Hi All! I am looking for some feedback from larger banks, in particular those who process a high volume of applications (even better if this activity is primarily due to purchasing leads).

Situation: The definition of Application is aligned with the definition of Application under TRID. That is, an Application for HMDA is not considered an application until the bank has received all 6 pieces of information under TRID. Even when a decision is made under ECOA (i.e., adverse action, or a customer withdrawal), applications are often not included on the LAR. Hence, underreporting of applications because the definition is tied to TRID rather than being tied to ECOA. Has anyone done this and been criticized by their regulator? If so, can you share what the outcome was?

Also, the complaint from the business line is that "we don't have the resources to report every single request where the applicant doesn't respond, and the lead is dead". For context, whenever this happens, the line of business marks it as "closed for incompleteness" in the LOS, but it ONLY makes it to the LAR if all 6 pieces under TRID were received. Otherwise, it's not included on the LAR. Is there some other process we might consider that would be in compliance for HMDA, but not so burdensome on the line of business?

QUESTIONS FOR ENCOMPASS USERS:
Encompass is the LOS and I am being told that in Encompass, the HMDA "Exclude from LAR" field is automatically checked until such time all 6 pieces has been received. This is an automatic function and will only un-check the box and include it on the LAR if it's manually un-checked, or if all 6 pieces were received. This seems strange to me, but I am not an Encompass expert. Can this functionality be changed?

Thanks!

Linking HMDA applications to TRID definitions is a dangerous practice.

1003.2(b) Application
1. Consistency with Regulation B. Bureau interpretations that appear in the official commentary to Regulation B (Equal Credit Opportunity Act, 12 CFR part 1002, Supplement I) are generally applicable to the definition of application under Regulation C. However, under Regulation C the definition of an application does not include prequalification requests.

Thanks for the feedback. While it seems logical to me that you wouldn't want to use the TRID definition, I am being pushed to provide some sort of solution.

It is also worth noting that the business line does not issue notices of an incomplete application. For ECOA, the application is either denied, withdrawn or closed for incompleteness. Again though - it's only reported if all 6 pieces of information have been received.

It seems like a fair lending issue to not have a practice of sending a notice of incompleteness and giving the applicant a period of time to respond before you decide to close out the file.

We tie the HMDA (and ECOA) definition(s) of application for residential mortgage to TRID. Prior to getting 6 pieces, we consider them inquiries and prequalifications. If they are denied, we follow ECOA, but do not report them. We do compliance reviews of these files quarterly to ensure true applications are not being taken, applicants aren't being discouraged, and AANs are going out when required. It's kind of a pain, and there are plenty of people out there that will say this isn't compliant with Reg B or Reg C. We have run this through our examiners (Fed), and I know there are a lot of other institutions that use this definition as well. You'll find plenty of other threads on here about what "(f) Application means 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." really means.

FWIW, I'm pretty sure you can run a business rule or just talk to your Encompass rep and remove or change the automatic exclude from HMDA check. I'm not sure what the options are though as we use that functionality as you describe it.

How can you consider something a prequalification and not report it for HMDA if you had enough information to make a decision (albeit not all 6 pieces) and even sent them an adverse action notice. At that point, you treated it as an application, so what is the justification for not including it on the LAR?