4000 - Advisory Opinions
Home-Improvement Loan Applications May Be Excluded When Calculating Home Loan Applications Received During 1988
March 23, 1989
Valerie J. Best, Attorney
By memorandum dated February 8, 1989 you asked if a banker may exclude home-improvement loan applications received during 1988 for purposes of counting home loan applications pursuant to 12 C.F.R. § 338.4(a)(2)(iv). This section provides, in part:
(iv) Log-sheet. In addition to the other recordkeeping requirements specified in this paragraph (a)(2) of this section, each bank covered by the provision shall keep a log-sheet on its home loan applications by bank office: Provided, that any bank covered by the said provision which had total assets of $50 million or less as of December 31 of the preceding calendar year and also received fewer than 25 home loan applications during that calendar year is not required to keep a log-sheet of this kind. 12 C.F.R. § 338.4(a)(2)(iv).
The term "home loan" was recently revised to exclude home-improvement loans. Home loan is currently defined in 12 C.F.R. § 338.1(f) as follows:
(f) "Home loan" means any extension of credit the primary purpose of which is the purchase, construction, or refinancing of a dwelling that secures or will secure the extension of credit, which dwelling is or will be comprised of one to four residential units, at least one of which the applicant intends to occupy as a principal residence.
12 C.F.R. § 338.1(f).
The revision to 12 C.F.R. § 338.1(f) was made effective September 15, 1988. The previous definition of home loan specifically included loans for the "improvement, repair, or maintenance of a dwelling and . . . which secures or will secure the extension of credit."
A banker has asked if he may exclude home-improvement loan applications, including such applications received prior to September 15, 1988, when calculating home loan applications received during 1988. If he is allowed to exclude home-improvement loan applications received prior to September 15, 1988, he will not meet the threshold level established by 12 C.F.R. § 338.4(a)(2)(iv), and will therefore not have to maintain the log-sheet in 1989.
I have concluded that the banker may exclude home-improvement loan applications received during 1988, including such applications received prior to September 15, 1988. Section 338.4(a)(2)(iv) refers to the preceding calendar year, and thus contemplates that the number of home loan applications (as well as the bank's total assets) will be calculated at year-end. When the bank calculated its home loan applications on December 31, 1988, the revised definition of home loan was in effect and should have been relied upon by the banker. Such an interpretation is consistent with the regulatory purposes the FDIC sought to achieve with the revision to 12 C.F.R. § 338.1(f). The FDIC supported its decision to eliminate recordkeeping requirements as to home-improvement loans on the grounds that it was not a useful requirement in that the number of complaints alleging unlawful discrimination was very small. In addition, neither the OCC nor the FRB applied the data-gathering requirement to home-improvement loans. It was therefore believed that the FDIC imposed a cost on state nonmember banks that national and state member banks did not have to bear.
In summary, you should advise the banker that home-improvement loan applications received during calendar year 1988 may be excluded when calculating home loan applications received during 1988, for purposes of 12 C.F.R. § 338.4(a)(2)(iv).