but the new credit obligation is not secured by a dwelling, is the transaction reportable under HMDA? No, a transaction is not reportable as a home purchase loan or refinancing unless the credit obligation, itself, is secured by a dwelling. See 203.2(h), 203.2(k)(2). An obligation not secured by a dwelling is reportable as a home improvement loan only if classified by the lender as a home improvement loan. See 203.2(g)(2). 203.2(h) (h) Home purchase loan means a loan secured by and made for the purpose of purchasing a dwelling. 203.2(k)(2) (k) Refinancing means a new obligation that satisfies and replaces an existing obligation by the same borrower, in which: (1) For coverage purposes, the existing obligation is a home purchase loan (as determined by the lender, for example, by reference to available documents; or as stated by the applicant), and both the existing obligation and the new obligation are secured by first liens on dwellings; and (2) For reporting purposes, both the existing obligation and the new obligation are secured by liens on dwellings. 203.2(g)(2) (g) Home improvement loan means: (1) A loan secured by a lien on a dwelling that is for the purpose, in whole or in part, of repairing, rehabilitating, remodeling, or improving a dwelling or the real property on which it is located; and (2) A non-dwelling secured loan that is for the purpose, in whole or in part, of repairing, rehabilitating, remodeling, or improving a dwelling or the real property on which it is located, and that is classified by the financial institution as a home improvement loan. http://www.ffiec.gov/hmda/pdf/regulationc2004.pdf
If a dwelling-secured line of credit satisfies and replaces another dwelling-secured obligation, is the line required to be reported as a "refinancing"? No. A dwelling-secured line of credit that satisfies and replaces another dwellingsecured obligation is not required to be reported as a "refinancing," regardless of whether the line is for consumer or business purposes. When we look to the optional criteria for reporting ―home equity lines of credit,‖ we find the following: FIC Regulatory Education Alliance / Copyright ©FIC Conferences, Inc. – Sep 28, 2011 – Week 9 Page 3
203.4(c) (c) Optional data. A financial institution may report: (1) The reasons it denied a loan application; (2) Requests for preapproval that are approved by the institution but not accepted by the applicant; and (3) Home-equity lines of credit made in whole or in part for the purpose of home improvement or home purchase. http://www.ffiec.gov/hmda/pdf/regulationc2004.pdf
Is the satisfaction of a lien (mortgage) relevant to determining whether an obligation is a reportable refinancing? No, the satisfaction of a lien is neither necessary nor sufficient to create a reportable refinancing. The credit obligation must be satisfied and replaced; it is not relevant whether the lien is satisfied and replaced. See 203.2(k)(2). 203.2(k)(2) (k) Refinancing means a new obligation that satisfies and replaces an existing obligation by the same borrower, in which: (1) For coverage purposes, the existing obligation is a home purchase loan (as determined by the lender, for example, by reference to available documents; or as stated by the applicant), and both the existing obligation and the new obligation are secured by first liens on dwellings; and (2) For reporting purposes, both the existing obligation and the new obligation are secured by liens on dwellings. http://www.ffiec.gov/hmda/pdf/regulationc2004.pdf
How should a lender code a dwelling-secured loan when the borrower uses the cash out funds both to pay off an existing dwelling-secured loan and to make improvements to a dwelling? A dwelling-secured loan that meets the definitions of both "home improvement loan" and "refinancing" should be coded as a "home improvement loan."See comment 203.2(g)-5. The lender must code the loan as a "home improvement loan" even if the lender does not classify it in the lender's own records as a "home improvement loan." See 203.2(g)(1). 203.2(g)-5 2(g) Home improvement loan. 1. Classification requirement for loans not secured by a lien on a dwelling. An institution has “classified” a loan that is not secured by a lien on a dwelling as a home improvement loan if it has entered the loan on its books as a home improvement loan, or has otherwise coded or identified the loan as a home improvement loan. For example, an institution that FIC Regulatory Education Alliance / Copyright ©FIC Conferences, Inc. – Sep 28, 2011 – Week 9 Page 4
has booked a loan or reported it on a “call report” as a home improvement loan has classified it as a home improvement loan. An institution may also classify loans as home improvement loans in other ways (for example, by color-coding loan files). 2. Improvements to real property. Home improvements include improvements both to a dwelling and to the real property on which the dwelling is located (for example, installation of a swimming pool, construction of a garage, or landscaping). 3. Commercial and other loans. A home improvement loan may include a loan originated outside an institution's residential mortgage lending division (such as a loan to improve an apartment building made through the commercial loan department). 