Supplement I to Part 203--Staff Commentary Introduction 1. Status. The commentary in this supplement is the vehicle by which the Division of Consumer and Community Affairs of the Federal Reserve Board issues formal staff interpretations of Regulation C (12 CFR part 203). Section 203.1--Authority, Purpose, and Scope 1(c) Scope. 1. General. The comments in this section address issues affecting coverage of institutions and exemptions from coverage. 2. The broker rule and the meaning of ``broker'' and ``investor.'' For the purposes of the guidance given in this commentary, an institution that takes and processes a loan application and arranges for another institution to acquire the loan at or after closing is acting as a ``broker,'' and an institution that acquires a loan from a broker at or after closing is acting as an ``investor.'' (The terms used in this commentary may have different meanings in certain parts of the mortgage lending industry, and other terms may be used in place of these terms, for example in the Federal Housing Administration mortgage insurance programs.) Depending on the facts, a broker may or may not make a credit decision on an application (and thus it may or may not have reporting responsibilities). If the broker makes a credit decision, it reports that decision; if it does not make a credit decision, it does not report. If an investor reviews an application and makes a credit decision prior to closing, the investor reports that decision. If the investor does not review the application prior to closing, it reports only the loans that it purchases; it does not report the loans it does not purchase. An institution that makes a credit decision on an application prior to closing reports that decision regardless of whose name the loan closes in. 3. Illustrations of the broker rule. Assume that, prior to closing, four investors receive the same application from a broker; two deny it, one approves it, and one approves it and acquires the loan. In these circumstances, the first two report denials, the third reports the transaction as approved but not accepted, and the fourth reports an origination (whether the loan closes in the name of the broker or the investor). Alternatively, assume that the broker denies a loan before sending it to an investor; in this situation, the broker reports a denial. 4. Broker's use of investor's underwriting criteria. If a broker makes a credit decision based on underwriting criteria set by an investor, but without the investor's review prior to closing, the broker has made the credit decision. The broker reports as an origination a loan that it approves and closes, and reports as a denial an application that it turns down (either because the application does not meet the investor's underwriting guidelines or for some other reason). The investor reports as purchases only those loans it purchases. 5. Insurance and other criteria. If an institution evaluates an application based on the criteria or actions of a third party other than an investor (such as a government or private insurer or guarantor), the institution must report the action taken on the application (loan originated, approved but not accepted, or denied, for example). 6. Credit decision of agent is decision of principal. If an institution approves loans through the actions of an agent, the institution must report the action taken on the application (loan originated, approved but not accepted, or denied, for example). State law determines whether one party is the agent of another. 7. Affiliate bank underwriting (250.250 review). If an institution makes an independent evaluation of the creditworthiness of an applicant (for example, as part of a preclosing review by an affiliate bank under 12 CFR 250.250, which interprets section 23A of the Federal Reserve Act), the institution is making a credit decision. If the institution then acquires the loan, it reports the loan as an origination whether the loan closes in the name of the institution or its affiliate. An institution that does not acquire the loan but takes some other action reports that action. 8. Participation loan. An institution that originates a loan and then sells partial interests to other institutions reports the loan as an origination. An institution that acquires only a partial interest in such a loan does not report the transaction even if it has participated in the underwriting and origination of the loan. 9. Assumptions. An assumption occurs when an institution enters into a written agreement accepting a new borrower as the obligor on an existing obligation. An institution reports as a home purchase loan an assumption (or an application for an assumption) in the amount of the outstanding principal. If a transaction does not involve a written agreement between a new borrower and the institution, it is not an assumption for HMDA purposes and is not reported. Section 203.2--Definitions 2(b) Application. 1. Consistency with Regulation B. Board interpretations that appear in the official staff commentary to Regulation B (Equal Credit Opportunity, 12 CFR part 202, Supplement 1) are generally applicable to the definition of an application under Regulation C. However, under Regulation C the definition of an application does not include prequalification requests. 2. Prequalification. A prequalification request is a request by a prospective loan applicant (other than a request for preapproval) for a preliminary determination on whether the prospective applicant would likely qualify for credit under an institution's standards, or for a determination on the amount of credit for which the prospective applicant would likely qualify. Some institutions evaluate prequalification requests through a procedure that is separate from the institution's normal loan application process; others use the same process. In either case, Regulation C does not require an institution to report prequalification requests on the HMDA/LAR, even though these requests may constitute applications under Regulation B for purposes of adverse action notices. 