Overview: Regulation C's reporting requirements are changing. The Federal Reserve Board is making the regulation's Home Mortgage Disclosure Act Loan Application Register (HMDA LAR) reporting conform to the new Regulation Z definition of "higher-priced mortgage loan." Effective October 1, 2009, first-lien loans with spreads of 1.5 percentage points and subordinate lien loans with spreads of 3.5 percentage points will be reportable. Those rate spreads will be based on Freddie Mac's Primary Mortgage Market Survey.
Details: Reporting what are considered high-priced mortgage loans on the HMDA LAR is not new. But in the past, what was classified as high-rate has been based on Treasury securities. A mortgage loan rate compared to a Treasury rate may be a fine comparison for investors, but there should be a better way to compare apples to apples when it come to mortgage rates.
Changes to Regulation C were published October 24, 2008. The changes are intended to improve the accuracy of reporting higher-priced mortgage loans. A survey of mortgage rates conducted by Freddie Mac will serve as the base test for what is classified as higher-priced. The Primary Mortgage Market Survey (PMMS) will be published weekly on the FFIEC web site, and include two versions, one for variable-rate loans and one for fixed-rate loans.
The regulation calls for the comparison of a loan's APR to an "average prime offer rate," or APOR. Freddie Mac's PMMS will act as the APOR. The reporting threshold will be set at 1.5 percent above comparable terms reported on the PMMS for first-lien loans, and 3.5 percent for subordinate lien loans.
The most substantive difference between the final regulation and an earlier proposal is the effective date. The proposal suggested January 1, 2009, but commenters believed that would not allow enough time to prepare for the changes. The effective date was delayed until October 1, 2009.
The final rule is effective October 1, 2009. Mandatory compliance applies to loan applications taken on or after that date and to loans that close on or after January 1, 2010.
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