Debt-to-Income Ratio New HMDA Reporting Requirement
Another addition to what must be collected as part of your HMDA data in 2018 is the borrower’s debt-to-income ratio. This must be reported if the DTI ratio was relied upon when the financial institution made their credit decision. This does not mean that in order for this data point to be reportable it had to be a deciding factor when the financial institution made their credit decision. The DTI ratio merely had to have been considered during the credit decision process.
On your HMDA LAR, this data point can be reported as being “not applicable” in a number of circumstances. One instance is if the DTI ratio was not relied upon when the credit decision was made. “Not applicable” can also occur when you are reporting on a purchased loan and for applications that were closed for incompleteness or withdrawn before a credit decision could be made. Another occasion where “not applicable” is reported on your HMDA LAR is when the applicant and the co-applicant are not natural persons. It is important to note that when reporting the DTI ratio, what is securing the loan will also affect what you report on your HMDA LAR. When the loan is secured by a multifamily dwelling, this data point should be reported as “not applicable”.
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 Correct Loan Amount for the HMDA Data Points in 2018
When a financial institution reported the loan amount under the old HMDA rule, the amount had to be rounded to the nearest thousandths. This will all change in 2018. The new rule modifies this data point and now requires that the lender report the entire loan amount and it should be rounded to the nearest whole number.
This data point should still be reported even if the loan does not end in origination. If the loan was denied, the amount that the applicant applied for is reported. If a counteroffer was made and it was accepted, then the amount of the counteroffer would be reported. However, if the said counteroffer was denied, then the financial institution should report the amount that the applicant initially applied for.
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 Action Taken and Action Taken Date
When reporting information regarding the action taken for a loan, there will not be any substantial changes under the new HMDA regulation. The type of action taken must be reported as being one of the following: originated or purchased; approved but not accepted; withdrawn; denied; or closed for incompleteness. In addition to these familiar data points, there will be values that specifically address the action taken for preapprovals come 2018.
An institution reports a loan as being originated if it was approved before closing and if there was an extension of credit. The loan is also reported as being originated if the loan began as a request for a preapproval but resulted in the loan being originated. The Action Taken Date that is reported for originated loans is either the closing date or the account opening date.
Another possible action taken is if the loan was purchased. These are loans that were purchased by the financial institution after closing and where no credit decision was made by the institution prior to closing. The date that the loan was purchased is reported as the Action Taken Date on your HMDA LAR.
If the loan was approved before closing but the applicant either failed to respond or the loan was not otherwise closed, then the action taken would be reported as approved but not accepted. The regulation allows some flexibility as to the date that is reported. The institution can choose to report: the approval date; the deadline for accepting the offer; or the date that the file was closed as the Action Taken Date. It is up to the lender to choose which date to report, but it should remain consistent.
An application is reported as being denied under certain circumstances. A loan is considered to be denied if the financial institution decided to deny the application after a credit decision was made. The other circumstance is when a counteroffer was made and it was not accepted. The Action Taken Date that is reported is either the date that the action was taken on the application or the date that the Adverse Action Notice was sent to the borrower.
For withdrawals, an application is reported as such when the it was expressly withdrawn by the borrower before a credit decision has been made. The date that the borrower contacted the lender to withdraw the application is reported as the Action Taken Date.
A loan file is reported as being closed for incompleteness when the financial institution sent the borrower a notice of incompleteness and the borrower failed to respond with the additional information that was requested. The lender may have reporting options regarding this type of Action Taken but it depends on if the lender provided an Adverse Action Notice to the borrower with the reason for denial being incompleteness. If this occurs, then the loan file can either be reported as being denied or being closed for incompleteness. Like with denied loans, the lender can use the date that the action was taken or the date of the Adverse Action Notice is reported as the Action Taken Date.
For an application that is a preapproval request that was approved but not accepted, any reasonable date can be reported as the Action Taken Date. This is up to the institution and such dates could be the approval date, deadline for accepting the offer, or the date that the file was closed. When the application is a preapproval request that was denied, the date of the denial or the date of the Adverse Action Notice sent to the applicant is reported as the Action Taken Date.
The CFPB has recently issued a proposed correction in regards to this data point. This concerns how to report the action taken when a counteroffer was made and the institution provided a conditional approval but the applicant does not respond. The correction states that this would be reported as either: a denial, file closed for incompleteness, approved but not accepted, or as application withdrawn. It all would depend upon the particular circumstances.
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.
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.