www.hudclips.org Click Here or type Alt-k for Related Mortgagee Letter Click Here or type Alt-r for another Related Mortgagee Letter U. S. Department of Housing and Urban Development Washington, D.C. 20410-8000 January 5, 1995 MORTGAGEE LETTER 95-03 TO: ALL NON-SUPERVISED, FHA-APPROVED MORTGAGEES AND LOAN CORRESPONDENTS AND OTHER NON-DEPOSITORY LENDING INSTITUTIONS SUBJECT TO HMDA REPORTING SUBJECT: Home Mortgage Disclosure Act (HMDA) Update The purpose of this letter is to clarify the Home Mortgage Disclosure Act (HMDA) reporting requirements and to remind recently approved HUD mortgagees of their reporting responsibilities. Please be advised that the deadline is March 1, 1995 for calendar year 1994 reports, although we will accept your report as early as January 2nd. Attached are some materials which may be helpful to you: (1) flow chart of coverage criteria for nondepository lending institutions, (2) Broker/Loan Correspondent scenarios and examples of their reporting responsibilities, (3) tips on reporting and (4) a copy of the latest HMDA Guide. Each time you send your HMDA report to the Department -- either your initial submission or corrections -- you should receive an error report reflecting your status after your latest submission is processed. If you do not receive this feedback within a reasonable amount of time, you should view this as reason to be concerned that your report may not have reached us. WHO MUST REPORT Please refer to Attachment 1, Coverage Criteria Flow Chart and Attachment 2, Brokers and Loan Correspondents (including example situations). If you are a Broker or Loan Correspondent, it is important to note that only those applications for which your company made the credit decision must be considered when interpreting the coverage criteria. If you did not make the credit decision on any loans at all, except for denials that you did not send forward to your investor/sponsor, then you did not meet the 100-loan "origination" threshold for HMDA. However, you are required to report only those withdrawals/denials that were FHA applications to HUD. Clarification for 1994: Denials do not count towards the 100-loan origination threshold. -2- Some lenders thought they did not have to report in 1993 because they had less than $10 million in assets. Effective January 1993, even if your assets are less than $10 million, you are required to report if you made the credit decision on 100 or more originations of home purchase loans (including refinancings of home purchase loans), assuming you meet the other coverage criteria. Further, if your institution meets all the conditions in the coverage criteria, it must report all mortgage activity -- including FHA, VA, conventional and FmHA -- not just FHA activity. If you are exempt from HMDA, Regulation C, then you must report to HUD any FHA activity on which you made the credit decision. If you are a Loan Correspondent that does not make loan decisions, your sponsor bears the reporting responsibility for FHA activity. Please note that the same is true for FHA Title I lenders, contrary to instructions in Mortgagee Letter 94-22; i.e., for HMDA purposes, the sponsor bears the reporting responsibility. If you are required to report to a regulator other than HUD, please do not report to HUD as well; this results in duplicate reporting. Finally, if you find that your report- ing status for 1994 is different from the way you reported for the 1993 cycle, please call the HMDA hotline (202-755-7530) right away so that we may change your reporting panel classification for 1994. For example, if you reported only FHA activity for 1993 but are required to report all activity for 1994, or vice versa, we need to change your status. If you reported in 1993 and determine that you are exempt for 1994, we need to know that as well. WHAT TO REPORT: Report all applications for home-purchase and home-improvement loans (including refinancings of both) for which action was taken -- originated, denied, withdrawn, etc. -- during the calendar year covered by the current register and loans that you purchased during that period. Data are to be collected for both 1-to-4 family and multifamily (5-or-more family) properties. Include applications that were received in the previous calendar year but were acted upon during the calendar year covered by the current register. Please do not report applications that were still pending at the end of the calendar year. Such cases increase your error count and subsequently have to be deleted, by you, from our HMDA database. FHA-approved lenders which have no activity to report should submit a negative report in the form of a completed and signed Transmittal Sheet along with the notation "Negative Report" either on the Transmittal itself or as an attached note. CHANGE IN 1995 PROCESSING SCHEDULE: The HMDA subcommittee has made a change in the 1995 processing schedule for 1994 data. To move up the deadline for delivering the data to the central depositories throughout the country, the two-week period for institutions to review and change the preliminary disclosure statements has been eliminated. However, your institution will -3- have the opportunity of reviewing its data via the Institution Register Summary (IRS) which we will begin generating to accompany each error report. Our final delivery of all data to the Federal Reserve Board is scheduled for May 24th, therefore all corrections would have to be received at HUD at least one week prior to that date to allow time for processing. Any subsequent corrections would not be reflected in your disclosure report nor in any of the products released to the public. ADMINISTRATIVE SANCTIONS: Due to the importance of accurate and timely submission of HMDA data, a violation of HMDA is subject to administrative sanctions, including the imposition of civil money penalties, where applicable. An unreported, inaccurate or late HMDA data submission constitutes such a violation. The Mortgagee Review Board has imposed such penalties for noncompliance. 