[an error occurred while processing this directive]
[an error occurred while processing this directive]
Paul Schieber
[an error occurred while processing this directive]
FEDERAL RESERVE BOARD SOLICITS COMMENTS Federal Reserve Board Solicits Comments on Expanding ECOA and HMDA

Reprinted with permission of Blank Rome Comisky & McCauley LLP "Consumer Lending/Retail Banking Update." Blank Rome is a national law firm with offices in Pennsylvania, New Jersey, Delaware, Maryland, Washington, DC and Florida and its Consumer Financial Services/Retail Banking Group provides advice and counsel to mortgage companies, banks, thrifts, real estate professionals and all others involved in residential mortgage finance and other areas of the law. For further information, contact the Group's chairman, Paul H. Schieber at 215/569-5567 or schieber@blankrome.com.  http://www.blankrome.com/

In March, the Federal Reserve Board solicited comments on revisions to the Equal Credit Opportunity Act (Reg. B) and the Home Mortgage Disclosure Act (Reg. C) to address a number of current industry practices that were not initially contemplated by Reg. B and Reg. C.

Among the most common of those practices are solicitations to "preapproved" or "prequalified" borrowers. As you know, ECOA prohibits a lender from making a credit decision on the basis of a prohibited factor, including race, color, religion, national origin, sex, marital status, and age. Traditionally, ECOA has addressed only those instances in which a person has applied for, and been denied, an extension of credit. Preapplication marketing and preapproved solicitations are currently outside the scope of ECOA because individuals to whom those materials are sent have not requested credit, and therefore are not considered applicants.

Similarly, under HMDA, a lender is required to report certain data about applications, whether or not a loan is actually made, but not about decisions involving a prequalification. However, the Board is concerned that these loopholes in Reg. B and Reg. C result in missed opportunities to discover instances of lender discrimination. As a result, the Board has sought comments as it considers revising current rules to require Reg. B compliance and collection of HMDA data for borrowers who receive preapproval solicitations.

This move has sparked controversy, as industry representatives claim that any such revisions to Reg. B and Reg. C will significantly increase compliance burdens, and require modification of computer systems, at a time when the most important issue for lenders is Year 2000 compliance.

In a related matter, the Board has also proposed that it revisit the distinction under Reg. B between an inquiry and an application. When consumers, for example, are told they prequalify for a mortgage loan, and subsequently approach the lender to determine the price of a home they could afford, or when a consumer accesses a creditor's loan-calculation tools on an internet home page, does this constitute an inquiry or an application? Is a home-ownership counseling program equivalent to providing education-oriented advice, or does it more closely resemble an application, especially when a creditor evaluates the applicant through third party information? Included among the queries posed by the Board is a test based on how "formal" is the process, i.e., the more formal the process is in providing information, counseling, and assistance to applicants, the more the process should be treated as an application. Whether the Board will devise different tests or establish a "bright-line" test will depend, in large part, on the number and types of comments the Board receives.

The Board is also considering, and requesting comments on, the following issues under

Reg. B:

n Whether Reg. B should be amended to permit creditors to collect certain information on applicants for non-mortgage credit.

n Whether the test be modified, or specific guidance given as to the circumstances under which a "creditor" extending credit is not deemed a creditor for purposes of violating ECOA. Should, for example, ECOA address whether a creditor must monitor a broker's practices?

n Can ECOA be revised to clarify how a creditor is permitted to verify whether a joint property owner intends to apply for joint business credit, to avoid violating the prohibition on requiring the signature of a co-applicant if the applicant is creditworthy?

 n Under Reg. C, in addition to soliciting comments on whether lenders should be required to report data on preapprovals, the Board is soliciting comments on the following issues:

n Whether categories from reporting data on refinancings should be modified.

n Whether the requirement to report data on loans that are purchased should be modified.

n Whether further definitions should be provided on what constitutes "temporary financing", currently permitted to be excluded from HMDA reporting.

n Whether reporting data on mobile home loans should be separated from data on traditional home loans.

n Whether requiring institutions to report reasons for denial of loans would further the purposes of HMDA.

Update on New Jersey Mortgage Solicitor Registrations

Due to continuing internal computer problems, the New Jersey Department of Banking and Insurance is not currently issuing mortgage solicitor registration certifications. However, the Department of Banking and Insurance has advised that, upon submission of a properly completed solicitor registration form, a mortgage solicitor may engage in all permitted mortgage solicitation activities within New Jersey, pending receipt of registration certification.

[an error occurred while processing this directive]