Mortgage Concepts: What are the different loan types?

Mortgage Concepts is a recurring video series covering best practices and compliance education for California mortgage loan originators. This video discusses the different types of loans, identifying which governing entity by which a loan is either insured or guaranteed. For course credit toward renewing your NMLS license, visit firsttuesday.us.

Loan type

This data point indicates if the application or loan was:

insured by the Federal Housing Administration (FHA);
guaranteed by the U.S. Department of Veterans Affairs (VA); or
guaranteed by the Farm Service Agency (FSA) or Rural Housing Service (RHS). [12 CFR §1003.4(a)(2)]

Loan purpose

The financial institution has to report whether the application or loan is a:

home purchase;
refinance;
cash-out refinance;
home improvement loan; or
other. [12 CFR §1003.4(a)(3)]

For multi-purpose loans, the loan purposes are hierarchical in the order presented above. That is, if a loan is both a home purchase and a home improvement loan, it is categorized as home purchase, not home improvement. Likewise, if a loan is both a home improvement loan and a refinance, the loan is categorized as a refinance. [Official Interpretation of 12 CFR §1003.4(a)(3)-3, -6]

Failure to correctly record loan purpose is another common HMDA violation.

Loan amount

For applications or originations of home purchase loans, home improvement loans and refinances, the entire loan principal is reported. For home purchase loans purchased, enter the unpaid principal balance. [12 CFR §1003.4(a)(7)(i)]

Loan term

The loan term is the scheduled number of months after which the principal will mature or terminate. [12 CFR §1003.4(a)(25)]

Action taken and date

The disposition of the application is reported as one of the following:

loan originated;
application approved but not accepted by the applicant within the specified timeline;
application denied;
application withdrawn;
file closed for incompleteness;
loan purchased;
preapproval request denied; or
preapproval request approved by not accepted. [12 CFR §1003.4(a)(8)]

The date of action is also recorded. Failure to correctly record “Type of action” is another common HMDA violation.

Reason for denial

Financial institutions that deny a loan must provide up to four reasons for the denial. Reasons for denial include:

debt-to-income ratio (DTI);
employment history;
credit history;
collateral;
insufficient cash;
unverifiable information;
credit application incomplete;
mortgage insurance denied; or
other. [12 CFR §1003.4(a)(16)]

Property address and location

The address of the property which is or would have secured the mortgage is reported, along with its location’s state, county and census tract. [12 CFR §1003.4(a)(9)]

Construction method

This data point reports on whether the property was site-built or manufactured housing. [12 CFR §1003.4(a)(5)]

Occupancy type

The property will be reported as the applicant’s:

principal residence;
second residence; or
investment property. [12 CFR §1003.4(a)(6)]

Lien status

This data point reveals whether the loan is a first lien or in a subordinate position. [12 CFR §1003.4(a)(14)]

Manufactured home information

If the dwelling is a manufactured home, the following must be reported:

the type of property securing the loan; and
the loan property interest. [12 CFR §1003.4(1)(29)-(30)]

Property value

The value of the property used by the financial institution in making its credit decision is reported. If no value is used when making a decision, e.g., the borrower never submits credit information, or the application is incomplete, the financial institution isn’t required to report this information. [12 CFR §1003.4(a)(28)]