What Is Regulation C?
Regulation C is a regulation that implements the Home Mortgage Disclosure Act of 1975. Regulation C mandates that depository institutions must annually disclose loan data about the communities to which they provided residential mortgages. This allows regulatory authorities to evaluate whether the lender is adequately meeting the needs of the prospective borrowers in that community.
How Regulation C Works
Any lending institution with total assets of $10 million or less is exempt from Regulation C. Institutions not in metropolitan statistical areas may also be exempt. All providers of mortgages that are backed by the government in any capacity must annually reveal the quantity and dollar amounts of all mortgages provided within the past year. These loans must be broken down by census tract in which the properties are located.
The Bureau of Consumer Financial Protection continues to amend Regulation C. Updates to the policy have thus far included the addition of new reporting requirements to be in compliance with the Dodd-Frank Wall Street Reform and Consumer Protection Act. Dodd-Frank also transferred the rulemaking authority on the Home Mortgage Disclosure Act from the Federal Reserve Board to the Consumer Financial Protection Bureau.
How Regulation C Is Used by Authorities
Regulation C is structured to help public officials determine their distribution plans for public sector investment in order to draw more private investments to areas in need. Even though the intent is to increase investment, Regulation C is not meant to foster “unsound lending practices” or the allocation of credit.
The policy is also meant to help identify possible discriminatory lending practices and enforce anti-discrimination statutes. The collection of lending data is meant to aid in that identification.
Financial institutions required to comply with Regulation C must report their data each calendar year. The data is broken up census tract to show mortgage origination, purchases of homes and home-improvement loans. Regulation C requires these institutions to also furnish data about the loan applications that did not result in originations. This includes withdrawn applications, loan denials, applications that were dismissed because they were incomplete and applications that received approval but were not accepted.
The collection of such data is supposed to give authorities a way to screen for incidents of discrimination in lending. The information is tied to geolocation and demographics from the census tract. If there is a repeating pattern where financing is denied to a particular segment of the population, the financial institution could face penalties from authorities. For example, a bank might constantly deny financing to people of a certain ethnicity or from a particular area despite otherwise being qualified. Such activity would draw attention from regulators.