On April 13, the CFPB issued proposed amendments to the HMDA (Regulation C) Rule.  The CFPB describes the changes as being non-substantive in nature, and notes that the proposal is meant to provide “clarifications, technical corrections, or minor changes.”

Included in the proposal are revised definitions along with related commentary:

• Automated Underwriting System:  The proposal would clarify that a system that otherwise meets the definition and was developed by a securitizer that has since ceased securitization activities is an AUS for purposes of HMDA. The additional revisions proposed also would provide guidance for financial institutions that are not certain whether a system was developed by a securitizer, government insurer, or guarantor.
• Closed-End Mortgage Loan:  The current rule defines a “closed-end mortgage loan” as: (i) a dwelling; (ii) secured by an extension of credit; (iii) that is not an open-end line of credit. Commentary to the definition indicates that, for example, some installment land sales contracts are not extensions of credit if the land contract provides that, upon default, the contract terminates, all previous payments will be treated as rent, and the borrower is not obligated to make further payments. The proposed rule would remove this example because the CFPB states in the preamble to the proposal that whether an installment land sales contract is an extension of credit depends on the facts and circumstances surrounding such a transaction.
• Dwelling:  The CFPB proposes to revise the commentary for the term “dwelling” to: (i) indicate that a loan secured by five or more separate dwellings in more than one location is a loan secured by a multifamily dwelling; and (ii) include a descriptive example.
• Home Improvement Loan:  The proposal would amend the commentary to clarify that a loan to finance improvements on the commercial portion of a mixed-use multifamily dwelling is not a home improvement loan pursuant to the rule, but a loan to improve commercial space in a dwelling other than a multifamily dwelling (e.g., a doctor’s office or a daycare center located in a non-multifamily dwelling) would be a home improvement loan.
• Home Purchase Loan:  The proposed rule would amend the commentary to: (i) clarify that a loan or line of credit is considered temporary financing and excluded from the definition of “home purchase loan” if the loan or line of credit is designed to be replaced by separate permanent financing extended to the same borrower at a later time; and (ii) state that a construction-only loan or line of credit is also considered temporary financing and excluded from reporting if extended to a person exclusively to construct a dwelling for sale.

The proposed rule clarifies the collection and reporting requirements for data points.  The proposal:

• Universal Loan Identifier:  Would add a clarifying statement to the commentary providing that if a financial institution previously assigned a covered loan with a ULI or reported a covered loan with a ULI, any financial institution that purchases the loan must report the previously assigned or reported ULI. The proposal would further add an illustration to demonstrate how a financial institution complies with HMDA when a covered loan was not assigned a ULI at origination (e.g., purchased loans originated before the effective date of the 2015 HMDA rule).
• Ethnicity, Race, and Sex:  Revises the instructions for reporting aggregated and disaggregated ethnic and racial data, primarily clarifying how a financial institution reports data when an applicant selects one or more ethnicity and/or race designations/categories. Specifically, the proposal would amend Appendix B to clarify that: (i) an applicant is not required to select an aggregate category as a precondition to selecting a subcategory; (ii) if an applicant selects a subcategory but does not select the applicable aggregate category, a financial institution should not report the aggregate category; (iii) an applicant need not select “other” to provide an unlisted subcategory; (iv) a financial institution must report every subcategory selected, except where more than five subcategories are selected; and (v) a five-ethnicity maximum and related instructions apply similarly to the five-race maximum and related instructions that are currently set forth in the 2015 HMDA rule.
• Action Taken:  Clarifies the reporting requirements for counteroffers as they relate to guidance regarding conditional approvals. Specifically, the proposed commentary would provide that if an applicant agrees to proceed with an institution’s counteroffer, the counteroffer would take the place of the prior application, and, consistent with this, the financial institution would report the action taken on the application under the terms of the counteroffer. This would be a change from longstanding guidance regarding counteroffers. The proposal calls for inclusion of a clarifying example.
• Property Address:  Clarifies the reporting instructions if the following information about the property securing the loan is unknown: (i) property address; (ii) state; (iii) county; and (iv) census tract.
• Income Data:  Clarifies that a financial institution does not include in “income” reported under 1003.4(a)(10)(iii) the amounts derived from the annuitization or depletion of assets. However, the proposal would not apply this exclusion to the requirement to report the monthly debt-to-income ratio relied on in making the credit decision (12 C.F.R. § 1003.4(a)(23) of the 2015 HMDA rule).
• Credit Score:  Clarifies certain reporting requirements if there are multiple credit scores and/or multiple applicants or borrowers. Specifically, the proposed rule would: (i) clarify that if more than one credit scoring model is used and a composite score is relied on, the composite score is reported, noting that multiple scoring models were used; and (ii) explain that where an institution obtains or creates and relies on a single credit score for two or more applicants or borrowers, the institution may report that score for the applicant, and may report “not applicable” for the coapplicant, or, vice-versa.
• Total Loan Costs/Total Points and Fees/Origination Charges/Discount Points/Lender Credits/Interest Rate:  Clarifies the reporting procedures if a corrected closing disclosure is provided to the consumer as required under Regulation Z.
• Combined Loan-To-Value Ratio:   Explains that where multiple properties are involved, the institution reports the CLTV ratio relied on, regardless of which property was used in the CLTV calculation.
• Introductory Rate Period:  Explains the reporting requirements if a covered loan or application includes an introductory rate that is calculated in a manner other than months. Compliance, in this event, would be achieved by reporting the equivalent number of whole months.

The proposal clarifies the exclusions for:

• Temporary financing and the treatment of certain construction-only loans, including loans to construct homes for sale, or lines of credit as temporary financing.
• Commercial or business purpose loans (unless they are made to purchase, refinance, or improve a dwelling) as the exclusion relates to mixed-use dwellings.
• Financial institutions that do not meet a loan-volume threshold in “either” (as opposed to “each”) of the two preceding calendar years.

The proposal would also permit institutions that do not meet the coverage test in a given year to voluntarily report data for those loans that would be covered if the institution had met the coverage test.