Fed publishes HMDA transition rules
By MortgageDaily.com staff
5/29/2003

Revised regulations will soon govern information-gathering by mortgage application takers. But, because applications taken under the old rules may meet their end under the revised rules, the Federal Reserve System this week published transition rules that will govern applications that straddle the changes.

The Fed previously published revisions to the rules used to gather data under the Home Mortgage Disclosure Act (HMDA). The revisions, published in 2002, are scheduled to go into effect January 1, 2004. That same day, newly formatted applications will be required.

The rules that will take effect in 2004 will allow for more detailed HMDA data. Application takers will be required to classify the type of structure involved, noting if it is a manufactured home. Also, preapproval requests will be required reporting, if the preapproval was denied. If the preapproval eventually resulted in a loan offer, if the borrower accepts the loan, the preapproval part of the process must be reported. If the loan is declined by the borrower, the new rules don't require it to be reported.

Ethnicity reporting will reflect some revisions, in order to comply with OMB regulations. Definitions for "home-improvement" and "refinance" also will be revised under the rules for 2004.

The new rules also require reporting of the spread between the annual percentage rate (APR) offered with the loan and comparable Treasury yields.

Transition rules were not proposed for the reporting of rate spreads, but the Fed clarified when the information would be necessary. For applications during the transition period (applications that begin the process in 2003 and end in 2004), only applications with rates that are locked in during 2004 will require rate spread information. According to the commentary accompanying the new rules, comments were sought in an effort to make the reporting process less burdensome, but the final decision was to only require rate spread reporting if the lock occurs in 2004.

In 2004, the part of the application that reflects ethnicity information will be changed. Only the new, revised format may be supplied to potential borrowers after the new rules take effect January 1. Potential borrowers that were sent the old-style documents during the 2003 calendar year may still use them in applying for a loan, and loan processors will be allowed to complete the transaction without having to change or revise the 2003 application's data.

In using the new definitions regarding home improvement loans and refinances, data gatherers may use whichever set of rules they choose for transitional applications, as long as they consistently apply them.

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