HMDA Scrubs And The New Reg C Rules

We are just over half way through the new year under the new Regulation C rules which changed the Home Mortgage Disclosure Act (“HMDA”) reporting requirements. Have you scrubbed your HMDA data in accordance with the new rules? If not, let Regulatory Solutions help! We have developed proprietary HMDA Scrub software to assist in the data integrity review of your HMDA data. Our software produces exception-based reports so that you know exactly what corrections need to be made by loan number. The report also provides you with a total number of exceptions and percentages based on data points.

If you are interested in Regulatory Solutions scrubbing your current HMDA data, please contact us at 855.734.7655 or email us through our contact page.

 

Commercial/Business Purpose Loans Under New HMDA Reporting

Now that the first quarter of HMDA reporting under the news rules is complete – one consistent question we receive is regarding whether a particular commercial/business purpose loan is HMDA reportable?

Under Regulation C if a closed-end mortgage loan or an open-end line of credit is for commercial/business purpose and is secured by a dwelling and is for a home purchase, refinance (dwelling secured loan replacing dwelling secured loan) or home improvement then it is HMDA reportable.   Remember that on home improvement it must also be secured by a dwelling. Non-dwelling secured loans for the purpose of home improvement are no longer reportable. Also, remember a dwelling is not limited to just a 1-4 family structure but includes multifamily dwellings that contain five or more dwelling units and includes a manufactured home community.

You must look both at purpose and security to determine if the commercial/business loan is reportable. For example, if the purpose of the loan is for cash flow and it is secured by the owner’s primary dwelling, then the loan would not be HMDA reportable because the purpose is not home purchase, refinance or home improvement.  However, if the borrower asks to refinance a loan secured by their dwelling for cash flow purposes for their business, the loan would be HMDA reportable because the purpose is refinance as a dwelling secured loan which replaces a dwelling secured loan.

Regulation C Section 1003.3(c)(10) and the official interpretations set forth the rules regarding closed-end mortgage loan or an open-end line of credit that is or will be made primarily for a commercial or business purpose.

Using our proprietary HMDA Scrub software, Regulatory Solutions is your source for HMDA Scrubs. Please call us at 855-734-7655 for details.

Quality Control HMDA Requirements

Did you know that your HMDA data plays an important role when you are selling your loans to various agencies?

Most agencies require the lender to submit various HMDA data points as part of the purchasing process. With the new HMDA regulation that just took effect in January 2018, this means that the expanded GMI will play a key role in the purchasing process for most agencies.  Freddie Mac in particular specifically requires the lender report the GMI, Rate Spread, and HOEPA information for each loan that Freddie Mac purchases.

Fannie Mae, FHA, and Rural Housing require more than just the reporting of HMDA data points. Before these agencies will consider purchasing loans from your institution, you must show that you have procedures in place and are complying with the current HMDA regulation as part of your Quality Control Program. FHA has an additional requirement that the HMDA information that is being reported be accurate.

At Regulatory Solutions we are here to help. We provide in-depth Quality Control reviews, HMDA Scrubs and other regulatory services to help you with your compliance needs.

HMDA – Action Taken

We are now almost two months into the new HMDA regulation and there have been several questions as to reporting the action taken. Specifically, when to report an application as being withdrawn or file being closed for incompleteness. While this data point existed under the old HMDA regulation, it can still be confusing.

First there are applications that must be reported as being withdrawn. Under the new HMDA regulation, withdrawn is reported when the application is expressly withdrawn by the applicant before a credit decision was made.  An application is also reported as withdrawn if the financial institution provides conditional approval that specifies underwriting conditions which must be met and the applicant withdraws the application before satisfying all of the specified underwriting and credit worthiness conditions. An application would still be considered as being “withdrawn” if the financial institution made a counteroffer which the borrower agreed to and the loan was subsequently conditionally approved with underwriting conditions but the borrower later withdraws before satisfying those conditions.

When do you report an application as being closed for incompleteness?  This part of the HMDA regulation coincides with ECOA. While the HMDA regulation itself does not necessarily require a notice to be sent regarding missing information, for an application to be considered as “file closed for incompleteness”, however a written notice of incompleteness as described under Regulation B 12 CFR 1002.9 (c)(2) must be sent to the applicant. If the applicant fails to respond to the written notice, there is no further action needed on the part of the financial institution and the action taken would be “file closed for incompleteness”.  If an oral request for additional information is made by the financial institution and, if the application remains incomplete after the oral request is made, then a written notice denying the application based on the application being incomplete must be sent. In this instance, the file is denied for incompleteness instead of being closed for incompleteness.  There are some financial institutions that provide both the notice of incompleteness under Regulation B, and then send an notice of denial for incompleteness.  In this circumstance, reporting the application as closed for incompleteness or denied is left entirely up to the financial institution.   As always, remember to document your file accordingly.

For more information on our HMDA services please contact Regulatory Solutions at contact@regulatorysol.com or Toll Free 855.734.7655.

