IMPROVED HMDA REPORTING

Many of you are in the throes of scrubbing your Home Mortgage Disclosure Act (HMDA) data. Following are a few thoughts that might help improve your HMDA reporting.

Many HMDA-reporters misreport data in the “Action Taken” and “Gross Annual Income” fields of the Loan Application Register (LAR). Commons errors involve:

  • Using the wrong Action Taken code when the loan application has been identified as “a preapproval request that did not transition to a loan application,” and
  • Reporting Gross Annual Income incorrectly when a loan applicant is a company or entity and not a natural person.

Action Taken – A Preapproval that Did Not Transition to a Loan Application

HMDA reporters often misreport the Action Taken field in an LAR for a preapproval request that did not transition to a loan application. In many cases, the Action Taken field is completed as: 2 – Application approved but not accepted, 3 – Application denied by financial institution, 4 – Application withdrawn by applicant, or 5 – File closed for incompleteness. However, loan application codes 1 through 5 are reserved for formal loan applications and should never be used with requests for preapproval.

A request for preapproval that:

  • Is either withdrawn by the applicant or closed by the financial institution for incompleteness the application should be excluded from the LAR because these preapproval requests never transitioned to formal loan applications.
  • Is denied by a financial institution should be reported using Code 7 – Preapproval request denied by financial institution rather than Code 3 – Application denied by financial institution.
  • An institution approves but is not accepted by the applicant may be reported at the institution’s option using Code 8 – Preapproval request approved but not accepted.

Income – When the Borrower or Applicant is Not a Natural Person

Frequent errors occur in the “Gross Annual Income” fields of LARs when the applicant is a corporation, partnership, or other entity and not a natural person. In these cases, income is reported as NA and not as a numeric value.

When this error is not detected prior to data submission, the entries are flagged with the quality edit Q067. Quality edit Q067 is triggered when the reported ethnicity, race, and sex codes indicate that an applicant is not a natural person or that there is no co-applicant, but the Income field contains a numeric value. When the applicant’s and co-applicant’s ethnicity, race, and sex codes are correctly reported (as 4/7/4 or 4/7/4 and 5/8/5, respectively) then the Income field is reported as NA.

The hunt for HMDA reporting errors never ends. Happy Hunting!

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