November 18, 2022

The Home Mortgage Disclosure Act (HMDA), as implemented by Regulation C, is (as the name implies) a disclosure law aimed at providing transparency in the housing credit process.

By collecting certain data points from financial institutions related to home mortgage applications and loans, it permits the public greater insight into (1) whether financial institutions are meeting the credit needs of their communities, (2) the areas where credit is unavailable and greater investment are needed, and (3) discriminatory lending patterns. Originally implemented in 1975, HMDA has been repeatedly amended to modify and expand its scope and application; in 2010, HMDA rulemaking authority was transferred from the Federal Reserve System to the Consumer Financial Protection Bureau (CFPB) under the Dodd-Frank Act. And notably, effective January 1, 2022, the volume threshold for open-ended lines of credit was lowered from 500 open-end lines of credit to 200 open-end lines of credit. Financial institutions should carefully review the scope of HMDA disclosure requirements (and exceptions) and the procedures and processes they have to meet their compliance obligations (if any).

This white paper provides an overview of the scope of Regulation C, its exclusions and exceptions, and potential liability for failure to comply.

Scope of Regulation C

Financial Institutions

A financial institution only falls within the scope of HMDA if it meets the definition of either a “depository financial institution” or “nondepository financial institution,” as these terms are defined by Regulation C.

A “depositary financial institution” may include a bank, savings association, or credit union that:

  1. Exceeds the Asset-Size Threshold (as published annually in the Federal Register);
  2. Has any home or branch office located in a Metropolitan Statistical Area;
  3. Originated or refinanced at least one Home Purchase Loan secured by a first lien on a one-to four-unit dwelling;
  4. Is Federally Insured/Regulated (or otherwise federally related); AND
  5. In each of the preceding two years, meets or exceeds either Loan-Volume Threshold:
    • originated at least 100 Closed-End Mortgage Loans; or
    • originated at least 200 Open-End Lines of Credit.

A “nondepositary financial institution” may include a for-profit mortgage lending institution (excluding a bank, savings association, or credit union) that:

  1. Has any home or branch office located in a Metropolitan Statistical Area, OR received applications for, originated, or purchased five or more Covered Loans related to property in a Metropolitan Statistical Area.
  2. In each of the preceding two years, meets or exceeds either Loan-Volume Threshold:
    • originated at least 100 Closed-End Mortgage Loans; or
    • originated at least 200 Open-End Lines of Credit.

Covered Loans

A financial institution is only required to collect, record, and report information on “Covered Loans,” which includes “closed-end mortgage loans” and “open-end lines of credit,” as these terms are defined by Regulation C. Excluded transactions are not Covered Loans.

A “closed-end mortgage loan” is: (1) an extension of credit, (2) secured by a dwelling, and (3) not an open-end line of credit.

An “open-end line of credit” is: (1) an extension of credit, (2) secured by a dwelling, and (3) generally available credit during a period of time for repeated transactions.

Exclusions, Exemptions, and Other Exceptions

Exclusions

  • Excluded transactions are NOT Covered Loans and do NOT count toward the Loan-Volume Thresholds. Excluded transactions include:
    1. A loan originated or purchased in a fiduciary capacity.
    2. A loan secured by vacant or unimproved land (and loan proceeds are not to be used to build a dwelling on land).
    3. Temporary financing, such as a construction loan or line of credit solely used to finance the construction of a dwelling.
    4. Purchase of interest in a pool of loans.
    5. Purchase of the right to service loans.
    6. Purchase of loan as part of merger or acquisition.
    7. A loan with an amount of less than $500.
    8. Purchase of partial interest in loans.
    9. Loans are used primarily for agricultural purposes or secured by a dwelling on real property used primarily for agricultural purposes.
    10. Loans made primarily for business or commercial purposes (unless for home improvement, home purchase loan, or refinancing).
    11. If less than 100 originated, closed-end mortgage loans.
    12. If less than 200 originated, open-end lines of credit.
    13. Certain consolidation, extension and modification agreements under New York law (NY CEMA loans).

Exemptions

  • A state-licensed or state-chartered financial institution may apply to the CFPB for an exemption from Regulation C if the financial institution is subject to substantially similar state disclosure laws.
  • Insured Credit Unions and Insured Depository Institutions (with at least a satisfactory CRA rating) qualify for a partial exemption:
    • For Closed-End Mortgage Loans, if originated fewer than 500 in each of the preceding two calendar years.
    • For Open-End Lines of Credit, if originated fewer than 500 in each of the preceding two calendar years.

Other Exceptions

  • An ATM or other electronic terminal is not a “branch office” under Regulation C.
  • If a financial institution is not subject to Regulation C but after a merger becomes subject to Regulation C, no data collection is required for the calendar year of the merger.
  • A mere loan modification or renewal is generally NOT a Covered Loan; unlike Regulation B, an “extension of credit” requires a new debt obligation (unless it is an assumption or NY CEMA loan).

Liability under Regulation C

In the event you violate Regulation C, your supervising agency may bring an enforcement action providing for administrative sanctions, including monetary penalties. Nonetheless, Regulation C provides safe harbors for both (1) bona fide errors occurring despite reasonable procedures in place; and (2) inaccurate, incomplete, or missing information on quarterly reports that are corrected prior to submission of the annual report.

Contact us for more information.

Baldini Lang LLC has extensive experience assisting financial institution clients in building risk assessment programs and policies to comply with their legal requirements and establish best practice standards.

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© 2022 Baldini Lang LLC. This material is a general update from Baldini Lang LLC and is not intended as, nor should be considered, legal advice. To obtain legal advice from Baldini Lang LLC, you must first establish an attorney-client relationship with the firm in writing. This material may not be used by any party in any manner without the express written permission of Baldini Lang LLC, PO Box 270746, West Hartford, Connecticut 06127.

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We aren’t your typical law firm.

Unlike traditional law firms, we do not maintain extravagant offices or a large staff, or otherwise incur high overhead expenses that get passed on to clients.

Instead, we leverage modern technologies and focus on managing costs while still providing high-quality legal advice.

Contact