Reg C (Home Mortgage Disclosure Act) - Iowa Bankers Association

Question: We have a short-term loan to a business entity to purchase bare lots of land and build a spec home. Is this loan HMDA reportable and if so, what is the loan purpose for the HMDA LAR?

Answer: No, this is not a HMDA reportable transaction. Under §1003.3(c)(10), a business or commercial purpose loan is only HMDA reportable if the loan purpose is home purchase, refinance or home improvement – unless an express exclusion in the rule applies. Since the loan is to a business entity and the proceeds of the loan will be used to purchase the lots and then construct a home to later be sold on a speculative basis, the application would fall under the temporary financing exemption. It is exempt from HMDA reporting even if the first advance goes to purchase the land or lots (unimproved land) and the remaining advances go for construction expenses. See excluded transactions and temporary finance exclusion below.

Section 1003.3 (c) Excluded Transactions

(2) A closed-end mortgage loan or open-end line of credit secured by a lien on unimproved land;

Official Interpretation

Loan or line of credit secured by a lien on unimproved land. Section 1003.3(c)(2) provides that a closed-end mortgage loan or an open-end line of credit secured by a lien on unimproved land is an excluded transaction. A loan or line of credit is secured by a lien on unimproved land if the loan or line of credit is secured by vacant or unimproved property, unless the institution knows, based on information that it receives from the applicant or borrower at the time the application is received or the credit decision is made, that the proceeds of that loan or credit line will be used within two years after closing or account opening to construct a dwelling on, or to purchase a dwelling to be placed on, the land. A loan or line of credit that is not excludable under § 1003.3(c)(2) nevertheless may be excluded, for example, as temporary financing under § 1003.3(c)(3).

(3) Temporary financing;

Official Interpretation

Loan or line of credit to construct a dwelling for sale. A construction-only loan or line of credit is considered temporary financing and excluded under § 1003.3(c)(3) if the loan or line of credit is extended to a person exclusively to construct a dwelling for sale. See comment 3(c)(3)-1.ii through .iv for examples of the reporting requirement for construction loans that are not extended to a person exclusively to construct a dwelling for sale.

Question: Can we use the HMDA Agricultural exemption for a consumer-purpose loan that is secured by both the borrower’s principal dwelling in town and a parcel of ag land which is 100% crop land and does NOT contain a dwelling?

Answer: No – the ag exemption would not be available in this scenario. Comment #1 to the Official Staff Commentary to 3(c)(9) explains the exemption:

1. 1. Loan or line of credit used primarily for agricultural purposes. Section 1003.3(c)(9) provides that an institution does not report a closed-end mortgage loan or an open-end line of credit used primarily for agricultural purposes. A loan or line of credit is used primarily for agricultural purposes if its funds will be used primarily for agricultural purposes, or if the loan or line of credit is secured by a dwelling that is located on real property that is used primarily for agricultural purposes (e.g., a farm)…

There must be a dwelling located on the ag purpose property in order to use the exemption. In this case, because the loan is consumer-purpose and secured by a dwelling NOT located on ag property, it must be reported.

In contrast, if the loan was secured by two dwellings, one located on ag land and one not, the exemption COULD be used. With respect to the exemption for loans secured by real property used primarily for ag purpose, there is nothing in the regulation or its official staff commentary to indicate the exemption would be lost should the loan also be secured by a dwelling located on real property that was not primarily ag purpose. The preamble to the 2015 final rule indicated the “spirit” of the final rule was to broaden the ag exemption. As a result, it appears the ag exemption would be maintained for a consumer- purpose loan secured by two properties – one of which qualifies for the ag exemption and one which does not qualify for the ag exemption.

Question: We are fairly new to HMDA reporting. We have a loan being made to a business entity to construct a dwelling on a speculative basis; meaning they intend to sell the home upon completion. The lot that the home is being built on is already owned by the business entity. Is this loan to construct the home on speculative basis (meaning to later be sold by the builder) a HMDA reportable loan?

Answer: No, it is not a HMDA reportable transaction. Under §1003.3(c)(10), a business or commercial purpose loan is only HMDA reportable if the loan purpose is home purchase, refinance or home improvement – unless an express exclusion in the rule applies.

Looking further at these loan purposes:

A home purchase loan is where the loan proceeds are used to purchase or construct a dwelling,
A refinance loan transaction is where a dwelling-secured debt satisfies and replaces another dwelling-secured debt by the same borrower.
A home improvement loan transaction is where the loan proceeds are used to rehab, repair or improve a dwelling or real property on which it is located.

At first glance, it would appear the loan is reportable since the loan purpose is to construct a dwelling. However, it is important to consider HMDA’s exclusions — in this case the temporary financing exclusion. A loan or line of credit is considered temporary financing and excluded under §1003.3(c)(3) if the loan or line of credit is designed to be replaced by separate permanent financing extended by any financial institution to the same borrower at a later time. The Official Staff Commentary to this same section explains a construction-only loan or line of credit is considered temporary financing and excluded under §1003.3(c)(3) if the loan or line of credit is extended to a person exclusively to construct a dwelling for sale.

As a result, your application for a construction only loan or line of credit (LOC) made exclusively to construct a dwelling for sale (or purchase the lot and construct a dwelling for sale) is NOT HMDA reportable.

Question: When considering the HMDA temporary financing exclusion, are short-term loans made to purchase, make improvements and then later sell the dwelling also considered temporary financing? We have a loan being made to a borrower (business entity or individual) to purchase a dwelling, make some improvements to the dwelling and then the applicant intends to sell the dwelling for a profit (sometimes referred to as “flips”). Is this application exempt from HMDA reporting using the temporary financing exemption?

Answer: In this case, the application does not meet the “temporary financing” exclusion. A loan or line of credit is considered temporary financing and excluded under §1003.3(c)(3) if the loan or line of credit is designed to be replaced by separate permanent financing extended by any financial institution to the same borrower at a later time.

The Official Staff Commentary gives a specific example of this situation. In Paragraph 3(c)(3)(1)(v) it provides the following example:

“Lender A originates a loan with a nine-month term to enable an investor to purchase a home, renovate it, and re-sell it before the term expires. Under Section 1003.3(c)(3), the loan is not designed to be replaced by separate permanent financing extended to the same borrower, and therefore the temporary financing exclusion does not apply. Such a transaction is not temporary financing under Section 1003.3(c)(3) merely because its term is short.”

In this case, the loan term does not matter for the temporary exclusion. When purchasing, improving, and selling for a profit (also referred to as “flips” or “splash & dash” loans), the loans are not replaced with permanent financing by the same borrower at a later time and therefore would be HMDA reportable as “home purchase”. The speculative construction loan exclusion under the temporary financing exemption does not apply for “splash and dash” loans because the dwelling already exists – it is not being newly constructed with the loan proceeds.

Question: We are questioning if an application is HMDA reportable. The applicant applied for a dwelling-secured home improvement loan to add a family room and two bedrooms to their home which is located on an acreage. There are also two large greenhouses located on the acreage where the customer grows and sells flowers and vegetables. The greenhouse is the customer’s primary source of income and the greenhouses added significant value to the property. This loan is clearly consumer-purpose since the applicant is adding to their home’s living space, but we are not sure if the HMDA ag exemption applies.

Answer: Yes, the HMDA ag exemption would apply to this application. The Official Staff Commentary to § 1003.3(c)(9) explains, “… Section 1003.3(c)(9) provides that an institution does not report a closed-end mortgage loan or an open-end line of credit used primarily for agricultural purposes. A loan or line of credit is used primarily for agricultural purposes if its funds will be used primarily for agricultural purposes, or if the loan or line of credit is secured by a dwelling that is located on real property that is used primarily for agricultural purposes (e.g., a farm).”

The comment then directs us to comment 3(a)-8 in Regulation Z, for guidance on what is an agricultural purpose. This comment lists several examples of what is considered “agricultural purpose” and includes “planting, propagating, nurturing, harvesting, catching, storing, exhibiting, marketing, transporting, processing, or manufacturing of food, beverages (including alcoholic beverages), flowers, trees, livestock, poultry, bees, wildlife, fish, or shellfish by a natural person engaged in farming, fishing, or growing crops, flowers, trees, livestock, poultry, bees, or wildlife.”

So while your application is clearly for a consumer-purpose loan, because the loan will be secured by a dwelling that is located on real property that is primarily used for agricultural purpose, the application is exempt from HMDA reporting.

Question: Our bank is a HMDA reporter but up until now, we have only had to report closed-end credit transactions. I understand the open-end reporting threshold is decreasing as of Jan. 1, 2022 down to 200. Can you explain to me what this means and how I determine if we must start reporting open-end lines of credit as of Jan. 1?

Answer: Beginning in calendar year 2022, federally-regulated financial institutions that meet Regulation C’s institutional coverage criteria (have a branch location in a MSA and are over the asset size threshold) and originated at least 200 open-end lines of credit in each of the two preceding calendar years, must collect, record, and report data on dwelling-secured open-end lines of credit on their LAR. In order to make a determination as to whether or not you must begin reporting dwelling-secured, open-end lines of credit, you will have to “look back” to your 2021 and 2020 mortgage lending activity and count the number of originated dwelling-secured, open-end lines of credit.

Regulation C indicates only originated, reportable open-end lines of credit should be included in the count. As a reminder, all consumer purpose, dwelling secured, open-end lines of credit are reportable regardless of purpose unless the line qualifies for HMDA’s temporary or agricultural exemption or is for an amount of $500 or less. Business purpose, dwelling-secured, open-end lines of credit however, are only reportable, and should be counted, if the purpose of the line is home purchase, home improvement or refinance. If the results of your count reveal your institution originated 200 or more reportable, dwelling-secured lines of credit in both 2020 and 2021, you must begin reporting applications for open-end lines as of Jan. 1, 2022 for all applications for which final action occurred after Jan. 1.

Question: We have determined we did originate over HMDA reportable 200 open-end, dwelling-secured lines of credit in both 2020 and 2021 so we must begin reporting open-end lines of credit in 2022. However, we originated fewer than 500 HMDA reportable lines of credit. Does this mean we qualify for the partial exemption that allows us to report fewer data points?

Answer: Perhaps. The partial exemption is available for reporters of open-end lines of credit but three criteria apply in order to qualify. The institution:

Must not have received a rating of “need to improve record of meeting community credit needs” during both of its two most recent CRA examinations;
Must not have received a rating of “substantial noncompliance in meeting community credit needs” on its most recent CRA examination; and
Must have originated fewer than 500 HMDA reportable open-end lines of credit in both of the two preceding calendar years.