4. Mixed-use property. A loan to improve property used for residential and commercial purposes (for example, a building containing apartment units and retail space) is a home improvement loan if the loan proceeds are used primarily to improve the residential portion of the property. If the loan proceeds are used to improve the entire property (for example, to replace the heating system), the loan is a home improvement loan if the property itself is primarily residential. An institution may use any reasonable standard to determine the primary use of the property, such as by square footage or by the income generated. An institution may select the standard to apply on a case-by-case basis. If the loan is unsecured, to report the loan as a home improvement loan the institution must also have classified it as such. 5. Multiple-category loans. If a loan is a home improvement loan as well as a refinancing, an institution reports the loan as a home improvement loan. 203.2(g)(1) (g) Home improvement loan means: (1) A loan secured by a lien on a dwelling that is for the purpose, in whole or in part, of repairing, rehabilitating, remodeling, or improving a dwelling or the real property on which it is located; and (2) A non-dwelling secured loan that is for the purpose, in whole or in part, of repairing, rehabilitating, remodeling, or improving a dwelling or the real property on which it is located, and that is classified by the financial institution as a home improvement loan. http://www.ffiec.gov/hmda/pdf/regulationc2004.pdf
Should Modifications, Extensions and Consolidation Agreements be reported under HMDA as refinancings? No. The rule is unchanged: MECAs are not reportable as refinancings under Regulation C. See 67 Fed. Reg. 7221, 7227 (Feb. 15, 2002). The applicable comment was inadvertently omitted when the Commentary was revised in 2002; the comment will be restored when the Commentary is next revised. ****** 67 Fed. Reg. 7221, 7227 (Feb. 15, 2002)
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MECAs. The Board did not propose any change regarding the status of modification, extension, and consolidation agreements (MECAs). MECAs are not reported because they do not meet the definition of a refinancing (satisfaction and replacement of an existing mortgage loan). A few commenters asserted, however, that MECAs should be reported because they substitute for traditional refinancings in some states, such as New York and Texas, to avoid mortgage recording fees and taxes. The final rule does not include MECAs as reportable under HMDA. The existing definition of a refinancing establishes a bright- line test for reportable transactions. The Board believes that MECA data may be useful in certain instances, but that, under the existing loan classification scheme, the advantages of a bright- line test for determining whether a transaction should be reported—especially in reducing compliance burden— outweigh the benefits of additional data on these transactions. Therefore, the Board has not revised the definition of refinancing to include MECAs. ******
When is a loan "temporary financing" such that it is exempt from reporting? The regulation lists as examples of temporary financing construction loans and bridge loans. See 203.4(d)(3). Construction and bridge loans are illustrative, not exclusive, examples of temporary financing. The examples indicate that financing is temporary if it is designed to be replaced by permanent financing of a much longer term. A loan is not temporary financing merely because its term is short. For example, a lender may make a loan with a 1-year term to enable an investor to purchase a home, renovate it, and re-sell it before the term expires. Such a loan must be reported as a home purchase loan. See 203.2(h). 203.4(d)(3) (d) Excluded data. A financial institution shall not report: (1) Loans originated or purchased by the financial institution acting in a fiduciary capacity (such as trustee); (2) Loans on unimproved land; (3) Temporary financing (such as bridge or construction loans); (4) The purchase of an interest in a pool of loans (such as mortgage-participation certificates, mortgage-backed securities, or real estate mortgage investment conduits); (5) The purchase solely of the right to service loans; or (6) Loans acquired as part of a merger or acquisition, or as part of the acquisition of all of the assets and liabilities of a branch office as defined in section 203.2(c)(1). http://www.ffiec.gov/hmda/pdf/regulationc2004.pdf
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Federal Financial Institutions Examination Council For Immediate Release
Press Release September 22, 2011
Federal Financial Institution Regulators Announce Availability of 2010 Data on Mortgage Lending The Federal Financial Institutions Examination Council (FFIEC)1 today announced the availability of data on mortgage lending transactions at 7,923 U.S. financial institutions covered by the Home Mortgage Disclosure Act (HMDA). Covered institutions include banks, savings associations, credit unions, and mortgage companies. The HMDA data made available today cover 2010 lending activity—applications, originations, purchases of loans, denials, and other actions such as incomplete or withdrawn applications. The data being released today include disclosure statements for each financial institution, aggregate data for each metropolitan statistical area (MSA), nationwide summary statistics regarding lending patterns, and Loan/Application Registers (LARs) for each financial institution (LARs modified to help ensure borrower privacy). The FFIEC prepares and distributes this information on behalf of its