The Home Mortgage Disclosure Act is dramatically changing next year. This will impact the way you determine if your institution is subject to the reporting requirements, which loans are reported, as well as the data that is collected.
Here are some of the challenges we will tackle while complying with the updates to the HMDA rules.
Is your financial institution in or out? One change is the elimination of some banks from the reporting requirements. If the bank originates fewer than 25 closed-end loans or 500 open- end lines of credit secured by a dwelling in either of the previous two calendar years, the bank will not be subject to reporting.
These exemptions are exclusive and could result in a bank reporting only one or the other. If a bank meets both of these exemptions it will not be subject to HMDA reporting for that year. Banks should ensure they are tracking these loan types if their loan volume is near either threshold to ensure data collection and reporting is completed when required.
New Loan Categories
Another change will be the loans subject to reporting. We currently report loans for the purchase, home improvement, or refinance of a dwelling secured loan. However starting in 2018 dwelling secured loans will fall into three categories: Consumer, Agricultural, and Business or Commercial.
Consumer purpose loans are defined as those loans primarily for personal, family, or household purposes that are secured by a dwelling. All loans within this category will need to be reported regardless of the loan purpose. This change now includes loans previously exempt by purpose, such as a debt consolidation loan secured by a dwelling. However, loans for temporary financing do remain exempt from the reporting requirements. In order to meet the definition of “temporary finance” the loan must be originated with the intent to be replaced by permanent financing at a later date.
A loan that is made primarily for a business or commercial purpose will be a covered loan if the transaction is a home improvement, home purchase or a refinance. The business and commercial loans take into consideration the purpose, unlike the consumer and agricultural loans for transactional coverage.
An example of a reportable loan would be credit extended for investment purpose to purchase or improve a multi-unit apartment complex or rental home. A loan for the purpose of purchasing a warehouse would not be reportable.
Agricultural loans are exempt from the reporting requirements in 2018. Loans that are for any purpose such as; purchase, improvement or refinance of a dwelling on land used primarily for agricultural purpose are excluded from HMDA regardless of the purpose of the loan. The number of acreage does not matter. The bank may use a reasonable standard to determine the primary use of the real property. A loan included in this category would be a loan to purchase a dwelling that is located on land that the purchaser currently is or will be primarily using for farming.
As we all incorporate policies and procedures in response to the changes, remember that we have made it through regulatory change together before and can do it again!
Contact your Eide Bailly Professional for assistance with the Home Mortgage Disclosure Act or other HMDA rules.
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