41 HMDA Filing Questions Answered by Compliance Experts
The following are questions submitted by attendees of QuestSoft’s HMDA Filing Update Webinar held on January 8 and 9, 2019. Answers are provided by Leonard Ryan, President of QuestSoft, and Loretta Kirkwood, Vice President of Compliance for QuestSoft.
Go to https://www.QuestSoft.com/HMDAUpdate for more info on the webinar, including a recording of the session.
Please note that this blog post is NOT intended to be or replace legal advice.
Q. I understand that loan modifications are not covered beginning 2018. Would that include all modifications, i.e., construction to permanent by modification or a line of credit converted to permanent financing by modification?
A. The determination of a HMDA covered loan is driven by the “extension of credit,” which generally requires a new debt obligation. Loan modifications are not considered a “covered” transaction if the existing debt obligation is not satisfied and replaced. Single closing construction to permanent loans are covered transactions. If a lender extends credit for construction only and then converts the loan to permanent financing, the permanent financing would be reported as a purchase. Excerpts from the HMDA Guide are provided below:
- Under Regulation C, an “extension of credit” generally requires a new debt obligation. Comment 2(d)-2. Thus, for example, a loan modification where the existing debt obligation is not satisfied and replaced is not generally a covered loan (i.e., closed-end mortgage loan or open-end line of credit) under Regulation C. Except as described below, if a transaction modifies, renews, extends, or amends the terms of an existing debt obligation, but the existing debt obligation is not satisfied and replaced, the transaction is not a covered loan. It is important to note that Regulation C defines the phrase “extension of credit” differently than Regulation B, 12 CFR Part 1002.8 Comment 2(d)-2 and 2(o)-2.
- Construction and permanent financing. A home purchase loan includes both a combined construction/permanent loan or line of credit, and the separate permanent financing that replaces a construction-only loan or line of credit for the same borrower at a later time. A home purchase loan does not include a construction-only loan or line of credit that is designed to be replaced by separate permanent financing extended by any financial institution to the same borrower at a later time or that is extended to a person exclusively to construct a dwelling for sale, which are excluded from Regulation C as temporary financing under §1003.3(c)(3).
Q. Are we still required to report the data fields that will not be disclosed to public?
A. Yes, you are required to report all 110 data fields applicable to your institution. Partially exempt institutions, still report the fields with the option of reporting the required data or an exempt code. The public disclosure will be produced by the CFPB with adjustments performed by the CFPB.
Q. Is the CFPB moving to a quarterly report requirement (and if so, when)?
A. Quarterly reporting begins with data collected beginning on January 1, 2020.
Quarterly Reporting Beginning in 2020, the HMDA Rule requires quarterly reporting for covered institutions that reported a combined total of at least 60,000 applications and covered loans in the preceding calendar year. When determining whether it is required to report on a quarterly basis, an institution will not count covered loans that it purchased in the preceding calendar year. In addition to their annual data submission, these larger-volume reporters will submit HMDA data for the first three quarters of the year on a quarterly basis. The first quarterly submission will be due by May 30, 2020.
Q. Will we be able to use HMDA Relief for Quarterly reporting?
A. Beginning in 2020, covered institutions that reported a combined total of at least 60,000 applications and covered loans in the preceding calendar year will be required to report data quarterly. The first quarterly submission will be due by May 30, 2020. QuestSoft will review the requirement once guidance has been formalized by the CFPB.
Q. Where can I view a chart of data points for exempt institutions.
A. The HMDA data point / data field list is provided at the following link: http://www4.questsoft.com/content/Exempt_HMDA2018_v3.pdf
Q. Just to be clear, if we originated less than 500 loans in the past two years for closed-end, are we exempt from reporting HMDA?
A. No. There are two separate loan-volume exemption thresholds for HMDA reporting:
- Institutional Coverage – The loan-volume threshold determines whether an institution is required to report HMDA. If an institution originated fewer than 25 closed-end mortgage loans or 500 open-end lines of credit in either of the two preceding calendar years, they are not required to report HMDA data.
- Partial Exemption - This exemption applies only to depository institutions and reduces the number of data points / data fields that are required to be reported.
Q. Clarifying the partial exemption, we would be exempt if we "originate" fewer than 500 closed-end in BOTH 2017 & 2018? That would also apply to open-end, if less than 500 were "originated".