member agencies (Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, National Credit Union Administration, Office of the Comptroller of the Currency, Consumer Financial Protection Bureau) and the Department of Housing and Urban Development. The 2010 data include information on 12.9 million home loan applications (of which nearly 8 million resulted in loan originations) and 3.2 million loan purchases, for a total of about 16.2 million actions. The data also include information on 165,000 requests for preapprovals that did not result in a loan origination. The number of reporting institutions fell 2 percent from 2009, attributable to a relatively large decline (about 7 percent from 2009) in the number of mortgage companies reporting data. The total number of originated loans of all types and purposes reported decreased by about 1.1 million, or 12 percent, from 2009, in part because of a 14 percent decline in the number of refinancings. The HMDA data show the disposition of loan applications and include information on loan type (such as conventional or Federal Housing Administration [FHA]), purpose (home purchase, home improvement, or refinancing), and amount; property type (1- to 4-family, multifamily, or manufactured housing); property location (MSA, state, county, and census tract); applicant characteristics (race, ethnicity, sex, and income); and census tract characteristics (minority composition and income). The data also show FIC Regulatory Education Alliance / Copyright ©FIC Conferences, Inc. – Sep 28, 2011 – Week 9 Page 7
whether a loan is subject to the Home Ownership and Equity Protection Act and if a loan is secured by a first or subordinate lien, or is unsecured. In addition, the data provide information on higher-priced lending. The rules used to determine whether a loan is classified as higher-priced under HMDA were changed in 2008. The new rules took effect for applications taken beginning October 1, 2009. For applications taken prior to that date, lenders reported the spread between a loan's annual percentage rate (APR) and the yield on comparable-maturity Treasury securities if it exceeded specified thresholds. For applications taken on or after that date, lenders also reported spreads for loans that exceeded specified thresholds, but the spread was measured as the difference between the APR on the loan and the estimated APR (termed the "average prime offer rate" or APOR) for loans extended to prime borrowers based on the rates reported by Freddie Mac in itsPrimary Mortgage Market Survey® (PMMS)2. The specified thresholds under the revised price reporting rule are 1.5 percentage points above the PMMS rate for first lien loans and 3.5 percentage points for junior lien loans. The 2010 data reflect the first full year of data reported under the revised loan pricing rules. More information about HMDA data reporting requirements is available in the Frequently Asked Questions on the FFIEC website at http://www.ffiec.gov/hmda/faq.htm. With respect to loan pricing, the 2010 data on the incidence of higher-priced lending show a small minority of loans (3.2 percent) have APRs that exceeded the loan price reporting thresholds. For example, for conventional first lien loans used to purchase site-built properties, about 3.3 percent exceeded the reporting threshold. For similar government-backed loans, about 1.3 percent exceeded the loan price reporting threshold. The principal exception to the low incidence of higher-priced lending is that 80 percent of first lien loans used to purchase manufactured homes exceeded the reporting threshold in 2010. The incidence of higher-priced lending reported in the 2010 HMDA data varies some across racial and ethnic groups, although the absolute levels of such higher-priced lending are notably lower for all groups than during the period preceding the implementation of the new classification rule. The HMDA data reflect a continued heavy reliance on loans backed by FHA insurance that began with the emergence of the recent mortgage market difficulties. For home purchase lending, the FHA's share of first-lien loans increased from 7 percent in 2007 to 37 percent in 2009 and 36 percent in 2010. First-lien lending for home purchases backed by Veterans Administration (VA) guarantees also has increased markedly, although VA-backed lending is much smaller in scope than FHA-backed lending. The VA market share of first-lien home purchase loans increased from 2.7 percent in 2007 to 6.7 percent in 2009 and 7.0 percent in 2010. Regarding the disposition of applications for conventional home-purchase loans in 2010, blacks and Hispanic whites had notably higher gross denial rates than nonHispanic whites. The pattern for Asians was somewhat different, as their gross denial FIC Regulatory Education Alliance / Copyright ©FIC Conferences, Inc. – Sep 28, 2011 – Week 9 Page 8
