Making the Transition to New HMDA

Implementing the changes to HMDA is not going to be easy. Not only are some of the changes subtle while others require new forms, but there will be several phases of implementation unless you are already using new data collection forms and procedures well before the end of 2003. Many staff members throughout the institution will need to know about the new rules or at least parts of the new rules. Being ready to prepare a flawless LAR (or as close as it is realistic to get) means much more than knowing the requirements of the rule. Staff needs to be familiar with and follow new procedures to compile the information in a usable way.

This means documentation. So start planning now. And when you are ready to train people, be sure to cover the issues identified below.

Anyone taking applications for manufactured housing, or housing that may meet the manufactured housing definition, should be trained to collect information for HMDA reporting.
All staff that take loan applications should be trained to document the loan's purpose. It will be particularly important to document the difference between refinancings, home improvement loans, and debt consolidation loans. They will also need to know the type or security status of the loan that will be replaced.
Anyone who might hand out loan applications should be trained to give the customer advice on information that is needed for the application, including loan amount and loan purpose.
Before taking applications for preapproval, there should be clear procedures for handling preapprovals, including documentation of the process and disclosures to be given to the customer. The procedures should include who may make preapprovals. The procedures should include a method for capturing information for the LAR.
Review the requirements for adverse action and other notifications. If your institution has decided to make preapprovals, be sure that all staff correctly understand notification and documentation requirements.
Review any procedures for issuing rate locks, including how to document them.
Last, but far from least, review the new procedures for collecting information about applicant race and ethnicity.

Reporting Solutions for 2004 HMDA Reportable Loan Applications Taken in 2003

New Requirement for 2004 Application Taken in 2003, Reported in 2004 Report Property Type to include reporting manufactured homes. May but need not indicate manufactured housing. May report as 1-4 family dwelling. Report Purpose of Loan as Home Improvement for secured loans whether or not classified as home improvement. Unsecured loans will be reported as home improvement if classified as such. May report using definitions in effect in 2003. I.e. report home improvement loans based on how they are classified by the lender. Report refinancings only if existing and new obligation are secured by a dwelling. May report using old definition (either the existing or new obligation was secured by a dwelling). Report requests for preapproval when written approval subject to conditions is provided to applicant. Lender may but need not report preapproval requests received before 2004 if they do not result in a traditional loan application. Use code for "Not Applicable." Reporting applicant information by ethnicity as well as by race. Convert information collected in 2003 using old application forms to reporting format for 2004 using the FRB's conversion chart. Be sure that all applications are date stamped when received. Report Rate Spread between APR and Treasuries. Report only if rate lock takes place in 2004.

Copyright © 2003 Compliance Action. Originally appeared in Compliance Action, Vol. 8, No. 5, 6/03