A. S.2155 provides banks and credit unions with partial exemptions from reporting certain HMDA data points for closed-end mortgage loans if the institution originated fewer than 500 closed-end mortgage loans in EACH of the two preceding calendar years, and for open-end lines of credit if the institution originated fewer than 500 open-end lines of credit in EACH of the two preceding calendar years.
Q. For the partial exemption, we are a depository lender. We originate more than 500 closed end mortgages, but we don't originate more than 500 open ended lines. I just want to verify, we are partially exempt only for open ended lines? And we can report the reduced data for open-end lines only?
A. There are two separate tests for the partial exemption – closed-end and open-end.
- If you originated less than 500 closed-end mortgage loans in each of the two prior calendar years, you are subject to the partial exemption and reduced reporting requirements.
- If you originated less than 500 open-end mortgage loans in each of the two prior calendar years, you qualify for the partial exemption and reduced data requirements.
However, it is also important to note that the full exemption for open-end lines of credit is also 500 originations. If the financial institution originated fewer than 500 open-end lines of credit in either of the two preceding calendar years, they are not required to report those transactions on the HMDA LAR.
Commentary - Paragraph 3(c)(12)
1. General. Section 1003.3(c)(12) provides that an open-end line of credit is an excluded transaction if a financial institution originated fewer than 500 open-end lines of credit in either of the two preceding calendar years. For example, assume that a bank is a financial institution in 2018 under § 1003.2(g) because it originated 50 closed-end mortgage loans in 2016, 75 closed-end mortgage loans in 2017, and met all of the other requirements under § 1003.2(g)(1). Also assume that the bank originated 75 and 85 open-end lines of credit in 2016 and 2017, respectively. The closed-end mortgage loans that the bank originated or purchased, or for which it received applications, during 2018 are covered loans and must be reported, unless they otherwise are excluded transactions under § 1003.3(c). However, the open-end lines of credit that the bank originated or purchased, or for which it received applications, during 2018 are excluded transactions under § 1003.3(c)(12) and need not be reported. See comments 4(a)-2 through -4 for guidance about the activities that constitute an origination.
Q. So does that mean Credit Unions are exempt from filing or do we just report a few fields?
A. Credit unions are only exempt from reporting HMDA data if they do not meet the loan volume threshold of 25 mortgage loan originations in either of the prior two calendar years. The partial exemption only reduces the data points / data fields that are required to be reported.
Q. Is there a consistent interpretation of what is “Originated”?
A. The definition of origination for HMDA is a funded / closed loan. This definition also applies to the institutional and partial exemption thresholds.
Q. If we are not required to report open-end lines of credit (we didn't close more than 500 originations in the last two years), do we have to include the actual loan on the LAR and then use the Exempt fields?
A. If you are subject to the full exemption for open-end lines of credit, you are not required to report any data on open-end lines of credit.
Q. If you are eligible for the exemptions but have gathered all the data field information, can you choose to file with the "exemption" classification in the designated fields, yet have available for internal use, the data that has been collected?
A. Yes. Compliance RELIEF allows you to retain the actual data and still report the exempt codes on your HMDA submission.
Q. We are an institution that qualifies for the partial exemption. We would like to get some relief from collecting and then checking the exempt data fields. Would this not be the case if we follow your recommendation to have our LOS export everything just as a non-exempt lender?
A. If you qualify for the partial exemption, you have the option to report any or all of the exempt data points. Compliance RELIEF allows you to retain the data but report the exempt codes on the LAR. This means edits will be performed on the exempt codes and not the actual data – so, no validation of the actual data for HMDA purposes is required.
Q. Are we required to report all the data fields for applications dispositioned through May, when S.2155 became effective AND then report the exempt codes for the remainder of the year?
A. No. The partial exemption applies all data to be reported for 2018. The Interpretive and procedural rule allows a depository institution that qualifies for the partial exemption to optionally report actual data collected prior to S.2155; however, but there is no requirement to report that data. Exempt codes may be reported for all 2018 LAR records.
