Why do they limit the Pricing data to 3 and 5% respectively?
It doesn't make sense to me to only report the data for loans above the thresholds. You have to calculate the data for all loans to see if they are above anyway, so why not report them. They say they were trying to relieve the regulatory burden, but it doesn't relieve anything? Actually, they should have had institutions just report the APR, Term and Rate Lock Date and calculate the spreads themselves? Anyone else find this a bit bizarre?
The current reporting of rate spread is a compromise reached after analyzing the comments from lenders to the original proposal to report the APR. "The original proposal to amend Regulation C would have required lenders to report the annual percentage rate (APR) on home purchase and home improvement loans that are covered by the Truth in Lending Act and its implementing Regulation Z. Based on the comments received, the Board adopted a rate spread approach, which represents a modified approach regarding the rate disclosure and coverage. Thus lenders are now required to report the spread between the APR on a loan at consummation and the yield on Treasury securities of comparable maturity (the “rate spread”) for loan originations in which the rate spread meets or exceeds certain thresholds specified by the Federal Reserve Board in Regulation C. This approach was adopted because it will adjust pricing data based on changes in market conditions over time and will focus on higher cost loans. It will also limit reporting burden because fewer loans will be subject to the reporting requirements." - Federal Reserve I do have to question the last sentence of their explanation. Exactly how much of a reporting burden is it to have a computer calculate the rate spread?
Actually the truth is the Fed wanted to upset bank and community groups as much as possible. The rate threshold is extra work for banks since there is an extra comparison step instead of just reporting the spread on every loan. Community groups only get a small percentage of the pricing data they wanted. Everyone is unhappy while the Fed sits and chuckles at their cruel joke.
Brutally honest and brutally accurate! Check out Paulie with the big brain. My thoughts exactly.
Two things to keep in mind - First, while the reportable loans are only those over the respective thresholds, lenders should be examining those just below the threshold to ensure any apparent disparity is identified and researched. Just because it is not reported does not mean it is not important to both the lending institution and the regulators. Second, be aware that as the rate environment changes this year you may see a higher number of loans exceeding the thresholds. You should assess the reason for this and determine how much is related to market shift and how much may or may not be related to your internal processes.