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Regulation C Definition
In the U.S., Regulation C implements the Home Mortgage Disclosure Act of 1975 that mandates certain financial institutions disclose mortgage data to the public. The regulation was enacted out of concern over financial institutions’ discriminatory mortgage lending practices leading to credit shortage in certain urban neighborhoods.
A Little More on What is Regulation C
The regulation makes it mandatory for the financial institutions to provide the public with the loan information that helps in scrutinizing whether the institutions are serving the housing credit needs of the neighborhood and the community they are located in. It also enables authorities to identify any discriminatory lending patterns by the financial institutions. It also helps the authorities in targeting public investments from the private sector as needed
All of the government supported (in any capacity) financial institutions providing mortgages need to annually disclose specified data, including the quantity and amounts of mortgages provided by them. The data should also clearly mention the census profiles including the neighborhood where the property is located.
The Bureau of Consumer Financial Protection continues to amend Regulation C to meet the current needs. This includes amendments to comply with the section 1094 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). Several new reporting requirements were added, and several existing requirements were clarified further. The Bureau has also modified the institutional and transactional coverage of Regulation C.
Lending institutions having a total asset of $10 million or less may take advantage of an exemption from the Regulation C. Institutions located outside the metropolitan statistical areas are also exempted from this regulation.
The data provided by the financial institutions must include the information on mortgage origination, purchase of homes and home-improvement loans, and it must be classified according to the census profile of the borrowers. The institutions also need to disclose data about the loan denials, withdrawn loan applications, and dismissed applications. They should also mention the loan applications that were approved but were not accepted by the borrowers.
The aim of this regulation is to prevent any discriminatory practices by the lending institutions and maintain transparency in the mortgage process. The information provided by the institutions are attached to geo-locations and demographics from the census zone. If the authorities notice that a particular institution is regularly denying a loan to a certain section of the population based on their ethnicity or area of residence, the institution might can face penalties.
References for Regulation C
Academic Research on Regulation C
The home mortgage disclosure act: A synopsis and recent legislative history, McCoy, P. (2007). Journal of Real Estate Research, 29(4), 381-397. This paper presents a description of the federal Home Disclosure Act (HMDA) since when Congress expanded it to require the reporting of home mortgage lending by ethnicity and race. It was amended and developed, and this changed it from a law that focused on geographical disinvestment to that concerned with lending differences by ethnicity and race.
Economic factors affecting home mortgage disclosure act reporting, LaCour-Little, M. (2007). Journal of Real Estate Research, 29(4), 479-510. This article examines three potential explanations for the observed increase in the number and percentage of higher-priced home mortgage loans and continued disparities across demographic groups between 2004 and 2005. The results indicate that the mortgage costs increased for all borrowers on a risk-adjusted basis.
The home mortgage disclosure act and subprime lending, Gupta, R. K., Sharma, H., & Mitchem, C. E. (2010). Journal of Applied Business Research, 26(5), 97. This is an analysis of the subprime lending activities in a specific geographic area in the light of reporting requirements of the HMDA. The study focuses on the detailed analysis of mortgage data for the chosen Metropolitan Statistical Areas (MSA) from a socio-economic view. It also examines the study of mortgage lending programs, products, and regulatory laws to determine the effect of predatory lending on homeownership.
Home Mortgage Disclosure Act Developments, Ulrich, C. (1991)… The Business Lawyer, 1077-1082. This paper briefly discusses the HMDA changes and then majors on the actions taken by the Office of Thrift Supervision, the Board of Governors of the Federal Reserve System and the Federal Financial Institutions Examinations Council. It also explains how Congress passed HDMA to try and curb geographic mortgage loan discrimination.
The home mortgage disclosure act: Its history, evolution, and limitations, Kolar, J., & Jerison, J. (2005). Consumer Fin. LQ Rep., 59, 189-189. This article investigates the history and effects of the Home Mortgage Disclosure Act. Its primary objectives are the purposes of HDMA and the development and expansion of those purposes with time. It also examines the limitations of the HDMA data when it comes to finding out if discrimination has occurred.
Price revelation and efficient mortgage markets, Wachter, S. (2003). Tex. L. Rev., 82, 413. This paper reviews the price revelation and efficient market mortgages. This is because over the last number of years the growth of the secondary market has led to an increased disparity in the pricing of capital available for mortgage lending and in the brokers and lenders involved in mortgage distribution. This shift has led to the rise of subprime lenders.
Home mortgage disclosure act: expanded data on residential lending, Canner, G. B., Smith, D. S., Bowen, N. E., & Benkoivic, F. M. (1991). Fed. Res. Bull., 77, 859. This article discusses how a majority of banks and other financial institutions which are located in metropolitan areas have been required under HDMA, to disclose to the public all information pertaining the geographical distribution of their loans for either home purchases or improvements. The data gathered shows wide variations in terms of the number and dollar volume of loans that were approved across the neighborhoods grouped by the income and race of residents.
The mortgage market in 2011: highlights from the data reported under the home mortgage disclosure act, Avery, R. B., Bhutta, N., Brevoort, K. P., & Canner, G. B. (2012). Federal Reserve Bulletin, 98(6), 1-46. This study reviews data reported by mortgage lending institutions in 2011 under the HDMA and presents various vital findings. It evaluates the lending patterns across several racial and income groups and also across areas with different housing market distress. The study also discusses how census updates may influence evaluations of the performance of banking institutions under the Community Reinvestment Act.
Market segmentation and lender specialization in the primary and secondary mortgage markets, Canner, G. B., & Gabriel, S. A. (1992). Housing Policy Debate, 3(2), 241-329. This article comprehensively evaluates the market segmentation lender/purchaser evaluation in the primary and secondary markets. It describes and examines the HDMA data and finds evidence that suggests that home purchase loan origination rates for the black applicants are not as high as those of other ethnic groups. Also, the data indicates that there is a reliance by black borrowers on government-backed forms of mortgage credit.
The Home Mortgage Disclosure Act of 1975: Will It Protect Urban Consumers from Redlining, Kleinman, B. A., & Berger, K. S. (1976). New Eng. L. Rev., 12, 957. This paper explains the provisions of the HDMA that was enacted as a direct response to mortgage redlining and urban blight. It was passed to determine whether banks and thrifts were serving the housing needs of their communities and also to focus public spending in underserved neighborhoods efficiently to increase private investment.