Some insured depository institutions and insured credit unions eligible for a partial exemption under the Act may therefore find it less burdensome to report all of the data including the exempt data points than to separate the exempt data points from the required data points and exclude the exempt data points from their submissions. This may be particularly true with respect to data submission in 2019, as collection of 2018 data was already underway when the Act took effect, and system changes implementing the new partial exemptions may take time to complete. Even after insured depository institutions and insured credit unions have had time to adjust their systems, some may still find it less burdensome to report data covered by a partial exemption, especially if their loan volumes tend to fluctuate above or below the threshold from year to year. The Bureau believes that section 104(a) is best interpreted as permitting optional reporting of data covered by the Act’s partial exemptions. Section 104(a) provides that certain requirements do not apply to affected institutions but does not prohibit those affected institutions from voluntarily reporting data. This interpretation is consistent not only with the statutory text but also with the apparent congressional intent to reduce burden on certain institutions. Accordingly, the Bureau interprets the Act to permit insured depository institutions and insured credit unions voluntarily to report data that are covered by the Act’s partial exemptions
Q. Are we supposed to place all information on the system even if we are a small lender and it is not required? Did I understand correctly that it is recommended we import all 110 fields and then prior to submission, select the exempt status to report the exempt codes for the 53 optional data fields?
A. Compliance RELIEF provides the option of retaining the actual data AND reporting the exempt code. You are not required to capture the actual data; however, many lenders want to capture the additional data for internal reviews and/or analysis. As described previously, you have the option to report any or all of the exempt data fields or to report all using the exempt codes.
Q. I do NOT want to have our staff fill out EVERY field if we are exempt – it would require an incredible amount of time. Our LOS now has an exempt button but, it's not working 100%.
A. If your institution qualifies for the partial exemption, you are NOT required to collect the exempt data points. However, many lenders have opted to collect data points for internal reviews and/or analysis. Compliance RELIEF allows you to capture the actual data but report the exempt codes. Our recommendation is to allow all available data to come over from your LOS and then set the exemption preference in Compliance RELIEF. This provides a more controlled approach to managing how and when you will use the additional data – such as during an exam where it may be requested as part of a fair lending review.
Q. If you qualify for exempt reporting, are you still required to report the state (i.e. NE) of the property. We are unsure if this is the state code from Geocoding or the State field following the property address and city.
A. Yes. The state code is a required field because it was captured for both the property address and the property location data points. The code to be captured is the 2-digit letter code; i.e., NE for Nebraska.
Click here to view our previous blog post containing 46 additional partial exemption questions and answers.
Q. Can you clarify whether an exempt credit union will need to use an LEI, as we did last year. The info I see, read and researched seems to indicate that we can drop the LEI and simply use loan number this year - despite having used the LEI last year?
A. All HMDA reporters are required to have a Legal Entity Identifier (LEI) – this replaces the respondent ID on the transmittal sheet to identify the financial institution. The Universal Loan Identifier (ULI) includes the LEI, but is not required for depository institutions eligible for the S.2155 partial exemption. They may optionally report the ULI or a Non-Universal Loan Identifier (NULI).
Additional clarification is provided below:
If, pursuant to the 2018 HMDA Rule, your institution is not reporting ULI, enter a NULI assigned to the covered loan or application. Your financial institution shall assign and report an identifier that:
- Is composed of up to 22 characters;
- May be letters, numerals, or a combination of letters and numerals;
- Must be unique within the insured depository institution or insured credit union; and
- Must not include any information that could be used to directly identify the applicant or borrower.
Q. Does a Duplicate ULI have to be corrected or can it just be handled as a Verified Quality Edit? As an example: We had 2nd mortgages that were assigned the same account number with a “-2” added. The LOS has a way of correcting this but when I did the new ULI is listed as a Validity Edit.
A. The ULI can be duplicated on the LAR – with the condition that a record cannot be a “complete” duplicate (all data on records is identical). If a financial institution is eligible for the S.2155 partial exemption and chooses to report using a NULI, special characters may be included. If you are not eligible for the S.2155 partial exemption, you are required to report a ULI, which cannot contain any special characters such as a “-“. The V608 Validity Edit would be triggered if the ULI contained a special character.
Q. Do you know if AUS decisions are required on denied loans?
A. Yes. The Automated Underwriting System and Automated Underwriting System Result are required on denied applications if an AUS was used to evaluate the application. Reporting not applicable is only available for purchased loans, when an AUS was not used to evaluate the application, or when the applicant or co-applicant are not natural persons.
