HMDA submission 2026: Are you getting it right?
- Accurate HMDA LAR reporting remains a challenge. Despite few regulatory changes since 2018, many financial institutions continue to struggle with accurately reporting Home Mortgage Disclosure Act (HMDA) Loan Application Register (LAR) data, making ongoing education and process reviews essential.
- Loan purpose must follow the “waterfall approach.” For multi-purpose loans, Regulation C requires institutions to report the loan purpose using a hierarchy: home purchase trumps refinance, which takes precedence over home improvement, which in turn takes precedence over other purposes. The majority use of funds does not determine the purpose code.
- Cash-out refinance reporting is strictly defined. A transaction can only be reported as a cash-out refinance if it meets Regulation C’s definition and is treated as such by the institution’s or investor’s guidelines—not simply because the borrower receives cash back at closing.
At this time of year, the compliance focus for many financial institutions turns to the Home Mortgage Disclosure Act (HMDA) loan application register (LAR) as the HMDA LAR must be submitted to the CFPB by March 1, 2026. While the current HMDA rule (Regulation C) has remained relatively unchanged since the last major revision in 2018, many financial institutions continue to struggle with accurately reporting HMDA LAR Data.
Below, take note of a few fields that are regularly reported incorrectly.
Loan purpose: multi-purpose
For loan purposes, a transaction can be reported as any of the following:
- Home purchase (code 1)
- Refinance (code 31)
- Cash-out refinance (code 32)
- Home improvement (code 2)
- Other (code 4)
While, on the surface, this may seem straightforward, not all transactions fit neatly into a box. For example, let’s assume a borrower is purchasing a home and also receiving a majority of the proceeds in cash to make a large addition to the home.
Should this be reported on the HMDA LAR as a home purchase loan or a home improvement loan? Under Regulation C, it is irrelevant how a majority of the funds are used when determining the purpose of the loan. As a result, the transaction should not be reported on the LAR as home improvement, simply because a majority of the funds were for the home addition.
For the example provided, you would report it as a home purchase loan (code 1) on the HMDA LAR as some of the proceeds were used for home purchase.
Loan purpose: refinances
The refinance codes are split into two different categories: Refinance (code 31) and Cash-out refinance (code 32). While on the surface, it appears this should be simple, the commentary provides specific guidance on what is considered a refinance and what is considered a cash-out refinance under Regulation C.
- A refinance is “a closed-end mortgage loan or an open-end line of credit in which a new, dwelling secured debt obligation satisfies and replaces an existing, dwelling secured debt obligation by the same borrower” [§1003.2(p)]. When determining if a transaction is a refinance under HMDA, review the multi-purpose guidance detailed above.
Once it is determined that none of the proceeds are used for a home purchase purpose, then confirm that the loan is paying off an existing loan secured by a dwelling and that the new obligation is to at least one of the same borrowers.
- A cash-out refinance needs to meet the definition of a refinance noted in the above bullet point and be considered a cash-out refinance by the financial institution “in processing the application or setting terms (such as the interest rate or origination charges) under its guidelines or an investor’s guidelines” [§1003.4(3)- Comment 2].
As a result of how Regulation C defines a refinance and cash-out refinance, a financial institution cannot report a transaction as a cash-out refinance simply because the borrower received cash back at closing. Below are a few examples in which a borrower received cash back, but the transaction would not be considered a cash-out refinance under Regulation C:
- An investor may consider an equity loan to be a cash-out if the borrower is receiving allthe proceeds, even if a dwelling secured loan is not satisfied. However, for Regulation C purposes, if a dwelling-secured debt obligation is not satisfied, the transaction cannot be considered a Refinance or a cash-out refinance. In short, a secondary-market investor pricing a transaction as a cash-out does not automatically mean it should be reported as a cash-out refinance under Regulation C.
- For portfolio loans, many financial institutions’ portfolio products have a set rate for a specific term, and whether a transaction is a cash-out or a non-cash-out refinance is not a factor in setting the rate or terms. In that case, the financial institution did not consider the transaction to be a cash-out refinance when “processing the application or setting the terms of the loan” [§1003.4(3)- Comment 2]. As a result, the transaction cannot be reported on the HMDA LAR as a cash-out refinance.
Preapprovals
The preapproval field can appear straightforward as financial institutions are to report Preapproval requested (code 1) or Preapproval not requested (code 2); however, completion of this field is subject to the definition of a preapproval program under Regulation C. Financial Institutions should only complete this field as Preapproval requested (code 1) if the following items are all true:
- The applicant requested a preapproval under a preapproval program [§1003.4(a)(4)] and
- The financial institution has a preapproval program that meets the following criteria [§1003.2(b)(2)]:
- The financial institution has completed a comprehensive analysis of the creditworthiness of the application
- The financial institution issued a written comment that:
- Is valid for a designated period of time to extend a home purchase loan
- States that the approval is up to a specific loan amount
- Is not subject to any conditions other than:
- Conditions that require the identification of a suitable property
- Conditions that require that no material change has occurred in the applicant’s financial condition or creditworthiness prior to closing; and
- Limited conditions that are not related to the financial condition or creditworthiness of the applicant that the financial institution ordinarily attaches to a traditional home mortgage application.
As detailed above, Regulation C has specific requirements for financial institutions to establish a preapproval program for HMDA reporting purposes. As a result, if the financial institution does not have a preapproval program as defined above, even if a letter is issued stating that the borrower is preliminarily approved, the preapproval field should be completed as 'Preapproval not requested' (code 2).
Introductory Rate Period HELOCs
For the field “introductory rate period,” institutions are instructed to report the “number of months, or proposed number of months in the case of an application, until the first date the interest rate may change after closing or account opening” [§1003.4(26)]. Generally, this is fairly clear for adjustable-rate mortgages; however, this can cause confusion for financial institutions that are required to report home equity lines of credit (HELOCs) on the HMDA LAR, specifically those transactions with a variable rate feature.
Many financial institutions offer variable-rate HELOCs with no teaser rate. The rate is set based upon an index, plus (or minus) a margin, and then adjusted when the index changes. A Guide to HMDA Reporting Getting It Right provides some clarification on how to complete the Introductory Rate Period field. The guide instructs financial institutions to report N/A in this field for “Covered loan[s] or application[s] with a fixed rate or purchased covered loan[s] with a fixed rate”. According to the guide, this field should only be completed as 'N/A' for fixed-rate transactions.
The commentary provides additional guidance on how to complete the Introductory Rate Period fields for HELOCs with a floating rate. §1003.4(a)(26) — Comment 5 states that if an introductory rate period is measured in a unit of time other than months, financial institutions should report the equivalent number of whole months and disregard any remainder. The same commentary further instructs financial institutions to report one month when the introductory rate period is less than one whole month.
As a result, a HELOC with a variable rate, in which the rate can change monthly starting in the first month after origination, should have the Introductory Rate Period reported on the HMDA LAR as “1”. Additionally, for a HELOC with a variable rate that changes daily starting on the first day after origination, the Introductory Rate Period would also be reported on the HMDA LAR as “1”.
How Wipfli can help
Do you think your financial institution could benefit from an audit of your HMDA data? Wipfli’s team is here to help. Our team includes many former bank professionals with extensive backgrounds in HMDA reporting. Contact us to learn more about how we can help you manage your HMDA risk and aid you in ensuring the accuracy of your HMDA LAR.
