MLO Mentor is an ongoing series covering compliance best practices for mortgage loan originators (MLOs). This article discusses the different thresholds that trigger Home Mortgage Disclosure Act (HMDA) data collection and reporting. Enroll in firsttuesday’s 8-Hour NMLS CE to renew your California MLO license and learn more about fraud and abuse prevention in your practice.
Who must collect HMDA data?
The threshold for determining whether HMDA data must be collected differs depending on whether a lender is a:
- depository institution; or
- non-depository institution.
Regulation C collectively refers to depository institutions and non-depository institutions as financial institutions. [12 CFR §§1003.1-2]
Depository institutions
Depository institutions are banks, savings associations or credit unions. [12 CFR §1003.2(g)(1)]
To determine whether a depository institution is required to collect and report HMDA data, the following five questions must be answered. If the depository institution answers “Yes” to Questions 1-3, “Yes” to at least one prong of question 4 and “Yes” to at least one prong of question 5, it is required to collect and report HMDA data in the next calendar year.
The asset-size threshold
- On the preceding December 31 (December 31, 2021), did the total assets of the institution exceed $48 million dollars? [12 CFR §1003.2(g)(1)(i)]
The threshold is reviewed for adjustment every November based on year-to-year changes in the average Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). In December 2021, the total assets threshold was increased from $48 million to $50 million.
The assets held by a depository institution and the asset thresholds in place on December 31 of the preceding year control HMDA data collection for the entire following calendar year.
For the following examples, the asset thresholds are/were:
- $50 million as of December 31, 2021 for 2022 HMDA data collection;
- $48 million as of December 31, 2020 for 2021 HMDA data collection;
- $47 million as of December 31, 2019 for 2020 HMDA data collection;
- $46 million as of December 31, 2018 for 2019 HMDA data collection;
- $45 million as of December 31, 2017 for 2018 HMDA data collection; and
- $44 million as of December 31, 2014-2016 for 2015-2017 HMDA data collection.
Asset-size threshold Example 1
On December 31, 2021, Harris Bank has more than $48 million in assets. Assuming Harris Bank meets all other criteria requiring it to collect HMDA data, Harris Bank must collect HMDA data in 2022. In mid-2022, its assets fall to $45 million. May Harris Bank stop collecting HMDA data when its assets fall below the asset threshold?
No! Remember, the asset threshold on December 31, 2021, controls HMDA data collection for all of 2022, regardless of Harris Bank’s asset fluctuations during 2022.
Asset-size threshold Example 2
On December 31, 2020, Harris Bank has $45 million in assets. Harris Bank is not required to collect HMDA data in 2020. On July 1, 2021, its assets increase to over $48 million. Assuming Harris Bank meets all other criteria requiring it to collect HMDA data, is Harris Bank required to begin collecting HMDA data on July 1, 2021 when its assets rise above the asset threshold?
No! However, if Harris Bank still has over $48 million of assets on December 31, 2021, it would be required to collect HMDA data for all of 2021.
The location threshold
- On the preceding December 31, did the institution have a home or branch office in an MSA? [12 CFR §1003.2(g)(1)(ii)]
For depository institutions, a branch office is any office of a bank, savings association or credit union that is approved as a branch by a federal or state supervisory agency. Stand-alone automated teller machines (ATMs) are not considered branch offices.
A lender may, upon approval by the Secretary of HUD, maintain branch offices for the origination of Title I and Title II loans. A branch office of a mortgagee must be registered with the Department in order to originate mortgages or submit applications for mortgage insurance. The mortgagee must register all branch offices in which it conducts FHA business including originating, underwriting, or servicing of FHA-insured mortgages, on which the HUD Handbook 4000.1 provides further guidance. [24 CFR §202.5(k)]
The loan activity threshold
- In the preceding calendar year, did the institution originate at least one home purchase loan (excluding temporary construction loans) or refinance of a home purchase loan secured by a first lien on a one-to-four family dwelling? [12 CFR §1003.2(g)(1)(iii)]
The federally related threshold
- Is the institution federally insured or regulated? Was the mortgage loan insured, guaranteed or supplemented by a federal agency? Was the loan intended for sale to Fannie Mae or Freddie Mac? [12 CFR §1003.2(g)(1)(iv)]
Federally related example
Harris Bank is insured by the Federal Deposit Insurance Corporation, does not make government-insured or guaranteed loans and keeps loans it makes on its portfolio. Assuming Harris Bank meets all other criteria requiring it to collect HMDA data, is Harris Bank required to collect HMDA data based on these facts?
Yes! Remember, if the depository institution answers “Yes” to questions 1-3, it only needs to answer “Yes” to one of the prongs in Question 4 in order to be required to collect HMDA data. In this case (provided the next threshold is also met), Harris Bank is federally insured, and thus is required to collect HMDA data.
The loan-volume threshold
- Did the depository institution originate at least 25 closed-end mortgages in each of the two preceding calendar years and/or 500 open-end lines of credit in each of two preceding calendar years? [12 CFR §1003.2(g)(1)(v)]
This new threshold went into effect in 2018. The higher threshold relieves smaller depository institutions of the burden of HMDA reporting when they do not routinely make mortgages covered by HMDA reporting. The 500 open-end lines of credit prong is temporary, and reverted to 100 open-end lines of credit in 2020.