An institution that qualifies for the partial exemption is only required to collect and report 22 of the 48 data points outlined in Regulation C. It should be noted, the partial exemption for closed-end mortgage loans and the partial exemption for open-end lines of credit operate independent of one another. Thus, in a given calendar year, a financial institution may be eligible for one partial exemption but not the other if it exceeds the 500 count for just closed-end or just open-end transactions.

Question: A farmer applied for a cash-out refinance with funds to be used to construct an addition on his residence. Our collateral is 30 acres of farmland that includes his residence. Both the existing and new loan are secured by the farmland and his primary dwelling is located on the farmland. Is this HMDA reportable since the loan proceeds will be used for home improvement?

Answer: No, since the property securing the loan is used primarily for agricultural purposes, the loan is not HMDA reportable — even if the loan is secured by a dwelling and for home improvement. Under §1003.3(c)(9), loans “primarily for agricultural purposes” are exempted from HMDA reporting. In addition, Comment 1 to that section further explains, “A loan or line of credit is used primarily for agricultural purposes … if the loan or line of credit is secured by a dwelling that is located on real property that is used primarily for agricultural purposes (e.g., a farm).” Thus, even if the loan proceeds are not used for agricultural purposes, the loan is not HMDA reportable if the loan is secured by a dwelling located real property used primarily for agricultural purposes.

Question: My bank is a HMDA reporter. We originated a dwelling-secured, closed-end loan. The loan proceeds were used to pay down an existing line of credit (LOC) that is also dwelling secured. Both the new loan and existing LOC are to the same borrower; however, the new loan did not satisfy and replace the LOC, so the transaction does not meet the definition of “refinance” for HMDA purposes. No funds were used for home purchase or home improvement. The property does not qualify for the agricultural exemption. If the new loan is not a refinance, purchase or home improvement, it is not HMDA reportable, correct?

Answer: It depends whether the loan proceeds are used for a consumer or business purpose. As long as no exemptions apply, business purpose loans are only reportable if they are dwelling-secured and are for the purpose of home purchase, refinance, or home improvement. Consumer purpose loans that are dwelling-secured are reportable if the loan proceeds are used for home purchase, refinance or home improvement, as well as another catch all purpose, “Other”. The “Other” category is used for any consumer-purpose, dwelling-secured loan that is for a purpose other than home purchase, refinance or home-improvement, provided an exemption does not apply.

Thus, in reference to your question, if the loan is business purpose, it is not reportable since the funds were not used for a HMDA reportable purpose. Provided an exemption does not apply, if the loan is consumer purpose, it is reportable using the HMDA loan purpose code of “Other.” (June 2020)

Question: We had a loan application to refinance a customer’s principal dwelling. This note was held in our loan portfolio. The consumer requested a refinance to lower his interest rate. Somewhere along the refinance process, the lender and borrower agreed to modify the existing loan and lower the rate rather than refinance it. This was less expensive for both the bank and the customer. Is the application for the refinance a HMDA reportable event?

Answer: Provided the bank did NOT satisfy and replace the existing obligation, rather it executed a change in terms or modification agreement to satisfy the customer’s request, the application is not reportable. For all practical purposes, your loan officer made a counteroffer on the request to refinance – with the counteroffer being to modify the existing obligation rather than extinguish the existing obligation. Because the applicant accepted the counteroffer and modification agreements are not reportable, the application is not reportable. Had the bank denied the request to refinance or the borrower not accepted the modification counteroffer, the application for refinance would have been reported as a denial.

Question: For HMDA purposes, how should we report a mobile home prequalification request where no property location was presented for the prequalification request?

Answer: See the commentary to Reg. C, § 1003.2(b) – #2 that indicates prequalification requests should not be reported on the Loan Application Register:

1. Prequalification. A prequalification request is a request by a prospective loan applicant (other than a request for preapproval) for a preliminary determination on whether the prospective loan applicant would likely qualify for credit under an institution’s standards, or for a determination on the amount of credit for which the prospective applicant would likely qualify. Some institutions evaluate prequalification requests through a procedure that is separate from the institution’s normal loan application process; others use the same process. In either case, Regulation C does not require an institution to report prequalification requests on the loan/application register, even though these requests may constitute applications under Regulation B for purposes of adverse action notices.

Question: We closed a mortgage refinance secured by a dwelling owned by the borrower’s parents, not the borrower. The parents of the borrower executed a hypothecation agreement pledging the dwelling as collateral for the loan. The loan is a HMDA reportable transaction – a refinance: the loan is to the same borrower as the previous obligation and both loans are dwelling-secured. However, it is my understanding loans collateralized by secured guaranties are not HMDA reportable. Is a loan with a hypothecation agreement the same as a loan collateralized by a secured guaranty?

Answer: You are correct; the new loan is HMDA reportable as a refinance. The definition of a refinance under HMDA is any dwelling secured loan that replaces and satisfies another dwelling secured loan to the same borrower.

The difference between a hypothecation agreement and the secured guarantee is that the hypothecation agreement allows a creditor to directly secure the loan with collateral that is owned by a third party, not the borrower. On the other hand, a loan collateralized by secured guarantee is not directly secured by a dwelling. The mortgage is secured by the guaranty and the guaranty is secured by the dwelling. The FFIEC issued an FAQ regarding this question. The FAQ is found at here:

Refinancing – guaranty secured by dwelling. If an obligation secured by a dwelling is satisfied and replaced by an obligation in which a guaranty of the credit obligation is secured by a dwelling but the new credit obligation is not secured by a dwelling, is the transaction reportable under HMDA?

Answer: No, a transaction is not reportable as a home purchase loan or refinancing unless the credit obligation, itself, is secured by a dwelling. See 203.2(h), 203.2(k)(2). An obligation not secured by a dwelling is reportable as a home improvement loan only if classified by the lender as a home improvement loan. See 203.2(g)(2).

Question: If a loan is going to be secured by a property that is both residential and commercial purposes, is it HMDA reportable if it meets the purpose definitions for HMDA?

Answer: When determining if a loan is HMDA reportable, the bank must first determine if the loan is secured by a dwelling, as under the revised rule ALL HMDA reportable loans must now be dwelling-secured. When the collateral property is a mixed-used property (some of the property is used as a residence and some is not), the bank must determine if the structure’s “primary use” is residential. A bank can use any reasonable method to make this determination, such as comparison of square footage, income generated from residential vs nonresidential, or even the borrower’s stated purpose. If the bank determines the collateral property is primarily residential, the next step is to determine if the loan is consumer-purpose or business purpose. If the loan is consumer-purpose and secured by a mixed-use property that is primarily residential, it is reportable if the purpose is home purchase, home improvement, refinance (or cash-out refinance) or other. If the loan is business-purpose and secured by a mixed-use property that is primarily residential, it is only reportable if it meets the definition of a home purchase loan, home improvement or refinance. There is no “other” reportable purpose for business-purpose loans.

Question: Are we still required to report business-purpose (non-agricultural) refinances that are secured by a lien on a dwelling if the refinance proceeds are NOT used for home purchase or home improvement purpose?

Answer: Yes. Under § 1003.3(c) of Reg. C, a “covered loan” is a closed-end mortgage loan or open-end line of credit (secured by a dwelling) that is not an excluded transaction under § 1003.3(c). Among the exclusions of § 1003.3(c) are closed-end mortgage loans that “will be made primarily for a business or commercial purpose,” unless the loan is a home improvement loan, a home purchase loan, or a refinancing. “Refinancing” is defined at § 1003.2(p) as a closed-end mortgage loan or an open-end line of credit in which a new, dwelling-secured debt obligation satisfies and replaces an “existing dwelling-secured debt obligation by the same borrower.” Thus, if the existing dwelling-secured loan is being replaced with a new dwelling-secured to the same borrower (regardless of its purpose), the new dwelling-secured loan is reportable as a “refinance.”

Question: Is a business line of credit secured by a commercial security agreement, which is also supported by a secured guaranty from business owners where the guaranty cites a mortgage on the owner’s home, a HMDA reportable transaction?

Answer: Under the revised regulation, only dwelling-secured lines of credit and closed-end loans are reportable. The rule requires the loan or line be directly secured by the dwelling. If the loan or line is secured by the guarantee or a security agreement, it is not considered to be directly secured by a lien on a dwelling even if that guarantee or security agreement is collateralized by a dwelling. The rule does not “look through” the primary security. So for example, a loan secured by guarantee is treated the same for HMDA purposes whether that guarantee is unsecured, secured by a time CD or secured by a dwelling. This is consistent with the current rule and guidance provided on the FFIEC website. (See questions related to Loan Purpose – Refinancing — guaranty secured by dwelling.)

Question: Are bridge loans reportable?

Answer: The rules related to reporting bridge loans have not changed. Bridge loans are generally considered “temporary financing” because they are intended to be replaced with separate permanent financing to the same borrower, and remain exempt from HMDA reporting. Remember, a loan is not “temporary” merely because it is short-term; rather a temporary loan is meant to fill a gap of time until the permanent financing can be put in place.

Question: We originated a new business-purpose loan secured by a mortgage on a property that contains a dwelling. The loan proceeds refinanced a loan secured by business equipment; no dwelling-secured loan is being paid off. Is the new loan HMDA reportable?

Answer: Business-purpose loans secured by a dwelling are only HMDA reportable if the loan proceeds are used to purchase or improve a dwelling, or refinance a dwelling-secured loan. Your new loan proceeds were not used to purchase or improve a dwelling, so that leaves us with the refinance option. To report a business-purpose loan as a refinance, both the new loan and the existing loan must be dwelling-secured. Since the existing loan that was paid off was not dwelling-secured, the loan does not qualify as a refinance, and is not HMDA reportable. (March 2019)

DWELLINGS

Question: We have a consumer loan application to purchase a lot that adjoins our customer’s primary residence. The lot contains a dwelling but it is in disrepair and our customer plans to remove the dwelling once they have purchased the lot. Our collateral for this loan is just the lot being purchased. Is this application HMDA reportable? We are not sure if the extension is considered to be “secured by a dwelling” since the home is in such bad shape and the customer plans to tear it down immediately after purchase.