rate was slightly lower than the corresponding gross denial rates for non-Hispanic whites. These relationships are similar to those found in earlier years. The HMDA data can facilitate the fair lending examination and enforcement process and promote market transparency. When federal banking agency examiners evaluate an institution's fair lending risk, they analyze HMDA data in conjunction with other information and risk factors, in accordance with the Interagency Fair Lending Examination Procedures (http://www.ffiec.gov/PDF/fairlend.pdf). Risk factors for pricing discrimination include, but are not limited to, the relationship between loan pricing and compensation of loan officers or mortgage brokers, the presence of broad pricing discretion, and consumer complaints. The HMDA data alone cannot be used to determine whether a lender is complying with fair lending laws. They do not include many potential determinants of creditworthiness and loan pricing, such as the borrower's credit history, debt-to-income ratio, and the loan-to-value ratio. Therefore, when the federal banking agencies conduct fair lending examinations, including ones involving loan pricing, they analyze additional information before reaching a determination regarding institutions' compliance with fair lending laws. Financial institution disclosure statements, individual institution's LAR data, and MSA and nationwide aggregate reports are available at http://www.ffiec.gov/hmda. Refer to the HMDA data products at http://www.ffiec.gov/hmda/hmdaproducts.htm for the item descriptions and formats. Financial institutions are required to make their disclosure statements available at their home offices. For other MSAs in which financial institutions have offices, an institution must either make the disclosure statement available at one branch within each MSA or provide a copy upon receiving a written request. Questions about a HMDA report for a specific institution should be directed to the institution's supervisory agency at the number listed below. Federal Deposit Insurance Corporation — 877-275-3342; hearing impaired — 800-925-4618 Board of Governors of the Federal Reserve System, HMDA Assistance Line — 202-452-2016 National Credit Union Administration, Office of Consumer Protection — 703-518-1140 Office of the Comptroller of the Currency, Compliance Policy Division — 202-874-4428 Consumer Financial Protection Bureau — 202-435-7000 Department of Housing and Urban Development, Office of Housing — 202-402-7540
Data on Private Mortgage Insurance The FFIEC also provides data from the nation's seven private mortgage insurance companies. The 2010 private mortgage insurance data include information on approximately 370,000 applications for mortgage insurance, comprised of about 222,000 applications to insure home purchase mortgages, and about 148,000 applications to insure mortgages to refinance existing obligations. These data also are FIC Regulatory Education Alliance / Copyright ©FIC Conferences, Inc. – Sep 28, 2011 – Week 9 Page 9
available today—at individual private mortgage insurance companies and from the FFIEC (http://www.ffiec.gov/reports.htm) —in the same types of reports and formats as the HMDA data. ### Media Contacts: Federal Reserve
Susan Stawick
(202) 452-2955
FDIC
Greg Hernandez
(202) 898-6984
OCC
Dean DeBuck
(202) 874-5770
CFPB
Jen Howard
(202) 435-7454
SLC
Catherine Woody
(202) 728-5733
1 The FFIEC was established in March 1979 to prescribe uniform principles, standards, and report forms and to promote uniformity in the supervision of financial institutions. The Council has six voting members: a Governor of the Board of Governors of the Federal Reserve System designated by the Chairman of the Board, the Chairman of the Federal Deposit Insurance Corporation, the Chairman of the Board of the National Credit Union Administration, the Comptroller of the Currency, the Director of the Consumer Financial Protection Bureau, and the Chairman of the State Liaison Committee. The Council's activities are supported by interagency task forces and by an advisory State Liaison Committee, comprised of five representatives of state agencies that supervise financial institutions. 2 Freddie Mac's weekly PMMS reports the average contract rates and points for all loans and the margin for adjustable-rate loans for loans offered to prime borrowers (those that pose the lowest credit risk). The survey currently reports information for two fixedrate mortgage products (30-year and 15-year loans) and two ARM products (one-year adjustable rate and five-year adjustable rate loans). See www.freddiemac.com/dlink/html/PMMS/display/PMMSOutputYr.jsp.
http://www.ffiec.gov/press/pr092211.htm Kimberly Lundquist FIC Conferences, Inc. 1150 N Loop 1604 W Suite 108-603 San Antonio, TX 78248 Tel 210.493.1761 Fax 210.493.9659 [email protected] www.ficconferences.com
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FIC Alliance – Week 9
HMDA Review on Refi’s, Renewals, Mod’s, etc. Why are there two definitions of “refinancing” under HMDA? If dwelling secured credit replaces dwelling secured credit, is the purpose of the new transaction relevant to whether or not it is a reportable refinancing? If a dwelling-secured line of credit satisfies and replaces another dwelling-secured obligation, is the line required to be reported as a "refinancing"? If an obligation secured by a dwelling is satisfied and replaced by an obligation in which a guaranty of the credit obligation is secured by a dwelling but the new credit obligation is not secured by a dwelling, is the transaction reportable under HMDA? Is the satisfaction of a lien (mortgage) relevant to determining whether an obligation is a reportable refinancing? How should a lender code a dwelling-secured loan when the borrower uses the funds both to pay off an existing dwelling-secured loan and to make improvements to a dwelling? Should Modification’s, Extension’s and Consolidation Agreements be reported under HMDA as refinancings? When is a loan "temporary financing" such that it is exempt from reporting?