Loan-volume example 1
Campbell Bank originates 30 closed-end mortgages in 2016 and 24 in 2017. It does not originate any open-end lines of credit in either year. Assuming it meets all other criteria requiring it to collect HMDA data, is it required to collect HMDA data on closed-end mortgages in 2018?
No! While Campbell Bank met the closed-end mortgage HMDA reporting threshold for 2016, it did not meet the requirement in 2017. Since the threshold was not met in each of the two calendar years preceding 2018, Campbell Bank does not have to collect HMDA data.
Loan-volume example 2
Price Bank originates 100 closed-end mortgages in 2016 and 128 in 2017. It originates 120 open-end lines of credit in 2016, and 130 in 2017. Assuming it meets all other criteria requiring it to collect HMDA data, is it required to collect HMDA data in 2018?
Yes, but only on closed-end mortgages. Since Price Bank did not meet the threshold for open-end lines of credit, it is not required to report HMDA data on open-end lines of credit. The two types of loans are differentiated for HMDA data collection thresholds. [Official Interpretation of 12 CFR §1003.3(c)(11)-2]
State exemptions
The Consumer Finance Protection Bureau may exempt a state-charted depository institution from HMDA reporting requirements if it determines state requirements are substantially similar to HMDA requirements. State-chartered depository institutions exempt from HMDA data collection must still submit data to their state supervisory authority for aggregation. [12 USC §2805(b); 12 CFR §1003.3(3)]
Non-depository institutions
Non-depository institutions are all other for-profit mortgage lending institutions, such as warehouse lenders or hard-money lenders. [12 CFR §1003.2]
To determine if non-depository institutions — including mortgage bankers — must collect and report HMDA data, the following three questions must be answered. If the non-depository institution answers “Yes” to all three questions, it is required to collect and report HMDA data in the current calendar year.
The for-profit test
- Is the lender a for-profit institution (other than a bank, savings association or credit union)? [12 CFR §1003.2(g)(2)]
The location test
- Did the institution have a home or branch office in an MSA on the preceding December 31? [12 CFR §1003.2(g)(2)(i)]
For non-depository institutions, a branch is any office that takes applications from the public for home purchase loans, home improvement loans or refinances. If a non-depository institution takes five or more applications, or originates five or more of the specified loans above in an MSA, they are considered to have a branch in that MSA. [12 CFR §1003.2(c)(2)]
Under HMDA, an application is an oral or written request for a home purchase loan, a home improvement loan or a refinance in accordance with the procedures for requesting credit. [12 CFR §1003.2(b)(1)]
A preapproval is considered an application if:
- the lender reviews the borrower’s creditworthiness before issuing the preapproval; and
- a written commitment to lend is conditioned only on identification of a property and/or confirmation that the borrower’s creditworthiness has not changed from the time of the preapproval. [12 CFR §1003.2(b)(2)]
A prequalification is only considered an application if it involves a detailed analysis of the borrower’s creditworthiness. Basically, the substance, not the name, determines whether an application has been received.
The loan-volume threshold
- Did the non-depository institution originate at least 25 closed-end mortgages in each of the two preceding calendar years and/or 500 open-end lines of credit in each of the two preceding calendar years? [12 CFR §1003.2(g)(2)(ii)]
This threshold is now the same for depository and non-depository institutions, a result of the simplification of HMDA rules under the Dodd-Frank Act. Like the depository rules, the 500 open-end lines of credit threshold was retired in 2019.
Brokers vs. Investors: who reports?
Consider a state-licensed loan origination company (loan originator) that enters into a warehouse lending agreement with a bank. The loan originator solicits and takes a loan application from a borrower. The loan originator also processes and underwrites the loans, and is responsible for approving the loan, based on the bank’s underwriting criteria. Once the loan is funded by the loan origination company, the loan is immediately sold to the bank to replenish the loan originator’s warehouse line of credit.
Both the loan originator and the bank are required to make HMDA disclosures in the current year. Which entity is responsible for collecting HMDA data on loans originated and sold by the loan originator?
Under Regulation C, the entity that makes the decision on whether to approve or deny the loan application — here, the loan originator — is responsible for collecting and reporting HMDA data. However, if the loan originator in this scenario must submit the loan to the bank for approval prior to the loan closing, the bank, and not the loan originator must collect and report the HMDA data.
Contrast this with a mortgage broker, who also holds a state loan originator license. The mortgage broker takes a loan application from a prospective borrower and shops lenders for the borrower. They then submit the borrower’s applications to three different lenders that are each required to collect HMDA data in the current year. The first two lenders deny the loan. The third lender approves and funds the loan.
Each of the three lenders must collect HMDA data. The loan originator/mortgage broker is not required to collect or report HMDA data, as they were not the entity which made the credit decision(s) on the loan. [Official Interpretation of 12 CFR §1003.4(a)-2-3] Regulation C requires the loan application contain information as to the method the loan was submitted. [12 CFR Part 1003]
While the burden of reporting falls on the entity making the credit decision, mortgage brokers will find knowledge of HMDA requirements useful when preparing a loan application. The more information provided to the lender up-front, the less delay in getting the application to underwriting, and funding.