3. Requests for preapproval. To be a covered preapproval program, the written commitment issued under the program must result from a full review of the creditworthiness of the applicant, including such verification of income, resources and other matters as is typically done by the institution as part of its normal credit evaluation program. In addition to conditions involving the identification of a suitable property and verification that no material change has occurred in the applicant's financial condition or creditworthiness, the written commitment may be subject only to other conditions (unrelated to the financial condition or creditworthiness of the applicant) that the lender ordinarily attaches to a traditional home mortgage application approval. These conditions are limited to conditions such as requiring an acceptable title insurance binder or a certificate indicating clear termite inspection, and, in the case where the applicant plans to use the proceeds from the sale of the applicant's present home to purchase a new home, a settlement statement showing adequate proceeds from the sale of the present home. 2(c) Branch office. 1. Credit union. For purposes of Regulation C, a ``branch'' of a credit union is any office where member accounts are established or loans are made, whether or not the office has been approved as a branch by a federal or state agency. (See 12 U.S.C. 1752.) 2. Depository institution. A branch of a depository institution does not include a loan production office, the office of an affiliate, or the office of a third party such as a loan broker. (But see Appendix A, Paragraph I.C.6, which requires certain depository institutions to report property location even for properties located outside those metropolitan areas in which the institution has a home or branch office.) 3. Nondepository institution. For a nondepository institution, ``branch office'' does not include the office of an affiliate or other third party such as a loan broker. (But note that certain nondepository institutions must report property location even in metropolitan areas where they do not have a physical location.) 2(d) Dwelling. 1. Coverage. The definition of ``dwelling'' is not limited to the principal or other residence of the applicant or borrower, and thus includes vacation or second homes and rental properties. A dwelling also includes a multifamily structure such as an apartment building. 2. Exclusions. Recreational vehicles such as boats or campers are not dwellings for purposes of HMDA. Also excluded are transitory residences such as hotels, hospitals, and college dormitories--whose occupants have principal residences elsewhere. 2(e) Financial institution. 1. General. An institution that met the test for coverage under HMDA in year 1, and then ceases to meet the test (for example, because its assets fall below the threshold on December 31 of year 2) stops collecting HMDA data beginning with year 3. Similarly, an institution that did not meet the coverage test for a given year, and then meets the test in the succeeding year, begins collecting HMDA [[Page 7248]] data in the calendar year following the year in which it meets the test for coverage. For example, a for-profit mortgage lending institution (other than a bank, savings association, or credit union) that, in year 1, falls below the thresholds specified in Sec. 203.2(e)(2)(ii)(A) and (B), but meets one of them in year 2, need not collect data in year 2, but begins collecting data in year 3. 2. Adjustment of exemption threshold for depository institutions. For data collection in 2010, the asset-size exemption threshold is $39 million. Depository institutions with assets at or below $39 million as of December 31, 2009 are exempt from collecting data for 2010. [BOL Note: for 2009, the amount was also $39 million.] 3. Coverage after a merger. Several scenarios of data-collection responsibilities for the calendar year of a merger are described below. Under all the scenarios, if the merger results in a covered institution, that institution must begin data collection January I of the following calendar year. i. Two institutions are not covered by Regulation C because of asset size. The institutions merge. No data collection is required for the year of the merger (even if the merger results in a covered institution). ii. A covered institution and an exempt institution merge. The covered institution is the surviving institution. For the year of the merger, data collection is required for the covered institution's transactions. Data collection is optional for transactions handled in offices of the previously exempt institution. iii. A covered institution and an exempt institution merge. The exempt institution is the surviving institution, or a new institution is formed. Data collection is required for transactions of the covered institution that take place prior to the merger. Data collection is optional for transactions taking place after the merger date. iv. Two covered institutions merge. Data collection is required for the entire year. The surviving or resulting institution files either a consolidated submission or separate submissions for that year. 4. Originations. HMDA coverage depends in part on whether an institution has originated home purchase loans. To determine whether activities with respect to a particular loan constitute an origination, institutions should consult, among other parts of the staff commentary, the discussion of the broker rule under Secs. 203.1(c) and 203.4(a). 5. Branches of foreign banks--treated as banks. A federal branch or a state-licensed insured branch of a foreign bank is a ``bank'' under section 3(a)(1) of the Federal Deposit Insurance Act (12 U.S.C. 1813(a)), and is covered by HMDA if it meets the tests for a depository institution found in Sec. 203.2(e)(1) of Regulation C. 6. Branches and offices of foreign banks--treated as for-profit mortgage lending institutions. Federal agencies, state-licensed agencies, state-licensed uninsured branches of foreign banks, commercial lending companies owned or controlled by foreign banks, and entities operating under section 25 or 25A of the Federal Reserve Act, 12 U.S.C. 601 and 611 (Edge Act and agreement corporations) are not ``banks'' under the Federal Deposit Insurance Act. These entities are nonetheless covered by HMDA if they meet the tests for a for-profit nondepository mortgage lending institution found in Sec. 203.2(e)(2) of Regulation C. 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 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. 2(h) Home purchase loan. 1. Multiple properties. A home purchase loan includes a loan secured by one dwelling and used to purchase another dwelling. 