Why are there two definitions of “refinancing” under HMDA? A lender uses the reporting definition, 203.2(k)(2), to determine whether to report a particular application, origination, or purchase as a "refinancing" in the loan purpose field; a lender uses the coverage definition, 203.2(k)(1), to determine whether the institution has sufficient home purchase loan activity, including refinancings of home purchase loans, for the institution to be covered by HMDA.. See 203.2(e)(1)(iii), 203.2(e)(2)(i) and (iii). The coverage definition is not relevant to determining whether to report a particular transaction as a refinancing. 203.2(k) (k) Refinancing means a new obligation that satisfies and replaces an existing obligation by the same borrower, in which: (1) For coverage purposes, the existing obligation is a home purchase loan (as determined by the lender, for example, by reference to available documents; or as stated by the applicant), and both the existing obligation and the new obligation are secured by first liens on dwellings; and (2) For reporting purposes, both the existing obligation and the new obligation are secured by liens on dwellings. http://www.ffiec.gov/hmda/pdf/regulationc2004.pdf
If dwelling secured credit replaces dwelling secured credit, is the purpose of the replaced obligation relevant to whether the new obligation is reportable under HMDA/Regulation C? No. The definition of a reportable refinancing looks only to whether (1) an obligation satisfies and replaces another obligation and (2) each obligation is secured by a dwelling. See 203.2(k)(2). Thus, for example, a satisfaction and replacement of a loan made for a business purpose is a reportable refinancing if both the new loan and the replaced loan are secured by a dwelling. 203.2(k) (k) Refinancing means a new obligation that satisfies and replaces an existing obligation by the same borrower, in which: (1) For coverage purposes, the existing obligation is a home purchase loan (as determined by the lender, for example, by reference to available documents; or as stated by the applicant), and both the existing obligation and the new obligation are secured by first liens on dwellings; and (2) For reporting purposes, both the existing obligation and the new obligation are secured by liens on dwellings. http://www.ffiec.gov/hmda/pdf/regulationc2004.pdf
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If an obligation secured by a dwelling is satisfied and replaced by an obligation in which a guaranty of the credit obligation is secured by a dwelling but the new credit obligation is not secured by a dwelling, is the transaction reportable under HMDA? No, a transaction is not reportable as a home purchase loan or refinancing unless the credit obligation, itself, is secured by a dwelling. See 203.2(h), 203.2(k)(2). An obligation not secured by a dwelling is reportable as a home improvement loan only if classified by the lender as a home improvement loan. See 203.2(g)(2). 203.2(h) (h) Home purchase loan means a loan secured by and made for the purpose of purchasing a dwelling. 203.2(k)(2) (k) Refinancing means a new obligation that satisfies and replaces an existing obligation by the same borrower, in which: (1) For coverage purposes, the existing obligation is a home purchase loan (as determined by the lender, for example, by reference to available documents; or as stated by the applicant), and both the existing obligation and the new obligation are secured by first liens on dwellings; and (2) For reporting purposes, both the existing obligation and the new obligation are secured by liens on dwellings. 203.2(g)(2) (g) Home improvement loan means: (1) A loan secured by a lien on a dwelling that is for the purpose, in whole or in part, of repairing, rehabilitating, remodeling, or improving a dwelling or the real property on which it is located; and (2) A non-dwelling secured loan that is for the purpose, in whole or in part, of repairing, rehabilitating, remodeling, or improving a dwelling or the real property on which it is located, and that is classified by the financial institution as a home improvement loan. http://www.ffiec.gov/hmda/pdf/regulationc2004.pdf
If a dwelling-secured line of credit satisfies and replaces another dwelling-secured obligation, is the line required to be reported as a "refinancing"? No. A dwelling-secured line of credit that satisfies and replaces another dwellingsecured obligation is not required to be reported as a "refinancing," regardless of whether the line is for consumer or business purposes. When we look to the optional criteria for reporting ―home equity lines of credit,‖ we find the following: FIC Regulatory Education Alliance / Copyright ©FIC Conferences, Inc. – Sep 28, 2011 – Week 9 Page 3
203.4(c) (c) Optional data. A financial institution may report: (1) The reasons it denied a loan application; (2) Requests for preapproval that are approved by the institution but not accepted by the applicant; and (3) Home-equity lines of credit made in whole or in part for the purpose of home improvement or home purchase. http://www.ffiec.gov/hmda/pdf/regulationc2004.pdf
Is the satisfaction of a lien (mortgage) relevant to determining whether an obligation is a reportable refinancing? No, the satisfaction of a lien is neither necessary nor sufficient to create a reportable refinancing. The credit obligation must be satisfied and replaced; it is not relevant whether the lien is satisfied and replaced. See 203.2(k)(2). 203.2(k)(2) (k) Refinancing means a new obligation that satisfies and replaces an existing obligation by the same borrower, in which: (1) For coverage purposes, the existing obligation is a home purchase loan (as determined by the lender, for example, by reference to available documents; or as stated by the applicant), and both the existing obligation and the new obligation are secured by first liens on dwellings; and (2) For reporting purposes, both the existing obligation and the new obligation are secured by liens on dwellings. http://www.ffiec.gov/hmda/pdf/regulationc2004.pdf
