definitions are not the same, which again means you may have
a HMDA-reportable application that doesn’t rise to the level of
triggering the TRID requirements, or vice-versa. All this creates
opportunities for mischief—how do you define an application
under each of those rules? Whether they are the same or different, be prepared to articulate your position. Not only are you
doing this for HMDA reportability reasons, but knowing when
adverse action notices are necessary, when Loan Estimates are
required, etc., is critical. Take this opportunity to clarify for your
bank what an application is (as well as when it is submitted and/
or received) under each rule so you don’t find yourself complying
with HMDA at the expense of Reg. B or TRID.
New Data Element Questions
Several of the new data elements beg for clarification from the
CFPB. The best advice for now is to decide how you’ll report this
information, then be consistent in doing so.
Manufactured home communities. Under the new rule, a loan
must be secured by a dwelling to be reportable. This change means
non-dwelling secured home improvement loans (which were reportable in 2017 and prior) are no longer reportable, but home
equity loans having a non-improvement purpose are reported.
However, a loan secured by a manufactured home community
(meaning, for instance, a mobile home park where the collateral is
just the lots) is considered secured by a dwelling, and is therefore
HMDA-reportable, even though there are no physical dwellings
taken as collateral. But then consider what the proper construction method (another data point) would be for these loans. Verbal
guidance from the CFPB states that this would be “manufactured,”
but that’s not as clear as it could be. Logic suggests this should
be “NA,” but for now the recommendation is “manufactured.”
Employee applications. Now as before, for privacy reasons, income is not reported if the applicant is an employee. However,
CLTV, DTI, and credit score are not similarly exempted. One
might think the same privacy logic might apply for these fields,
but for now they are reported even if the applicant is an employee.
Automated Under writing Systems. Banks must report the results
from automated underwriting systems (AUS), but sometimes
results from multiple AUSs are obtained. Which result must be
reported if this is the case? It’s easy to say the one that primarily
drove the credit decision, but further guidance is needed here as
well. But for now, if multiple AUSs are used, identify the result
that most drove your credit decision and report that one.
If the bank provides a counteroffer to an applicant and he/she
says no thanks, it is reported as a denial. This has not changed
from earlier guidance. If the applicant says OK to the counteroffer but the loan does not close, the loan amount reported is the
amount counteroffered. However, all the action taken codes are
still possibilities—this is the change from previous guidance. If
the applicant “accepts” the counteroffer but the loan does not
close, it could be considered Approved Not Accepted, but this is
not always the case. If the applicant was fully approved (meaning
it was not a conditional approval) and the loan does not close it
would be Approved Not Accepted, but if the counteroffer was
conditional, Approved Not Accepted would not be the correct
choice. Close attention must be paid to counteroffer situations;
exactly what occurs must be closely monitored so that the correct
Action Taken code can be recorded.
What if my bank is impacted by the Dodd-Frank reform law?
The Economic Growth, Regulatory Relief, and Consumer Protection Act (also known as S. 2155), signed into law in May of 2018,
provides that banks that originate fewer than 500 open-end or 500
closed-end loans in each of the previous two calendar years are
exempt from HMDA’s expanded data submission requirements
for those loan types. At first glance this looks like great news, but
do not misunderstand what this means. It does not mean that the
bank is exempt from HMDA reporting entirely; it merely means
that the new expanded data elements introduced for 2018 need
not be reported. In other words, for 2018 the bank goes back to
reporting the information it did for 2017 and previously.
But there are a few important issues to consider. First, many
smaller banks that sell their originated loans into the secondary
market are finding that investors are requiring the originating
bank (whether exempt or not) to report all the data to it, including
the new 2018 elements. The new rule allows investors to report
some, but not all, data as “NA” (or similar coding) for purchased
loans. Some investors are requiring banks to provide it all the
data regardless of the exemption so it can monitor its own fair
lending performance. Thus the small bank doesn’t get the relief
it anticipated from the Dodd-Frank reform provisions.
Speaking of fair lending performance, might you consider continuing to collect the new data even if your bank is now exempt?
After going through all the work of setting up your systems to
collect the new information, why stop it now? It will have great
utility in your fair lending analytics by allowing you a much deeper
look into your bank’s decisioning and pricing practices. But this
is more a control decision rather than a compliance one; each
bank must decide for itself.
HIDDEN TRIPWIRES IN THE NEW 2018 HMDA RULES
The Economic Growth, Regulatory
Relief, and Consumer Protection Act
(also known as S. 2155), signed into law
in May of 2018, provides that banks
that originate fewer than 500 open-end
or 500 closed-end loans in each of the
previous two calendar years are exempt
from HMDA’s expanded data submission
requirements for those loan types.