Answer: Regulation C does not directly address uninhabitable dwellings nor does the HMDA Getting It Right! Guide. The Official Staff Commentary to definition of dwelling includes many examples of what is and is not a “dwelling” for HMDA purposes, but does not address the condition of structure. The IBA reached out to the CFPB for guidance on this matter and was advised that dwelling is defined in Regulation C as a “residential structure”; however, the term “residential structure” is not defined in Regulation C. Therefore, the CFPB advises banks should develop procedures to determine if the dwelling is a residential structure and to be consistent in its application of its procedures.

For example, the bank’s procedures could indicate if the dwelling has been condemned by the local housing authority as “uninhabitable” it is not considered a dwelling for HMDA purposes. In cases where a local authority does not exist or property has not been formally condemned, bank procedures could take into consideration the state of structure – such as if it has four load-bearing walls and a roof, if water, electricity, and sewer are still intact, etc. Finally, procedures should also take into consideration the borrower’s intended use of the loan proceeds and the property. For example, if the borrower intends to refurbish the home that is currently uninhabitable, it would be reportable versus if the borrower intends to buy property and tear down structure immediately due to its condition, it is not reportable.

Question: We have a customer that has applied for a loan to purchase a property that is currently being used as a child care center. Their intention is to convert the property into duplex; living in one unit and renting out the other unit. Would this loan be HMDA reportable as a “home purchase” loan since the borrower’s intent is to convert the property into a dwelling, or is it exempt from reporting because the structure is currently not used as a dwelling?

Answer: This loan is not HMDA reportable. The term “dwelling” in Reg. C is defined as a residential structure, whether or not attached to real property. The commentary then provides for several exclusions to this broad definition, including a structure originally designed as dwelling but used exclusively for commercial purposes is not a dwelling. The CFPB indicated this comment should be used only in the current tense — meaning the collateral structure must be used as a dwelling at the time of application in order to trigger HDMA reporting. As a result, it does not matter if a structure will be turned into a dwelling in the future, the current use of the structure as a day care at the time of application should be considered when determining if the application is reportable.

Question: Are dormitories, fraternity/sorority houses, and extended stay hotels considered “dwellings” and therefore HMDA reportable?

Answer: No. The Official Staff Commentary to § 1003.2(f) goes into great detail to define a “dwelling” for HMDA purposes. Comment #3 details a number of exclusions from the definition of “dwelling” including transitory residences such as hotels, hospitals, dormitories and sorority/fraternity houses.

Question: Are assisted living, rehab centers and nursing homes considered “dwellings” for HMDA reporting purposes?

Answer: Official Staff Commentary, Comment #5 to § 1003.2(f) addresses properties with medical service components. It says a property used for both long-term housing and to provide related services, such as assisted living for senior citizens or supportive housing for persons with disabilities, is a dwelling and does not have a non-residential purpose merely because the property is used for both housing and to provide services. However, transitory residences that are used to provide such services are not dwellings. Properties that are used to provide medical care, such as skilled nursing, rehabilitation, or long-term medical care, also are not dwellings. If a property that is used for both long-term housing and to provide related services also is used to provide medical care, the property is a dwelling if its primary use is residential. An institution may use any reasonable standard to determine the property’s primary use, such as by square footage, income generated, or number of beds or units allocated for each use. An institution may select the standard to apply on a case-by-case basis.

Question: Has there been any guidance for whether tiny homes are considered “dwellings”? They are not manufactured homes but are not on a permanent foundation either?

Answer: Great question! We have not seen guidance directly on the subject of “tiny homes” but the CFPB has provided guidance on what is and is not a “dwelling.” We agree that tiny homes are not “manufactured homes” as Reg. C defines a manufactured home “as any residential structure as defined under regulations of the U.S. Department of Housing and Urban Development establishing manufactured home construction and safety standards (24 CFR 3280.2).” As far as we know, tiny homes do not meet HUD’s manufactured home standards. Further supporting this, the OSC to the definition says “Modular or other factory-built homes that do not meet the HUD code standards are not manufactured homes for purposes of § 1003.2(l). Recreational vehicles are excluded from the HUD code standards pursuant to 24 CFR 3282.8(g) and are also excluded from the definition of dwelling for purposes of § 1003.2(f).”

The CFPB’s tool, HMDA Transactional Coverage Guide, provides multiple examples of what is and is not a dwelling. Page 3 of the guide indicates recreational vehicles, travel trailers, and other transitory residences are NOT dwellings for HMDA reporting purposes. Because tiny homes are often built on chassis so they can easily be moved from one location to the next, we believe they would generally not be considered a “dwelling” under the rule. Of course, with that being said you need to consider each situation individually. For example, a tiny home that is permanently affixed on a foundation would be a dwelling for HMDA purposes. It is the not the size of the dwelling that disqualifies it as a dwelling, but

REPORTING

Question: How can the bank determine if there are HMDA applications and/or loan files that are being omitted from the LAR unintentionally?

Answer: First, the bank should have processes and procedures for determining whether a loan application is HMDA reportable early in the loan application process. Often weakness in this area can result in banks scrambling before HMDA submission to validate all covered applications are being properly reported.

Other omission testing strategies include:

Checking for applications that have been withdrawn, denied or that are approved but not accepted. If your bank uses an online application system or enters all applications into your loan software for initial underwriting, ensure each application entered on that system made it to your LAR.
Many banks will compare their monthly mortgage credit report bill to the LAR to ensure each application that a mortgage credit report was ordered for was recorded on the LAR (or correctly omitted if a preapproval or other exemption existed).
Many banks have specific loan coding for mortgage-secured loans within their core software. Create a report of all loans secured by a mortgage and compare that to your LAR to ensure if the loan is not on the LAR, it was accurately identified as exempt. Ensure comments and notations in the HMDA loan file for applications that the bank determines are not HMDA reportable support the entry or omission on the LAR.
Finally, review the bank’s contracts with its secondary market investors to verify who is responsible for reporting applications whether they result in a closed loan or not.

Question: We are a HMDA reporting bank and just started selling loans to secondary market investors. Who is responsible for the HMDA reporting of secondary market real estate loans?

Answer: According to the commentary to Reg. C, § 1003.1(c) – #2 the party that makes the credit decision should report the application on its LAR. An institution that takes and processes a loan application and arranges for another institution or investor to acquire the loan at or after closing is acting as a “broker.” For the purposes of this discussion, your institution is considered a “broker.” If a broker makes the credit decision, then the broker should report the loan. If the investor makes the credit decision, then the investor reports the loan. This is true even if broker makes a credit decision based on underwriting criteria set by an investor such as Fannie Mae or Freddie Mac.

A good general rule is if an investor reviews an application and makes a credit decision prior to closing, the investor reports that application. If the investor does not review the loan application prior to closing, rather the broker made the credit decision based on the investor’s criteria (but without the investor’s actual review of the application), the broker should report the application. Upon purchasing the loan, the investor would then report the loan as a “purchase” rather than an “origination.” Many investors are now using third parties to underwrite loan applications and do not review the applications prior to purchasing them. If a broker makes a loan based on the actions of third party other than the investor, such as government or private insurer or guarantor, then the broker must report the action taken on the application.

Question: We are now exempt from HMDA reporting. If we decide to stop reporting HMDA data, it appears our 2020 LAR should only include applications with final action on or before March 31, 2020. Our LAR should not include applications with final action after March 31, 2020. Is this correct?

Answer: The bank is only required to add to their 2020 LAR applications with final action dates on or before March 31, 2020. If applications with final action dates occurring after March 31 are added to the LAR, it would not be a violation of Reg. C but also is not required and may be subject to accuracy requirements under HMDA. If your bank is a newly exempted institution, even though you have added the first quarter applications to your LAR, you are not required to submit your 2020 LAR to the CFPB at all. (June 2020)

Question: Due to the HMDA threshold changes, if we were originally a HMDA reporter and are now below the reporting threshold as of July 1, 2020, would we need to collect government monitoring information (GMI) for our commercial purpose loans, such as for the purchase of rental properties?

Answer: Banks that originated fewer than 100 HMDA-reportable, closed-end mortgage loans in either 2018 or 2019 will not be subject to HMDA’s requirements to collect data on closed-end mortgage loans after July 1, 2020. As a result, these banks will only be required to collect Government Monitoring Information (GMI) on mortgage loans subject to Reg. B. Under Reg. B, GMI is only to be collected on home purchase loans (or refi of home purchase) when applicant is applying to purchase their principal dwelling and the loan will be secured by that dwelling. As a result, banks that fall below the HMDA threshold and choose not to voluntarily collect and report HMDA data should not collect GMI when financing loans for rental property or vacation homes. (June 2020)

Question: From a HMDA perspective, are open-end LOC’s still optional to report with the new rule?

Answer: It depends upon your open-end, dwelling secured origination volume. If your bank originated fewer than 500 HMDA-reportable open-end, dwelling secured lines of credit in one of the two previous calendar years, reporting open-end lines of credit remains optional. As of January 1, 2022, the 500 open-end threshold will move to 200. As a result, starting January 1, 2022, if your bank originated fewer than 200 HMDA-reportable, open-end lines in either 2020 or 2021, reporting open-end lines of credit remains optional. However, if your bank originated 200 or more HMDA-reportable, open-end lines of credit in both 2020 and 2021, you must begin collecting data and reporting open-end, dwelling secured lines of credit in 2022. (June 2020)

Question: With the 2020 threshold changes for closed-end credit, Reg. B allows banks to collect demographic information if the lender was required to report HMDA data within last 5 years. We are a newly exempted HMDA reporter but anticipate continued loan volume growth and will exceed the 100 threshold within next couple of years. Would you suggest we continue to collect HMDA demographic information but not report it? Is this permitted or do we need to change to collect only the Reg. B GMI info? Can we collect HMDA demographic information but not report if we are under 100 origination loan volume threshold?

Answer: Regulation B provides banks can continue to collect demographic information (or GMI) on all HMDA reportable applications without violating Reg. B’s GMI collection rules under certain conditions. Those conditions include:

The bank was a covered financial institution under the HMDA rules (12 CFR 1003.2(g)), or submitted HMDA data for any of the preceding five calendar years but is not currently required to submit HMDA data (due to no longer being a covered financial institution); or,
The bank exceeded an applicable loan volume threshold in the first year of the two-year threshold period provided in the HMDA rule may, in the second year, collect information regarding the ethnicity, race, and sex of an applicant for a loan that would otherwise be a covered loan by the HMDA rule.

