HMDA Reporting for Incomplete Applications
In this Compliance Clip (video), Adam discusses the HMDA reporting requirements of incomplete applications. He explains the two options for reporting these types of applications and how they relate to Regulation B - as well as a common mistake to avoid.
Video Transcript
The following is a transcript of this video.
This Compliance Clip is going to talk about HMDA reporting of incomplete applications. As HMDA reporting has just wrapped up, I've still seen quite a few questions this year regarding HMDA reporting, especially in relation to incomplete applications. Our question is: how do you report an incomplete application for HMDA purposes?
The answer, of course, is going to come from Regulation C, as well as Regulation B. So let's take a look at both of these.
From the commentary to 1003.4(8)(i)(B), which of course is Regulation C - the HMDA rule -, it says, “A financial institution reports that the file was closed for incompleteness if the financial institution sent a written notice of incompleteness under Regulation B, 1002.9(c)(2), and the applicant did not respond to the request for additional information within the period of time specified in the notices before the applicant satisfies all of underwriting or credit worthiness conditions.”
That is what HMDA is telling us to do. That is a mouthful.
So what is this saying? Well, what this is saying is in order to report a loan on your HMDA LAR as closed for incompleteness, you have to have complied with Regulation B, specifically 1002.9(c)(2), because 1002.9(c)(2) of Regulation B is the part of the rule that says you can send a notice of incompleteness to the applicant. And what you do when you do that is you send them this notice, you give them a timeframe, tell them what's needed, and then if that time period passes and they don't reply to you, then you don't have to send a denial notice. That's what the rule says. It's an alternative to a denial notice - the notice of incompleteness.
So in order under HMDA to report the loan as closed for incompleteness, you have to comply with the rules of Regulation B for the notice of incompleteness. Then what it also says here, of course, is the applicant could not have responded to the information and therefore you have used the notice of incompleteness as your action taken. Again, in accordance with Regulation B. That's what the commentary to Regulation C says..
Let's move on because this commentary actually expands a little bit. There's more to it. There's a couple more parts. I think it's two more. So the next part says, “If a financial institution then provides a notification of adverse action on the basis of incompleteness under Regulation B, 1002.9(c)(1)(i), the financial institution may report the action taken as either closed for incompleteness or application denied.”
Again, this is a mouthful. In layman's terms, what this is saying is that if you provide that notice of incompleteness, in lieu of a denial, and the customer doesn't respond, but then you end up sending a denial anyway - so you've done both, you've provided the notice of incompleteness and the adverse action notice or the denial to the customer - then you can choose how you report that on your HMDA LAR. It's like boxing, right? You get the pick. So exciting! We hate it when they do that with HMDA, but that's what they say. So if you sent both, you could do that. I would just pick one based on your process and do it. But that's what the rules say.
The rules go on and tell us one more thing about incomplete applications.They talk about pre-approvals. They say a pre-approval request that is closed for incompleteness is not reportable under HMDA. Again, if you have a pre-approval request that is closed for incompleteness, that loan is not going to be HMDA-reportable because pre-approvals are not HMDA reportable, especially those that are closed for incompleteness. Now, if they're denied, they are reportable, but closed for incompleteness are not.
That's a mouthful. So let's put it in layman's terms. Let's make this easy. Let's break it down.
So you report your loan as a denial when you have an adverse action notice that was sent to the customer. So you denied them, you said it to the customer. You may have said denied for incompleteness, whatever your reason, then you report it as a denial. You reported for close for incompleteness if a notice of incompleteness was sent in accordance to 1002.9(c)(2) of Regulation B, which is the part of regulation B that outlines the rules for sending the notice of incompleteness. So as long as you complied with Regulation B in sending that notice of incompleteness, you then can report the loan as closed for incompleteness.
Now, if you did both, you can report it as either denied or closed for incompleteness. If you sent both a denial notice and a notice of incompleteness, then you pick one. It's either or then you don't report if, of course, it's a pre-approval that is closed for incompleteness. That's how incomplete applications work under HMDA.
That's all I have for you today.