2. Mixed-use property. A dwelling-secured loan to purchase property used primarily for residential purposes (for example, an apartment building containing a convenience store) is a home purchase loan. 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. 3. Farm loan. A loan to purchase property used primarily for agricultural purposes is not a home purchase loan even if the property includes a dwelling. An institution may use any reasonable standard to determine the primary use of the property, such as by reference to the exemption from Regulation X (Real Estate Settlement Procedures, 24 CFR 3500.5(b)(1)) for a loan on property of 25 acres or more. An institution may select the standard to apply on a case- by-case basis. 4. Commercial and other loans. A home purchase loan may include a loan originated outside an institution's residential mortgage lending division (such as a loan for the purchase of an apartment building made through the commercial loan department). 5. Construction and permanent financing. A home purchase loan includes both a combined construction/permanent loan and the permanent financing that replaces a construction-only loan. It does not include a construction-only loan, which is considered ``temporary financing'' under Regulation C and is not reported. 6. Second mortgages that finance the downpayments on first mortgages. If an institution making a first mortgage loan to a home purchaser also makes a second mortgage loan to the same purchaser to finance part or all the home purchaser's downpayment, the institution reports each loan separately as a home purchase loan. 7. Multiple-category loans. If a loan is a home purchase loan as well as a home improvement loan, or a refinancing, an institution reports the loan as a home purchase loan. Section 203.4--Compilation of Loan Data 4(a) Data Format and Itemization. 1. Reporting requirements. i. An institution reports data on loans that it originated and loans that it purchased during the calendar year described in the report. An institution reports these data even if the loans were subsequently sold by the institution. ii. An institution reports the data for loan applications that did not result in originations--for example, applications that the institution denied or that the applicant withdrew during the calendar year covered by the report. iii. In the case of brokered loan applications or applications forwarded through a correspondent, the institution reports as originations the loans that it approved and subsequently acquired per a pre-closing arrangement (whether or not they closed in the institution's name). Additionally, the institution reports the data for all applications that did not result in originations--for example, applications that the institution denied or that the applicant withdrew during the calendar year covered by the report (whether or not they would have closed in the institution's name). For all of these loans and applications, the institution reports the required data regarding the borrower's or applicant's ethnicity, race, sex, and income. iv. Loan originations are to be reported only once. If the institution is the loan broker or correspondent, it does not report as originations the loans that it forwarded to another lender for approval prior to closing, and that were approved and subsequently acquired by that lender (whether or not they closed in the institution's name). v. An institution reports applications that were received in the previous calendar year but were acted upon during the calendar year covered by the current register. [[Page 7249]] vi. A financial institution submits all required data to its supervisory agency in one package, with the prescribed transmittal sheet. An officer of the institution certifies to the accuracy of the data. vii. The transmittal sheet states the total number of line entries contained in the accompanying data transmission. 2. Updating--agency requirements. Certain state or federal regulations, such as the Federal Deposit Insurance Corporation's regulations, may require an institution to update its data more frequently than is required under Regulation C. 3. Form of quarterly updating. An institution may maintain the quarterly updates of the HMDA/LAR in electronic or any other format, provided the institution can make the information available to its regulatory agency in a timely manner upon request. 4(a)(1) Application number and application date. 1. Application date--consistency. In reporting the date of application, an institution reports the date the application was received or the date shown on the application. Although an institution need not choose the same approach for its entire HMDA submission, it should be generally consistent (such as by routinely using one approach within a particular division of the institution or for a category of loans). 2. Application date--application forwarded by a broker. For an application forwarded by a broker, an institution reports the date the application was received by the broker, the date the application was received by the institution, or the date shown on the application. Although an institution need not choose the same approach for its entire HMDA submission, it should be generally consistent (such as by routinely using one approach within a particular division of the institution or for a category of loans). 3. Application date--reinstated application. If, within the same calendar year, an applicant asks an institution to reinstate a counteroffer that the applicant previously did not accept (or asks the institution to reconsider an application that was denied, withdrawn, or closed for incompleteness), the institution may treat that request as the continuation of the earlier transaction or as a new transaction. If the institution treats the request for reinstatement or reconsideration as a new transaction, it reports the date of the request as the application date. 4. Application or loan number. An institution must ensure that each identifying number is unique within the institution. If an institution's register contains data for branch offices, for example, the institution could use a letter or a numerical code to identify the loans or applications of different branches, or could assign a certain series of numbers to particular branches to avoid duplicate numbers. Institutions are strongly encouraged not to use the applicant's or borrower's name or social security number, for privacy reasons. 