If the bank qualifies under one of these conditions, it will want to make a risk-based decision, taking into consideration the setup and training costs to stop and start the data collection processes, as to whether it will stop collection entirely or continue collecting demographic information on loans that would be subject to HMDA. You may find it more costly to start and stop collection than to continue collecting and not report the data if under the loan volume thresholds. If your bank decides to continue to collect demographic (or GMI) information on all HMDA reportable applications, you are not required to report that information unless/until the bank becomes a covered institution for HMDA reporting purposes. (June 2020)

NOTICE & DISCLOSURE REQUIREMENTS

Question: What are the requirements for the HMDA notice that we are required to post in the lobby of the bank?

Answer: The 2015 HMDA rule modifies Regulation C’s notice requirement. Beginning Jan. 1, 2018, a financial institution must post, in the lobby of its home office and each branch office physically located in an MSA or MD, a general notice about the availability of its HMDA data on the CFPB’s website. A financial institution may, but is not required to, use the sample notice provided by the CFPB to satisfy this requirement. In any case, the notice must clearly convey that the financial institution’s HMDA data are available on the CFPB’s website. So, the new notice must be posted starting Jan. 1, 2018.

A representative from the CFPB verbally confirmed to the IBA the FFIEC has interfaced its database with CFPB database, making HMDA data for prior years also available on the CFPB website.

RECORD RETENTION

Question: Have the record retention requirements changed? Do we still need to maintain copies of the modified LAR and Disclosure Statement for three and five years respectively?

Answer: Effective Jan. 1, 2018, the 2015 HMDA rule changes a financial institution’s obligations with respect to disclosing its modified LAR and disclosure statement. The new requirements apply to data collected in 2017 and forward. Beginning in 2018, upon request from a member of the public, a financial institution must provide a written notice regarding the availability of its modified LAR and disclosure statement on the CFPB’s website instead of maintaining copies.

However, for data submitted prior to 2017, the modified LAR and disclosure statement record retention requirements remains in place. The requirement to maintain a copy of the modified LAR and disclosure statement at your institution will go away when the 2016 data is no longer required to be maintained under Reg. C’s record retention requirements. For example, in calendar year 2020, an institution must only make available a notice that its modified LAR is available on the CFPB’s website if it was required to collect data in 2017, 2018, or 2019 and would no longer be required to maintain a copy of the modified LAR at its physical location.

Question: Are we still required to retain copies of our modified LAR in our CRA Public File?

Answer: The Community Reinvestment Act implementing regulation, Reg. BB, was also revised effective Jan. 1, 2018 and no longer requires HMDA-reporting banks to maintain a copy of their modified LAR in the CRA Public File. See 228.43(b)(2):

(2) Banks required to report Home Mortgage Disclosure Act (HMDA) data. A bank required to report home mortgage loan data pursuant part 1003 of this title shall include in its public file a written notice that the institution’s HMDA Disclosure Statement may be obtained on the Consumer Financial Protection Bureau’s (Bureau’s) website at www.consumerfinance.gov/hmda. In addition, a bank that elected to have the Board consider the mortgage lending of an affiliate shall include in its public file the name of the affiliate and a written notice that the affiliate’s HMDA Disclosure Statement may be obtained at the Bureau’s website. The bank shall place the written notice(s) in the public file within three business days after receiving notification from the Federal Financial Institutions Examination Council of the availability of the disclosure statement(s).

HMDA DATA POINTS – GENERAL

Question: Our bank qualifies for the HMDA small creditor partial exemption. Does that mean we should leave those data point fields on the Loan Application Register (LAR) blank or enter NA in those LAR fields?

Answer: The data points covered by the partial exemption should NOT be left blank. Rather, the HMDA Filing Instruction Guide provides specific instructions for completing these LAR fields:

The bank should enter “1111” in the Applicant Credit Score, Co-Applicant Credit Score, Manufactured Home, AUS Result, Reverse Mortgage, Open End LOC, and Business or Consumer LAR fields.
The bank should enter “Exempt” in the Origination Charge, Discount Points, Lender Credits, Interest Rate, Debt to Income, CLTV, Loan Term, and Property Value LAR fields.

Question: Is there resource that details what data fields should be left blank if the data point does not apply to the reported covered transaction and when “NA” (Not Applicable) can be used?

Answer: The CFPB created a chart, the Reportable HMDA Data: A regulatory and reporting overview reference chart for this purpose. This chart combines the Summary of Reportable Data chart, the filing instructions from the 2018 Filing Instructions Guide, and the Reporting “Not Applicable” chart into one reference tool. This chart details when “NA” is an appropriate response for certain data points.

The IBA also developed a LAR Data Field Guide (found on the IBA’s website, Bankers Compliance Resources page) which provides the codes for each data point with tips for when each code should be used and also details when the data field should be left blank or NA should be used.

LEI/ULI – §1003.4(a)(1)

Question: In a merger when reporting a consolidated LAR in the year of the merger, do you use the Legal Entity Identifier (LEI) of the surviving financial institution (FI) or the original bank’s LEI to create the Universal Loan Identifier (ULI) for loans originated prior to merger?

Answer: The rule does not directly address this but we were able to verbally confirm with a CFPB representative the FI making the credit decision on the application should assign the ULI that would include that institution’s LEI. Thus, the original FI that took the application and made the credit decision should assign the ULI, which includes that FI’s LEI.

Question: Our bank holding company (BHC) has an LEI. Can our bank can use our BHC’s LEI number instead of applying for a separate LEI number for the bank?

Answer: The rule requires that each ULI begin with the FI’s LEI. The definition of FI in the rule refers to a bank, savings association or credit union that meets certain criteria; not the bank holding company that owns the FI. A LEI issued for the entire BHC cannot be used by each separate charter under the BHC umbrella. The whole purpose of the ULI concept is to be able to track each application back to the FI that made the credit decision.

Question: Does the ULI need to be used on a Loan Estimate in the Loan ID field?

Answer: No. The ULI does not need to be used on the Loan Estimate for the Loan ID field. Since the ULI can be up to 43 characters long, it’s likely you will not want to use the ULI on your Loan Estimate. Remember, the ULI begins with your bank’s LEI, is then followed by up to 23 letters/numbers you assign and ends with a two-digit “check digit.” You may include the Loan Estimate Loan ID number in the letters/characters you assign to the ULI if you want, but there is no requirement to do so.

Question: Can we use our existing application numbers that our institution uses today to create our ULI? This is a six-digit number. And does the ULI have to include alpha letters?

Answer: The ULI does not need to include alphabetical letters. You can incorporate the six-digit application numbering system you use today to develop each application’s ULI. Again, you must start the ULI with your bank’s LEI and end it with the check digit using the process outlined in Appendix C to Reg. C.

LOAN PURPOSE – § 1003.4(a)(3)

Question: I have a question related to HMDA reporting. Our collateral for a loan is a mixed-use property and the loan funds will be used solely to make improvements to the business portion of the property. Should this transaction be reported as a home improvement loan on our Loan Application Register?

Answer: It depends. First, the mixed-use property has to be determined to be “primarily residential” in order to be considered a “dwelling” and be HMDA reportable. If that is the case, then you need to determine if the mixed-use collateral property is a 1-4 family structure or multi-family dwelling (more than 4 living units).

If the collateral property is a 1-4 dwelling, if any portion of the dwelling is improved, residential or business portion, it is a reportable home improvement loan (provided none of the loan proceeds were also used for home purchase or to refinance a dwelling-secured loan).
If the collateral property is a multi-family dwelling (more than 4 living units), the transaction is only reportable as a home improvement loan if the residential portion of the structure is improved. This distinction for multifamily dwellings is found in the official staff commentary to the definition of “home improvement:” 4. Mixed-use property. A closed-end mortgage loan or an open-end line of credit to improve a multifamily dwelling used for residential and commercial purposes (for example, a building containing apartment units and retail space), or the real property on which such a dwelling is located, is a home improvement loan if the loan’s proceeds are used either to improve the entire property (for example, to replace the heating system), or if the proceeds are used primarily to improve the residential portion of the property. An institution may use any reasonable standard to determine the primary use of the loan proceeds. An institution may select the standard to apply on a case-by-case basis. See comment 3(c)(10)-3.ii for guidance on loans to improve primarily the commercial portion of a dwelling other than a multifamily dwelling.

Question: I need clarification regarding several matters related to “refinance” transactions. If a loan is refinanced with two separate loans, are both new loans HMDA reportable? If we use two new dwelling-secured loans to pay off one dwelling-secured loan using the same property and the same borrowers, are both new loans considered refinances? Example: The first new loan pays the old loan down by 80% and the second new loan pays the remainder of the first loan.

Answer: A refinance occurs when a dwelling-secured closed-end mortgage loan or open-end line of credit obligation satisfies and replaces an existing dwelling- secured debt obligation to the same borrower. To qualify as a refinance, both the new and existing transactions must be secured by a dwelling and the borrower must be the same on both obligations.

The Official Staff Commentary (OSC) to the definition of “Refinancing” was revised to provide clarification on “same borrower” as well as “satisfying and replacing a dwelling-secured obligation.” (See comments #4 & 5 to § 1003.02(p).)

Comment 4 provides “the “same borrower” undertakes both the existing and the new obligation(s) even if only one borrower is the same on both obligations.” And then provides an example to illustrate this point.
Comment 5 states “Where two or more new obligations replace an existing obligation, each new obligation is a refinancing if, taken together, the new obligations satisfy the existing obligation. Similarly, where one new obligation replaces two or more existing obligations, the new obligation is a refinancing if it satisfies each of the existing obligations.”

Question: If a loan in the applicant’s individual name is refinanced in the name of “Applicant LLC”, would the second loan be a refinance because the borrowers are not the same even though the applicant is party to both loan requests?

Answer: No. If a loan is refinanced from the applicant’s individual name to their business entity, the “borrowers” in the transaction are not the same and therefore the purpose cannot be refinance. The borrower of the loan being paid off is an individual, a natural person. Whereas, the applicant for the refinance, “Applicant LLC,” is a separate legal entity. Legally, the natural person and the LLC are not one and the same.

Question: If we originate a loan secured by a dwelling on an acreage to pay off debt at another bank not secured by a lien on a dwelling, would the reportable purpose for this loan be “Other”?