1994 HMDA SOFTWARE: By now, you should have received the 1994 HMDA Software which was mailed to our HUD reporters in January. If you do not have the software and would like to obtain it, you can request it by calling the hotline. Please note that earlier versions of the soft- ware must not be used for 1994 data due to revised geographic boundaries (see below). NEW METROPOLITAN STATISTICAL AREA (MSA) DESIGNATIONS: Beginning January 1, 1994, HMDA reporters are required to use the current metropolitan statistical area (MSA) designations as revised by the Office of Management and Budget on June 30, 1993. The 1994 HMDA software provided by the Department contains these new designations and will edit your records accordingly. If you use some other automated system to compile your data, please ensure that you are using the proper geographic codes. It is the responsibility of the lending institution to obtain all materials needed to determine the MSA, state, and county codes and the census tract numbers. The "Guide" lists the sources of geographic information and where to obtain them. Another alternative is to procure the services of a private vendor which can geocode your data or provide you with a system which conforms to the specific reporting requirements of HMDA. AUTOMATION All institutions are strongly encouraged to automate the data collection and reporting process. If institutions report more than 100 application and loan entries, they are expected to submit the data in machine-readable form. To facilitate automated reporting, the Department provides PC software, free of charge, for use by institutions that have not acquired or developed their own system. -4- LOAN AMOUNT AND INCOME Please take care to report both Loan Amount and Annual Income rounded to the nearest thousand, as instructed. For example, a loan amount of $98,500 should be reported as "00099", not "98500". The latter translates to $98,500,000. Similarly, an Annual Income of $59,850 should be reported as "0060". PREQUALIFICATION PROGRAMS The Federal Reserve Board recently determined that lenders are not to include data about prequalifications in HMDA-LARs for CY 1994 or CY 1995. If data about prequalifications are or have been collected under your data collection system, you are asked to remove these entries before submission, but only if you can easily do so. AMENDMENTS TO REGULATION C The Federal Reserve Board is in the process of publishing amendments to Regulation C which will soon be available. Compliance is mandatory for the collection of data that begins January 1, 1996, to be submitted to supervisory agencies no later than March 1, 1997. Institutions may comply with the amendments at their option beginning January 1, 1995. Sincerely yours, Nicolas P. Retsinas Assistant Secretary for Housing- Federal Housing Commissioner Attachments *** CHANGE OF ADDRESS/PHONE NO *** The HMDA Processing Group recently moved to new quarters and the new Hot Line number is 202-755-7530. Please note the two addresses listed below; i.e., when using one of the express (person-to-person) deliveries, the courier address is to be used and when using regular postal service, the mailing address is required. This is very important to avoid loss/misrouting of your report. Courier Address: Department of Housing & Urban Development Housing - Information Systems Div., HFEI ATTN: HMDA Processing 470 L'Enfant Plaza East Building, Suite 3119 Washington, DC 20024 Mailing Address: Department of Housing & Urban Development Housing - Information Systems Div., HFEI ATTN: HMDA Processing 451 7th Street, SW Room B-133 Washington, DC 20410-8000 ATTACHMENT 1 ATTACHMENT 1 Click Here to Download this Attachment Attachment 2 BROKERS AND LOAN CORRESPONDENTS Rules for loan applications received through loan brokers or loan correspondents require that the data must be reported by the entity that makes the credit decision. The following situations do not address the overall HMDA coverage criteria, rather they assume that the entity responsible for reporting these loans meets the coverage criteria. A.FHA Applications: The FHA Title I and Title II "Sponsor/Loan Correspondent" relationship is somewhat different from that of the general "Lender/Broker" situation in that the FHA-approved loan correspondent originates, processes, and closes FHA loans in its own name. The sponsor has an agreement to acquire loans from the loan correspondent. Under that agreement, the loan correspondent delivers loan applications to the sponsor; the sponsor evaluates the application, makes a credit decision, and informs the loan correspondent whether it is willing to acquire the loan. If the sponsor approves the application, the loan closes in the name of the loan correspondent and is then sold to the sponsor. In this situation, the sponsor reports as originations those loans it purchases and as denials those loans it decides not to approve. The loan correspondent does not report any of these loans or applications. If, however, the loan correspondent denies a loan application without review by the sponsor, the correspondent reports the application as a denial. B.Non-FHA Applications: Scenario 1: Lender has an agreement to acquire loans from a broker. Under that agreement, the broker delivers loan applications to the lender; the lender evaluates the application, makes a credit decision, and informs the broker whether it is willing to acquire the loan. If the lender approves the application, the loan closes in the name of the lender, or closes in the name of the broker and is then acquired by the lender. In this situation, the lender reports as originations those