Consumer Compliance Outlook
HMDA Data Collection and Reporting
On September 18, 2012, the Federal Financial Institutions Examination Council (FFIEC) announced the availability of data on mortgage lending transactions from 7,632 U.S. financial institutions covered by the Home Mortgage Disclosure Act (HMDA), which is implemented through Regulation C.1 The data cover 2011 lending activity, including applications, originations, loan purchases, denials, and other actions such as incomplete or withdrawn applications. These data will be used in a number of supervisory processes, including examinations and applications, as well as for public policy purposes. The use of these annual data by various stakeholders is a good reminder to financial institutions covered by HMDA of the importance of collecting and reporting timely and accurate data. This article answers questions frequently asked by institutions regarding the collection and reporting of HMDA data and provides an overview of expected changes to HMDA reporting requirements.
SUBMITTING YOUR 2012 HMDA DATA
The deadline for covered institutions to submit their 2012 HMDA data is March 1, 2013.2 This section discusses some valuable HMDA resources and some common issues bankers encounter when submitting HMDA data.
In addition to Regulation C and its Official Staff Commentary (Commentary), the FFIEC’s 2010 A Guide to HMDA Reporting: Getting it Right!3 is a good resource for HMDA data collection and reporting. The guide provides a summary of responsibilities and requirements, directions for assembling the necessary tools, and step-by-step instructions for reporting HMDA data.
Other resources include an Outlook article in the Fourth Quarter 2009 issue titled “Improving and Using HMDA Data in Your Compliance Program”4 and a November 2010 Outlook Live webinar titled Tips for Reporting Accurate HMDA and CRA Data. The webinar and presentation slides are available at http://bit.ly/hmda-outlook-live. Outlook subsequently published some of the unanswered questions received during the webinar in an article in the Second Quarter 2011 titled “Home Mortgage Disclosure Act (HMDA) and Community Reinvestment Act (CRA) Data Reporting: Questions and Answers.”5
Questions and Answers
The webinar and articles addressed a number of questions examiners commonly received from institutions. In this section, we answer some additional HMDA questions that filers frequently raise.
Coverage. Questions often arise as to whether a loan is reportable. One common question concerns a consumer who borrows against property purchased with cash (home equity loan or home equity line of credit (HELOC)). HMDA requires covered depository and nondepository institutions to collect data regarding applications for, and originations and purchases of, home purchase loans, home improvement loans, and refinancings.6 Because the loan is not being used to purchase the home or refinance an existing loan, it is neither a home purchase loan nor a refinancing. If any portion of the loan proceeds will be used to repair, rehabilitate, remodel, or improve a dwelling or the real property on which the dwelling is located, the loan qualifies as a home improvement loan, and the entire loan amount should be reported.7 If the loan is a HELOC and any portion of the proceeds will be used for home improvement, the rules are slightly different because HMDA reporting of HELOCs is optional, and the institution reports only the amount of the loan intended for home improvement if it chooses to report the loan.8 To determine the purpose of the loan, an institution can rely on the applicant’s oral or written statement about the proposed use of the loan proceeds. For example, the loan application could contain a check-box or purpose line to indicate if the purpose of the loan is home improvement.9
Government Monitoring Information (GMI). GMI continues to be an area in which questions arise. In most cases, errors stem from oversights when information is collected from the loan application; however, here are some recommendations to avoid violations:
- Use the GMI collection form for all home mortgage loan applications. Institutions subject to HMDA must use a GMI collection form similar to the one in Appendix B of Regulation C for all loans subject to HMDA, including loan applications taken by mail, Internet, or telephone. “For applications taken by telephone, the information in the [GMI] collection form must be stated orally by the lender, except for information that pertains uniquely to applications taken in writing.”10 If the applicant does not provide the GMI data, institutions should use the code on the LAR corresponding to “information not provided by applicant in mail, Internet, or telephone application.”11 For applications taken in person, the institution reports the information the applicant provides.12 However, if the applicant fails to provide the requested information for an application taken in person, the institution reports the data based on visual observation or surname.13 A joint applicant can provide the information on behalf of an absent joint applicant.14
- Don’t change the data. Examiners have noted a number of recent cases in which loan officers changed HMDA data (ethnicity, race, and sex) based on the loan officer’s impression that the information was inaccurate. Data provided by the applicant must be reported on the LAR as submitted. As noted in Comment 4(a)(10)-1: “An institution reports the monitoring information as provided by the applicant. For example, if an applicant checks the ‘Asian’ box the institution reports using the ‘Asian’ Code.”
