Fall into HMDA Compliance: A Chat with the Bureau
Hi Compliance Friends! Fall starts this Saturday, September 22nd. I hope that everyone is dusting off their favorite pumpkin recipes and preparing for the beauty of the fall foliage. As the world turns in compliance land, I’d like to brief you on the result of a recent regulatory inquiry I submitted to the CFPB, no the B-F-C, okay, the Bureau. I’ll just call them the Bureau.
For those not in the weeds on this topic, the Home Mortgage Disclosure Act (HMDA), which Congress enacted in 1975, requires credit unions to collect, record, report, and disclose information about their mortgage lending activity. Regulation C implements HMDA and sets out specific requirements for the collection, recording, reporting, and disclosure of mortgage lending information.
Generally, Regulation C applies to consumer-purpose, closed-end loans and open-end lines of credit that are secured by a dwelling. Regulation also C applies to business-purpose, closed-end loans and open-end lines of credit that are dwelling-secured and are home purchase loans, home improvement loans, or refinancing.
Pursuant to Regulation C, a credit union reports the interest rate applicable to covered loans or to applications that are approved but not accepted. For Applications that are denied, withdrawn or closed for incompleteness, Regulation C instructs a credit union to report this data point as not applicable or “NA”. But what about a loan offered at 0% interest, like a home equity line of credit with an introductory rate of 0%?
The NAFCU Compliance Team was recently prompted to contact the Bureau to inquire about a discrepancy in HMDA implementation guidance. In short, the Bureau’s guidance does not consider how to report a covered loan with a zero percent interest rate when an account is established or a loan is closed.
Regulation C states the following in:
“(a) Data format and itemization. A [credit union] shall collect data regarding applications for covered loans that it receives, covered loans that it originates, and covered loans that it purchases for each calendar year. A [credit union] shall collect data regarding requests under a preapproval program, as defined in § 1003.2(b)(2), only if the preapproval request is denied, is approved by the financial institution but not accepted by the applicant, or results in the origination of a home purchase loan. The data collected shall include the following items:
[ . . .]
(21) The interest rate applicable to the approved application, or to the covered loan at closing or account opening.”
Pair the above excerpt with guidance from page 124 of thewhich indicates “0” is an invalid entry:
Interest Rate; Action Taken
An invalid Interest Rate was reported. Please review the information below and update your file accordingly. 1) Interest Rate must be a number greater than 0 or NA, and cannot be left blank. 2) If Action Taken equals 3, 4, 5, or 7; then Interest Rate must be NA.”
I have provided an example to demonstrate the discrepancy in practice. ABC Credit Union offers a home equity line of credit with an introductory rate of 0.00% for 6 months at the time of account opening. As previously mentioned, section 1003.4(a)(21) directs credit unions to report the applicable interest rate at the time of closing or account opening, but the 2018 HMDA Filing Instructions Guide contradicts the regulation because it requires the interest rate to be greater than zero. This discrepancy has left ABC Credit Union and others confused about how to correctly report covered loans with a zero percent interest rate on their Loan Application Register.
When we reached out, the Bureau offered informal guidance in response to our inquiry. To begin, the Bureau acknowledged that the agency is aware of this discrepancy in the HMDA guidance. The Bureau also agrees that pursuant to the regulation, zero should be entered as the interest rate data point. However, since the platform will not allow credit unions to input zero for the interest rate, the Bureau has instructed credit unions to input “NA” for the time being. The Bureau plans to resolve this issue in the 2019 upgrade.
As always, please keep us updated on any issues your credit union may be experiencing with HMDA compliance.
Question: What do you use to mend a jack-o-lantern?
Answer: A pumpkin patch.
About the Author
André B. Cotten, NCCO, was named regulatory compliance counsel in November 2016. In this role, Cotten helps credit unions with a variety of compliance issues.