Sample Reg C Comment Letter

Date


Jennifer Johnson, Secretary
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, N.W.
Washington, D.C. 20551

Re: Docket No. R-

Dear Ms. Johnson:

Thank you for the opportunity to comment on the proposal to amend 12 C.F.R. 203, Regulation C. I have comments both in support and opposition to the proposed changes.

First, as a general principle, I am opposed to expanding the information collected on the HMDA-LAR for purposes of research on mortgage lending in general and subprime lending in particular. This proposal to expand HMDA data reported is driven by increasing concerns about predatory lending. Chartered (and examined) financial institutions ("depository institutions") are not the predatory lenders but the onus and the cost of the new requirements would fall primarily on chartered financial institutions. Although you may not have enough information on predatory lending, you should have enough to know that collecting extra information from depository institutions will not produce the information you really need.

Home Equity Line Reporting. The proposal would expand the information collected to include information that will be burdensome to compile and report. This bank took ____ applications for home equity lines of credit and made _____ home equity lines of credit last year. Because of the number of loans and the fact that most customers want the line of credit for personal uses that are not related to housing, we have elected not to report home equity lines of credit under the current rule. Thus, the proposal would require the collection of information on ____ additional loans. We do not believe that this additional burden is justified by the stated purpose of the proposal. Moreover, because most customers obtain home equity lines of credit for purposes that are not related to housing finance, we believe that this expansion is not justified.

Pre-Approval Reporting. This new category for reporting will be very difficult to implement. First, a significant amount of training would be needed to provide all lenders with the information and skill they would need to identify the reportable transactions. This is not easy training. All training time is necessarily taken away from loan production. For the loan officer, this training time is taken away from their income.

Training loan officers to correctly make Regulation B's distinctions between an application and an inquiry is one of the two most difficult aspects of Regulation B training. In order to achieve compliance, our training program must bring each loan officer to a skill level needed to distinguish between an inquiry and an application. This takes time, practice, and constant monitoring. Much of the circumstances are driven by customer behavior - something the loan officer cannot control and the trainer cannot always anticipate. Thus, applying the training to specific situations is a constant challenge.

The other difficult training area involves the collection of monitoring data under 202.13. This HMDA proposal would significantly increase the number of transactions affected by both collection of data and reporting. Our training programs would need to be expanded so that specific courses could be offered in these two compliance requirements alone. We estimate that an additional 1-2 hours of training annually for all lending staff would be necessary to achieve a satisfactory level of compliance with this proposal.

Reporting pre-approvals would also affect our HMDA reporting procedures. We would have to establish a special procedure for reporting approved and closed loans that had previously been identified as a pre-approval. This is an additional quality review and reporting step that has not existed. As with any new procedure, it will require training, development of procedures to carry out the new requirement, and implementing a system or procedure for quality review to be sure that the reporting is accurate.

Refinacings. The proposed definition of refinancing is obtuse and intricate. It is neither realistic nor practical to ask our lending staff to make the fine distinctions called for in this proposed definition. Our loan officers can easily determine whether the loan is secured by a dwelling and whether the loan is a first, second, or third position lien. They also know the difference between a closed-end loan and a home equity line of credit. But to ask the loan officers to determine the purchase status of the loan being refinanced is to ask them to split hairs.

Customers do not bring in the documentation needed to establish whether the loan was a purchase money loan. Moreover, the stage at which the bank does see documents that could indicate this is significantly removed from the HMDA data collection process. In considering an application to refinance a mortgage, the bank does not distinguish between an existing mortgage that was used to purchase the house and a mortgage that was used to refinance a loan or to draw on equity.

This proposed definition would be the topic of continuous interpretation requests. It begs for increased guidance. For example, how should the lender treat an application to refinance a loan and draw on equity in the home? Would it make a difference if the additional amount was to be used for college tuition or investments? What if the additional amount was to be used for home improvements? Should this be reported as a refinance or a home improvement?

We suggest that determining whether a loan is a refinancing is not important for purposes of HMDA reporting. The critical question is whether loans are made to specific customers and in specific geographic areas. We are suggesting an alternative approach below.

Home Improvement Loan Reporting. The proposal would require reporting on all home improvement loans. This is a major expansion of the number of loans reported. This bank makes installment loans to customers who may use the proceeds for home improvement.

In order to determine whether any of the loan proceeds will be used for home improvement, we will need to take additional steps to collect information during the loan application process. This adds a cumbersome step to taking the application. Lenders will need to collect a purpose statement from every loan applicant to determine whether the purpose includes any home improvement. Currently, for qualified applicants, we do not always require a detailed purpose statement.

It would be much easier to omit loan purpose as a trigger for reporting and instead report all loans secured by a dwelling. Our loan officers and loan operations staff can easily answer two questions: is it a loan secured by a dwelling? These distinctions are also consistent with how we board and service loans within the bank.

Recommendation. In its genesis, HMDA was intended to be a tool to measure the willingness of a lender to lend in certain geographic areas. There was particular concern about the willingness of lenders to make loans in urban neighborhoods and in minority neighborhoods. It was the willingness to lend, not the purpose of the loan, that HMDA originally measured. This proposal appears to lose sight of that goal, even though the loan remains a high concern in both fair lending and CRA.

As an alternative to the special categories and distinctions in the proposed rule, we suggest that the rule require reporting of any loan secured by a dwelling, regardless of type or purpose. This would provide a measure of the lender's willingness to lend on properties by location. But it would not require the lender to implement complicated and expensive procedures to determine the nature, purpose, use, and type of the loan as the proposal would.

This would exclude collecting information on unsecured loans such as home improvement loans that are not secured. We believe that this is appropriate for several reasons. First, these loans are extremely difficult to track within the institution and the cost of identifying and reporting these loans is high. Collecting and reporting information on unsecured loans would require additional steps but would not provide a measure of the lender's willingness to lend in a specific geographic area. Finally, many of these loans are now made through the mail or over the Internet, making it difficult or impossible to acquire monitoring information and complete explanations of how the proceeds will be used.

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Thank you for this opportunity to comment. If you have any questions or would like any additional information or comments, I would be happy to respond. Please write to me at this address, or call me at _________. You can also send an e-mail to me at: .com.

Sincerely,



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