With mortgage refinancing at an all-time high during the pandemic, lenders have been struggling to keep their heads above water. Compliance departments and quality control teams at financial institutions have had similar challenges trying to keep up with Loan Application Register (LAR) requirements under Regulation C of the Home Mortgage Disclosure Act (HMDA).
One part of the compliance process that may ease the burden applies to organizations that are qualified for partial data field reporting. Some have had an easier task than those required to report all 110 data fields. By the end 2020 HMDA LAR submission process, you were probably thinking the worst was over, but then you realized you lost your partial HMDA reporting exemption for 2021 because you originated over 500 closed-end mortgage loans in 2020. Wait, what?
Qualifying for the partial data field exemption
Regulation C 1003.3(d)(1)(ii)(2) provides the partial data field exemption for reporting certain fields on the HMDA LAR to those who qualify based on the loan volume of the two prior calendar years. For each of the two preceding calendar years, you must originate fewer than 500 loans in each year.
A common misconception about the rule was that the financial institution had to originate more than 500 loans in two consecutive years before the exempt status was lost; however, the rule, as written, says that in the two preceding years, you must originate fewer than 500 loans in each year, and if you originate more than 500 in one of those years, you lose exempt status. What does this mean?
If you originated more than 500 closed-end mortgage loans in 2019 or in 2020, in 2021 you are a full data field reporter and should have been collecting and preparing your LAR with all 110 data fields. Hopefully this revelation will come as no shock to you, and you have the proper controls in place for gathering and reporting all data fields. Make sure you look at your volume for 2021 to determine whether it will affect your exemption status for 2022.
Regulators have issued statements regarding HMDA data fields that have been determined to be key data fields. These are the fields of focus for examiners. They have determined 37 key data fields for full HMDA reporters and 21 key data fields for partial HMDA reporters. If you’re wondering how to prioritize your HMDA LAR reviews, a great starting point would be the key data fields. Check your regulator’s website to identify the key data fields if you have not already.
Your financial institution’s HMDA LAR is required to be filed by March 1 each year. Chances are, you spend the better part of January and February performing your final reviews to ensure the LAR is reported with 100% accuracy. The data field requirements can be cumbersome regardless of whether you are a full or a partial HMDA reporter.
What to keep in mind
Below are a few key data fields for full and partial HMDA reporters to keep in mind:
- Loan purpose (6): Determining whether to report this field as refinancing (31) or cash out refinancing (32) is not as simple as it may appear. For your secondary market loans, pricing often varies depending on whether it is a cash out refinance or a straight refinance, prompting you to report code 31 or code 32 as applicable. However, Regulation C states that if a financial institution does not distinguish between a cash-out refinance and a refinance under its own guidelines, and the terms of the refinance are the same without regard to the amount of cash received by the borrower at loan closing or account opening, all refinances are to be reported as refinancing (31).
- Action taken (11): Use of the action taken code 4, withdrawal, can open a can of worms for not only Regulation C but also Regulation B. If lenders are not trained properly, a common practice is to designate an application as withdrawn if the lender never hears back from the applicant. Both Regulations C and B are consistent that a loan can be withdrawn only if the applicant explicitly states they do not want to move forward with the application prior to loan approval. If you have not received the expressed withdrawal of the applicant, you have an approved not accepted application (code 2), a denied application (code 3) or filed closed for incompleteness (code 5).
- Action taken date (12): A practice of some financial institutions is to report the loan funding date as the action taken date as an alternative to the settlement or closing date. The dates do not align in circumstances when a consumer has the right to rescind and the loan is not funded until after three business days. While the practice has been used, it can create issues when it comes to yearend. For example, your loan closed in the last week of December but did not fund until January and, as a result, was not reported in the calendar year in which the loan originated.
- Age of applicant(s) (55 and 56): As noted in the data field, the age of the applicant should be reported. If you have a system that automatically calculates the age based on the application date and your application date is correct, the age reported will be correct. The age reported should not be the age of the individuals at the time of loan origination.
With the 2018 HMDA rule changes for HMDA LAR submissions, financial institutions had to find ways to aggregate all HMDA data for reporting. This forced financial institutions to change the way information was being collected and reported, in addition to the data field changes.
Regulation C 1003.4(f) requires a financial institution to record the data about a covered loan or transaction on an HMDA LAR within 30 calendar days after the end of the calendar quarter in which final action was taken.
This can be a common oversight for your HMDA LAR process because you may wait until yearend, or the information collected may reside on your loan origination system and does not transfer to the HMDA LAR on a quarterly basis. If you found yourself buried in HMDA requirements at year-end, 2022 may be a great year to implement quarterly reviews of your HMDA LAR consistent with when data is to be recorded on the HMDA LAR for accuracy and completeness.
How Wipfli can help
Having made it through 2021, you may be wondering whether your HMDA entries are correct. If you’re feeling overwhelmed, our compliance consultants can provide a full or partial scrub of your HMDA LAR data to ensure information is recorded accurately. At the completion of our review, we provide a list of errors and discrepancies for you to validate and correct, as well as recommendations to assist in minimizing or eliminating exceptions in your HMDA reporting.