5. Application--year action taken. An institution must report an application in the calendar year in which the institution takes final action on the application. Paragraph 4(a)(3) Purpose. 1. Purpose--statement of applicant. An institution may rely on the oral or written statement of an applicant regarding the proposed use of loan proceeds. For example, a lender could use a check-box, or a purpose line, on a loan application to determine whether or not the applicant intends to use loan proceeds for home improvement purposes. 2. Purpose--multiple-purpose loan. If a loan is a home purchase loan as well as a home improvement loan, or a refinancing, an institution reports the loan as a home purchase loan. If a loan is a home improvement loan as well as a refinancing, an institution reports the loan as a home improvement loan. Paragraph 4(a)(6) Occupancy. 1. Occupancy--multiple properties. If a loan relates to multiple properties, the institution reports the owner occupancy status of the property for which property location is being reported. (See the comments to paragraph 4(a)(9), Property location.) Paragraph 4(a)(7) Loan amount. 1. Loan amount--counteroffer. If an applicant accepts a counteroffer for an amount different from the amount initially requested, the institution reports the loan amount granted. If an applicant does not accept a counteroffer or fails to respond, the institution reports the loan amount initially requested. 2. Loan amount--multiple-purpose loan. Except in the case of a home-equity line of credit, an institution reports the entire amount of the loan, even if only a part of the proceeds is intended for home purchase or home improvement. 3. Loan amount--home-equity line. An institution that has chosen to report home-equity lines of credit reports only the part that is intended for home-improvement or home-purchase purposes. 4. Loan amount--assumption. An institution that enters into a written agreement accepting a new party as the obligor on a loan reports the amount of the outstanding principal on the assumption as the loan amount. Paragraph 4(a)(8) Type of action taken and date. 1. Action taken--counteroffers. If an institution makes a counteroffer to lend on terms different from the applicant's initial request (for example, for a shorter loan maturity or in a different amount) and the applicant does not accept the counteroffer or fails to respond, the institution reports the action taken as a denial on the original terms requested by the applicant. 2. Action taken--rescinded transactions. If a borrower rescinds a transaction after closing, the institution may report the transaction either as an origination or as an application that was approved but not accepted. 3. Action taken--purchased loans. An institution reports the loans that it purchased during the calendar year, and does not report the loans that it declined to purchase. 4. Action taken--conditional approvals. If an institution issues a loan approval subject to the applicant's meeting underwriting conditions (other than customary loan commitment or loan-closing conditions, such as a clear-title requirement or an acceptable property survey) and the applicant does not meet them, the institution reports the action taken as a denial. 5. Action taken date--approved but not accepted. For a loan approved by an institution but not accepted by the applicant, the institution reports any reasonable date, such as the approval date, the deadline for accepting the offer, or the date the file was closed. Although an institution need not choose the same approach for its entire HMDA submission, it should be generally consistent (such as by routinely using one approach within a particular division of the institution or for a category of loans). 6. Action taken date--originations. For loan originations, an institution generally reports the settlement or closing date. For loan originations that an institution acquires through a broker, the institution reports either the settlement or closing date, or the date the institution acquired the loan from the broker. If the disbursement of funds takes place on a date later than the settlement or closing date, the institution may use the date of disbursement. For a construction/permanent loan, the institution reports either the settlement or closing date, or the date the loan converts to the permanent financing. Although an institution need not choose the same approach for its entire HMDA submission, it should be generally consistent (such as by routinely using one approach within a particular division of the institution or for a category of loans). Notwithstanding this flexibility regarding the use of the closing date in connection with reporting the date action was taken, the year in which an origination goes to closing is the year in which the institution must report the origination. 7. Action taken--pending applications. An institution does not report any loan application still pending at the end of the calendar year; it reports that application on its register for the year in which final action is taken. Paragraph 4(a)(9) Property location. 1. Property location--multiple properties (home improvement/ refinance of home improvement). For a home improvement loan, an institution reports the property being improved. If more than one property is being improved, the institution reports the location of one of the properties or reports the loan using multiple entries on its HMDA/LAR (with unique identifiers) and allocating the loan amount among the properties. 2. Property location--multiple properties (home purchase/ refinance of home purchase). For a home purchase loan, an institution reports the property taken as security. If an institution takes more than one property as security, the institution reports the location of the property being purchased if there is just one. If the loan is to purchase multiple properties and is secured by multiple properties, the institution reports the location of one of the properties or reports the loan using multiple entries on its HMDA/LAR (with unique identifiers) and allocating the loan amount among the properties. 