Reverse Mortgage, Open-End Line of Credit, or Business or Commercial Purpose

There are certain transaction indicators that will have to be reported as part of your HMDA data now that it is 2018. The new HMDA regulation added three new data points that will provide more information as to the terms of the loan application. These are if the application is for a reverse mortgage, an open-end line of credit, and if it is for a commercial or business purpose. These new data points are fairly straightforward and it is important to note that they do not have the option of being 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.

Automated Underwriting System (AUS) Requirements

Now that it is 2018, financial institutions will have to report the name of the Automated Underwriting System (AUS) and the results that were generated as part of their HMDA data. This data point allows a financial institution to not only use the already well established AUSs, but to also report if they used one that they developed themselves. If this is the case, this system must meet all of the elements of the AUS definition. According to the CFPB’s Small Entity Compliance Guide, an AUS is: i) developed by a securitizer, Federal government insurer, or Federal government guarantor of Closed-End Mortgage Loans or Open-End Lines of Credit; and ii) provides results that address both the applicant’s credit risk and whether the loan is eligible to be originated, purchased, insured, or guaranteed by the securitizer.

It is important to note that this data point is required to be reported if an AUS was used to evaluate the loan. The intention of the financial institution, whether to sell or to keep it as part of their portfolio, will not affect this reporting requirement. That being said, using an AUS is not a requirement for generating a loan. If one was not used in evaluating the application, then this data point can be reported as “not applicable” on your HMDA LAR. The other two circumstances in which “not applicable” can be reported is if you are reporting on a purchased loan or if the applicants are not natural persons.

 

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 Requires Reporting Of Total Dwelling Units

When reporting your HMDA data in 2018, you will now have to report the total number of individual dwelling units for the property that is securing the loan.  This data point will always be answered with a number as this is one of the few data points where “not applicable” cannot be reported. When you are dealing with an application that did not end in origination, then the institution should rely on the best information that was available at the time action was taken.

When the loan is secured by a manufactured home community, the data point should include the total number of manufactured home sites that can be occupied. It does not matter if the units are already occupied when you are reporting this data point. When you are reporting on a loan that is secured by only one manufactured home and it is located in a manufactured home community, then this data point should be listed as being “1”.

If the loan is secured by a condominium, then the total number of individual units should be reported on your HMDA LAR. If such things such as manager apartments, vehicle pads, site-built homes, or other rental spaces are considered under the financial institutions underwriting guidelines, then they should also be included in the total of units.

 

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.

Manufactured Home Secured Property Type & Manufactured Home Land Property Interest

Beginning in 2018, a financial institution will report manufactured home information as part of their HMDA data. Specifically, the secured property type and the land property interest information should be reported in regards to the manufactured home that is securing the loan.

For the secured property type, a financial institution will have to report whether the loan is secured by a manufactured home and land or if the land is not securing the loan. A financial institution will report that the Manufactured Home is not secured by land even if the Manufactured Home is considered real property under state law.

For the land property interest, the financial institution should report the information about the applicant’s ownership interest in the land where the manufactured home is located. The first option that can be reported is direct ownership. This is used when the applicant has direct ownership in the land and the ownership is more than a possessory real property ownership interest. Another option is indirect ownership. This is reported when the applicant is a member of a resident-owned community that is structured as a housing cooperative which owns the underlying land. If the applicant lives in a resident-owned community but is not a member, the land property interest would be reported as a paid leasehold. A paid leasehold can occur when the applicant does not have an ownership interest in the land but they have a written lease for the lot that specifies rent payments. This data point can also be reported as an unpaid leasehold. This occurs when there is no written lease and therefore no agreement for rent payments.

There is an additional circumstance for the land property interest data point. This will be reported as “not applicable” if the location for the manufactured home has not yet been identified at the time action was taken.  When it comes to reporting these data points as “not applicable” on your HMDA LAR, there is some overlap.  Both of these data points will be reported as “not applicable” when the dwelling that is securing the loan is not a manufactured home or if it is a manufactured home community that is a multifamily dwelling.

 

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.

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.

Discount Points, Lender Credits, and Interest Rate New HMDA Regs

For the new HMDA regulation, a financial institution will now have to report more information in regards to the terms of the loan. This includes such information as the total discount points, lender credits and the interest rate.

The total discount points that are paid to the creditor to reduce the interest rate can be found on page 2 of the Closing Disclosure on Line A.01.  If there were no discount points paid, then this data point should be left blank. The other data point that can be found on the Closing Disclosure is the total of lender credits which is on page 2 Line J.  Like with the discount points, if there were no lender credits, this data point should be left blank. If a revised Closing Disclosure was issued, then the revised amounts should be reported on the HMDA LAR.

Both of these data points are to be reported as “not applicable” in the same circumstances. The first is if the application did not end in origination. The second circumstance is if the loan or application is not subject to Regulation Z. The last instance is if it is a purchased loan with an application that was received prior to the effective date of Regulation Z.

Another item that must be reported as part of your HMDA data is the interest rate. This data point must be reported for loans that originated and for those that are approved but not accepted. For applications that were denied, withdrawn or closed for incompleteness, this data point should be reported as being “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.