HMDA Preapproval Modification and 2018 HMDA Reporting

There has been a slight modification as to what is considered to be a reportable request under the new HMDA rules. It still must be reported whether a loan or application involved a request for preapproval for a home purchase loan under the financial institution’s preapproval program. Under the rule that takes effect in 2018, the financial institution no longer has the option to decide whether or not to report a preapproval request that was approved but not accepted. These are now required to be reported.

Now what is considered to be a preapproval for HMDA purposes? An application could only be a preapproval request if it is for a home purchase. It cannot be secured by a multifamily dwelling and it cannot be for an open-end line of credit or for a reverse mortgage. The application must also be reviewed under a Preapproval Program which is where a comprehensive analysis of the applicant’s creditworthiness is conducted and the lender issues a written commitment that is for a home purchase loan; is valid for a designated period of time and up to a specified amount; and is subject only to specifically permitted conditions.

A loan or application should be reported as not involving a preapproval request in several circumstances. These are for a purchased loan, an open-end line of credit, a reverse mortgage, an application that was denied, an application that was closed for incompleteness or withdrawn, a loan for any other purpose other than a home purchase, or if the loan is secured by a multifamily dwelling.

Side note: When it comes to reporting the data for preapprovals, the only requests that are reported are those that were denied or approved but not accepted. The requests that resulted in origination will also be reported, but those will be as an originated Covered Loan.

For more information on HMDA regulations, 2018 data point changes or our HMDA compliance services, please call Rhonda Wannemuehler or Betsy Reynolds at 855-734-7655.

12 CFR 1003.4(a)(4)

Loan Purpose Has Slight Modification For 2018 HMDA Rules

There is a slight modification when it comes to reporting the Loan Purpose under the new HMDA rules. It still must be reported whether the loan was a Home Purchase, Home Improvement or Refinancing. Two additional data points have been added and that is for “other” and for Cash-Out refinancing. The rule does not provide a set definition as to what would constitute as a Cash-Out refinancing, it all depends upon the financial institution’s policies regarding these types of loans.  The “other” category is to be used for consumer purpose transactions that are secured by a dwelling that have a purpose other than home, purchase, home-improvement, refinancing or Cash-Out refinancing.

There can be some confusion as to whether a loan is HMDA reportable. For refinances, not all loans are going to be considered reportable for HMDA purposes. If the financial institution was legally obligated to refinance the loan in question then it would not be considered to be reportable. Then there are loans that are primarily for commercial purposes. If the loan is for a Home Improvement, home purchase, or a refinancing, then that loan would be considered to be reportable.

There has been a modification as to what is considered to be a Home Improvement loan. Previously under the old HMDA rule, a loan did not necessarily have to be secured by a dwelling in order to be classified as Home Improvement. However, under the regulation that takes full effect in 2018, only the Home Improvement loans that are secured by a dwelling are to be reported.

The other modification involves multiple purpose loans. Loans that are made for home purchases have not changed; if any part of the loan is for the purchase of a dwelling, then the loan must be reported as a home purchase. For a refinance or Cash-Out refinance loan, if the proceeds of the loan are for a refinance in addition to another purpose (Home Improvement, medical expenses, etc.), then the loan would be reported as being a refinance. This change would replace current HMDA reporting practices as a Home Improvement loan no longer has priority over refinances.

The CFPB has recently proposed a correction when it comes to this data point. They are proposing to allow financial institutions the option not to report the loan purpose of a purchased loan if it was originated before January 1, 2018. This is due to possible confusion that could occur when an institution is trying to decide whether the purchased loan is reportable as simply a refinance or if it is a Cash-Out refinance.

 

One HMDA Data Point That Won’t Change Is The Loan Type

The loan type is one of the data points that will not undergo any changes under the new HMDA regulation. This information can be found on the application and the reporting process is very straightforward. If the loan is not insured by anyone, then it would be considered a Conventional loan and Code 1 would be reported. An institution reports Code 2 if the application is insured by the Federal Housing Administration (FHA). Also, if the Veterans Administration (VA) is guaranteeing the loan, then Code 3 is reported on the LAR. Finally, an institution reports the Loan Type as being Code 4 if the USDA Rural Housing Service (RHS) or the Farm Service Agency (FSA) is guaranteeing the application.

 

Consistency Is Key To HMDA Reporting Of Application Date

Under the new HMDA regulations that will take full effect in 2018, the Application Date is one of the HMDA reporting data points that will not change. Your financial institution will either report the date that the application was received or the date that is listed on the initial loan application. While the rule gives the institution leeway to choose which to report, the method should remain generally consistent throughout the entire reporting process.

How an institution treats a loan application can also effect which date is reported. An example of this is when within the same calendar year, the applicant asks to reinstate a counteroffer that had been previously rejected or when the applicant asks the lender to reconsider an application that had been denied, withdrawn, or incomplete. The institution has two options. It can consider it a continuation of the previous loan, in which case the original application date should be reported. Alternatively, it can also be treated as a new transaction, making the date of the request for reconsideration the date that is reported.

Figuring out the application date can be relatively easy for consumer applications; however commercial loans can be more difficult. For these types of loans that are HMDA reportable, it can be hard to determine which date to report as applications are not necessarily required.  One method that could be used by an institution for HMDA reporting of commercial loans is to report the date that the loan request was received.

Remember, consistency is key when reporting the application date.

 

The Latest On HMDA ULI and LEI Data Points

Assigning a Universal Loan Identifier (ULI) is the first step when it comes to reporting your HMDA data. This number is unique for each individual loan and will remain attached to the loan even if it is sold to another institution. The ULI is not just a random string of characters, it must follow a specific order as stated in Regulation C. The first part of the ULI is the Legal Entity Identifier (LEI). This is the 20-character code that is assigned to a financial institution by either The Global LEI Foundation or the LEI Regulatory Oversight Committee.

This is followed by a set of numbers that must be unique to your financial institution. This portion of the ULI can be up to 23 characters long and it can contain both numbers and letters. There is one caveat to this section however, the characters chosen cannot include any information that could identify the applicant or the borrower. For example, the applicant’s social security number, name, or the number that appears on their driver’s license cannot be used as part of the ULI.

The last portion of the ULI is a two-character check digit. The purpose of the two digits is to verify, by using a multi-step process, that the sequence of numbers and/or characters used in the ULI are correct. In order to determine what these last two characters should be, you can follow the process that is listed in Appendix C to manually generate the digits (www.consumerfinance.gov/eregulations/1003). This process can seem complicated; however, we are in luck. The CFPB has stated that they are currently in the process of creating a check digit generator that they will publish on their website at some point in the future.

For more information on HMDA regulations, 2018 data point changes or our HMDA compliance services, please call Rhonda Wannemuehler or Betsy Reynolds at 855-734-7655.

HMDA Compliance Alert: CFPB Proposes New Changes

On April 13, 2017, the Consumer Financial Protection Bureau issued a much-ask-for proposal to clarify and facilitate HMDA compliance with the 2015 updates to the Home Mortgage Disclosure Act rule set to take effect next year. According to the CFPB, “The proposed changes would help financial institutions comply with the 2015 HMDA Final Rule by clarifying the information they are required to collect and report about their mortgage lending.”

“These changes are monumental to HMDA collection and reporting requirements and will require a substantial amount of planning to implement the new data fields,” stated Rhonda Wannemuehler, Executive Vice President of Regulatory Solutions. “The CFPB gave the industry about three years to become compliant to the updates released in October 2015 with most of the requirements taking effect in January 2018.”

Read the full article on HousingWire.

Consumer Financial Protection Bureau website to review the proposal and other quick references. 

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