Answer: Yes – provided the loan is a consumer-purpose loan. Using process of elimination, this loan would not be a “refinance” because the debt being paid off is not dwelling secured. We assume there are no cash out proceeds used for home improvement in this scenario and all your loan proceeds are being used to pay off the non-dwelling secured debt. So in this situation, you are correct, your new dwelling-secured, consumer-purpose, closed-end mortgage loan HMDA purpose would be “Other.” Business purpose loans are only HMDA reportable if the transaction is dwelling-secured and for the purpose of home purchase, refinance or home improvement. If this was a business purpose and not for one of those three purposes, it would not be reportable at all.

Question: Can we treat secondary market and in-house loans differently for purposes of determining whether a refinance is a cash-out refinance? We do not differentiate between cash-out and no cash-out transactions when pricing and underwriting in-house loans but our secondary market investors do on loans we sell to them. What about treating various loan types differently – such as commercial versus consumer purpose or first versus subordinate lien?

Answer: Typically most secondary market loans are reported by the investor because the investor makes the credit decision. However, if your bank has received delegated underwriting permission so you make the credit decision and report these loans as purchases, Reg. C requires you to report these differently if your policy is to treat secondary market and in-house loans differently for underwriting and/or pricing purposes. The bank is permitted to differentiate how it underwrites loans, for example based on in-house versus secondary market, or loan type (consumer versus commercial), or even lien position. The key is to develop procedures and stick to them for both fair lending purposes and HMDA reporting purposes! Just keep in mind the more complicated you make your procedures, the greater the risk for error when reporting!

Question: What is the purpose reported for HMDA when the loan meets the definition for multiple purpose codes, such as a loan that is both a purchase and refinance transaction or both a home improvement and refinance transaction?

Answer: Reg. C lays out a hierarchy for the loan purpose definitions when a loan fits under multiple categories. For multi-purpose loans, if the loan is a home purchase loan as well as a home improvement loan or refinancing, as defined under HMDA, the loan is reported as a home purchase loan. If the loan is not a purchase loan, but is both a home improvement and refinance transaction as defined under HMDA, the loan is reported as a refinance.

Question: I noticed in the IBA’s LAR Data Point Guide, there are five codes listed for possible loan purposes, with Code 5 being “Not Applicable” (NA). When would a financial institution use “NA” when reporting the Loan Purpose?

Answer: The Consumer Financial Protection Bureau’s (CFPB’s) Filing Instruction Guide for 2021 and Reportable HMDA Data: A Regulatory and Reporting Overview Reference Chart indicate “NA” should be used for purchased covered loans where the origination took place prior to Jan. 1, 2018. A financial institution that does not routinely purchase loans will rarely use the “NA” code for this data point, other than if it is required to repurchase a loan sold to a secondary market investor.

Question: I have a question regarding business-purpose loans where the loan proceeds will be used for multiple purposes. I understand that business-purpose loans secured by a dwelling are HMDA reportable only if the loan purpose is home purchase, home improvement or refinance. When determining how business-purpose loan proceeds are used, must we consider the “primary” use of loan proceeds or if any part of the loan proceeds is used for one these purposes it is reportable? For example, a business customer requests $25,000 to be secured by a non-owner occupied dwelling for the purpose of improvements to be made to the dwelling and additional funds for business operating costs. Must we determine how much of the loan proceeds are used for home improvement to determine if the transaction is reportable?

Answer: No. When determining loan purpose, the financial institution does not have to determine the “primary” use of the loan proceeds. Business purpose loans are limited to three possible loan purpose codes: home purchase, refinance and home improvement. If any part of the loan proceeds is for the purpose of purchasing a dwelling, improving a dwelling or refinancing a dwelling-secured loan to the same borrower, it is a HMDA reportable transaction. Rather than attempting to determine the “primary” purpose of the loan, the HMDA rule establishes a loan purpose “waterfall”. If any part of the loan proceeds is used for the purpose of purchasing a home, the loan is reportable as a home purchase loan. If the loan proceeds are not used for home purchase, but one dwelling-secured loan satisfies and replaces another dwelling-secured the loan, the loan is reportable as a refinance (or cash-out refinance, if applicable), even if part of the loan proceeds are used for home improvement. And at the bottom of the business loan purpose waterfall is home improvement; if the loan is not a home purchase loan and is also not a refinance as defined above, but all or a portion of the loan proceeds will be used for home improvement, the loan is reportable home improvement loan. It is important to note the shift in “waterfall”. Under the HMDA rules in place prior to 2018, home improvement trumps refinance. Under the revised rule effective Jan. 1, 2018, if a loan is both a refinance and home improvement, it is reported as a refinance.

PREAPPROVAL – §1003.4(a)(4)

Question: Is it wrong to report loans as preapproval requested if we do not have a formal preapproval program?

Answer: Yes. If you do not have a formal HMDA preapproval program, which includes a comprehensive review of the borrower’s creditworthiness and a resulting firm commitment to lend up to a specific dollar amount for a set timeframe, only subject to conditions tied to the property and verification that the borrower’s financial status has not changed, the Preapproval Program field on the LAR should be completed with a Code 2 – Preapproval not requested on every entry on your LAR. This field is used when a bank does not have a preapproval program; for applications for any purpose other than a home purchase; applications for home purchase loans secured by a multifamily dwelling; applications for an open-end line of credit or a reverse mortgage; or applications that are denied, withdrawn by the applicant, or closed for incompleteness.

Question: If we do not have a Preapproval Program, should we complete this data field with “Not Applicable”?

Answer: “Not Applicable” is no longer offered as a response on the LAR for the “Preapproval” field. Instead, Code 1 indicates a preapproval was requested and Code 2 indicates a preapproval was NOT requested. Code 2 should be used in all cases if the FI does not have a preapproval program or if the applicant applies for a loan other than a home purchase (since preapproval requests are limited to home purchase applications). Code 2 would also be used in instances where the FI offers a home purchase preapproval program but the applicant did not request a preapproval for his/her application.

CONSTRUCTION METHOD – § 1003.4(a)(5)

Question: If our bank does not differentiate between manufactured home and site-built, do we still designate if a property is manufactured for HMDA?

Answer: It does not matter whether or not the FI differentiates between stick built and manufactured home for underwriting purposes. You must report the home as a “manufactured home” if it bears a HUD certification label and data plate noting compliance with federal standards.

OCCUPANCY – § 1003.4(a)(6)

Question: We have a situation in our commercial lending department where a business entity will be the borrower on the loan, but an individual owner of the business entity will grant his primary residence as collateral for the note. How should we report the Occupancy Type for this dwelling on our LAR?

Answer: When making the determination of Occupancy Type, the focus should be placed on the occupancy status as related to the applicant, who may or may not be the titled owner of the property. So if the loan applicant (in the case a legal entity) does not reside in the property at all, the Occupancy Type should be reported as an “Investment Property.” This is true even if the owner of the property resides in the property as their principal dwelling. Again, when considering Occupancy Type, you are reporting the occupancy status of the applicant as related to the property, not the titled owner of the collateral property.

Question: If the collateral is granted by someone other than the borrower and the borrower does not live in the collateral property but the grantor does, is the occupancy status based on whether or not the grantor resides in the property or the borrower? If it is based on the borrower’s occupancy status and the borrower does not live in the home, would occupancy status be reported as an “investment property”?

Answer: The rule requires reporting the occupancy status of the applicant. If the applicant does not reside in the property as either the principal or second residence, the occupancy status should be reported as “Investment.”

ACTION TAKEN – §1003.4(a)(8)

Question: I have an HMDA reportable loan for the purpose of home improvement that was subject to rescission. Prior to funding, the borrowers delivered to the bank a properly executed rescission notice. Is the loan still HMDA reportable? If so, what “Action Taken” code should I report?

Answer: The loan is still HMDA reportable and needs to be included on the bank’s LAR (Loan Application Register). The bank has two options for reporting the Action Taken on the transaction. One option is to report it as an “Origination.” The other option is to report it as an application that was “Approved but Not Accepted.” (See the Official Staff Commentary to 1003.4(a)(8), action taken-rescinded loans.)

PROPERTY LOCATION – § 1003.4(a)(9)

Question: The bank is originating a HMDA reportable loan using more than one home as collateral. What should be used for the property location, and how does that affect the occupancy and property type fields?

Answer: The Official Staff Commentary to § 1003.4(a)(9), Comment #2 addresses how to handle reporting when more than one property is taken as collateral. The financial institution should report the covered loan or application as a single entry on its LAR and provides the information required by § 1003.4(a)(9) for any one of the properties taken as security that contains a dwelling. The rule no longer specifies which property has to be reported based upon use of the loan proceeds. Information about the other collateral properties is not reported. If an institution is required to report specific information about the property identified in § 1003.4(a)(9), such as occupancy, manufactured home type, etc., the institution reports the information that relates to the property identified in § 1003.4(a)(9).

Question: I have a HMDA question related to reporting the property address data point. The Consumer Financial Protection Bureau’s (CFPB) HMDA Small Entity Guide indicates we should report the 5-digit county code and the 11-digit census tract code. However, the FFIEC geocoding tool only provides a 3-digit county code and 6-digit census tract code. So how do we complete the LAR?

Answer: The CFPB’s Filing Instruction Guide (FIG) instructs HMDA reporters to use the Federal Information Processing Standards (FIPS) numerical code for the county and census tract. The FIPS codes are slightly different than the county and census tract codes HMDA reporters are accustomed to as they incorporate the state code number. For example, the FIG illustrates a property reported in Los Angeles County, CA should be reported as “06037”. The state code for California is “06” and the county code for Los Angeles County is “037”; thus “06037” represents the state code followed by the county code for a total of five digits. The FIG also illustrates the census tract for the same property should be reported as “06037264000”. Again, the “06” represents the state code for California, the “037” the county code for Los Angeles County, and the “264000” the census tract in which the subject property is located. (Remove the decimals from the census tract codes.)

Question: The CFPB’s Small Entity Guide says the State, County and Census Tract data points are only required to be reported if the property is located in an MSA in which we have a home or branch office. We have two branches located outside an MSA, so are we now required to report the State, County and Census Tract codes for properties located outside the MSA as “NA”? In prior years, we have reported property location data points regardless of whether or not the property was located in an MSA in which we had branch located.

