Frequently Asked Questions

Home Mortgage Disclosure Act (HMDA)/Reg C

Categories:

Collecting Ethnicity, Race & Sex



Definitions

There are two responses to this question - "no" and "it depends". The question appears to reach across two regulations: Regulation C (HMDA) and the Fair Credit Reporting Act (FCRA).

By "Preapproved Mailer" it is assumed you are referring to mailings sent to consumers indicating they have been preapproved for a loan under the FCRA permissible purpose provisions for the "prescreening" of potential consumers. In other words, those customers who meet the criteria which was requested from a credit reporting agency, such as having a specific a specific range of credit score, geographic location, number of trade lines, no foreclosures within a specific period of time, and so on, and therefore received a mailing from your organization indicating they have been preapproved based on this criteria. The fact that a consumer is identified as preapproved in this manner does not make it a reportable transaction for purposes of HMDA - this is the "no" part of the answer above.

However, if the consumer received such a mailing and requested a decision under a preapproval program established under the definition of a preapproval for purposes of HMDA and that request was subsequently approved but was not accepted by the consumer, then yes - this is the "it depends" part of the answer above. Remember though that HMDA''s definition of a preapproval requires a full credit qualification. Regulation C defines a preapproval as:

"Preapproval programs" - A request for preapproval for a home purchase loan, other than a home purchase loan that will be an open-end line of credit, a reverse mortgage, or secured by a multifamily dwelling, is an application under this section if the request is reviewed under a program in which the financial institution, after a comprehensive analysis of the creditworthiness of the applicant, issues a written commitment to the applicant valid for a designated period of time to extend a home purchase loan up to a specified amount. The written commitment may not be subject to conditions other than:

  • Conditions that require the identification of a suitable property;
  • Conditions that require that no material change has occurred in the applicant'' financial condition or creditworthiness prior to closing; and
  • Limited conditions that are not related to the financial condition or creditworthiness of the applicant that the financial institution ordinarily attaches to a traditional home mortgage application."

Temporary financing is defined as a closed-end mortgage loan or an open-end line of credit which is designed to be replaced by permanent financing. The commentary for Regulation C does not provide a specific time frame for the permanent financing, but does provide a few examples, including a bridge loan. The examples make the determination regarding exclusion based on temporary financing if there is known intention to replace the loan with permanent financing and the financing will be a separate transaction. Here is a summary of the examples provided in the commentary:

Bridge Loans - Bridge loans are excluded if the loan is used for a home purchase where the borrower will pay off the loan with proceeds from the sale of an existing home and obtain permanent financing on the new home from the lender.

Construction Loans - Construction Loans are excluded as long as the permanent financing that will replace the construction loan will be a refinance of the loan or a separate loan transaction, regardless of the lender providing the permanent financing. This includes a construction loan where the loan may be renewed one or multiple times prior to being replaced by permanent financing. However, if the loan is made as a construction-permanent loan where the transaction is already designed to convert to permanent financing, it is not excluded.

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 if the loan or line of credit is extended to a person exclusively to construct a dwelling for sale.

Investor Renovate and Resell Loans - These loans are also excluded when the temporary financing is not intended to be replaced by permanent financing. The commentary provides an example using a nine-month expiration term on the temporary financing, but also make it clear that the determination is based on the lack of permanent financing expected not the fact that the term is short.



Encompass Use/Behavior Questions

Yes, Encompass will handle the HMDA Age calculation. The age calculation for fields 4183 and 4184 is based specifically on "as of the application date". It is imperative that your company has completed your HMDA Profile Settings setup to ensure you have defined the HMDA Application Date and whether or not you want to report the age(s) for Purchased Covered loans.

The rule is specific about which fields are reported for loan costs based on the LE/CD and we've repurposed existing fields to map to the HMDA screen.

Encompass will perform the required conversion to generate the required check digit.

Encompass customers will determine their borrower sets in terms of borrower and co-borrower for reporting purposes - HMDA reporting is limited to 2 persons.