3. Property location--loans purchased from another institution. The requirement to [[Page 7250]] report the property location by census tract in a metropolitan area where the institution has a home or branch office applies not only to loan applications and originations but also to loans purchased from another institution. This includes loans purchased from an institution that did not have a home or branch office in that metropolitan area and did not collect the property-location information. 4. Property location--mobile or manufactured home. If information about the potential site of a mobile or manufactured home is not available, an institution reports using the code for ``not applicable.'' Paragraph 4(a)(10) Applicant and income data. 1. Applicant data--completion by applicant. An institution reports the monitoring information as provided by the applicant. For example, if an applicant checks the ``Asian'' box the institution reports using the ``Asian'' code. 2. Applicant data--completion by lender. If an applicant fails to provide the requested information for an application taken in person, the institution reports the data on the basis of visual observation or surname. 3. Applicant data--application completed in person. When an applicant meets in person with a lender to complete an application that was begun by mail, Internet, or telephone, the institution must request the monitoring information. If the meeting occurs after the application process is complete, for example, at closing, the institution is not required to obtain monitoring information. 4. Applicant data--joint applicant. A joint applicant may enter the government monitoring information on behalf of an absent joint applicant. If the information is not provided, the institution reports using the code for ``information not provided by applicant in mail, Internet, or telephone application.'' 5. Applicant data--video and other electronic-application processes. An institution that accepts applications through electronic media with a video component treats the applications as taken in person and collects the information about the ethnicity, race, and sex of applicants. An institution that accepts applications through electronic media without a video component (for example, the Internet or facsimile) treats the applications as accepted by mail. 6. Income data--income relied on. An institution reports the gross annual income relied on in evaluating the creditworthiness of applicants. For example, if an institution relies on an applicant's salary to compute a debt-to-income ratio but also relies on the applicant's annual bonus to evaluate creditworthiness, the institution reports the salary and the bonus to the extent relied upon. Similarly, if an institution relies on the income of a cosigner to evaluate creditworthiness, the institution includes this income to the extent relied upon. But an institution does not include the income of a guarantor who is only secondarily liable. 7. Income data--co-applicant. If two persons jointly apply for a loan and both list income on the application, but the institution relies only on the income of one applicant in computing ratios and in evaluating creditworthiness, the institution reports only the income relied on. 8. Income data--loan to employee. An institution may report ``NA'' in the income field for loans to its employees to protect their privacy, even though the institution relied on their income in making its credit decisions. Paragraph 4(a)(11) Purchaser. 1. Type of purchaser--loan-participation interests sold to more than one entity. An institution that originates a loan, and then sells it to more than one entity, reports the ``type of purchaser'' based on the entity purchasing the greatest interest, if any. If an institution retains a majority interest, it does not report the sale. 2. Type of purchaser--swapped loans. Loans ``swapped'' for mortgage-backed securities are to be treated as sales; the purchaser is the type of entity receiving the loans that are swapped. Paragraph 4(a)(12) Rate spread information. Paragraph 4(a)(12)(ii). 1. Average prime offer rate. Average prime offer rates are annual percentage rates derived from average interest rates, points, and other loan pricing terms offered to borrowers by a representative sample of lenders for mortgage loans that have low- risk pricing characteristics. Other pricing terms include commonly used indices, margins, and initial fixed-rate periods for variable- rate transactions. Relevant pricing characteristics include a consumer's credit history and transaction characteristics such as the loan-to-value ratio, owner-occupant status, and purpose of the transaction. To obtain average prime offer rates, the Board uses a survey of lenders that both meets the criteria of Sec. 203.4(a)(12)(ii) and provides pricing terms for at least two types of variable-rate transactions and at least two types of non- variable-rate transactions. An example of such a survey is the Freddie Mac Primary Mortgage Market Survey[supreg]. 2. Comparable transaction. The rate spread reporting requirement applies to a reportable loan with an annual percentage rate that exceeds by the specified margin (or more) the average prime offer rate for a comparable transaction as of the date the interest rate is set. The tables of average prime offer rates published by the Board (see comment 4(a)(12)(ii)-3) indicate how to identify the comparable transaction. 3. Board tables. The Board publishes on the FFIEC's Web site (http://www.ffiec.gov/hmda), in table form, average prime offer rates for a wide variety of transaction types. The Board calculates an annual percentage rate, consistent with Regulation Z (see 12 CFR 226.22 and part 226, appendix J), for each transaction type for which pricing terms are available from the survey described in comment 4(a)(12)(ii)-1. The Board estimates annual percentage rates for other types of transactions for which direct survey data are not available based on the loan pricing terms available in the survey and other information. The Board publishes on the FFIEC's Web site the methodology it uses to arrive at these estimates. ********************* ********************* Attachment I--Methodology for Determining Average Prime Offer Rates The calculation of average prime offer rates is based on the Freddie Mac Primary Mortgage Market Survey[supreg] (PMMS). The survey collects data for a hypothetical, ``best quality,'' 80% loan-to-value, first-lien loan for four mortgage products: (1) 30-year fixed-rate; (2) 15-year fixed-rate; (3) one-year variable-rate; and (4) five-year variable-rate.