Answer: Actually, this is not a change in Reg. C. The prior rule also contained the same exception and did not require the reporting of Census Tract, County and MSA codes if the property was located outside an MSA in which the financial institution had a branch. You probably just reported property information for consistency purposes. The revised rule effective Jan. 1, 2018 retains the optional reporting alternative. See comment #1 to 1003.4(a)(9)(ii):

1. Optional reporting. Section 1003.4(a)(9)(ii) requires a financial institution to report the State, county, and census tract of the property securing the covered loan or, in the case of an application, proposed to secure the covered loan if the property is located in an MSA or MD in which the financial institution has a home or branch office or if the institution is subject to § 1003.4(e). Section 1003.4(a)(9)(ii)(C) further limits the requirement to report census tract to covered loans secured by or applications proposed to be secured by properties located in counties with a population of more than 30,000 according to the most recent decennial census conducted by the U.S. Census Bureau. For transactions for which State, county, or census tract reporting is not required under § 1003.4(a)(9)(ii) or (e), financial institutions may report that the requirement is not applicable, or they may voluntarily report the State, county, or census tract information.

RACE, ETHNICITY & SEX – §1003.4(a)(10)(i)

Question: We have a co-signer on a HMDA reportable loan. Do we report the demographic information for the co-signer on our LAR?

Answer: Demographic information should be reported on applicants and co-applicants. A co-signer’s demographic information would be reported if the cosigner is also a co-applicant according to the terms of the legal obligation, but not reported if they are a guarantor. HMDA, Appendix B #4 states: For purposes of §1003.4(a) (10)(i), if a covered loan or application includes a guarantor, you do not report the guarantor’s ethnicity, race and sex.

The HMDA FAQs on the CFPB website also address reporting co-signers:

Does my financial institution report the ethnicity, race and sex of a co-signer?

Whether or not a financial institution reports the ethnicity, race, and sex of a co-signer depends on whether the co-signer is a guarantor or a co-applicant. For a guarantor, Instruction 4 to Appendix B to Regulation C, 12 CFR part 1003 states that if a loan or application includes a guarantor, a financial institution does not report the guarantor’s ethnicity, race, and sex. Therefore, if the co-signer is a guarantor according to the terms of the legal obligation as interpreted under applicable law, a financial institution does not report the co-signer’s ethnicity, race, and sex. For a co-applicant, Instruction 5 to Appendix B requires that a financial institution report the co-applicant’s ethnicity, race, and sex.

Question: If a natural person applicant submits a mortgage loan application by mail, internet or telephone but does not provide their race, ethnicity, or sex information, how should the lender report regarding how the demographic information was collected on the basis of visual observation or surname?

Answer: The CFPB actually just added FAQ to its HMDA FAQ on this very topic. In the FAQ the CFPB indicated:

Regulation C, 12 CFR § 1003.4(a)(10)(i), requires that a financial institution collect the ethnicity, race, and sex of a natural person applicant or borrower, and collect whether this information was collected on the basis of visual observation or surname. Where a natural person applicant does not provide ethnicity, race, or sex information for a mail, internet, or telephone application, and a financial institution does not have an opportunity to collect this information during an in person meeting during the application process, the financial institution may report either that the information was not collected on the basis of visual observation or surname (code 2) or that the requirement to report this data field is not applicable (code 3).

For consistency of data across all HMDA reporting financial institutions, the Bureau suggests, but does not require, that financial institutions use code 2. (July 2020)

Question: If the application was not taken in person, and the applicant did not provide the demographic data, are you allowed to document this information based on observation at the time of closing, if that is the first time you see the applicant(s) in person?

Answer: The revisions to Appendix B in Regulation C now specifically address this scenario:

If the applicant begins an application by mail, internet, or telephone, and does not provide the requested information on the application but does not check or select the “I do not wish to provide this information” box on the application, and the applicant meets in person with you to complete the application, you must request the applicant’s ethnicity, race, and sex. If the applicant does not provide the requested information during the in-person meeting, you must collect the information on the basis of visual observation or surname. If the meeting occurs after the application process is complete, for example, at closing or account opening, you are not required to obtain the applicant’s ethnicity, race, and sex.

We recommend banks establish procedures for determining when the application process is considered “complete,” such as once the loan is approved by loan committee or once all underwriting conditions are met and the loan is cleared to close, and at that point the bank discontinues any attempt to collect the applicant’s demographic data. Procedures such as this are clearly within regulatory expectations.

Question: If the applicant is a business entity, but the owner of the business signs as an agent for the business and also signs individually on the note, is the owner reported as a co-applicant/co-borrower on the LAR? And should we request their demographic information?

Answer: The owner would only be listed be as a co-applicant on the LAR if they were a co-applicant on the credit extension. This is one area where Reg. B and Reg. C overlap a bit. We would look to Reg. B to determine if the business owner was a joint applicant on the credit extension (applied contemporaneously for shared credit with the business entity as evidenced by joint intent documentation) or if the bank, as a matter of loan policy or as an underwriting condition of the credit extension, requires the personal signatures of owners, directors, members or shareholders of closely-held business entities. The owner’s demographic data should only be collected and reported if the owner was a joint-applicant (applied contemporaneously for shared credit) on the credit extension as evidenced by file documentation.

Question: Are we required to collect demographic information (DI) on a refinance if we previously collected the information from the applicant?

Answer: Yes. While Reg. B, which implements ECOA, provides an exception from the requirement to collect demographic information (or government monitoring information) on a refinance if the lender has previously collected the information, Reg. C does not. Rather, it requires the collection of demographic information for ALL home purchase, home improvement, refinance, and other HMDA reportable applications.

Question: What is meant by “disaggregated” Ethnicity and Race categories?

Answer: “Disaggregated” Ethnicity and Race categories are subcategories of Ethnicity and Race designated by the US Census Bureau. The Consumer Financial Protection Bureau (CFPB) has revised Reg. B and Reg. C to permit applicants for covered applications the opportunity to self-select their aggregate and disaggregated Hispanic or Latino Ethnicity(ies) as well as their Asian and Native Hawaiian or Other Pacific Islander aggregate and disaggregated Race(s) as detailed below:

Aggregate Categories	Disaggregate Categories
Hispanic or Latino	Mexican Puerto Rican Cuban Other Hispanic or Latino (applicant may indicate what “other” subcategory)
Asian	Asian India Chinese Filipino Japanese Korean Vietnamese Other Asian (applicant may indicate what “other” subcategory)
Native Hawaiian or other Pacific Islander	Native Hawaiian Guamanian or Chamorro Samoan Other Pacific Islander (applicant may indicate what “other” subcategory)

Question: We are not a HMDA reporter but we sell mortgage loans to secondary market investors who are requiring us to collect government monitoring information from applicants using the expanded disaggregated Ethnicity and Race categories. According to Reg. C, an applicant may self-select his/her aggregate and disaggregated Hispanic or Latino Ethnicity category as well as his/her aggregate and disaggregated Asian and Native Hawaiian or Other Pacific Islander Race categories. Are we violating Reg. B, which only uses the aggregate categories, to accommodate our investor’s requirements?

Answer: No. Fortunately the Consumer Financial Protection Bureau (CFPB) recognized the compliance challenges some creditors face in complying with Reg. B’s government collection rules and Reg. C’s demographic collection rules caused by the inconsistency of the regulation’s Ethnicity and Race categories. The CFPB amended Reg. B to permit, but not require, creditors to provide applicants with the option of self-selecting their aggregate and disaggregated Ethnicity and Race categories. Further, Reg. B was amended to provide that a creditor can decide on a case-by-case basis which applications it will collect only aggregate information and which applications it will collect aggregate and disaggregated information. So it is permissible for a creditor to allow applicants applying for secondary market loans to self-select their aggregate and disaggregate information and collect only the aggregate information for in-house portfolio loans.

Question: If the customer filled in they were Hispanic and Mexican, would the bank indicate on the LAR the information was not collected on the basis of visual observation since the lender didn’t fill it out, and the customer actually did? You only use Code 1 (collected on basis of visual observation or surname) when the lender has to make the determination, correct?

Answer: That is correct. Since the customer made the selection, the bank would use Code 2 “not collected on basis of visual observation or surname”.

Question: What do we report if the applicant wants to provide more than one American Indian tribal affiliation, or Asian or Native Hawaiian or Pacific Islander “other” disaggregated race?

Answer: The rule text and official staff commentary do not specifically address this. However, in keeping with the basic rule premise that the applicant must be permitted to self-select their disaggregated race categories and a lender must report whatever the applicant selects, we recommend you complete the LAR with the information just as the applicant provided to the extent you can, given the LAR field character limits.

Question: If the applicant selects Chinese as a disaggregate category but does not select the Asian category, do we report exactly as the customer reported or do we need to select the Asian category first?

Answer: You report exactly what the applicant selected. The CFPB has indicated the bank should not “auto-select” an aggregate category for an applicant because the applicant self-selected a disaggregated category. Instead, report what the applicant self-selects.

INCOME – §1003.4(a)(10)(iii)

Question: For HMDA reporting purposes, when we have a denied application, should we report the income provided from the consumer on the original application (which may or may not be verified) or the income amount used in underwriting the application?

Answer: Reg. C requires that you report the gross income amount “relied upon in making the credit decision.” It doesn’t matter if the income amount was verified or not; rather, you are to report the income used in making your credit decision. This would be the income used to underwrite the application. If the application was denied due to delinquent history before the lender calculated a debt-to-income ratio or underwrote the loan, report the income stated on the loan application as it is the only income amount provided.

Question: For the Income data field, what do we report if the applicant has W-2 income and is also self-employed, but the W-2 income is sufficient to qualify the applicant and we do not use the self-employed income? Do we only report the W-2 income?

Answer: The Official Staff Commentary to § 1003.4(a)(10) explains when a FI evaluates income as part of a credit decision, it reports the gross annual income relied on in making the credit decision. For example, if a FI relies on an applicant’s salary to compute a debt-to-income ratio but also relies on the applicant’s annual bonus to evaluate creditworthiness, report the salary and the bonus to the extent the FI relied upon it. If an FI relies on only a portion of an applicant’s income in its determination, it does not report that portion of income not relied on.

However, with that being said, in the case of a self-employed borrower, if the FI considers the borrower’s W-2 income and then learns the borrower had losses related to their self-employment, and the FI takes those losses into consideration in calculating repayment ability and whether or not the applicant qualifies for the credit extension, the FI must report the income it relied upon – the W-2 income as well as the adjustment to the W-2 income to reflect the self-employment losses.

Question: Did the rules related to reporting income change?