Encompass currently supports both the 2017 GMI and 2018 DI. This functionality was introduced in Encompass 17.2 Release

No, not at this time. Encompass is only accommodating the reporting data fields for reverse mortgage applications so customers can decide to have one source system of record for reporting the LAR if desired. Encompass is not adding complete support for reverse mortgage loans at this time.

No Encompass will not. The commentary in the 2017 HMDA Final Rule, the bureau identifies multiple ways that relied upon credit scores might be identified. In the future we will look at some kind of configuration but at present the information can either be entered manually or through business rules.

Encompass released functionality to produce the Pipe Delimited format in the 17.3 Encompass Release. This is currently active and working.

The Red "X" on the 1003 Page 3 GMI section is required by the GSE's when collecting the Demographic Information on the 1003 Addendum.

In the HMDA Information Input screen in the Demographic Information Co-Borrower section, upon selecting the "No Co-Applicant" Field 3840 the following fields will auto populate with the No Co-Applicant reportable code.

  • Co-Borrower Age Field 4184
  • Co-BorrowerCredit Score for Decision Making Field 4177
  • Co-Borrower Credit Scoring Model Field 4178
  • Co-Borrower Ethnicity Field 4188
  • Co-Borrower Race Field 3174
  • Co-Borrower Sex Field 4189
  • Co-Borrower Ethnicity Visual Observation Field 4132
  • Co-Borrower Race Visual Observation Field 4133
  • Co-Borrower Sex Visual Observation Field 4134

No, it is recommended that setting not be turned on in a production environment earlier than 1/1/2018, however you can begin to collect the 2018 DI information prior to 1/1/2018 by selecting Field 4142 on the 1003 Page 3.

If you would like to begin collecting the 2018 DI before 1/1/2018, the recommended workflow is to use your data templates to set Field 4142 "Use 2018 DI" and leave the HMDA Admin Settings Default to 1/1/2018.

Setting the Data Template Field 4142 to "Use 2018 DI" is optional prior to 1/1/2017 and therefore there is no downside to this trigger if you start setting the flag prior to the implementation date.

Use of the HMDA Admin Setting prior to 1/1/2018 could potentially impact your loans if the disposition (Action Taken/Action Taken Date) of loans occur in 2017 since the 2018 HMDA fields have calculation specific to 2018 handling ahead of the regulation.

Encompass has added mapping logic to these fields to auto-populate the required "NA", "8888", or "Not Applicable" data point as prescribed under the rule following the HMDA FIG reporting requirements

No, upon you selecting any of the HMDA Relied Upon DTI, CLTV, Income fields HMDA.X97, HMDA.X98, HMDA.X99, by default will populate a "NA" value to the HMDA DTI HMDA.X36, CLTV HMDA.X98 and Income HMDA.X99 fields located on the HMDA Information Input Screen.

Encompass uses the Lender credits provided to the borrower to offset closing costs that is disclosed under Line J of the Closing Cost Details page of the Closing Disclosure CD2.XSTLC. HMDA refers to 1026.38(h)(3) which are general credits and cure only.

The New 2018 HMDA forms are not currently available in the Standard Input Forms List in Input Form Builder however you can import the new HMDA forms by navigating to your local documents / forms directory.

PATH: C:\Program Files\Encompass360_17.4_2\documents\forms

NOTE: Make sure to choose the appropriate "Encompass360 folder" that retains the version where the New HMDA forms are available.

Encompass will generate a ULI using the Encompass Loan Number at the time of loan origination.



Miscellaneous

There are many available resources (or will be prior to the effective dates with the rule) issued by the CFPB, and potentially the Federal Financial Institutions Examination Council (FFIEC) and other regulatory agencies, as well as industry vendors (such as ICE Mortgage Technology, law firms, vendors providing solutions available via LAR delivery software, etc.). For instance, the CFPB has already provided a number of resources, such as: the Small Entity Compliance Guide; a chart identifying reportable fields; a chart identifying when fields are reported as not applicable; a chart regarding institutional applicability; a timeline chart, and other resources.

These can be found presently at: http://www.consumerfinance.gov/regulatory-implementation/hmda and may be augmented by additional tools prior to implementation by the CFPB. In addition a web site has already been established for industry filers and the general public at: www.consumerfinance.gov/hmda which is also where the already expected instructions replacing the current Appendix A (which will be removed and reserved on January 1, 2019) will be found when published.



Origination Channel



Public Disclosure Statements

Since this information is available via the CFPB web site, the financial institution is not required to provide this data to an inquirer. However, the institution has the option to continue providing this data as requested, and may charge a reasonable fee for reproducing and for providing copies of the data, but is not required to, other than meeting compliance with providing the notice of the availability of this data online.Since this information is available via the CFPB web site, the financial institution is not required to provide this data to an inquirer. However, the institution has the option to continue providing this data as requested, and may charge a reasonable fee for reproducing and for providing copies of the data, but is not required to, other than meeting compliance with providing the notice of the availability of this data online.



Purchased Loans

This question is more complicated than it may initially appear. Regulation C sets the "25 or more closed-end loans and 100 open-end loans or more thresholds" for determining applicable financial institutions, based on loans "originated". Only one institution can ever consider the transaction as originated, but the number of times a loan could be reported as purchased would be unlimited, if bought and sold multiple times on the secondary market.

The answer is dependent upon whether the loan is truly considered "originated" or "purchased". This is determined by when the loan is purchased, and whether the reporting institution was involved in the credit decision. For example, if an institution makes the credit decision on a loan request, the loan is subsequently closed, and the same institution purchases the loan following the closing; this loan is considered originated and not purchased. Commentary under Regulation C provides several examples regarding when a loan is considered originated versus purchased. You should rely on your legal counsel or compliance experts, if unsure regarding this distinction. That being said, Commentary under Regulation C also clarifies when a loan is clearly considered purchased and not originated, such as:

Clearly Purchased - If covered loans are acquired in bulk from another institution (for example, from the receiver for a failed institution), but no merger or acquisition of an institution, or acquisition of a branch office, is involved, the acquiring financial institution reports the covered loans as purchased loans (Commentary ¶4(g)-1ii).

Therefore in response to the original question asked; if the number of transactions involving open-end lines of credit total 100 or more and are considered originated - yes, it meets this benchmark. If the loans are considered purchased - no, they would not meet this benchmark.



***NOTE - The most recent final rule amends the 100 open-end lines of credit to temporarily increase this figure to 500 open-end lines of credit, so insert 500 rather than 100 for the years of 2018 & 2019)***

There is no specific definition regarding a "purchased loan" or "purchasing entity" under Regulation C; however, generally this refers to a loan bought/acquired by an entity that did not make the credit decision for granting the original loan request. For information regarding the differences between originating a loan and purchasing a loan, refer to the commentary provided in the regulation (citations are provided below).

A purchased loan is generally a closed-end mortgage loan or an open-end line of credit that is acquired from another entity where the entity purchasing the loan was not the entity making the original credit decision at the time the loan was originated. The date of October 3, 2015 (the effective date of integrated mortgage disclosures under the Truth in Lending Act) is used for excluding the reporting of specific data fields (to be indicated as not applicable) when a loan is purchased and the loan application was taken prior to this date.



In other words, if the loan application was taken prior to October 3, 2015 and the loan is reported as purchased, the following data fields are indicated as not applicable: Total Loan Costs; Borrower-Paid Costs; Discount Points; and Lender Credits.

There is no specific definition regarding a "purchased loan" or "purchasing entity" under Regulation C; however, this refers to the entity buying/acquiring the covered loan (unless it is the entity making the original credit decision) and not the entity selling the covered loan. For information regarding the differences between originating a loan and purchasing a loan, refer to the commentary provided in the regulation (citations are provided below).



Reportable Data Fields

Assuming by "GAI" you are referencing "gross annual income", the rule allows for you to report the income used for qualification based on the manner in which your underwriting policies dictate the income should be determined/calculated. Commentary under the rule states:

"When a financial institution evaluates income as part of a credit decision, it reports the gross annual income relied on in making the credit decision. For example, if an institution 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, the institution reports the salary and the bonus to the extent relied upon. If an institution relies on only a portion of an applicant's income in its determination, it does not report that portion of income not relied on. For example, if an institution, pursuant to lender and investor guidelines, does not rely on an applicant's commission income because it has been earned for less than 12 months, the institution does not include the applicant's commission income in the income reported. Likewise, if an institution relies on the verified gross income of the applicant in making the credit decision, then the institution reports the verified gross income. Similarly, if an institution relies on the income of a cosigner to evaluate creditworthiness, the institution includes the cosigner's income to the extent relied upon. An institution, however, does not include the income of a guarantor who is only secondarily liable."

There are a couple of issues to address under this question. Whether the data must be collected and reported is dependent upon the manner in which the application was taken (see chart below). Regarding making a decision to collect and report the sex of an applicant who is transgender was addressed by the CFPB via allowance for the consumer to select both male and female. You should rely on guidance provided by your legal counsel or compliance expert in addition to the guidance by the CFPB.

A chart (see category - Ethnicity, Race & Sex (Chart) of the specific requirements for documenting ethnicity, race and sex is provided for your use in determining whether or not to document this data via visual observation or surname, based on the manner in which the application is taken, is provided below.

There are a few ways to determine the purchaser type, starting with asking the purchasing entity (in this case the investor). You can also typically make this determination by researching the purchasing entity, if necessary, by the organizational corporate filings with the appropriate Secretary of State for the state in which they are domiciled. In many cases, you may also find the information necessary to make this determination by looking up the web site of the entity (if available) and using any disclosures provided regarding the legal disclaimer/disclosure or licensing, as applicable. Many agreements (contracts) executed regarding the purchasing of the loans may also identify the type of entity purchasing the loan.

Regulation C does not prevent you from assigning a new loan number for your own purposes when a loan is purchased; however, this would only be for your own internal use or other regulatory requirements regarding reporting, other than your LAR filing. When reporting the loans for HMDA purposes, loans purchased by your institution for the reportable calendar year (remember purchased loans are not reported quarterly, if applicable to your organization staring in 2020) are required to identify the loan on the LAR submission by reporting the Universal Loan Identifier already established/created by the original institution that originated the loan, and not the loan number you may have created for other purposes.

Regarding the first question, this is not removed by the rule. The applicant continues to have the option to select "I do not wish to provide this information". However, if the applicant provides some or all of the data and also selects "I do not wish to provide this information" via an application taken by mail, internet or telephone, the data (in whole or partial as completed by the applicant) that was provided is reported.

Regarding the second question, Regulation C makes the distinction regarding applications taken online (electronic media) by applying different requirements for documenting ethnicity, race and sex by distinguishing whether the online application was taken via a system which includes or does not include a video component. If the application is taken via electronic media which includes a video component, it is considered taken in person. If the application is taken via electronic media which does not include a video component, it is considered taken via mail. Therefore the requirements of when the application is taken in person or via mail would apply accordingly.

A chart (see category - Collecting Ethnicity, Race & Sex (Chart)) of the specific requirements for documenting ethnicity, race and sex is provided for your use in determining whether or not to document this data via visual observation or surname, based on the manner in which the application is taken, is provided below.

Yes, if self-reported or by following the requirements provided regarding collecting the data by visual observation or the applicant's surname. The requirement for collecting this data by visual observation or surname is detailed above under the responses regarding the collection of ethnicity and race.

A chart (see category - Collecting Ethnicity, Race & Sex (Chart)) of the specific requirements for documenting ethnicity, race and sex is provided for your use in determining whether or not to document this data via visual observation or surname, based on the manner in which the application is taken, is provided below.

The reporting of ethnicity and race (also the applicant's sex) is optional on purchased loans.

It is only necessary to collect ethnicity and race on an application taken via telephone if the applicant provides the ethnicity and race (also sex) after the person taking the application has provided the verbal disclosure regarding why this data is collected (this verbal disclosure is required on a phone application), if the applicant elects to provide this data. Identifying whether this data was obtained via visual observation or surname is only required for applications taken in person or via electronic media which includes a video component, or an application begins in a different manner but is completed at some point via either of these methods (face-to-face, whether in person or via video transmission).

<A chart (see category - Collecting Ethnicity, Race & Sex (Chart)) of the specific requirements for documenting ethnicity, race and sex is provided for your use in determining whether or not to document this data via visual observation or surname, based on the manner in which the application is taken, is provided below.

Rate Spread is reported on all loans after 1/1/2018, but is reported as not applicable for loan assumptions, reverse mortgage loans, and loans purchased. As of reporting in 2018 the data for loans with an action taken date in 2017 the proper way to report an item as not applicable changes to "NA" (without the slash).

In this case the whether the loan is originated or receives adverse action and the terms include a repayment period other than in months, the reported maturity term would be converted to an equivalent number of whole months without any remainder. Example: for a 30 year fixed rate loan using a bi-weekly repayment plan, the maturity term would still be indicated as 360 months (26 weeks per year x 30 years = 780 expected payments but the term in months would be reported as 360).

Yes, an option for indicating "not applicable" is provided. However, if a commercial loan originator is originating a covered loan under Regulation C, it would be prudent to ensure the loan originator is not required to be licensed or registered with the NMLSR for the particular transaction being reported. Commentary under Regulation C regarding this issue is cited below in the citations provided, and is summarized as follows:

An NMLSR ID for the mortgage loan originator is not required to be reported if the mortgage loan originator is not required to be obtained and therefore not assigned. For example, certain individual mortgage loan originators may not be required to obtain an NMLSR ID for the particular transaction being reported by the financial institution, such as a commercial loan. However, some mortgage loan originators may have obtained an NMLSR ID even if they are not required to obtain one for that particular transaction. If a mortgage loan originator has been assigned an NMLSR ID, a financial institution complies by reporting the mortgage loan originator's NMLSR ID regardless of whether the mortgage loan originator is required to obtain an NMLSR ID for the particular transaction being reported by the financial institution. In the event that the mortgage loan originator is not required to obtain and has not been assigned an NMLSR ID, a financial institution complies by reporting that the requirement is not applicable.

You should also refer to the SAFE Act (Regulations G & H), state licensing laws and your legal/compliance professionals for the determination of any required licensing applicable to the specific transactions reportable under HMDA.

If you are the originating institution, the loan is a closed-end mortgage loan, and the loan is not sold to another entity during the calendar year being reported on the LAR, you will report the loan amount as stated on the legal obligation. Here is a summary of how the loan amount is reported on the LAR:

Closed Loans (Originated) -

  • Closed-End Mortgage Loan = the amount to be repaid as disclosed on the legal obligation (not including a purchased loan, an assumption, or a reverse mortgage).
  • Open-End Line of Credit = the amount of credit available to the borrower under the terms of the plan (not applicable to a reverse mortgage provided via an open-end line of credit).
  • Refinance = the amount of credit extended under the terms of the new debt obligation.
  • Assumption = the unpaid principal balance at the time of the assumption.
  • Reverse Mortgage = the initial principal limit (even if not federally insured).
  • Counteroffers (accepted) = the loan amount granted (see closed-end and open-end loan amount detail above).
  • Multiple-Purpose Loans = the entire amount of the covered loan, even if only a part of the proceeds is intended for home purchase, home improvement, or refinancing.
  • Home Improvement Loans = the entire amount of a home improvement loan, even if only a part of the proceeds is intended for home improvement.
Loan Requests Receiving Adverse Action (Applications) -
  • Counteroffers (rejected by the consumer) = the loan amount initially requested (prior to the counteroffered amount).
  • Approved But Not Accepted (including preapprovals) = the loan amount approved.
  • Denial (including preapprovals) = the loan amount for which the applicant applied.
  • Closed for Incompleteness = the loan amount for which the applicant applied.
  • Withdrawn = the loan amount for which the applicant applied.
Purchased Loans -
  • Closed-End Mortgage Loans = the unpaid principal balance at the time of purchase.
  • Open-End Line of Credit = the amount of credit available to the borrower under the terms of the plan.


Reporting

The quick answer is yes, but is based on either of the two preceding calendar years. In 2018 when open-end lines of credit are reportable (as opposed to presently where they are optional reporting), then you only report them if you originate 100 loan or more in either of the two preceding calendar years, but would continue to report any originated closed-end loans (assuming you originate 25 or more in either of the two preceding calendar years).

The same is true for closed-end loans. If you originate less than 25 closed-end loans in either of the preceding two calendar years, they are not reported (excluded). Both thresholds apply to loans originated and does not include applications where the final disposition involves adverse action (declined, withdrawn, closed for incompleteness, etc.).

This is in keeping with the determination of whether or not your organization is required to file a Loan Application Register ("reporting") based on whether or not you meet the criteria defined as a "financial institution" for purposes of the Regulation C. For purposes of this determination, the criterion is based on originating either: 25 or more closed-end loans; or, 100 or more open-end lines of credit in either of the preceding two calendar years.

Example: if in 2017 you originate 50 closed-end loans and in 2018 you originate 22 closed-end loans, then you have not met the criteria as a financial institution for reporting purposes in 2019 regarding the closed-end loan criteria (25 or more closed-end loans in either of the preceding two calendar years). The same is true for open-end lines of credit, if your organization originated 160 open-end lines of credit in 2017, but only originated 95 open-end lines of credit in 2018, you do not meet the criteria of a "financial institution" (100 or more open-end lines of credit loans in either of the preceding two calendar years). This is also assuming none of these loans meet the transactional exclusion criteria.

Aside from the other requirements under the definition regarding assets, main or branch offices located in an MSA, etc.; remember also that the threshold for closed-end loans (25 or more in either of the two preceding calendar years) is added for you 2017 since you are a depository institution. In 2018, the threshold for open-end lines of credit (100 or more in either of the preceding two calendar years) is added for depository institutions. This is means either threshold. You do not have to meet both to be considered a financial institution, only one or the other. Both thresholds are added for non-depository institutions in 2018 (in addition to having a branch or main office located in an MSA or MD).

***NOTE - The most recent final rule amends the 100 open-end lines of credit to temporarily increase this figure to 500 open-end lines of credit, so insert 500 rather than 100 for the years of 2018 & 2019)***

The commentary to Regulation C addresses the exclusion for such loans as long as the loan is for temporary financing not intended to be replaced by permanent financing. Here is a summary of the commentary regarding such loans:

Investor Renovate and Resell Loans - These loans are also excluded when the temporary financing is not intended to be replaced by permanent financing. The commentary provides an example using a nine-month expiration term on the temporary financing, but also make it clear that the determination is based on the lack of permanent financing expected not the fact that the loan term is for a short period of time.

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 if the loan or line of credit is extended to a person exclusively to construct a dwelling for sale.



Disclaimer: These questions and answers are provided based on those received during webinars provided by the ICE Mortgage Technology Compliance Department, and those submitted to ICE Mortgage Technology directly by you. This content is intended for general information purposes with the goal of assisting ICE Mortgage Technology’s customers and non-customers, in complying with the future provisions under Regulation C (HMDA). This information is provided as a courtesy to ICE Mortgage Technology’s customers and ICE Mortgage Technology makes no representation or warranty regarding the accuracy of the information set forth herein, and you may not rely on this information to ensure your company’s compliance with Regulation C (HMDA). This publication should not be construed as legal advice or opinion on any specific facts or circumstances, including the application of the HMDA regulations. You are advised to consult your own compliance staff or attorney regarding your specific residential mortgage lending questions or situation to ensure your compliance with all applicable laws and regulations.