\5\ Each of the variable-rate products adjusts to an index based on the one-year Treasury rate plus a margin and adjusts annually after the initial, fixed-rate period. This Methodology first describes all the steps necessary to calculate average prime offer rates and then provides a numerical example illustrating each step with the data from the week of May 19, 2008. --------------------------------------------------------------------------- \5\ The ``30-year'' and ``15-year'' fixed-rate product designations refer to those products' terms to maturity. The ``one- year'' and ``five-year'' variable-rate product designations, on the other hand, refer to those products' initial, fixed-rate periods. All variable-rate products discussed in this Methodology have 30- year terms to maturity. --------------------------------------------------------------------------- The PMMS collects nationwide average offer prices during the Monday through Wednesday period each week and publicly releases the averages on Thursday. For each loan type the average commitment loan rate and total fees and points (``points'') are reported, with the points expressed as percentages of the initial loan balance. For the fixed- rate products, the commitment rate is the contract rate on the loan; for the variable-rate products it is the initial contract rate. For the variable-rate products, the average margin is also reported. The PMMS data are used to compute an annual percentage rate (APR) for the 30- and 15-year fixed-rate products. For the two variable-rate products, an estimate of the fully-indexed rate (the sum of the index and margin) is calculated as the margin (collected in the survey) plus the current one-year Treasury rate, which is estimated as the average of the close-of-business, one-year Treasury rates for Monday, Tuesday, and Wednesday of the survey week. If data are available for fewer than three days, only yields for the available days are used for the average. Survey data on the initial interest rate and points, and the estimated fully indexed rate, are used to compute a composite APR for the one- and five-year variable-rate mortgage products. See Regulation Z official staff commentary, 12 CFR part [[Page 63337]] 226, Supp. I, comment 17(c)(1)-10 (creditors to compute a composite APR where initial rate on variable-rate transaction not determined by reference to index and margin). In computing the APR for all four PMMS products, a fully amortizing loan is assumed, with monthly compounding. A two-percentage-point cap on the annual interest rate adjustments is assumed for the variable- rate products. For all four products, the APR is calculated using the actuarial method, pursuant to appendix J to Regulation Z. A payment schedule is used that assumes equal monthly payments (even if this entails fractions of cents), assumes each payment due date to be the 1st of the month regardless of the calendar day on which it falls, treats all months as having 30 days, and ignores the occurrence of leap years. See 12 CFR 226.17(c)(3). The APR calculation also assumes no irregular first period or per diem interest collected. The PMMS data do not cover fixed-rate loans with terms to maturity of other than 15 or 30 years and do not cover variable-rate mortgages with initial, fixed-rate periods of other than one or five years. The Board uses interpolation techniques to estimate APRs for ten additional products (two-, three-, seven-, and ten-year variable-rate loans and one-, two-, three-, five-, seven-, and ten-year fixed-rate loans) to use along with the four products directly surveyed in the PMMS. The Treasury Department makes available yields on its securities with terms to maturity of, among others, one, two, three, five, seven, and ten years (see http://www.treas.gov/offices/domestic-finance/debt- management/interest-rate/yield.shtml). The Board uses these data to estimate APRs for two-, three-, seven-, and ten-year variable-rate mortgages. These additional variable-rate products are assumed to have the same terms and features as the one- and five-year variable-rate products surveyed in the PMMS other than the length of the initial, fixed-rate period. The margin and points for the two- and three-year variable-rate products are estimated as weighted averages of the margins and points of the one-year and five-year variable-rate products reported in the PMMS. For the two-year variable-rate loan the weights are \3/4\ for the one-year variable-rate and \1/4\ for the five-year variable-rate. For the three-year variable-rate product, the weights are \1/2\ each for the one-year and the five-year variable rate. For the seven- and ten- year variable-rate products, because they fall outside of the range between the one- and five-year PMMS variable-rate products, the margin and points of the five-year variable-rate product reported in the PMMS are used instead of calculating a weighted average. The initial interest rate for each of the interpolated variable- rate products is estimated by a two-step process. First, ``Treasury spreads'' are computed for the two- and three-year variable-rate loans as the weighted averages of the spreads between the initial interest rates on the one- and five-year PMMS variable-rate products and the one- and five-year Treasury yields, respectively. The weights used are the same as those used in the calculation of margins and points. For seven- and ten-year variable-rate loans, because they fall outside of the range between the one- and five-year PMMS variable-rate products, the spread between the initial interest rate on the five-year PMMS variable-rate product and the five-year Treasury yield is used as the Treasury spread instead of calculating a weighted average. The second step is to add the appropriate Treasury spread to the Treasury yield for the appropriate initial, fixed-rate period. All Treasury yields used in this two-step process are the Monday-Wednesday close-of- business averages, as described above. Thus, for example, for the two- year variable-rate product the estimated, two-year Treasury spread is added to the average two-year Treasury rate, and for the ten-year variable-rate product