Answer: The OSC was revised slightly to provide further clarification on the topic of calculating income including:

Existing comment #1 to § 1003.4(a)(10) provided clarification in regard to the use of cosigner and guarantor income, stating if a FI relies on the income of a cosigner to evaluate creditworthiness, it should include the cosigner’s income to the extent relied upon. However, the FI should not include the income of a guarantor because they are only secondarily liable.
New comment #4 to § 1003.4(a)(10) states a FI should not include amounts from depletion of assets or annuitization (the process of converting an annuity investment into a series of periodic income payments) in the income calculation even when such amounts are considered in making a credit decision.

RATE SPREAD – § 1003.4(a)(12)

Question: I have a HMDA reportable loan for the purpose of home improvement that was subject to rescission. Prior to funding, the borrowers delivered to the bank a properly executed rescission notice. How should I report the loan’s Rate Spread?

Answer: First, the bank must look to the Action Taken requirements under HMDA. The Official Staff Commentary to § 1003.4(a)(8)(i), Comment 10 indicates if a borrower rescinds the transaction after closing and before the bank is required to submit their LAR, the bank must report the transaction as “approved by not accepted”. For the rate spread, the Official Staff Commentary to § 1003.4(a)(12), Comment 8 then indicates for applications that do not result in an origination, but were approved but not accepted, the creditors should report the rate spread. If the Closing Disclosure has been provided, the creditor complies by calculating the rate spread based on the APR on the Closing Disclosure. If the Closing Disclosure has not been provided, the rate spread should be based upon the APR based on the Loan Estimate.

Application or preapproval request approved but not accepted.In the case of an application or preapproval request that was approved but not accepted, § 1003.4(a)(12) requires a financial institution to report the applicable rate spread. In such cases, the financial institution would provide early disclosures under Regulation Z, 12 CFR 1026.18 or 1026.37 (for closed-end mortgage loans), or 1026.40 (for open-end lines of credit), but might never provide any subsequent disclosures. In such cases where no subsequent disclosures are provided, a financial institution complies with § 1003.4(a)(12)(i) by relying on the annual percentage rate for the application or preapproval request, as calculated and disclosed pursuant to Regulation Z, 12 CFR 1026.18 or 1026.37 (for closed-end mortgage loans), or 1026.40 (for open-end lines of credit), as applicable. For transactions subject to Regulation C for which no disclosures under Regulation Z are required, a financial institution complies with § 1003.4(a)(12)(i) by reporting that the requirement is not applicable.

HOEPA STATUS – § 1003.4(a)(13)

Question: For HMDA purposes, when reporting HOEPA status on second homes and vacation homes, should HOEPA status be reported as Code 2 – Not a high-cost mortgage or Code 3 – Not applicable?

Answer: Per § 1026.32(a) a high-cost mortgage (HOEPA loan) is any consumer credit transaction that is secured by a consumer’s principal dwelling and exceeds the Average Prime Offer Rate by 6.5% for first-lien transactions and 8.5% for subordinate-lien transactions or transactions in amount less than $50,000 secured by a dwelling that is personal property (such as manufactured home). So only consumer-purpose applications secured by a consumer’s principal will use codes 1 (High-cost mortgage) and Code 2 (Not a high-cost mortgage). Business purpose applications and applications to be secured by a second home or vacation home will report HOEPA status as Code 3 — Not Applicable. (February 2020)

CREDIT SCORE & MODEL – § 1003.4(a)(15)

Question: The HMDA rule requires we start reporting Credit Scores and the Credit Score Version and Model used in the credit decision process. I see Code 7 for Credit Score Models is “More than one credit score model”. When would we use this code?

Answer: Often financial institutions will obtain and consider more than one score in making its credit decision; for example, you obtain a tri-merge credit report with three scores and consider all three scores in making your credit decision. The HMDA rule only permits a financial institution to report one score. If the financial institution obtained and considered more than one score, it would report code 7 to indicate that it considered more than one score in underwriting the loan even though only one score was reported. For example, assume a financial institution obtains a tri-merge report with three credit scores: 802, 795, and 789. The institution’s underwriting guidelines indicates all three scores should be considered and that none of the three can fall below 650. The financial institution would pick one of the three scores to report on the LAR and then report code 7 indicating that while it only reported one score, it actually considered more than one score in its credit decision.

Conversely, if the financial institution obtained a tri-merge report and only used the middle score from Experian for making its credit decision, it would use code 2 and report only that middle score.

Question: I am confused by the HMDA requirement to report the applicant’s credit score and score model when we have multiple applicants or when we use multiple scores. Can you help sort out the rules?

Answer: First and foremost, report information related to the credit score you “relied upon” in making your credit decision. It is important to decide, as an institution, what credit score(s) you rely upon in making your credit decision and then consistently follow that underwriting procedure. The Official Staff Commentary indicates a creditor relies on a credit score in making the credit decision if the credit score was a factor in the credit decision, even if it was not the only or deciding factor.

The Official Staff Commentary to § 1003.4(a)(15) provides several good examples to illustrate the application of the rule when multiple scores are obtained and/or considered as well as when the application includes multiple applicants:

If a creditor obtains two or more credit scores for a single applicant but relies on only one score in making the credit decision (e.g., by relying on the lowest, highest, most recent, or average of all of the scores), report that credit score and scoring model.
If a creditor uses more than one credit scoring model for a single applicant and combines the scores into a composite credit score that it relies on, report that composite score and report that more than one credit scoring model was used.
If a creditor obtains two or more credit scores for a single applicant and relies on multiple scores for the applicant or borrower in making the credit decision (e.g., by ensuring all scores are above a certain score), select and report one of the credit scores and that more than one credit scoring model was relied upon.
In a transaction involving two or more applicants for whom the creditor obtains a single credit score for one of the applicants and relies on that score in making the credit decision, report that credit score for the applicant and report that the requirement is not applicable for the other applicant.

Otherwise, a creditor complies with the rule by reporting a credit score for the first applicant that it relied on in making the credit decision, if any, and a credit score for the first co-applicant that it relied on in making the credit decision. For example, assume a transaction involves one applicant and one co-applicant and that the creditor obtains three credit scores for the applicant and three credit scores for the co-applicant and relies on the middle credit score for both the applicant and co-applicant to make the credit decision. The creditor should report both the middle score for the applicant and the middle score for the co-applicant and the applicable model for the score reported for each.

DTI – § 1003.4(a)(23)

Question: When reporting the DTI (debt-to-income) ratio relied upon in our credit decision, should we round the ratio to whole numbers or use decimals?

Answer: The CFPB’s HMDA Filing Instruction Guide instructs the financial institution to report the amount “relied upon” in making the credit decision. Use decimal places only if the ratio relied upon uses decimal places. So whether or not you report the DTI using whole numbers or decimals is an underwriting procedural decision. It will be important that institutions address this matter in their underwriting and HMDA procedures and that file documentation is consistent with the ratio reported.

CLTV – § 1003.4(a)(24)

Question: When reporting the CLTV (combined loan-to-value) ratio relied upon in our credit decision and the, should we round the ratio to whole numbers or use decimals?

Answer: The CFPB’s HMDA Filing Instruction Guide instructs the financial institution to report the amount “relied upon” in making the credit decision. Use decimal places only if the ratio relied upon uses decimal places. So whether or not you report the CLTV using whole numbers or decimals is an underwriting procedural decision. It will be important that institutions address this matter in their underwriting and HMDA procedures and that file documentation is consistent with the ratio reported.

Question: We have a HMDA-reportable loan that is secured by two properties: the dwelling being purchased and a second multifamily dwelling. I am not sure how to calculate and report the Combined Loan-to-Value (CLTV). The multifamily dwelling securing this loan also secures another loan, which is collateralized by this multifamily dwelling along with four other properties. How much debt do we assign as being secured by this multifamily dwelling? One-fifth of the amount of the other loan? The full amount of the other loan (which will then result in a CLTV well in excess of 100%)? Do we consider the full value of the other collateral properties or only a percentage of the value based upon how many other loans each of those properties secure?

Answer: Cross-collateralization on commercial loans and calculating CLTV can create challenges for HMDA reporters. Reg. C indicates the institution must report “total amount of debt” secured by property relied upon in making the credit decision. Comment #1 in Official Staff Commentary to § 1003.4(a)(24) provides some additional insight:

Property. A financial institution reports the combined loan-to-value ratio relied on in making the credit decision, regardless of which property or properties it used in the combined loan-to-value ratio calculation. The property used in the combined loan-to-value ratio calculation does not need to be the property identified in § 1003.4(a)(9) and may include more than one property and non-real property. For example, if a financial institution originated a covered loan for the purchase of a multifamily dwelling, the loan was secured by the multifamily dwelling and by non-real property, such as securities, and the financial institution used the multifamily dwelling and the non-real property to calculate the combined loan-to-value ratio that it relied on in making the credit decision, § 1003.4(a)(24) requires the financial institution to report the relied upon ratio. Section 1003.4(a)(24) does not require a financial institution to use a particular combined loan-to-value ratio calculation method but instead requires financial institutions to report the combined loan-to-value ratio relied on in making the credit decision.

Three points need to be emphasized in this comment:

First, the rule requires institutions to include non-real property collateral in the CLTV calculation reported IF the institution included in the non-real property in its CLTV calculation.
Second, the institution reports the CLTV if it was relied upon in making the credit decision. If the institution’s CLTV was based upon the covered loan being reported and the primary collateral (and the cross-collateralization is considered an “abundance of caution” security interest), then the CLTV ratio would reflect only the current, covered loan and the value of the primary property taken as collateral.
Finally, Reg. C does not tell an institution how to calculate CLTV. The key is to report what the institution “relied upon” in making the credit decision. So, if the institution considers CLTV in its credit decision and aggregates the total of all debt secured by the five homes and the total value of all five properties, report that percentage. Conversely, if the institution calculates the CLTV by including the new covered loan and the value of the new property and then just a partial value of the other properties, report that percentage. The CLTV calculation method should not be challenged if the institution is truly reporting what it relied upon in making the credit decision and that is supported in the file or underwriting documentation.

INTRODUCTORY RATE PERIOD – § 1003.4(a)(26)

Question: What do we report if the Introductory Rate Period is 59 months and 14 days or 59 months and 20 days? Is the start date the origination date or first payment due date?

