HMDA implementation challenges continue
Common questions about data collection and more.
Compliance never sleeps,and this year is no exception.
Since the Home Mortgage Disclosure Act (HMDA) rule became eﬀective in January, CUNA has received a near constant stream of HMDA-related compliance inquiries.
Credit unions face implementation challenges with this long and complex regulation—and with good reason. Capturing the additional data points, relying on vendors for timely system changes, and getting staﬀ up to speed on the new changes are just a few of the many challenges institutions have grappled with in the wake of the new rule.
While the questions about HMDA are all over the board, credit unions seem to face common issues. This article will focus on the most frequently asked HMDA questions we have received at CUNA in hopes that they can help clear up any lingering concerns as your credit union moves forward with implementation.
Q: Are business loans now reportable under HMDA?
Business-purpose loans and lines of credit are reportable only if they are secured by a dwelling, and only if they are home purchase loans, home improvement loans, or reﬁnancings.
The new rule adopts a dwelling-secured standard regardless of loan purpose, so if the business loan is secured by a dwelling and it’s a purchase, home improvement, or reﬁnancing, it is reportable under HMDA.
Under the new rule, a “dwelling” is a residential structure, whether or not attached to real property. If you are making a business purpose loan that’s secured by one of these “dwellings” you need to capture and report HMDA data.
This is a big change for many commercial lenders who have never had to collect and report HMDA data until now.
Q: How do I report government monitoring information on race and ethnicity when the new Uniform Residential Loan Application (URLA) form is not effective until 2019?
For all loans with a date of ﬁnal action on or after Jan. 1, 2018, HMDA requires that you use the new disaggregated categories to report a borrower’s race and ethnicity. While the old categories were limited to broader categories such as “Asian,” an applicant can now select from more speciﬁc subcategories such as Asian-Indian, Filipino, Japanese, Korean, Chinese, Vietnamese,or “Other.”
These categories will be incorporated into the new URLA form that becomes eﬀective in 2019. But the current version of the URLA contains the old aggregated categories that are not suﬃcient for compliance. Many credit unions ask how they should capture this information on their loan applications.
The best way to do this is to use the form the Consumer Financial Protection Bureau (CFPB) provides in Appendix B of the HMDA rule to collect the updated demographic information. That form is available on CFPB’s website.
Another frequent question related to government monitoring information is how to report race and ethnicity for dwelling-secured business loans when the borrower is a corporation or LLC,and not a natural person.
In this situation you would report “NA” for not applicable since a business entity does not have a race or ethnicity, even if the guarantor of the loan or owner of the business is known. You do not report the race or ethnicity of that person; instead you report NA for the business.
Q: Do we have to report all preapproval or prequalification requests now?
The collection, recording, and reporting of preapproval requests that are approved but not accepted used to be optional under Regulation C. As of Jan. 1, 2018, covered institutions are now required to collect, record, and report information for approved but not accepted preapproval requests for home purchase loans.
Preapproval requests for open-end lines of credit, reverse mortgages,and home purchase loans to be secured by multifamily dwellings are not covered transactions under the new rule. Te appendix to the rule states that incomplete preapprovals should not be reported.
However, prequaliﬁcation requests are treated diﬀerently under the rule.Reg C does not require an institution to report prequaliﬁcation requests on the HMDA loan application register (LAR), even though these requests may constitute applications under Regulation B for purposes of adverse action notices.
Make sure your credit union issuing the terminology correctly and the prequaliﬁcation is not actually a preapproval under the rule. The important factors are whether a full credit underwriting with a commitment to lend takes place, or if the approval is an informal estimate of an amount for which an applicant “might” qualify. What the credit unions calls the approval is not the controlling factor.
Q: Does my credit union have to post the new signage if we are not currently a HMDA reporter? What about the legal entity identifier (LEI) number?
We have received many questions about the new lobby signage requirements. Hopefully if you are a HMDA reporter, you already have the proper notice posted in your home oﬃce and the lobby of each branch containing the notice directing members to the CFPB website to review HMDA data.
Many credit unions have asked if they are required to post the new sign even if they are not currently reporting HMDA data. The answer is no.
You do not have to post the sign if you are exempt from HMDA or until you are covered by the rule.The same goes for the LEI number: you do not need to obtain one until you are covered by the rule.
Q: Which rate spread calculator am I supposed to use?
The date of ﬁnal action will determine which calculator you use. Use CFPB’s new calculator on the bureau’s website for HMDA reportable loans with a ﬁnal action date on or after Jan. 1, 2018.
Use the prior rate spread calculator on the Federal Financial Institutions Examination Council site for loans with a ﬁnal action date before Jan. 1,2018.
In CFPB’s new calculator, the lien status (or higher-priced mortgage loan status) has no bearing on the rate spread being reported on the 2018 HMDA-LAR. You simply enter the date the rate was set, the annual percentage rate, and the term of the loan, and then report the rate spread that’s given (whether it’s positive,negative, or zero).
Q: Is there a safe harbor for HMDA compliance as credit unions get up to speed?
Technically there is only a safe harbor in place for bona ﬁde errors resulting from use of a new CFPB geocoding tool that credit unions may use to identify census tracts for a single address or batches of addresses. But this tool is still not available on the bureau’s website.
However, Director Mick Mulvaney issued a statement right before the eﬀective date indicating that the bureau would not be assessing penalties on data collected in 2018 and reported in 2019, eﬀectively putting enforcement under the new rule on hold.
Additionally, it said the CFPB does not intend to require ﬁnancial institutions to resubmit data unless data errors are material, or to pay penalties with respect to data errors.While it is technically not a safe harbor, it is a huge beneﬁt for credit unions clambering to get into compliance.
This doesn’t mean we can throw HMDA out the window. But knowing that regulators will not be looking for every technical error or mistake will certainly ease the implementation burden for many credit unions.
WHITNEY NICHOLAS is CUNA’s senior federal compliance counsel. You can reach CUNA’s Compliance Team at firstname.lastname@example.org.