Q. For commercial loans, do we need to report the Debt-to-Income Ratio and Combined Loan-to-Value?
A. Yes, unless the transaction qualifies for any of the criteria for reporting Not Applicable:
- Purchased covered loans;
- Transactions for which no credit decision was made (e.g., files closed for incompleteness, or if an application was withdrawn before a credit decision was made);
- Transactions for which the credit decision was made without relying on debt-to-income ratio;
- Covered loans or applications when applicant and co-applicant are not natural persons;
- Covered loan secured by, or an application proposed to be secured by, a multifamily dwelling.
Q. What method is used to determine Total Units? For a loan secured by 5 single family properties, would you report 5 units? In the case of 4 30-unit apartment buildings, would you report 120?
A. The determination of Total Units is based on the number of individual units securing the application. So, for the examples you have provided you would report as you have described – 5 units and 120 units.
(2-91) Paragraph 4(a)(31)—Total Units.
Enter, in numeral form, the number of individual dwelling units related to the property securing the covered loan or, in the case of an application, proposed to secure the covered loan.
Example: If there are five (5) individual dwelling units, enter 5.
Q. If we have a commercial loan that needs to be reported for HMDA, are we required to enter a value in the loan term and interest rate fields? These fields generally do not apply to commercial loans, as they do not relate to Reg B. We are getting a quality edit for not completing these fields in the most recent update in QuestSoft. Is it acceptable to make them NA?
A. Loan term and interest rate fields may ONLY be reported as not applicable as follows:
- Loan Term - Covered loan or application without a definite term, such as a reverse mortgage,
- Interest Rate - Applications that have been denied, withdrawn, or closed for incompleteness.
In addition, Regulation B prohibits discrimination in lending based on prohibited bases, whether the application is for a consumer or commercial purpose loan. ECOA and Regulation B apply to all consumer and commercial credit transactions, with limited exceptions. (Regulation B does not apply to public utilities credit, government credit, securities credit, and incidental credit. See 12 C.F.R. §1002.3.)
Q. Would you please provide further clarification about the credit score and credit scoring model for co-applicant? The logic is a bit confusing. These data points are based off action taken as stated in one of your slides? If there is no co-applicant and action taken code is 1, should it be code 8888 (not applicable) and credit scoring model = code 9 or code 10 (no co-applicant)?
A. If there is no co-applicant on an application, you report 9999-No Co-applicant UNLESS the action taken is withdrawn, incomplete, or purchased. Then, you are required to report co-applicant credit score as 8888-Not Applicable. This logic also applies to reporting the Name and Version of the Credit Scoring Model. The following references identify when Not Applicable is reported and describe the validity edit that will trigger if the co-applicant credit score is not reported as 8888 for withdrawn, incomplete, and purchased actions.
A Financial Institution reports that the credit score data point is not applicable:
- For purchased Covered Loans;
- If the Financial Institution did not rely on a credit score;
- If the Application file was closed for incompleteness (even if a credit score was obtained or created);
- If an Application was withdrawn before a credit decision was made (even if a credit score was obtained or created); or
- If the applicant and co-applicant, if applicable, are not natural persons. Comments 4(a)(15)-4 through -7.
Q. For files with the 4, 5 or 6 action taken designation, both the borrowers and co-borrowers credit scores information is 8888-not applicable and 9-not applicable for the credit scoring model regardless of whether or not there is a co-borrower. Is that correct?
A. Yes, the credit score and credit scoring model should be reported as Not Applicable for applications that are withdrawn, incomplete, or purchased.
Q. When an applicant does not have enough credit history to produce a numeric score, we report the credit score as “7777-Credit Score is Not a Number” for the applicant. We then get an edit check to report the credit scoring model as either “7-more than one credit scoring model” or “8-Other credit scoring model”. Should we use “8-Other credit scoring model” and enter the word “nontraditional” in the credit score model free form field?
A. For the scenario you describe, the correct reporting would be 8888-Not Applicable. The excerpt below from the Final Rule indicates that when a credit score is requested, but not available – you would report 8888-Not Applicable. You would also enter 9-Not Applicable for the Name and Version of the Credit Scoring Model.