How should a lender code a dwelling-secured loan when the borrower uses the cash out funds both to pay off an existing dwelling-secured loan and to make improvements to a dwelling? A dwelling-secured loan that meets the definitions of both "home improvement loan" and "refinancing" should be coded as a "home improvement loan."See comment 203.2(g)-5. The lender must code the loan as a "home improvement loan" even if the lender does not classify it in the lender's own records as a "home improvement loan." See 203.2(g)(1). 203.2(g)-5 2(g) Home improvement loan. 1. Classification requirement for loans not secured by a lien on a dwelling. An institution has “classified” a loan that is not secured by a lien on a dwelling as a home improvement loan if it has entered the loan on its books as a home improvement loan, or has otherwise coded or identified the loan as a home improvement loan. For example, an institution that FIC Regulatory Education Alliance / Copyright ©FIC Conferences, Inc. – Sep 28, 2011 – Week 9 Page 4
has booked a loan or reported it on a “call report” as a home improvement loan has classified it as a home improvement loan. An institution may also classify loans as home improvement loans in other ways (for example, by color-coding loan files). 2. Improvements to real property. Home improvements include improvements both to a dwelling and to the real property on which the dwelling is located (for example, installation of a swimming pool, construction of a garage, or landscaping). 3. Commercial and other loans. A home improvement loan may include a loan originated outside an institution's residential mortgage lending division (such as a loan to improve an apartment building made through the commercial loan department). 4. Mixed-use property. A loan to improve property used for residential and commercial purposes (for example, a building containing apartment units and retail space) is a home improvement loan if the loan proceeds are used primarily to improve the residential portion of the property. If the loan proceeds are used to improve the entire property (for example, to replace the heating system), the loan is a home improvement loan if the property itself is primarily residential. An institution may use any reasonable standard to determine the primary use of the property, such as by square footage or by the income generated. An institution may select the standard to apply on a case-by-case basis. If the loan is unsecured, to report the loan as a home improvement loan the institution must also have classified it as such. 5. Multiple-category loans. If a loan is a home improvement loan as well as a refinancing, an institution reports the loan as a home improvement loan. 203.2(g)(1) (g) Home improvement loan means: (1) A loan secured by a lien on a dwelling that is for the purpose, in whole or in part, of repairing, rehabilitating, remodeling, or improving a dwelling or the real property on which it is located; and (2) A non-dwelling secured loan that is for the purpose, in whole or in part, of repairing, rehabilitating, remodeling, or improving a dwelling or the real property on which it is located, and that is classified by the financial institution as a home improvement loan. http://www.ffiec.gov/hmda/pdf/regulationc2004.pdf
Should Modifications, Extensions and Consolidation Agreements be reported under HMDA as refinancings? No. The rule is unchanged: MECAs are not reportable as refinancings under Regulation C. See 67 Fed. Reg. 7221, 7227 (Feb. 15, 2002). The applicable comment was inadvertently omitted when the Commentary was revised in 2002; the comment will be restored when the Commentary is next revised. ****** 67 Fed. Reg. 7221, 7227 (Feb. 15, 2002)
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MECAs. The Board did not propose any change regarding the status of modification, extension, and consolidation agreements (MECAs). MECAs are not reported because they do not meet the definition of a refinancing (satisfaction and replacement of an existing mortgage loan). A few commenters asserted, however, that MECAs should be reported because they substitute for traditional refinancings in some states, such as New York and Texas, to avoid mortgage recording fees and taxes. The final rule does not include MECAs as reportable under HMDA. The existing definition of a refinancing establishes a bright- line test for reportable transactions. The Board believes that MECA data may be useful in certain instances, but that, under the existing loan classification scheme, the advantages of a bright- line test for determining whether a transaction should be reported—especially in reducing compliance burden— outweigh the benefits of additional data on these transactions. Therefore, the Board has not revised the definition of refinancing to include MECAs. ******
When is a loan "temporary financing" such that it is exempt from reporting? The regulation lists as examples of temporary financing construction loans and bridge loans. See 203.4(d)(3). Construction and bridge loans are illustrative, not exclusive, examples of temporary financing. The examples indicate that financing is temporary if it is designed to be replaced by permanent financing of a much longer term. A loan is not temporary financing merely because its term is short. For example, a lender may make a loan with a 1-year term to enable an investor to purchase a home, renovate it, and re-sell it before the term expires. Such a loan must be reported as a home purchase loan. See 203.2(h). 203.4(d)(3) (d) Excluded data. A financial institution shall not report: (1) Loans originated or purchased by the financial institution acting in a fiduciary capacity (such as trustee); (2) Loans on unimproved land; (3) Temporary financing (such as bridge or construction loans); (4) The purchase of an interest in a pool of loans (such as mortgage-participation certificates, mortgage-backed securities, or real estate mortgage investment conduits); (5) The purchase solely of the right to service loans; or (6) Loans acquired as part of a merger or acquisition, or as part of the acquisition of all of the assets and liabilities of a branch office as defined in section 203.2(c)(1). http://www.ffiec.gov/hmda/pdf/regulationc2004.pdf
