The passing of Senate Bill 2155 adds another level of complexity to an already complex Regulation. The Bill exempts institutions that originate fewer than 500 closed‐end loans or open-end lines of credit in each of the two preceding calendar years from reporting certain HMDA data points. This “relief” spurred the question, “What and how do we report?” The OCC and FDIC published statements on these amendments on July 5, 2018. The answer to this burning question is, if you meet the criteria above, you will still report, but you will report certain data points with an exemption code that will be provided by the CFPB later this summer and communicated via an update to the 2018 Filing Guide (FIG). That being said, it is not clear what data points affected institutions will be exempt from reporting. Whether your institution has a large or small LAR, you can count on TCA to provide you with the latest information and sound risk‐based recommendations to help you navigate today’s ever‐changing compliance requirements.Foreword by Michelle Strickland
When I was placed on TCA’s HMDA Team, I thought to myself: “It’s HMDA, how difficult can this be?” Well, folks, that question has been asked and answered. My response to that question is, “New HMDA is hard – and it gives me a headache.”
Remember when new HMDA came out? The big talking point was, “It is based on a dwelling secured standard.” We may have been lured into thinking that loan purpose was no longer relevant … but we were wrong.
While all loans have a dwelling secured standard, loan purpose still plays a factor in reviewing whether our loan is HMDA reportable. Not all dwelling secured loans to a natural person are consumer purpose, and not all loans on investment properties are business purpose. One thing that is a standard – all loans to non‐natural persons (an LLC or Company) are business purpose. Once we determine that a loan is dwelling secured, we must determine whether the loan is a consumer purpose loan or a business purpose loan.
- A consumer purpose, dwelling secured loan is HMDA reportable regardless of purpose. We will select the loan purpose as purchase, refinance/cash‐out refinance, home improvement, or other.
- A business purpose, dwelling secured loan is only HMDA reportable if the purpose of the loan is to purchase a dwelling, refinance a dwelling or improve a dwelling or the real property on which the dwelling is located. “Other” is not an option on a business purpose loan.
Let’s look at a few examples:
Scenario 1: John Smith owns his primary residence free and clear. The loan is to cash out $100,000 to buy a printing business.
HMDA Status: Although this loan is to an individual and the primary residence secures the loan, this loan is a business purpose loan. Business purpose loans are only reported if the purpose is to purchase, refinance or improve a dwelling. This loan would not be HMDA reportable.
Scenario 2: John Smith is refinancing his primary residence. He is refinancing a mortgage of $150,000 and taking $100,000 cash out to buy a printing business.
HMDA Status: In this instance, we have a mixed purpose. $150,000 is consumer purpose (refinance of primary residence) and $100,000 is business purpose. This loan is HMDA reportable as either a refinance/cash‐out refinance, depending on whether the institution distinguishes between a cash‐out refinancing and a refinancing in either its guidelines or its investor’s guidelines.
Scenario 3: John Smith owns a residential duplex, rental property free and clear. Mr. Smith is cashing out $75,000 to take a vacation to Europe and purchase a new personal vehicle.
HMDA Status: John Smith may be one of our commercial customers, and the property is an investment property, but this is a consumer purpose loan. As such, this loan is HMDA reportable as a consumer purpose, and Loan purpose is “Other.”
Scenario 4: Smith LLC owns a rental dwelling free and clear. Smith LLC is cashing out $75,000 so that John Smith can take a vacation to Europe and purchase a new personal vehicle.
HMDA Status: Smith LLC is the borrower, and thus this is a business purpose loan. The loan would not be HMDA reportable because the loan is not to purchase, refinance or improve a dwelling.
Is the headache starting yet? Don’t worry, you are not alone.
What can add to the confusion is when our loan officers don’t ask the question, “What is the money being used for?” Or perhaps the question was asked,and the customer’s response was “for future investments.” Is itHMDA reportable? The short answer is, we don’t know: there isnot enough information available to determine whether the loan is HMDA reportable. Mr. Smith is cashing out of a free and clearinvestment property (dwelling) for a future investment. If that future investment is the purchase of a dwelling, then it is HMDA reportable. If the investment is to buy that printing business, then it is not HMDA reportable. Make sure there is sufficient information in the files to determine whether the loan is HMDA reportable.
We also caution that you must read and evaluate the loan write-ups/presentations on commercial loans carefully, as it is possible that a loan coming through your commercial lending department could have a consumer purpose. (See Scenario 3 above.)