Final Rule for the Home Mortgage Disclosure Act Changes

November 2008

Give us a break! You got it! The new HMDA changes have been finalized but the effective date has been pushed off from January 1, 2009 to October 1, 2009. What does this mean for your institution? On October 20, 2008, the Federal Reserve announced the final rule for the Home Mortgage Disclosure Act changes. These changes were originally proposed in July 2008 when final Regulation Z rules were published. The HMDA revisions were made to correlate HMDA to Regulation Z and the new category of loans called higher-priced mortgage loans.

  The primary change to HMDA that will be critical for all HMDA reporting institutions is the change in the rate spread calculation. Currently, the HMDA rate spread must be calculated for all reportable loans that are covered by Regulation Z where the APR exceeds the comparable Treasury security rate by 3% for first lien loans and 5% for subordinate lien loans. Keep in mind that the HMDA calculations are not, and never were, the calculations for Section 32 mortgages (i.e., HOEPA loans).

The Regulation Z amendments that go into effect next year create a new category of loans referred to as higher-priced mortgage loans. A loan is a higher-priced mortgage loan under the new Regulation Z when its APR exceeds the "Average Prime Offer Rate" by 1.5% for a first lien loan and 3.5% percent for a subordinate lien loan. The Average Prime Offer Rate is a new rate that the Federal Reserve will publish weekly.

The new HMDA revisions take the current HMDA rate spread calculation and align it with Regulation Z's higher-priced mortgage loan calculation. So now, instead of calculating your spread based on 3% and 5% over Treasury security rates, you'll calculate it based on 1.5% and 3.5% over the new Average Prime Offer Rate. The original HMDA proposed rule had an effective date of January 1, 2009, and the Federal Reserve was supposed to start publishing the Average Prime Offer Rate in October 2008. But industry commentators pleaded for a delay in the effective date and got it. The Federal Reserve has delayed the effective date until October 1, 2009. What does that mean for you?

For all applications received on or after October 1, 2009, a HMDA reportable institution will calculate the rate spread using the new calculation. For all loans that close after January 1, 2010, the new calculation will apply regardless when the application was taken. Otherwise, if a loan application was received prior to October 1, 2009, the old calculation will apply. That means your 2009 HMDA LAR will have rate spreads calculated using two different rate spread methods. The justification for the timing was so that no institution would have to worry about calculating one rate spread on HMDA and a different one for Regulation Z as they would both go into effect on the same day - October 1, 2009. So keep on doing what you've been doing until October 1, 2009. Then switch your HMDA gears in time with the Regulation Z effective date on higher-priced mortgage loans. By the way, we still do not know when the Average Prime Offer Rate will be published. But at least now, you have some time to get ready!

For more information, check out our upcoming web seminar and Training on Demand session called "Reporting 2008 HMDA Data," or take a look at our new High Priced Loans Quick Reference Guide on our Web site at http://www.metavanteregulatoryservices.com. The coming years promise to impose heavy regulatory burdens on many institutions, so be sure to call us at (800) 547-2462 for your regulatory needs.

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