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Federal Financial Institutions Examination Council For Immediate Release
Press Release September 22, 2011
Federal Financial Institution Regulators Announce Availability of 2010 Data on Mortgage Lending The Federal Financial Institutions Examination Council (FFIEC)1 today announced the availability of data on mortgage lending transactions at 7,923 U.S. financial institutions covered by the Home Mortgage Disclosure Act (HMDA). Covered institutions include banks, savings associations, credit unions, and mortgage companies. The HMDA data made available today cover 2010 lending activity—applications, originations, purchases of loans, denials, and other actions such as incomplete or withdrawn applications. The data being released today include disclosure statements for each financial institution, aggregate data for each metropolitan statistical area (MSA), nationwide summary statistics regarding lending patterns, and Loan/Application Registers (LARs) for each financial institution (LARs modified to help ensure borrower privacy). The FFIEC prepares and distributes this information on behalf of its member agencies (Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, National Credit Union Administration, Office of the Comptroller of the Currency, Consumer Financial Protection Bureau) and the Department of Housing and Urban Development. The 2010 data include information on 12.9 million home loan applications (of which nearly 8 million resulted in loan originations) and 3.2 million loan purchases, for a total of about 16.2 million actions. The data also include information on 165,000 requests for preapprovals that did not result in a loan origination. The number of reporting institutions fell 2 percent from 2009, attributable to a relatively large decline (about 7 percent from 2009) in the number of mortgage companies reporting data. The total number of originated loans of all types and purposes reported decreased by about 1.1 million, or 12 percent, from 2009, in part because of a 14 percent decline in the number of refinancings. The HMDA data show the disposition of loan applications and include information on loan type (such as conventional or Federal Housing Administration [FHA]), purpose (home purchase, home improvement, or refinancing), and amount; property type (1- to 4-family, multifamily, or manufactured housing); property location (MSA, state, county, and census tract); applicant characteristics (race, ethnicity, sex, and income); and census tract characteristics (minority composition and income). The data also show FIC Regulatory Education Alliance / Copyright ©FIC Conferences, Inc. – Sep 28, 2011 – Week 9 Page 7
whether a loan is subject to the Home Ownership and Equity Protection Act and if a loan is secured by a first or subordinate lien, or is unsecured. In addition, the data provide information on higher-priced lending. The rules used to determine whether a loan is classified as higher-priced under HMDA were changed in 2008. The new rules took effect for applications taken beginning October 1, 2009. For applications taken prior to that date, lenders reported the spread between a loan's annual percentage rate (APR) and the yield on comparable-maturity Treasury securities if it exceeded specified thresholds. For applications taken on or after that date, lenders also reported spreads for loans that exceeded specified thresholds, but the spread was measured as the difference between the APR on the loan and the estimated APR (termed the "average prime offer rate" or APOR) for loans extended to prime borrowers based on the rates reported by Freddie Mac in itsPrimary Mortgage Market Survey® (PMMS)2. The specified thresholds under the revised price reporting rule are 1.5 percentage points above the PMMS rate for first lien loans and 3.5 percentage points for junior lien loans. The 2010 data reflect the first full year of data reported under the revised loan pricing rules. More information about HMDA data reporting requirements is available in the Frequently Asked Questions on the FFIEC website at http://www.ffiec.gov/hmda/faq.htm. With respect to loan pricing, the 2010 data on the incidence of higher-priced lending show a small minority of loans (3.2 percent) have APRs that exceeded the loan price reporting thresholds. For example, for conventional first lien loans used to purchase site-built properties, about 3.3 percent exceeded the reporting threshold. For similar government-backed loans, about 1.3 percent exceeded the loan price reporting threshold. The principal exception to the low incidence of higher-priced lending is that 80 percent of first lien loans used to purchase manufactured homes exceeded the reporting threshold in 2010. The incidence of higher-priced lending reported in the 2010 HMDA data varies some across racial and ethnic groups, although the absolute levels of such higher-priced lending are notably lower for all groups than during the period preceding the implementation of the new classification rule. The HMDA data reflect a continued heavy reliance on loans backed by FHA