Unsecured Lines of Credit. Another frequently asked question is whether unsecured lines of credit for home improvement purposes are reportable. Under HMDA, a home improvement loan includes a loan that is not secured by the dwelling but is for the purpose, in whole or in part, of repairing, rehabilitating, remodeling, or improving a dwelling or the real property on which the dwelling is located and that is classified by the financial institution as a home improvement loan.15 As further explained in Comment 2(g)-1 for home improvement loans: “An institution has ‘classified’ a loan that is not secured by a lien on a dwelling as a home improvement loan if it has entered the loan on its books as a home improvement loan, or has otherwise coded or identified the loan as a home improvement loan. For example, an institution that has booked a loan or reported it on a ‘call report’ as a home improvement loan has classified it as a home improvement loan. An institution may also classify loans as home improvement loans in other ways (for example, by color-coding loan files).”
Modular Homes. According to the FFIEC FAQs, an institution may choose to report modular homes on the HMDA Loan Application Register as either a one- to four-family dwelling or as a manufactured home until further guidance on the definition of a modular home is provided. The FAQ discussing modular homes is available at http://www.ffiec.gov/hmda/faqreg.htm#modular.
Rate Spread. For certain loans, the spread between the loan’s annual percentage rate and the average prime offer rate for a comparable transaction must be reported (“rate spread loans”). A number of bankers have recently asked whether rate spreads are reported for withdrawn and/or rescinded transactions. In the case of a withdrawn application, there is no loan origination and no rate spread is reported (see Regulation C, Appendix A, §I.G.1.c, stating that “n/a” should be used). For loans that have been rescinded after closing, Comment 4(a)(8)-2 states that the institution may choose to report the transaction as either an origination (with the rate spread) or as an application that was approved but not accepted. If the institution chooses to report the rescinded transaction as “approved but not accepted,” it reports “n/a” in the rate spread field.16
Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) Changes
The Dodd-Frank Act amended HMDA to require data that will better serve the purposes of HMDA. Section 1094 of the Dodd-Frank Act requires financial institutions subject to HMDA to collect new information about mortgage loans, including the following fields:17
- Application channel (i.e., broker)
- Credit score
- Loan originator identifier (SAFE Act)18
- Loan term
- Negative amortization
- Prepayment penalty term
- Property’s parcel number18
- Property value
- Rate spread for all loans
- Term of introductory rate period
- Total origination points and fees
- Universal loan identifier18
and any other fields the CFPB may require.
Section 1094 states that institutions will not have to begin reporting the new HMDA data fields until January 1 of the year in which it has been at least nine months since the CFPB issued a final rule. As indicated in its rulemaking agenda,19 the CFPB in the second quarter of 2013 expects to begin developing proposed regulations concerning the data to be collected and appropriate procedures, information safeguards, and privacy protections for gathering information under this section.
HMDA data enable regulators to assess how lenders are meeting housing needs, investing in their communities, and complying with anti-discrimination laws. It is therefore essential that these data be accurate and that the data fields provide a meaningful picture of the mortgage market.
Although HMDA changes are on the horizon, institutions should continue to rely on existing data reporting rules and guidance for ensuring compliance with reporting requirements. Specific issues and questions regarding the collection of HMDA data or other consumer compliance matters should be raised with the CFPB or your primary regulator.