The long-awaited deadline to begin collecting 2018 HMDA data is here!
Banking agencies have issued HMDA guidelines on data testing and additional information on HMDA data collection. Also, the Consumer Financial Protection Bureau (CFPB) has clarified some interpretations as it has worked through numerous questions via phone calls and emails from filers.
One of the CFPB’s changes has to do with reporting open‐end lines of credits. Originally, if a financial institution originated 100 open-end lines of credit or more secured by a dwelling in each of the previous two years, the filer had to report the lines of credit. The CFPB increased this number to 500 originated open‐end lines of credit until January 1, 2020. This means that any filer who originates fewer than 500 open‐end lines of credit in each of the previous two years would be exempt until January 1, 2020. Just a reminder, under Regulation B, if the loan is for the purchase or refinance of a principal dwelling, lenders are still required to gather Government Monitoring Information on these loans.
The rule also clarifies that a financial institution does have the option of reporting HMDA data, even if it is not required to submit the data for certain loan types such as closed‐end mortgage loans or the open‐end lines of credit. However, if a filer reports one loan in that type, it has to report all originations, applications and purchases for the reportable calendar year. Therefore, a filer cannot pick and choose which loans to report within the type, if not subject to mandatory filing.
The update to the new rule clarifies additional excluded transactions.
New York Consolidation, Extension and Modification Agreements (New York CEMA)—Banks will continue to report the CEMA transactions; however, any previous transactions where the borrower received funds prior to the consolidation into a CEMA will not be required to be reported.
Key Updates to the 2018 HMDA terms:
Temporary Financing
- Construction‐only loan or line of credit-exclusively designed to construct a dwelling for sale. This would be your loans made to a builder or individual who is planning on selling the home after it is constructed. Reminder: Construction means from the ground up construction. Therefore, it does not include a home that is being fixed up or remodeled. This would be considered a home improvement loan.
- A loan or line of credit that is designed to be replaced by permanent financing to the same borrower later.
Multi‐family dwelling
A loan secured by five or more individual 1-4 family residences in more than one location is not considered a multi‐family dwelling. In addition, a loan secured by five or more separate dwellings located within a multi‐family dwelling is not considered a loan secured by a multi‐family dwelling.
Home Improvement loan secured by mixed‐use properties
A loan to improve commercial space in a multifamily dwelling is not a reportable home improvement loan. However, a loan to improve commercial space in a 1-4 family dwelling is a reportable home improvement loan. For example, if a 1-4 family dwelling is improved to add a daycare, this would be a reportable home improvement loan. If the loan is to improve retail space in a multifamily dwelling such as an apartment building, this would not be a reportable home improvement loan.
Automated Underwriting System (AUS)
The HMDA Rule clarifies the meaning of an AUS. The 2017 HMDA Rule states, “An AUS is an electronic tool developed by a securitizer, Federal government insurer or Federal government guarantor of closed‐end mortgages or open‐end lines of credit.” An AUS is a system used by a financial institution to evaluate the application during its underwriting processes. If a financial institution has developed its own AUS, the financial institution must report the name of its proprietary system only if the financial institution is a securitizer. If the financial institution is not a securitizer, it is not required to report the name of the AUS. So what is a securitizer? The clarification in the 2017 HMDA rule states, “A person is a securitizer, Federal government insurer or Federal government guarantor of closed‐end mortgage loans or open‐end lines of credit, respectively, if it has ever securitized, provided Federal government insurance or provided Federal government guarantee for a closed‐end mortgage loan or open‐end line of credit.”
Income
The 2017 HMDA Rule clarifies what income to use when reporting HMDA income. The financial institution will use the income relied upon in making a credit decision. Therefore, if a financial institution relies upon salary and the bonus for determining if a customer qualifies for a loan, the financial institution will report the salary plus the bonus as income. But only relying on a portion of the customer’s income for determining creditworthiness, such us salary but not commissions, the financial institution will only report the portion of the income which was relied upon.
The 2017 HMDA Rule clarifications also clarify three aspects of collecting Race and Ethnicity information:
- A bank cannot require an applicant to complete the aggregated race and ethnicity categories if they complete the subcategories under race and ethnicity. If a customer completes the aggregate race and ethnicity categories, the bank cannot force the customer to complete the subcategory as well. This would most likely happen with an online application where the subcategories would not become available until the customer selects the aggregated categories. A financial institution should review their online application system to ensure this is not the case and to make sure all options are available to the customer at the time they are completing the application.
- A customer may add information in the other free-form subcategory field, whether or not they have checked the box for “other” on the application. The HMDA Rule clarification allows the filer to report the Other race or ethnicity subcategory if the customer provides information in the free‐form field without checking the other box. In addition, the 2017 HMDA Rule clarification permits the financial institution to report American Indian or Alaska Native, if the applicant provides information related to these categories in the free‐form field. As a side note, this clarification permits but does not require the filer to complete this information. This means that a bank will not be penalized if it does not complete this information that a customer did not select.
- The 2017 HMDA Rule clarifies how a financial institution should report ethnicity if the customer chooses more than five ethnicity categories. The rule states that the ethnicity reporting will mirror the required reporting requirements for the race categories and subcategories already disclosed in the 2015 HMDA final rule. This means that you must report the aggregate subcategory selected by the customer and no more than four subcategories selected by the customer.
Also, remember that regarding the collection of race and ethnicity, the 2015 HMDA Rule includes a caveat for applications taken in 2017 that close in 2018. If the filer takes an application prior to January 1, 2018, the financial institution can collect the race and ethnicity information based on the rules in effect at the time the application is taken. This means that a filer will not be penalized for not collecting the subcategory information on these applications, even if they close in 2018.
The race and ethnicity subcategory information is not required to be collected until January 1, 2018. That being said, if you are a financial institution that sells loans on the secondary market, you may want to verify with the investors that they are abiding by this regulatory commentary. Many times, the investors will have stricter rules when it comes to collecting data and interpreting the regulations.
TCA is always here to help with your HMDA needs. Now is the time to start planning for those first‐quarter reviews of the 2018 HMDA data collection. Contact one of our HMDA champions for any questions you may have and to schedule those first-or second‐quarter reviews of the 2018 HMDA data.
