Hello everyone,

Hopefully you are all staying safe.

I am sure that this question may have been answered already, so forgive me for asking again. A quick search did not yield any results.

For apps that are not taken in person, say online, and the borrower elects to choose "info not provided by applicant in mail", for the corresponding visual observation field, what should you report? Code 3 (NA) or Code 2 (Not Collected Based on Visual Obs.). In a review of the 2020 FIG, the edit check does require a value, so this field cannot be left blank. Unfortunately, the edits do not specify what you must report in this case.

Thank you!

Great question, and this is something that has been debated here quite a bit over the last few years. Fortunately, the CFPB addressed this question in March of 2020 in their HMDA FAQs with the following:

If a natural person applicant submits a mail, internet, or telephone application under Regulation C but does not provide race, ethnicity, or sex information, what should the financial institution report regarding whether this information was collected on the basis of visual observation or surname?

Regulation C, 12 CFR § 1003.4(a)(10)(i), requires that a financial institution collect the ethnicity, race, and sex of a natural person applicant or borrower, and collect whether this information was collected on the basis of visual observation or surname. Where a natural person applicant does not provide ethnicity, race, or sex information for a mail, internet, or telephone application, and a financial institution does not have an opportunity to collect this information during an in person meeting during the application process, the financial institution may report either that the information was not collected on the basis of visual observation or surname (code 2) or that the requirement to report this data field is not applicable (code 3).

For consistency of data across all HMDA reporting financial institutions, the Bureau suggests, but does not require, that financial institutions use code 2.

Appendix B to Part 1003 provides instructions and a sample form for data collection on ethnicity, race, and sex.

The key is to be consistent.
Code 2 makes no logical sense and is hard to train people to use for that very reason.
So we've opted to use Code 3/not applicable.
Since I switched to that I've seen far fewer mistakes.