[Anonymous]

I thought I had this all squared away in my head. Now I am having second thoughts. Let’s say we require the 6 things from RESPA/TILA to have an application:
a. Borrower’s Name;
b. Monthly Income;
c. Social Security Number (to obtain a credit report);
d. Property Address;
e. Property Value Estimate;
f. Loan Amount;
If any of these 6 items is not provided, then we do not have a completed application. If that is the case, do I not report this at all on our HMDA LAR, or do I report it as “File Closed for Incompleteness”? Or do I only use the “File Closed for Incompleteness” option when I have all 6 of these items (thus an “application”), but I am unable to get all the supporting/verification documents I need.

[MCCompliance]

Generally we treat these as pre-qualifications and do not report them on HMDA. We do not have a formal pre-approval program. We have in our HMDA procedures that the 6 items from RESPA make up our application for HMDA purposes.

[kowsley]

I think this question addresses two separate issues:

1. The six items required under TILA/RESPA for a completed application define when the Loan Estimate is triggered for delivery purposes. Once these six items are received by the bank, the Loan Estimate must be delivered within 3 business days (using General rule) to the customer. These six items however do not define when you have an application under HMDA.

2. The HMDA definition for an application is defined as follows:

Application.— (1) In general. Application means an oral or written request for a home purchase loan, a home improvement loan, or a refinancing that is made in accordance with procedures used by a financial institution for the type of credit requested.

How do you define a definition for HMDA purposes within your financial institution? Is it the same as MCCompliance where it is detailed in your policy/procedure as the 6 items for RESPA? Do you have a defined preapproval program or not?

If you do not have a defined preapproval program and utilize the 6 items as your “application” as defined under RESPA, then you could report it as “file closed for incompleteness”. You could consider these loans as “pre-qualifications” and not report them on the HMDA LAR as long as you have defined your application requirements in your HMDA policy or procedure.

[Anonymous]

Thank you both for you answers. I am still a little confused.

We are a predominately a commercial bank. We do not have a preapproval program. This question actually came up because we were trying to “define” the items needed for an application (for HMDA) for our commercial loans, as we do a lot of 1-4 investment lending and multi-family (more so than a consumer owner-occupied 1-4). We use the 6 RESPA items for our consumer mortgages.

Kelly stated that if we used the 6 RESPA items as our consumer product HMDA application requirement, and we didn’t get one or more of the six items, we would report it on our LAR as “file closed for incompleteness.”

We generally would not have reported that at all (feeling we didn’t really have a true application, but rather an “inquiry”). Let’s say for example, one of the items was loan amount or monthly income or applicant’s name/SSN (two people vs. one?)? It would be hard to complete the LAR without that information. We have generally only used the “file closed for incompleteness” if we were unable to get additional items we needed, say for verification. A pre-qualification really doesn’t seem to come into play here.

[jholzknecht]

This is a great discussion. This topic appears on our list of possible webinar topics. We may need to move it up higher on the list.

The concept of “application” for purposes of the Regulation Z integrated disclosures has already been well explained by Kelly. That concept is very different that the concept of “application” for purposes of Regulations B and C.

For purposes of HMDA/Regulation C the term “application” generally has the same meaning as in ECOA/Regulation B. One difference, a prequalification is generally considered as an application under Regulation B, but not under Regulation C.

Regulation B defines an term “application” to mean an oral or written request for an extension of credit that is made in accordance with procedures used by a creditor for the type of credit requested. An application is deemed to be “complete” once you have received all the information that you regularly obtain and consider in evaluating applications for the amount and type of credit requested (including, but not limited to, credit reports, any additional information requested from the applicant, and any approvals or reports by governmental agencies or other persons that are necessary to guarantee, insure, or provide security for the credit or collateral).

Regulation B Comment 2(f) – 1. states, “A creditor has the latitude under the regulation to establish its own application process and to decide the type and amount of information it will require from credit applicants.”

The term “procedures” refers to the actual practices followed by a creditor for making credit decisions as well as its stated application procedures. For example, if a creditor’s stated policy is to require all applications to be in writing on the creditor’s application form, but the creditor also makes credit decisions based on oral requests, the creditor’s procedures are to accept both oral and written applications.

What it takes to have an application varies from one loan type to another. For example, you need an appraisal and title work for a mortgage loan, but that information is not needed for an unsecured loan.

Financial institutions are required to collect data regarding applications for, and originations and purchases of, home purchase loans, home improvement loans, and refinancings for each calendar year. Remember you define what constitutes an application.

For purposes of HMDA your application could be coded as:
• Code 1–Loan originated
• Code 2–Application approved but not accepted
• Code 3–Application denied
• Code 4–Application withdrawn
• Code 5–File closed for incompleteness
• Code 6–Loan purchased by your institution
• Code 7–Preapproval request denied
• Code 8–Preapproval request approved but not accepted (optional reporting)

Codes 1 through 4 are pretty straightforward. Use Code 5 when you send a written notice of incompleteness under Section 1002.9(c)(2) of Regulation B and the applicant did not respond to your request for additional information within the period of time specified in your notice. If you purchase loans from other lenders use Code 6. Since you do not process preapprovals you can eliminate codes 7 and 8.

We applaud your efforts to simplify the process of defining “applications,” but unfortunately the mess of federal regulations make that impossible. As you can see, the amount of application information needed to trigger integrated disclosures is worlds apart from the information needed for purposes of Regulations B and C.

[Anonymous]

Thanks for the great feedback!

[Author]

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