the five-year Treasury spread is added to the average ten-year Treasury rate. Thus estimated, the initial rates, margins, and points are used to calculate a fully-indexed rate and ultimately an APR for the two-, three-, seven- and ten-year variable-rate products. To estimate APRs for one-, two-, three-, five-, seven-, and ten-year fixed-rate loans, respectively, the Board uses the initial interest rates and points, but not the fully-indexed rates, of the one-, two-, three-, five-, seven-, and ten-year variable-rate loan products calculated above. For any loan for which an APR of the same term to maturity or initial, fixed-rate period, as applicable, (collectively, for purposes of this paragraph, ``term'') is not included among the 14 products derived or estimated from the PMMS data by the calculations above, the comparable transaction is identified by the following assignment rules: For a loan with a shorter term than the shortest applicable term for which an APR is derived or estimated above, the APR of the shortest term is used. For a loan with a longer term than the longest applicable term for which an APR is derived or estimated above, the APR of the longest term is used. For all other loans, the APR of the applicable term closest to the loan's term is used; if the loan is exactly halfway between two terms, the shorter of the two is used. For example: For a loan with a term of eight years, the applicable (fixed-rate or variable-rate) seven-year APR is used; with a term of six months, the applicable one-year APR is used; with a term of nine years, the applicable ten-year APR is used; with a term of 11 years, the applicable ten-year APR is used; and with a term of four years, the applicable three-year APR is used. For a fixed-rate loan with a term of 16 years, the 15-year fixed-rate APR is used; and with a term of 35 years, the 30-year fixed-rate APR is used. The four APRs derived directly from PMMS product data, the ten additional APRs estimated from PMMS data in the manner described above, and the APRs determined by the foregoing assignment rules are the average prime offer rates for their respective comparable transactions. The PMMS data needed for the above calculations generally are available on the Freddie Mac Web site (http://www.freddiemac.com/dlink/html/PMMS/ display/PMMSOutputYr.jsp) on Thursday of each week. APRs representing average prime offer rates for the 14 products derived or estimated as above are posted in tables on the FFIEC Web site the following day. Those average prime offer rates are effective beginning the following Monday and until the next posting takes effect. Numerical Example The week of May 19 through 25, 2008 is used to illustrate the average prime offer rate calculation Methodology. On Thursday May 15, Freddie Mac released the following PMMS information reflecting national mortgage rate averages for the three day period May 12 through May 14 (each variable is expressed in percentage points): 30-year fixed-rate: Contract rate--6.01 Fees & Points--0.6 15-year fixed-rate: Contract rate--5.60 Fees & Points--0.5 Five-year variable-rate: Initial rate--5.57 Fees & Points--0.6 Margin--2.75 One-year variable-rate: Initial rate--5.18 Fees & Points--0.7 Margin--2.75 The Freddie Mac survey contract rate and points for the 30-year and 15-year [[Page 63338]] fixed-rate mortgages are used to compute APRs for these two products: 30-year fixed-rate--6.07 15-year fixed-rate--5.68 As a preliminary step in calculating APRs for the one-year and five-year variable-rate products, average close-of-business Treasury yields for the three days in which the survey was conducted are calculated (the three yields summed before dividing by three are the close-of-business yields reported for May 12th, 13th, and 14th): One-year Treasury--(2.01+2.08+2.11)/3=2.07 Two-year Treasury--(2.30+2.57+2.53)/3=2.43 Three-year Treasury--(2.54+2.70+2.78)/3=2.67 Five-year Treasury--(3.00+3.17+3.22)/3=3.13 Seven-year Treasury--(3.34+3.49+3.50)/3=3.44 Ten-year Treasury--(3.78+3.90+3.92)/3=3.87 The fully-indexed rate for the one-year variable-rate mortgage is calculated as the one-year Treasury yield plus the margin: 2.07+2.75=4.82 Because both variable-rate products in the PMMS data use the same margin, the fully-indexed rate for the five-year variable-rate mortgage is the same number: 2.07+2.75=4.82 (since each adjusts to the 1-year treasury). The initial rate, points, and fully-indexed rate are used to compute APRs for the one-year and five-year variable-rate products: One-year variable-rate--4.91 Five-year variable-rate--5.16 Data for the interpolated two-year and three-year variable-rate mortgages are calculated as weighted averages of the figures for the one- and five-year variable-rates, which are used in conjunction with the yields on the two- and three-year Treasuries as follows: Two-year variable-rate: Initial rate--[3x(5.18-2.07)+1x(5.57-3.13)]/4+2.43=5.37 Fees & Points--[3x.7+1x.6]/4=.7 Margin--[3x2.75+1x2.75]/4=2.75 Fully-indexed rate--2.07+2.75=4.82 Three-year variable-rate: Initial rate--[2x(5.18-2.07)+2x(5.57-3.13)]/4+2.67=5.45 Fees & Points--[2x.7+2x.6]/4=.7 Margin--[2x2.75+2x2.75]/4=2.75 Fully-indexed rate--2.07+2.75=4.82 The foregoing initial rates, points, margins, and fully-indexed rates are used to calculate APRs for the two- and three-year variable- rate products: Two-year variable-rate--4.97 Three-year variable-rate--5.03 Data for the seven-year and ten-year variable-rate products are estimated using the survey data for the five-year variable-rate product and yields on the seven- and ten-year Treasuries: Seven-year variable-rate: Initial rate--(5.57-3.13)+3.44=5.88 Fees & Points--=.6 Margin--=2.75 Fully-indexed rate--2.07+2.75=4.82 Ten-year variable-rate: Initial rate--(5.57-3.13)+3.87=6.31 Fees & Points--=.6 Margin--=2.75 Fully-indexed rate--2.07+2.75=4.82 The foregoing initial rates, points, margins, and fully-indexed rates are used to calculate APRs for the seven- and ten-year variable- rate products: Seven-year variable-rate--5.40 Ten-year variable-rate--5.85 The initial rate and points of the variable-rate mortgages calculated above are used to estimate APRs for fixed-rate products with terms to maturity of ten years or less: One-year fixed: Initial rate--5.18 Fees & Points--.7 APR--6.49 Two-year fixed: Initial rate--5.37 Fees & Points--.7 APR--6.06 Three-year fixed: Initial rate--5.45 Fees & Points--.7 APR--5.92 Five-year fixed: Initial rate--5.57 Fees & Points--.6 APR--5.82 Seven-year fixed: Initial rate--5.88 Fees & Points--.6 APR--6.06 Ten-year fixed: Initial rate--6.31 Fees & Points--.6 APR--6.44 Paragraph 4(c)(3) Optional data--home-equity lines of credit. 