All HMDA Reporters Will Have To Report Reasons for Denial

While this is a familiar data point for OCC regulated banks – now all HMDA reporters will have to report the reason for denial. For current reporters, it has been slightly modified by the 2018 HMDA regulation. If the HMDA reportable loan was denied, an institution must report the principal reasons for denial. This reporting requirement not only applies to complete applications, an institution must also report the reasons for denial when an institution denies a request for a preapproval. The regulation allows up to four principal reasons to be reported on the HMDA LAR.   For loans that were not denied, this data point should be reported as being not applicable.

The possible reasons for denial are: Debt-to-income ratio; employment history; credit history; collateral; insufficient cash; unverifiable information; credit application incomplete; mortgage insurance denied; other; and not applicable. If a principal reason for denial falls under the “other” category, the institution must report the specific reason as part of their HMDA data. It is important to note that an institution cannot enter the same code twice as a reason for denial on the HMDA LAR, for instance if you deny a loan for delinquent credit obligations and bankruptcy you would only enter credit history one time.

 

HOEPA Status Will Not Change Under New HMDA 2018 Changes

Under the new HMDA regulation that will take effect in 2018, the HOEPA status is one of the data points that will not change. As it was under the old HMDA rule, an institution must report whether or not the loan is considered to be a high-cost mortgage under Regulation Z.  Section 1026.32 (a) states that these are consumer loans that are secured by the borrower’s principal dwelling and must surpass either the APR trigger, the total points/fees trigger or the prepayment penalty trigger.

Once it is determined that the mortgage is secured by a principal dwelling, the specific trigger requirements must be met. The APR trigger is where the APR exceeds the APOR for a comparable transaction by more than either 6.5% for first-lien transactions; 8.5% for first-lien transaction if the dwelling is personal property and the loan amount is less than $50,000; or by 8.5% for subordinate-lien transactions.

The total points/fees trigger is reached when the points and fees will exceed 5% of the total loan amount for a transaction that is at least $20,000. This can also be triggered when the points/fees total amount is less than either 8% of the total loan amount or less than $1,000 for a transaction with a loan amount of less than $20,000.

The prepayment penalty trigger can occur in two situations. The first is where the creditor has charged a prepayment penalty that can occur more than 36 months after consummation. The other situation is where the penalties exceed more than 2% of the amount that was prepaid.

If the loan is not subject to HOEPA status, then this data point should be reported as not applicable on the HMDA LAR. The only other time that this data point is reported as not applicable is when the loan did not end in origination. 

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. 

New HMDA Regulation Will Bring Big Change To Rate Spread Data Point

The rate spread is a familiar data point that many institutions are used to reporting, however, the new HMDA regulation that will take effect in 2018 will bring a big change. The old regulation did not require an institution to report the rate spread if the annual percentage rate (APR) did not exceed the average prime offer rate (APOR) by a certain percentage. Under the new HMDA regulation, the rate spread is now required to be reported in most cases. In order to determine the rate spread, you must take the difference between the loan’s APR and a comparable transaction’s APOR.

The rate spread can be determined manually or by using the FFIEC’s Rate Spread Calculator which can be found here: https://www.ffiec.gov/ratespread. The FFIEC website also provides the Average Prime Offer Rates tables and a batch rate spread calculator for multiple loan calculations.

If the institution decides to manually find the APOR, they must first determine the comparable transaction. In order to do this, the institution must look at the loan’s amortization type and loan term. For fixed-rate loans the transaction’s maturity (or the period until the last payment will be due) is used. If the loan is an open-end line of credit but has no definitive length of time, then an institution may use a 30-year fixed-rate loan as the comparable transaction. For variable-rate loans, the initial fixed-rate period is used. When the maturity term is not in whole years, the term should be rounded to the nearest whole year. For example, if the loan matures at 10 years and 3 months, then the term for a comparable transaction will be 10 years.

The next step in determining the APOR is to establish the rate set date. This should be the date that the institution set the loan’s interest rate for the final time before closing. For instance, if the rate was set according to a lock agreement, then the date of that agreement is used. The last step in determining the APOR is to determine the most recent APOR as of the rate set date. These rates can be found on the applicable tables on the FFIEC’s website.

When entering the rate spread on your HMDA LAR, you should round it to at least three decimal places. If the APR exceeds the APOR, then a positive number should be reported. However, if the APR is less than the APOR, a negative number should be reported as the rate spread.