7777-Credit Score is Not a Number indicates that there IS a score, but the score is a non-numerical “code” and you are required to report the Name and Version of the Credit Scoring Model.
Final Rule - Regarding the request for guidance on reporting when a credit score is requested but none is available, § 1003.4(a)(15) requires reporting the credit score or scores relied on in making the credit decision, so a financial institution would report that the requirement is not applicable if it did not rely on a credit score.
Q. Do you have a list of what is required for denied loans?
A. Data requirements are consistent across all actions. The following data points are reported as Not Applicable for denied applications – Type of Purchaser, Rate Spread, HOEPA Status, Total Loan Costs, Total Points and Fees, Origination Charges, Discount Points, Lender Credits, Interest Rate, and Initially Payable to Your Institution.
Q. Did we hear correctly that the CFPB will allow a code 3 (NA) for applications that were not taken as Face to Face (Race, Ethnicity and Sex) for the method of collection?
A. The HMDA Guide and Filing Instructions Guide (FIG) indicate that a financial institution must collect information about an applicant’s ethnicity, race, and gender on the basis of visual observation or surname when an application is taken in person and the information is not provided by the borrower, which would require the institution to report 1-Collected on the basis of visual observation or surname. The options for reporting 3-Not Applicable are limited to 1) Purchased covered loans for which the financial institution chooses not to report the applicant’s or co-applicant’s ethnicity, race, and sex AND 2) Covered loans or applications when applicant or co-applicant is not a natural person. Although there is no formal guidance indicating whether a lender should report 2-Not collected on the basis of visual observation or 3-Not applicable for applications NOT taken in person, the CFPB has indicated that either code will be acceptable reporting for 2018 submissions.
Q. When an application is not taken in person, can the collection questions be left blank on the Demographic Information section of the loan application? Will examiners require a selection on the form itself?
A. HMDA does not define the requirements for documenting the applicant demographic information. Appendix B provides a sample collection form, but does not identify the form as a required document.
You must ask the applicant for this information (but you cannot require the applicant to provide it) whether the application is taken in person, by mail or telephone, or on the internet. For applications taken by telephone, you must state the information in the collection form orally.
Q. Can you please explain the fields that have changed with regards to the fields associated with Property Location?
A. The 2018 HMDA data requirements for reporting property location are as follows:
- County – Report the five (5) digit Federal Information Processing Standards (FIPS) numerical code for the county, which includes the two (2) digit state code and the three (3) digit county code.Example: 06037 represents 06/California and 037/Los Angeles County.
- Census Tract – Report the eleven (11) digit census tract number as defined by the U.S. Census Bureau, which includes the two (2) digit state code, three (3) digit county code, and six (6) digit census tract (excluding decimals). Example: 060372640000 represents 06/California, 037/Los Angeles County, and 264000 for the specific census tract.
Q. Could you provide clarification regarding the FFIEC vs. CFPB geocoding sites?
A. The CFPB has not yet launched their geocoding tool. Until that tool is made available, financial institutions may continue to use the FFIEC geocoding/mapping system or a comparable system like QuestSoft’s Instant Geocoder. According to the CFPB’s revised rules:
If a financial institution chooses to use an alternative geocoding tool that constitutes a procedure reasonably adapted to avoid census tract errors, the financial institution will receive the same Safe Harbor protections
Q. When we have two unmarried Borrower’s (separate applications) are we correct in that we need only report applicant demographic information on the primary applicant? If the primary Applicant does not have a spousal Co-Applicant, is the non-spousal co-borrower considered a co-applicant for HMDA purposes?
A. HMDA does not differentiate between spousal and non-spousal co-applicants. If an application includes two co-borrowers, all data should be reported for both applicants.
Q. Would you please explain how the loan purpose should be reported if the code is 6 (purchased loan)? Last year we reported NA.
A. Loan purpose must be reported on all HMDA applications. Reporting 5-Not Applicable is only permitted for purchased loans where the origination took place prior to January 1, 2018.
Official interpretation of Paragraph 4(a)(3) - 6. Purpose - purchased loans. For purchased covered loans where origination took place prior to January 1, 2018, a financial institution complies with § 1003.4(a)(3) by reporting that the requirement is not applicable.