insurance that began with the emergence of the recent mortgage market difficulties. For home purchase lending, the FHA's share of first-lien loans increased from 7 percent in 2007 to 37 percent in 2009 and 36 percent in 2010. First-lien lending for home purchases backed by Veterans Administration (VA) guarantees also has increased markedly, although VA-backed lending is much smaller in scope than FHA-backed lending. The VA market share of first-lien home purchase loans increased from 2.7 percent in 2007 to 6.7 percent in 2009 and 7.0 percent in 2010. Regarding the disposition of applications for conventional home-purchase loans in 2010, blacks and Hispanic whites had notably higher gross denial rates than nonHispanic whites. The pattern for Asians was somewhat different, as their gross denial FIC Regulatory Education Alliance / Copyright ©FIC Conferences, Inc. – Sep 28, 2011 – Week 9 Page 8
rate was slightly lower than the corresponding gross denial rates for non-Hispanic whites. These relationships are similar to those found in earlier years. The HMDA data can facilitate the fair lending examination and enforcement process and promote market transparency. When federal banking agency examiners evaluate an institution's fair lending risk, they analyze HMDA data in conjunction with other information and risk factors, in accordance with the Interagency Fair Lending Examination Procedures (http://www.ffiec.gov/PDF/fairlend.pdf). Risk factors for pricing discrimination include, but are not limited to, the relationship between loan pricing and compensation of loan officers or mortgage brokers, the presence of broad pricing discretion, and consumer complaints. The HMDA data alone cannot be used to determine whether a lender is complying with fair lending laws. They do not include many potential determinants of creditworthiness and loan pricing, such as the borrower's credit history, debt-to-income ratio, and the loan-to-value ratio. Therefore, when the federal banking agencies conduct fair lending examinations, including ones involving loan pricing, they analyze additional information before reaching a determination regarding institutions' compliance with fair lending laws. Financial institution disclosure statements, individual institution's LAR data, and MSA and nationwide aggregate reports are available at http://www.ffiec.gov/hmda. Refer to the HMDA data products at http://www.ffiec.gov/hmda/hmdaproducts.htm for the item descriptions and formats. Financial institutions are required to make their disclosure statements available at their home offices. For other MSAs in which financial institutions have offices, an institution must either make the disclosure statement available at one branch within each MSA or provide a copy upon receiving a written request. Questions about a HMDA report for a specific institution should be directed to the institution's supervisory agency at the number listed below. Federal Deposit Insurance Corporation — 877-275-3342; hearing impaired — 800-925-4618 Board of Governors of the Federal Reserve System, HMDA Assistance Line — 202-452-2016 National Credit Union Administration, Office of Consumer Protection — 703-518-1140 Office of the Comptroller of the Currency, Compliance Policy Division — 202-874-4428 Consumer Financial Protection Bureau — 202-435-7000 Department of Housing and Urban Development, Office of Housing — 202-402-7540
Data on Private Mortgage Insurance The FFIEC also provides data from the nation's seven private mortgage insurance companies. The 2010 private mortgage insurance data include information on approximately 370,000 applications for mortgage insurance, comprised of about 222,000 applications to insure home purchase mortgages, and about 148,000 applications to insure mortgages to refinance existing obligations. These data also are FIC Regulatory Education Alliance / Copyright ©FIC Conferences, Inc. – Sep 28, 2011 – Week 9 Page 9
available today—at individual private mortgage insurance companies and from the FFIEC (http://www.ffiec.gov/reports.htm) —in the same types of reports and formats as the HMDA data. ### Media Contacts: Federal Reserve
Susan Stawick
(202) 452-2955
FDIC
Greg Hernandez
(202) 898-6984
OCC
Dean DeBuck
(202) 874-5770
CFPB
Jen Howard
(202) 435-7454
SLC
Catherine Woody
(202) 728-5733
1 The FFIEC was established in March 1979 to prescribe uniform principles, standards, and report forms and to promote uniformity in the supervision of financial institutions. The Council has six voting members: a Governor of the Board of Governors of the Federal Reserve System designated by the Chairman of the Board, the Chairman of the Federal Deposit Insurance Corporation, the Chairman of the Board of the National Credit Union Administration, the Comptroller of the Currency, the Director of the Consumer Financial Protection Bureau, and the Chairman of the State Liaison Committee. The Council's activities are supported by interagency task forces and by an advisory State Liaison Committee, comprised of five representatives of state agencies that supervise financial institutions. 2 Freddie Mac's weekly PMMS reports the average contract rates and points for all loans and the margin for adjustable-rate loans for loans offered to prime borrowers (those that pose the lowest credit risk). The survey currently reports information for two fixedrate mortgage products (30-year and 15-year loans) and two ARM products (one-year adjustable rate and five-year adjustable rate loans). See www.freddiemac.com/dlink/html/PMMS/display/PMMSOutputYr.jsp.
http://www.ffiec.gov/press/pr092211.htm Kimberly Lundquist FIC Conferences, Inc. 1150 N Loop 1604 W Suite 108-603 San Antonio, TX 78248 Tel 210.493.1761 Fax 210.493.9659 [email protected] www.ficconferences.com
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