loans it acquires (whether or not they closed in its name), and as denials those applications it decides not to approve. The broker does not report any of these loans or applications. (If the broker denies a loan application before it is submitted to the lender, the broker reports the application as a denial, assuming the broker is required to report under HMDA -- see the attached examples.) Attachment 2 (Cont'd.) -2- Scenario 2: Lender agrees with the broker to acquire loans that meet the lender's underwriting guidelines. Lender does not review loan applications prior to closing; broker makes the underwriting decision. Broker reports the originations, denials, withdrawals. Lender reports as purchases those loans it decides to acquire. Scenario 3: Lender agrees with the broker to purchase loans that have government or private insurance. Lender does not review applications prior to closing. Broker reports the originations, denials, withdrawals. Lender reports as purchases those loans it decides to acquire. Attachment 2 (cont'd.) -3- Examples of Reporting Requirements for Brokers/Loan Correspondents For ease of description, the term "brokered" refers to applications for which you did not make the credit decision; rather, your investor(s) or sponsor made that decision. The term "underwrote" refers to applications for which you did make the credit decision. "Denied" refers to those applications that you denied without sending forward to your Investor/Sponsor for a credit decision. Examples: ACTIVITY REPORTING REQUIREMENTS #1 Brokered 300 loans Met the 100-loan origination threshold and Underwrote 101 loans is required to report 106 loans -- the 101 Denied* 5 loans on which you made the credit decision and the 5 denials that you did not send forth to your investor/sponsor. The 300 brokered loans will be reported by your investor/sponsor. #2 Brokered 300 loans Did not meet the 100-loan origination threshold, thus Underwrote 98 loans is exempt from HMDA, Regulation C. However, any Denied* 30 loans of the 98 originations and 30 denials that were FHA must be reported to HUD in the HMDA format. #3 Brokered 400 loans Did not do any originations at all, thus is exempt Underwrote 0 loans from HMDA, Regulation C. However, any of the 101 Denied* 101 loans denials that were FHA must be reported to HUD in the HMDA format. * Please note that in addition to these denials, other applications for which action was taken without sending forth to your investor/sponsor are treated the same -- withdrawals, for example. Attachment 3 TIPS ON REPORTING YOUR HMDA DATA 1. Respondent IDs and Mailing Labels We identify your institution by your Respondent ID, which is your 10-digit FHA ID (Tax-ID for those which are not FHA approved). It is very important that all IDs are correct on both the transmittal and loan application registers. If the respondent ID is incorrect, your company risks not getting credit for reporting. Please label the exterior of all diskettes and tapes with the following information: Respondent ID Name of Institution Address Contact person and telephone number Total LARs Diskette Number (1 of 1, 1 of 2, etc.) 2. Keep updated registers For most institutions, HMDA is not a report that can be pulled together in three weeks, but rather a year-long process. Those who wait until December 31 are asking for trouble -- frequently having to use overtime, under stress and prone to making mistakes. We would encourage you to update your HMDA-LAR register on an ongoing basis. If your institution is selected for review by the Monitoring Division of the Office of Lender Activities and Land Sales Registration, one of their tasks will be to review your HMDA register; this can occur at any time during the course of the year. 3. Verify magnetic media It is a good idea, and to your benefit, to copy your diskette(s)/tape(s) before sending to us. We have had damaged diskettes, corrupted files, etc. requiring replacements and yet some institutions had no backup to copy from. If you are sending tapes, please confirm that the tape can be successfully read before sending to us. Additionally, if you are using an IBM system, please turn off the "data compression", as this causes us a problem. Finally, please package all tapes and diskettes carefully as some of the "hardware" errors are caused by tapes/diskettes damaged in transit. Attachment 3 (Cont'd.) -2- 4. MSA/State/County/Census Tracts The Department can provide you with a diskette file or hard copy listing of valid MSA/STATE/COUNTY/CENSUS TRACT combinations. Please note, however, that this information is intended for use only as a reference tool of valid values for those items. It is not to be used to choose tracts that simply pass edits. As stated earlier, you need to acquire the necessary tools to properly geocode your data. 5. Application definition There has been some confusion regarding what constitutes an application. Please note reference materials listed below. In particular, the "Commentary" on Regulation B should be helpful. 6. Observe deadlines Each time you send in data, the Department will mail out an error report. The cover letter asks that you observe the ten day turnaround time for corrections. 7. Reference Materials a.A Guide to HMDA Reporting, Getting it Right! This document should be studied in its entirety. Describes the reporting process, sources of geocoding information, etc. b.Regulation C, Home Mortgage Disclosure (12 CFR Part 203), issued by the Board of Governors of the Federal Reserve System. c.Official Staff Commentary on Regulation B, Equal Credit Opportunity, issued by the Board of Governors of the Federal Reserve System. See SECTION 202.2(f) Application; paragraph 3, "When an inquiry becomes an application" and paragraph 4, "Examples of inquiries that are not applications." Attachment 4 Click Here to Download