Q. Can you explain when you report Total Loan Costs vs. Total Points and Fees? Are both ever reported for a loan?
A. HMDA requires that you report EITHER Total Loan Costs and Total Points and Fees or indicate that neither reporting requirement applies by entering “NA” for both.
- Total Loan Costs – required for loans that are subject to the Ability-to-Repay (ATR) rule AND the TILA-RESPA Integrated Disclosure (TRID) requirements.
- Total Points and Fees – required for loans subject to the Ability-to-Repay (ATR) rule, but NOT the TLLA-RESPA Integrated Disclosure (TRID) requirements.
Q. What do we do if we get the error codes V660-1 and V660-2?
A. V660 edits are related to Credit Score and must be corrected prior to submission. V660-1 indicates that the Credit Score of the Applicant is either blank or not a number. V660-2 indicates that the Name and Version of Credit Scoring Model for the applicant is not valid.
Q. We qualify for the partial exemption. When I attempted to upload our file for the beta testing, the file was not accepted due to errors related to purchased loans that automated where we had used the exempt code for underwriting fields. I reached out the CFPB but did not get clear clarification. Have you experienced this, or do you have any information if this will be corrected to submit data?
A. Without knowing the exact error you are receiving, it is difficult to identify the issue or the action required to correct the error. One thing we are aware of is a misunderstanding with regard to populating the 5 separate fields for AUS Underwriting System and Automated Underwriting System Result. The Automated Underwriting System Fields for institutions subject to the partial exemption should be updated as follows:
- Automated Underwriting System 1 = 1111-Exempt
- Automated Underwriting System 2-5 = “blank”
- Automated Underwriting System Result 1 = 1111-Exempt
- Automated Underwriting System Result 2-5 = “blank”
Q. For the CLTV on FHA and VA files, should we submit the CLTV calculated on the total loan amount to bypass the QE, or should we submit with CLTV calculated on base loan amount?
A. The question of whether or not to adjust CLTV or report the CLTV used in making the credit decision remains unanswered. This simply means – the decision is yours to make. If you want to avoid the Q617 errors, you should report a CLTV that is based on the total loan amount reported on the LAR.
The Q617 edit continues to generate questions as there is still quite a bit of industry confusion surrounding the logic behind it. Generally, the issue is related to FHA, VA, and USDA loans.
- FHA, VA, and USDA standards are established for qualification purposes – CLTV is calculated using the “base loan amount” for LTV/CLTV limits.
- The HMDA rule refers to CLTV as “total amount of debt secured by the property to the value of the property” and “CLTV that a financial institution relied on in making the credit decision”.
The Q617 Quality Edit is intended to identify a potential error. If the error is systemic in nature, the reporting entity must make the appropriate correction prior to submission.
If your LOS allows you to establish business rules for populating specific data fields on your HMDA screens, we encourage you to consider creating such rules to manage CLTV.
We continue to monitor this topic closely and expect to make any necessary changes based on clarification or additional guidance from the CFPB.
Q. Q617 has been frustrating. Is manual verification required per individual loan file?
A. If your process includes verifying Quality Errors, you will need to go into individual records to check that box. It’s important to remember that Quality Errors do not require a correction. You only need to indicate you're OK with them at submission. You might filter any Q617 edits for review to conventional loans to identify records for review. Regardless of whether you manually verify Quality Errors, you will be asked to verify them on the CFPB Submission Platform as shown below.
Q. We have been using the loan amount reported on the LAR to calculate the CLTV on FHA & VA loans. Just to confirm, we just use the base loan amount?
A. At this time, it is acceptable to use either the CLTV calculated on the base amount or the total amount financed (reported on the LAR). Calculating the CLTV using the loan amount reported on the LAR will eliminate the Q617 edits.
Q. I can't seem to find guidance in the CFPB about whether latitude and longitude needs to be reported?
A. There is no requirement to report latitude or longitude for HMDA.
Q. Is it recommended to have 2 submissions 1/closed-end and 2/ Open-end?
A. No. You are required to submit HMDA LAR data in a combined file – there is no option to report closed-end and open-end separately.
We hope this blog post was informative and helpful. QuestSoft's HMDA RELIEF module can significantly reduce HMDA processing and submission times. Contact us today to learn more!