NAFCU Compliance Blog: We Listened So You Don’t Have To – CFPB’s HMDA Identifiers and Data Points; Issues With MLA Database

By Stephanie Lyon, Regulatory Compliance Counsel

I hope everyone had a nice restful weekend! D.C. is offering unseasonably warm weather so we enjoyed pretending to be tourist in the city while my puppies sun-bathed (see pictures below). Now on to business…

This is the second of a series of HMDA webinars that the bureau will present to help credit unions comply with the upcoming HMDA implementation deadline. The first webinar gave an overview of the rule while this second webinar focused on identifiers, applications and covered loans; property and loan originators; and data points. This webinar had over 300 slides, so despite the blog’s title, if you are tasked with HMDA implementation, it may still be worth a watch. Similar to the TRID implementation process, these webinars supplement the bureau’s HMDA resource page which is full of helpful materials such as the small entity compliance guide, sample data collection forms, and instructions on when to report “not applicable” in certain fields.

Identifiers

The 2015 HMDA rule requires that all financial institutions (FIs) obtain a Legal Entity Identifier (LEI) as this will be required to create a Universal Loan Identified (ULI) for each application received, covered loan originated, and purchased covered loan. See, revised 12 C.F.R. § 1003.4(a)(1)(i). NAFCU previously blogged about this requirement here. In summary, the bureau suggests that credit unions obtain their LEI number as soon as possible.

Think of the ULI as a routing number in the sense that it is made up of different numbers and it allows the credit union to identify a unique covered loan or application. The three components that make up the ULI are: (1) the credit union’s LEI; (2) 23 characters that identify a covered loan or application and; (3) a check digit. The bureau explained that the 23 characters should not contain information that may identify a covered borrower such as the borrower’s social security number, name or other personal information. The credit union can find more requirements on the ULI in Appendix C of the final rule.

Applications

The final rule requires credit unions to report certain loan preapprovals. See, revised 12 C.F.R. § 1003.2(b). Certain types of applications and covered loans are always reported as not involving a request for preapproval, even if a preapproval request was made. This includes: (1) purchased covered loans; (2) open-end line of credit; (3) reverse mortgages; (4) denied applications; (5) applications that are closed for incompleteness; (6) withdrawn applications; (7) applications or other covered loans for any purpose other than a home purchase loan; and (8) a covered loan for home purchase secured by a multifamily dwelling or an application for such a loan.

In the webinar, the bureau also clarified that the new rule will not require credit unions to differentiate between when a preapproval was not requested and when a preapproval was not applicable.

Data Points

Collection of Ethnicity, Race and Sex

Section 1003.4(a)(10)(i) and Appendix B of the final rule has detailed instructions and a sample form for the collection of ethnicity, race, and sex. The rule requires credit unions to ask the applicant to report this information whether the application is take in person, by phone, Internet or mail. However, the credit union cannot require the disclosure of this information so the credit union may want to test its online application to ensure this information is not a required field.

An interesting fact the bureau noted in the webinar is that if the member checks a box that states the applicant does not wish to provide information when applying but nonetheless discloses the information on the form, the credit union must report the information provided. For applicants that are not natural persons (i.e. corporation, partnership or trust), the credit union should not report the ethnicity, race or sex of the applicant even if the covered loan or application includes a guarantor.

The bureau created this chart to assist credit unions in the collection of this information.

Collection of Age, Credit Score, Income and Debt-to-income (DTI)

The final rule requires the reporting of age as of the date of the application. There are a couple of instances when the credit union does not have to report age (1) instances where the covered loan was purchased and institution chose not to report age (2) the applicant is not a natural person. See, revised 12 C.F.R. § 1003.4(a)(10)(ii).

Additionally, the credit union must report credit scores, gross annual income, and the DTI “relied on” to make the credit decision. The bureau noted that relied on means the information was used as a factor in the credit decision even if information was not a dispositive factor. For example, if the credit union considers an applicant’s credit score but chooses to deny the loan because of a high DTI, the credit union should still report the credit score as it relied on it to make its credit decision.

I know this is a lot of mechanical information so again, it may be helpful to watch the entire webinar and download the slides when testing your credit union’s HMDA readiness.

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MLA Database Processing Issue. Last week, the MLA database reported that there was “a problem” processing Multiple Record Requests between February 9, 2017 and February 15, 2017. This prevented 149 requests from processing, so the DoD says if a credit union’s multiple record request “failed to process” the credit union should “submit the file again for processing.” What DoD did not clarify was what impact this would have on a credit union’s ability to still claim a safe harbor – especially with the rule’s prohibition against historic lookbacks. If your credit union was impacted by one of these 149 requests, it may need to consult with counsel to discuss further. Casually, a couple of days before the error occurred, the MLA website was down for system maintenance. While we don’t know if this caused the issue, credit unions that rely on the DoD’s database for its covered borrower check may want to monitor the MLA’s news page for a heads-up on future maintenance to the site.

To make up for all the information above, here is a picture of my two happy fur-children and my amazing husband Devon taken as went sightseeing in D.C. this past weekend: