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HMDA Help
by Mary Beth Guard, BOL Guru
If you're trying to comply with the Reg C amendments that go into effect January 1, 2004, don't miss the HMDA Help page established by the St. Louis Federal Reserve Bank. It has a wealth of resources to help you, including practical compliance tips and frequently asked questions.
You'll also find detailed information about the transition rules, which were developed to provide guidance for dealing with applications received in 2003, but not acted upon until after January 1, 2004. Depending upon the length of your approval cycle, you may need to be looking at the transition rules for some 2003 applications fairly soon.
For example, under the transition rules, lenders have the option of whether to report requests for preapprovals for home purchase loans received before Jan. 1, 2004 (but not acted upon until after that date). If a lender chooses not to report those pre-January 1, 2004 preapprovals, the lender should use Code 3, "not applicable," in the "preapproval" field of the LAR.
There is a conversion guide for race and ethnicity information. If you receive an application prior to January 1, 2004, but don't act upon it until after January 1, you are required to collect data on race or national origin using the categories in effect in 2003, and then convert the data to the codes in effect in 2004 for reporting purposes, using the conversion guide.
As an example, let's say someone applied for a HMDA-covered loan in December, 2003 and you don't act on it until after the new year. Using the current codes, they indicate Code 3 - Black. In 2004, for reporting purposes, you will use Code 4 - Not Applicable for Ethnicity, and Code 3 - Black or African American for Race. If the same person instead indicated Code 4 - Hispanic under the old codes, that would be converted to Code 1 - Hispanic or Latino for Ethnicity and Code 7 - Not Applicable for Race.
HMDA Change Reminders
Here's a quick review of some of the major Reg C changes that will take effect January 1, 2004.:
Lien Status. Lien Status data must be collected and reported on applications and originations, but not on purchased loans. Report it based upon the best information readily available to you which you believe to be accurate at the time you take final action on the application. There are four possibilities:
Code 1 - Secured by a first lien;
Code 2 - Secured by a subordinate lien;
Code 3 - Not secured by a lien;
Code 4 - Not applicable (This applies to purchased loans.)
Property Type. The type of property involved in the transaction must be identified. There are three possibilities:
Code 1 - One to four-family (other than manufactured housing);
Code 2 - Manufactured housing;
Code 3 - Multifamily.
If you cannot determine whether the loan or application relates to a manufactured home, use Code 1.
Coverage Triggers. Some changes to the definitions affect the types of loans that are covered.
Home Improvement loans - Home Improvement loans are reported with Code 2 in the purpose field on the HMDA-LAR. If, according to the applicants' statements, any part of a dwelling-secured loan's proceeds are going to be used for home improvement, the loan should be reported as a home improvement loan. Whether an unsecured loan is reported as a home improvement loan will depend upon whether the lender classifies it as a home improvement loan. Reporting of HELOCs which are for home purchase or home improvement remains optional. If you do choose to report these lines of credit, report only the amount of the proceeds which will be used for HMDA purposes.
Refinancing - Refinancings are reported using Code 3 in the purpose field on the HMDA-LAR. To determine whether a loan or application meets the definition of a HMDA refinancing, and is therefore reportable, ask two questions: l) Does it satisfy and replace an existing loan; and 2) Are both the old and new loan/application secured by a lien on a dwelling. Only if the answer to both questions is "yes" do you have a HMDA-reportable refinancing. If the loan is unsecured, it will not be reportable as a refinancing, regardless of the purpose. There is no "purpose" test. If the original and new loans were both secured by a dwelling and the old loan is satisfied and replaced by the new one, you report it as a refinancing, regardless of the purpose of the original loan - and regardless of the purpose of the new loan. Modification, extension and consolidation agreements (MECAs) do not fall within the definition of a refinancing. A true refinancing will be evidenced by a new note or similar document.
Preapprovals as Applications - There is a new preapproval data field on the HMDA-LAR. On your HMDA-LAR, you will need to note, for each reported application or loan, whether it involved a request for preapproval of a home purchase loan. There are three codes to choose from:
Code 1 - Preapproval was requested
Code 2 - Preapproval was not requested
Code 3 - Not applicable
Code 3 should be used if you don't have a preapproval program. Also use it for applications or loans for home improvement or refinancing, as well as for purchased loans.
New codes have also been added to the action taken field on the LAR to cover preapproval requests. Code 7 in that field is for a preappval request denied by the financial institution; Code 8 is optional reporting for a preapproval request that was approved but not accepted. If a preapproval is requested and you originate a loan as a result, that loan origination will continue to be reported as Code 1 in the action taken field. Preapproval requests that are withdrawn or incomplete are not reportable.
Don't confuse a preapproval with a prequalification. Preapprovals must be repoted beginning in 2004. Prequalification requests, on the other hand, are not reportable. A preapproval request involves a prospective borrower submitting an application for a home purchase loan that the lender evaluates and, if approved, issues a written commitment to loan a certain amount for a specific time period, subject to limited conditions relating to verification of no material change in the applicant's financial picture, identification of an acceptable property, and standard conditions relating to the property, such as a requirement that it pass inspections.
Editor's Note: This HHDA information is still useful, but is dated with regulatory changes. The reader is urged to compare the new rules under HMDA to these explanations in the event there may be a change. New information is also on the HMDA Heaven page linked below.
More information is in HMDA Heaven
The original version appeared in the July/August 2003 edition of the Oklahoma Bankers Association Compliance Informer.
First published on BankersOnline.com
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