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#2290200 - 10/27/23 04:13 PM Collecting GMI on HELOCs when we don't report them
Baker Offline
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Joined: Nov 2005
Posts: 791
Washington State
We recently had an audit where we got written up for not collecting GMI on a HELOC under ECOAs rules. They said if the purpose of funds is for a purchase or refi and it is secured by their principal dwelling we have to collect GMI for ECOA. In reading ECOA it states if it is "readily apparent" at the time of application.

We don't report HELOCs on the HMDA LAR as we qualify for the small business exemption. Has anyone come across this?

We are struggling with a few aspects.

1. For online applications it wouldn't be "readily apparent" necessarily when they complete the application, they select the HELOC application which does not include GMI as part of it. The question is, if during our follow up we discover they will use funds for purchase or refi do we still need to collect GMI?

2. We are seeing clients taking out HELOCs against their primary house to use as a down payment on a new principal dwelling. If you can only have one principal which house is the principal?

3. Additionally, if a customer requests an increase it is processed as a new HELOC replacing the old one, so technically a refi? If we don't report HELOCs then this still wouldn't be reportable correct? Internal coding of loan purpose would be refi or HELOC?

Lenders want to just start requiring GMI on all HELOCs are report them verses taking the small business exemption. I am not convinced this is the best solution. Thoughts - creates more work on managing data points on HELOCs for reporting; there may be some HELOCs (such as ag purpose) that are not HMDA reportable and wouldn't necessarily be a purchase / refi for Reg B so you could still end up with an exception for ECOA...

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#2290205 - 10/27/23 05:27 PM Re: Collecting GMI on HELOCs when we don't report them Baker
Dan Persfull Offline
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Dan Persfull
Joined: Aug 2002
Posts: 47,478
Bloomington, IN
We don't report HELOCs on the HMDA LAR as we qualify for the small business exemption.

What small business exemption are your referring to? Do you mean you don't originate enough HELOCs to meet the reporting threshold?

1. The regulation specifies "at the time of application". If you don't ask for the intended use of the funds at the time of application then I would not require our LOs to collect it at a later date.

2. We wouldn't allow this because we would consider this a bridge loan and could not reasonably anticipate repeated transactions. They would have to do a closed-end second.

3. If you know at the time of application the new HELOC will meet the definition of a refinance then you should collect the GMI for Reg. B purposes.

Collecting the GMI under the requirements for Reg. B does not mean you have to report the information for HMDA purposes if you are exempt from having to report open-end lines of credit under Reg. C.
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The opinions expressed are mine and they are not to be taken as legal advice.

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#2290206 - 10/27/23 05:33 PM Re: Collecting GMI on HELOCs when we don't report them Baker
mtngrrl Offline
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mtngrrl
Joined: Mar 2011
Posts: 497
Northern California
Being exempt from HMDA reporting under Reg C does not make you exempt from ECOA under Reg B. Furthermore, ECOA is very specific about when you must collect GMI, and when you may not collect GMI. Blanket collecting on all HELOCs will - as you suspected - result in exceptions to ECOA when you collect in error.

Q1: In our shop, if we have knowledge that the funds will be used for purchase or refi, we will collect the information, even if that knowledge comes after the initial application. We do have a separate form available to collect the information for times when it applies to a product that doesn't normally need it. Even our commercial lenders need it occasionally, because a borrower might use business resources to collateralize a loan for a primary residence.

Q2: If the loan is to finance a new principal dwelling, then we collect the information. (Edited to add: Dan said he wouldn't allow this; in our shop, using a HELOC to finance purchase of a new principal dwelling is rare, but it has happened, and we have to be savvy enough to catch it. We don't offer a bridge product.)

Q3: In our shop, if a customer requests an increase, we increase the line; it's not replaced with a new loan, so we wouldn't treat it as a refi. I can't answer this one for you.

I don't claim to be a guru, but we navigate through the non-HMDA world, so I'm providing you with my perspective.
Edited to add: Dan beat me to it, and with different answers, so there you go. He IS a guru.
Last edited by mtngrrl; 10/27/23 05:37 PM.
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#2290208 - 10/27/23 05:55 PM Re: Collecting GMI on HELOCs when we don't report them Baker
Dan Persfull Offline
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Dan Persfull
Joined: Aug 2002
Posts: 47,478
Bloomington, IN
To follow-up on mtngrrl responses.

I totally agree with her opening remarks about being exempt from HMDA does not exempt you from Reg. B collection requirements.

1. If we know at the time of application we will collect the information and we too have a form used to collect the information. However 95% of our HELOCs are closed within a week if the LOC is $100k or less so won't collect the information at a later date..

2. You may want to refer to the definition of open-end credit in 1026.2 and then refer to 1026.43(h) - Evasion - Open-end credit.

3. We too generally just process an increase in the LOC but if the HELOC is being refinanced into a new account then it would be necessary to collect the information.
_________________________
The opinions expressed are mine and they are not to be taken as legal advice.

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