There are some circumstances in which the rate spread is not reported. An institution should report this data point as being “Not Applicable” if the loan: does not end in origination, is a purchased loan, an assumption, a reverse mortgage, or if it is not subject to Regulation Z. The only instance where the rate spread should be reported for a loan that was not originated is when the application was approved but not accepted. In this case, the difference between the APR of the loan that would have resulted if it was accepted and a comparable transaction’s APOR as of the date that the interest rate was set is reported on the HMDA LAR.

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.

 

The Income Data Point Will Not Change Under 2018 HMDA Regulation

Income is one of the data points that will not change under the new HMDA regulation that will take effect in 2018.  This data point is simple, the institution must report the income that they relied upon when making their credit decision. If the institution did not consider the borrower’s gross income when making their credit decision, then they should only report the portion that was relied upon. If there is a co-applicant and their income is also considered, then the co-applicant’s income (or what portion was relied upon) is included in the reportable income. If, however, the co-applicant is only secondarily liable, their income cannot be included.

When it comes to reporting income for applications that were withdrawn or closed for incompleteness, the institution should report the income that was provided on the application. There are instances where “Not Applicable” should be reported. These circumstances are: if the applicant is an employee, if it is secured by a multifamily dwelling, if the applicant is not a natural person, or if the institution did not consider income when making the credit decision. The HMDA regulation also gives an institution the option of reporting the income as not applicable for loans that they purchased.

There is one major exception when it comes to reporting the income on the HMDA LAR. The reportable income cannot include funds or amounts in addition to income, even if it was relied upon when making the credit decision. There was some confusion as to what type of funds fell into this exception, so the CFPB has issued a correction to this portion of the HMDA regulation, they clarified that they were excluding such things as income derived from underwriting calculations and not income from retirement accounts and other assets.

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.

 

Property Address, State, County, and Census Tract HMDA Reporting

Under the new regulation, the property address along with the state, county, and census tract data must be reported as part of your HMDA information. These data points must be reported if the property is located in an MSA or metropolitan division where the institution has a home or branch office. They should also be reported if the institution is a bank or savings association and they are required to report HMDA data on small businesses, small farms, and community development lending under the Community Reinvestment Act. The census tract has an additional reporting requirement as it is only reported if the property is located in a county with a population of 30,000 or more.

In order to determine which property data to report, the institution must look at which property is securing (or was proposed to secure) the loan. In the case where more than one property secures the loan, the institution should report the information for only one of the properties. If the property securing the loan is a single multifamily dwelling that has more than address, then just one of the addresses should be reported by the institution.  In the instance where the property securing the loan is not known or the location for a manufactured home has not been identified, then the data point for the property address should be entered as being not applicable.

The majority of these data points can be determined by looking at the loan application; however, the county and census tract must be reported in numerical form. In order to determine what these values should be, the institution can enter the property address at: https://geomap.ffiec.gov

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 2018 Data Points And Occupancy Type

This data point will not change much when reporting your HMDA data in 2018. A financial institution must report whether the property will be used by the applicant as a principal residence, a secondary residence, or as an investment property.

Principal residences are fairly straightforward. This is an applicant’s primary home and they can only have one principal residence at a time. The dwelling does not necessarily have to be built at the time of the application in order for it to be considered the borrower’s primary residence. If they intend to build a new dwelling that will become their principal residence within one year or when it is completed, then this would be considered as their principal residence.

A property is reported as a second residence when it will be occupied by the borrower for only a portion of the year and it is not considered by the borrower as being their primary residence.  Second homes can include properties that the borrower rents out for a portion of the year and houses that are only lived in during the week due to its proximity to their workplace.

An investment property for HMDA purposes is a dwelling that the borrower does not occupy at any time. It can be rented out by the borrower in order to generate income but that is not the only way for it to be considered an investment property. When a property is not lived in by the borrower and is not rented to others for income, it is still considered to be an investment property if it is the borrowers intention to make money by selling the property itself. When the property is owned by a corporation but it is used by their employees as long-term residences, then this would be considered as an investment property for the corporation. There is one distinction however when it comes to corporate owned properties. If the property is purely for the transitory use by their employees, then it would not be considered as a dwelling and would not be HMDA reportable.

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. 

Learn more about our Lending Compliance services.