Wednesday, April 5, 2017

Brokers: Do I Report HMDA Data?

2/28/23 Update

Significant threshold changes - much lower thresholds may impact non-delegated correspondents. 

4/6/2017 Update

As we approach the 2018 HMDA reporting window, with the wider rubric for filing requirement, we are getting many calls from brokers about preparing to become reporters. We want to reiterate that a broker business that categorizes its customers as PRE-QUALIFICATIONS until the loan is referred to an investor DOES NOT HAVE TO REPORT HMDA DATA.

1.) HMDA is an extension of ECOA, so if you are not making credit decisions, you do not report. Only the ultimate decision maker reports.
2.) Technically, brokers CANNOT make decisions because they do not have the funds available to unilaterally fund applications. 
3.) Many states sanction brokers who represent that they are lenders

Original Post From 12/5/13

As compliance season descends on the mortgage business again, we start to hear growing numbers of concerns over how a firm will comply with a nuance of a rule.  Often the concern originates with a rumor or other misinformation from a networking group or an e-mail from a service provider looking for business. With respect to brokers, you should generally avoid reporting HMDA denial data for the simple reason that BROKERS DO NOT MAKE CREDIT DECISIONS.

Among the risks you expose yourself to:

  • State Regulator sanctions for acting as a lender without a lender license.
  • Scrutiny from a Federal regulator regarding why ALL your loans are denied?
  • Inconsistent reporting/reporting errors on other reports

NMLS Call Report - Requests Denied Applications

The idea that brokers should report HMDA data may come from the fact that the NMLS Call Report has a line item for "Denied."  However, this is not the intention of this element of call reporting:  this is to identify the "net loan volume."  (Pipeline + New Loans - Closed, Withdrawn and Denied Loans = Ending Pipeline) The denied loans, in this case, should be loans that you will never close because ALL of your wholesalers or investors have denied them.

Brokers should only put the loans which the INVESTOR has denied in this column.

NMLS Call Report - Don't include pre-qualifications you have denied.

Is It Really a Loan Until the Lender Has It?

If you are a straight broker, and not a mini-correspondent, you should define your application policy to ensure that loans which will not be sent to an investor, for whatever reason, are coded as pre-qualifications. Pre-Qualifications do not trigger HMDA Reporting.  This does not mean that you will not send GFE or other property or application related disclosures if you are actively processing the file.

According to the staff commentary in the HMDA Small Entity Compliance Guide: "2. Pre-Qualification. A pre-qualification request is a request by a prospective loan applicant (other than a request for preapproval) for a preliminary determination on whether the prospective applicant would likely qualify for credit under an institution’s standards, or for a determination on the amount of credit for which the prospective applicant would likely qualify. Some institutions evaluate pre-qualification requests through a procedure that is separate from the institution’s normal loan application process; others use the same process. In either case, Regulation C does not require an institution to report pre-qualification requests on the HMDA/LAR, even though these requests may constitute applications under Regulation B for purposes of adverse action notices." Commentary Appendix D, Supplement I

HMDA Small Entity Guide

ECOA, Fair Lending and Loan Disposition - Not to be Confused with HMDA Reporting

Due to the overlay of so many regulations, it can be easy to confuse what rule requires what actions.  You are still required to adhere to Fair Lending and Equal Credit Opportunity Act (Regulation B) guidelines with respect to providing an applicant with a disposition within 30 days.  To avoid monitoring challenges and potential violations on small pipelines use your Incomplete Application Notice on all loans.  If the customer fails to provide all of the information, you can withdraw the loan from your pipeline without any further action.  You MAY optionally send a letter noting the withdrawal.   

Avoid Being the Creditor

Under the current regulatory scheme, lenders bear the burden for credit and disclosure risks.  A correctly structured broker pre-qualification process allows for the unique opportunity to avoid many of the lender's pitfalls with respect to creditor actions.