1. An institution that opts to report home-equity lines reports the disposition of all applications, not just originations. Paragraph 4(d) Excluded data. 1. Mergers, purchases in bulk, and branch acquisitions. If a covered institution acquires loans in bulk from another institution (for example, from the receiver for a failed institution) but no merger or acquisition of the institution, or acquisition of a branch, is involved, the institution reports the loans as purchased loans. Section 203.5(a)--Disclosure and Reporting Paragraph 5(a) Reporting to agency. 1. Submission of data. Institutions submit data to their supervisory agencies in an automated, machine-readable form. The format must conform to that of the HMDA/LAR. An institution should contact its federal supervisory agency for information regarding procedures and technical specifications for automated data submission; in some cases, agencies also make software available for automated data submission. The data are edited before submission, using the edits included in the agency-supplied software or equivalent edits in software available from vendors or developed in- house. 2. Submission in paper form. Institutions that report twenty- five or fewer entries on their HMDA/LAR may collect and report the data in paper form. An institution that submits its register in nonautomated form sends two copies that are typed or computer printed and must use the format of the HMDA/LAR (but need not use the form itself). Each page must be numbered along with the total number of pages (for example, ``Page 1 of 3''). 3. Procedures for entering data. The required data are entered in the register for each loan origination, each application acted on, and each loan purchased during the calendar year. The institution should decide on the procedure it wants to follow--for example, whether to begin entering the required data, when an application is received, or to wait until final action is taken (such as when a loan goes to closing or an application is denied). 4. Options for collection. An institution may collect data on separate registers at different branches, or on separate registers for different loan types (such as for home purchase or home improvement loans, or for loans on multifamily dwellings). Entries need not be grouped on the register by metropolitan area, or chronologically, or by census tract numbers, or in any other particular order. 5. Change in supervisory agency. If the supervisory agency for a covered institution changes (as a consequence of a merger or a change in the institution's charter, for example), the institution must report data to its new supervisory agency beginning with the year of the change. 6. Subsidiaries. An institution is a subsidiary of a bank or savings association (for purposes of reporting HMDA data to the parent's supervisory agency) if the bank or savings association holds or controls an ownership interest that is greater than 50 percent of the institution. 7. Transmittal sheet--additional data submissions. If an additional data submission becomes necessary (for example, because the institution discovers that data were omitted from the initial submission, or because revisions are called for, that submission must be accompanied by a transmittal sheet. 8. Transmittal sheet--revisions or deletions. If a data submission involves revisions or deletions of previously submitted data, it must state the total of all line entries contained in that submission, including both those representing revisions or deletions of previously submitted entries, and those that are being resubmitted unchanged or are being submitted for the first time. Depository institutions must provide a list of the metropolitan areas in which they have home or branch offices. Paragraph 5(b) Public disclosure of statement. 1. Business day. For purposes of Sec. 203.5, a business day is any calendar day other than a Saturday, Sunday, or legal public holiday. [[Page 7251]] 2. Format. An institution may make the disclosure statement available in paper form or, if the person requesting the data agrees, in automated form (such as by PC diskette or CD Rom). Paragraph 5(c) Public disclosure of modified loan/application register. 1. Format. An institution may make the modified register available in paper or automated form (such as by PC diskette or computer tape). Although institutions are not required to make the modified register available in census tract order, they are strongly encouraged to do so in order to enhance its utility to users. Paragraph 5(e) Notice of availability. 1. Poster--suggested text. An institution may use any text that meets the requirements of the regulation. Some of the federal financial regulatory agencies and HUD provide HMDA posters that an institution can use to inform the public of the availability of its HMDA data, or the institution may create its own posters. If an institution prints its own, the following language is suggested but is not required: Home Mortgage Disclosure Act Notice The HMDA data about our residential mortgage lending are available for review. The data show geographic distribution of loans and applications; ethnicity, race, sex, and income of applicants and borrowers; and information about loan approvals and denials. Inquire at this office regarding the locations where HMDA data may be inspected. 2. Additional language for institutions making the disclosure statement available on request. An institution that posts a notice informing the public of the address to which a request should be sent could include the following sentence, for example, in its general notice: ``To receive a copy of these data send a written request to [address].'' Section 203.6--Enforcement Paragraph 6(b) Bona fide errors. 1. Bona fide error--information from third parties. An institution that obtains the property-location information for applications and loans from third parties (such as appraisers or vendors of ``geocoding'' services) is responsible for ensuring that the information reported on its HMDA/LAR is correct.