Answer: The introductory rate period is measured as the number of months from loan closing (or account opening for an open-end credit transaction) until the first date the interest rate may change, not the first payment date, without regard to partial months. In both your examples, the introductory rate period would be considered 59 months.

PROPERTY VALUE – § 1003.4(a)(28)

Question: We have a HMDA reportable loan that is secured by the property being purchased as well as time CD because the borrower lacked our required down payment. What do we report as “Property Value” on the Loan Application Register (LAR)?

Answer: Section 1003.4(a)(28) requires the reporting of “the value of property securing the covered loan.” Neither the regulatory text nor the Official Staff Commentary (OSC) indicates the Property Value calculation should include additional non-real property that is collateral for the loan. (This is in contrast to the CLTV data point which specifically says to include the value of ALL property securing the loan relied upon in the credit decision, including non-real property.) Instead, the regulatory text and OSC focus on determining the value of the real property securing the loan, indicating the financial institution should use the property value relied upon in making its credit decision; which could be the purchase price, an appraised value, an internally assigned value or even the applicant’s stated value.

The preamble to final rule (as published in the Oct. 28, 2015 Federal Register) includes statements which indicate only real property value amounts should be included in the Property Value. The preamble states, “HMDA section 304(b)(6)(A) requires the reporting of the value of the real property pledged or proposed to be pledged as collateral.” And later in the section-by-section analysis, the CFPB explains, “…knowing the property value in addition to loan amount allows HMDA users to estimate the loan-to-value ratio, which measures a borrower’s equity in the property and is a key underwriting and pricing criterion.” Thus, only the value of the real property securing the loan should be reported as the Property Value.

This could be confusing for HMDA reporters because in some instances, when non-real property is also taken as collateral for a transaction, the Property Value data point will not be consistent with the property value amount used in the CLTV ratio calculation. For example, if a loan is secured by a dwelling and time CD, the Property Value data point will be based upon only the dwelling value. However, the CLTV ratio would take into consideration the value of the dwelling as well as the time CD value if the CD value was relied upon in making the credit decision. Again, for this data point, the key is report what value the institution relied upon in making each of the calculation and then clearly documenting that amount in the loan file.

MULTIFAMILY AFFORDABLE UNITS – § 1003.4(a)(32)

Question: When I first heard “affordable housing,” I immediately thought about CRA Community Development loans for affordable housing purposes. To report these loans we compare property rents to the HUD Fair Market rents. Is the HMDA context different? Do units need to be specifically set aside under a government program to report units in this area?

Answer: The income restrictions under HMDA must be evidenced by use of an agreement of some sort tied to the property (not to the occupant). The CFPB’s Small Entity Guide provides additional insight on this topic:

Affordable housing income-restricted units are individual Dwelling units that have restrictions based on the occupants’ income level pursuant to restrictive covenants encumbering the property. The restrictive covenants may be evidenced by a use agreement, regulatory agreement, land use restrictions, or a similar agreement. Rent control or rent stabilization laws, the acceptance of Housing Choice Vouchers, and other similar forms of portable housing assistance that are tied to an occupant and not an individual dwelling unit are not affordable housing income-restricted dwelling units for purposes of reporting. Comment 4(a)(32)-1.

¹⁵ Examples of Federal programs and funding sources that may result in reportable units include but are not limited to: (1) affordable housing programs pursuant to Section 8 of the United States Housing Act of 1937; (2) public housing; (3) the HOME Investment Partnerships program; (4) the Community Development Block Grant program; (5) multifamily tax subsidy project funding through tax-exempt bonds or tax credits; (6) Federal Home Loan Bank affordable housing program funding; (7) Rural Housing Service multifamily housing loans and grants; and (8) project-based vouchers under 24 CFR part 983. Comment 4(a)(32)-2.
Examples of State and local sources that may result in reportable units include but are not limited to: (1) State or local administration of Federal funds or programs; (2) State or local funding programs for affordable housing or rental assistance, including programs operated by independent public authorities; (3) inclusionary zoning laws; and (4) tax abatement or tax increment financing contingent on affordable housing requirements. Comment 4(a)(32)-3.

Question: When we report a multifamily dwelling, for example a 12-plex, and none of the units are set aside under a government program as affordable units, would we report 12 total units and then then “0” or “NA” in the affordable housing code?

Answer: You would report 12 total units and 0 affordable units. NA is used when the dwelling is NOT a multifamily dwelling. See the 2021 Filing Instructions Guide directions (found here)

Paragraph 4(a)(32)—Multifamily Affordable Units.
Enter, in numeral form, the number of individual dwelling units related to any multifamily dwelling property securing the covered loan or, in the case of an application, proposed to secure the covered loan, that are income-restricted pursuant to Federal, State, or local affordable housing programs.
Example: If there are five (5) multifamily affordable units, enter 5.

Enter “0” for a covered loan or application related to a multifamily dwelling that does not contain any such income-restricted individual dwelling units.
b. Enter “NA” if the requirement to report multifamily affordable units does not apply to the covered loan or application that your institution is reporting.

APPLICATION CHANNEL – § 1003.4(a)(33)

Question: If we originate and service a loan, but the loan is sold to an investor after closing, what code should we use for the “Application Channel – Initially Payable” LAR field?

Answer: Who services the loan does not impact the Application Channel LAR fields. There are actually two LAR field tied to the Application Channel:

Submission of Application – If the application was submitted directly to a mortgage loan originator who is an employee of the FI reporting the covered loan on its LAR, the application should be report Code 1 – Submitted directly to your institution.
Initially Payable to Your Institution – If the obligation was initially payable on the face of the note to the FI reporting the covered loan on its LAR, the loan should be reported as Code 1 – Initially payable to your institution.

Again, it does not matter who purchases the loan after consummation; the focus here is on who received the application and who the loan was initially made payable to – not what happened to the loan after consummation.

AUS – § 1003.4(a)(35)

Question: If we run DU per our investor requirements and do not get an “approval” we often offer our borrowers our in-house ARM product using a counteroffer. The ARM product is underwritten manually using our internal underwriting guidelines; we ignore the DU findings. How do we report the AUS system and result in this case when an AUS result was obtained but ultimately not used in our final credit decision?

Answer: You would still report the DU AUS and result, even if you elected to hold the loan in-house and did not use the AUS result in your ultimate credit decision. The OSC provides a couple of comments that support this:

Paragraph 4(a)(35)

Automated underwriting system data—general. A financial institution complies with § 1003.4(a)(35) by reporting, except for purchased covered loans, the name of the automated underwriting system (AUS) used by the financial institution to evaluate the application and the result generated by that AUS. The following scenarios illustrate when a financial institution reports the name of the AUS used by the financial institution to evaluate the application and the result generated by that AUS.
A financial institution that uses an AUS, as defined in § 1003.4(a)(35)(ii), to evaluate an application, must report the name of the AUS used by the financial institution to evaluate the application and the result generated by that system, regardless of whether the AUS was used in its underwriting process. For example, if a financial institution uses an AUS to evaluate an application prior to submitting the application through its underwriting process, the financial institution complies with § 1003.4(a)(35) by reporting the name of the AUS it used to evaluate the application and the result generated by that system.
ii. A financial institution that uses an AUS, as defined in § 1003.4(a)(35)(ii), to evaluate an application, must report the name of the AUS it used to evaluate the application and the result generated by that system, regardless of whether the financial institution intends to hold the covered loan in its portfolio or sell the covered loan. For example, if a financial institution uses an AUS developed by a securitizer to evaluate an application and intends to sell the covered loan to that securitizer but ultimately does not sell the covered loan and instead holds the covered loan in its portfolio, the financial institution complies with § 1003.4(a)(35) by reporting the name of the securitizer’s AUS that the institution used to evaluate the application and the result generated by that system. Similarly, if a financial institution uses an AUS developed by a securitizer to evaluate an application to determine whether to originate the covered loan but does not intend to sell the covered loan to that securitizer and instead holds the covered loan in its portfolio, the financial institution complies with § 1003.4(a)(35) by reporting the name of the securitizer’s AUS that the institution used to evaluate the application and the result generated by that system.

Question: If we have an application for a secondary market loan that results in a denial and then the customer reapplies for an in-house loan for which we do not use an AUS system for underwriting purposes, how do we report the AUS for this new loan request knowing the result from the secondary market request?

Answer: Since the investor made the credit decision on the first application, they would report that loan. For the second application for your in-house product, your bank would be responsible for reporting that transaction. With this being said, your reporting of the in-house loan will be based on your action related to that application only. If you do not run in-house applications through an AUS, then you will report “Not Applicable.” This too is addressed in the OSC to 4(a)(35) in comment 4:

Transactions for which an automated underwriting system was not used to evaluate the application. Section 1003.4(a)(35) does not require a financial institution to evaluate an application using an automated underwriting system (AUS), as defined in § 1003.4(a)(35)(ii). For example, if a financial institution only manually underwrites an application and does not use an AUS to evaluate the application, the financial institution complies with § 1003.4(a)(35) by reporting that the requirement is not applicable since an AUS was not used to evaluate the application.

Question: Is DO (i.e. Desktop Originator) considered an AUS (Automated Underwriting System) and if so, what code should we use to report this system?

Answer: Desktop Originator is a companion system to DU (Desktop Underwriter). It allows wholesale lenders to expand their reach to third-party originators by providing quick access to DU’s findings and analysis. HMDA reporters using DO should report Code 1 – Desktop Underwriter and the appropriate code for the result generated in closest time to the credit decision from Desktop Underwriter.

Miscellaneous

Question: Who should be trained on HMDA reporting at the bank?

Answer: All loan personnel (loan officers, loan administrative support, underwriters, credit analysts, etc.) should have a general understanding of which applications for credit are subject to HMDA reporting. Training on the bank’s internal HMDA procedures is critical for key staff responsible for loan documentation to support the LAR submission. In addition, compliance staff responsible for LAR input and submission should receive technical training on proper completion of the LAR and the submission process. Finally, management and senior level staff should have an understanding of HMDA to ensure the bank allocates the proper time and resources to the HMDA program.

Tools

2025 LAR Data Point Guide

2024 LAR Data Point Guide

2023 LAR Data Point Guide

AUS and Result Guide

Action Taken Reporting Guide

Commercial Loan Request Summary – Legal Entity Applicant

Commercial Loan Request Summary – Natural Person Applicant

Covered Loan Guide

Demographic Information Collection Flowchart

2024 HMDA Data Input Sheet

HMDA Data Input Sheet – Partial Exemption