WASHINGTON - Lenders do not need to record the race and gender of borrowers prequalified for loans, the Federal Reserve Board said this week.
The Fed said there is a difference between prequalifying for a loan and applying for one. Accordingly, the Fed said bankers must collect Home Mortgage Disclosure Act data only for loan applications. But it said bankers are free to collect and report the prequalification data if they want.
Banking industry officials applauded the decision, which was published in a staff commentary in the Dec. 11 Federal Register.
"What is really important is that they have finally done it," said James McLaughlin, director of regulatory affairs at the American Bankers Association. "They are finally ensuring some consistency."
"This is the way these regulations should go," agreed Jo Ann Barefoot, president of Barefoot, Marrinan & Associates, a Columbus, Ohio, compliance firm. The decision should reduce reporting costs slightly, she said.
More consumers are turning to prequalifications to learn in advance how much they could spend on a house.
Bankers were unsure whether to include prequalifications on their HMDA rolls. The Equal Credit Opportunity Act classifies these agreements as loan applications, prompting some banks to collect the data. But the HMDA rules appeared to exclude these transactions.
The debate may not be over; the Fed said it will address the issue again shortly, possibly requiring banks to collect data on some prequalifications. Still, prequalifications will not have to be reported during 1996, the Fed said.
In another significant development, the Fed clarified whether a broker or a bank should report a loan under HMDA. The Fed, attempting to avoid double counting, said the party that made the credit decision must report the data.
Banks moving into cyberspace also got some advice from the staff commentary. The Fed said lenders can treat applications taken over the Internet just as they handle mailed applications. That means bankers do not have to guess the race and gender of applicants, as they must if a borrower applies in person.
"That is going to drive the community groups nuts," predicted Robert Rowe, regulatory counsel at the Independent Bankers Association of America. He said this could reduce the percentage of loans subject to HMDA if Internet banking takes off.
Refinancings also came up. The Fed said renewals and extensions that do not create a new obligation are exempt from HMDA. But refinancings that replace an existing loan do count.
