VIDEO: HMDA Income & Property Value in Credit Decisions
In this Compliance Clip, Adam answers a HMDA question on whether income and property value should be included in the HMDA LAR when they are not the deciding factor, but are used in determining a credit decision. In other words, when income and property value were factors in the credit decision, but they're just a partial factor, should they be reported?
Video Transcript
The following is a transcript of this video.
This Compliance Clip is going to talk about HMDA income and property value that are used in credit decisions. The question here that we have is this: “When income and property value are factors in the credit decision, though not a dispositive factor, should such data points be reported?” In other words, you may have income and property value that are factors in the credit decision, but they're not the real factor. They're just a partial factor. You just used them maybe a little bit but they weren't the true reason for the credit decision, do you have to report them for HMDA?
The answer to this, of course, is going to come from Regulation C. Specifically, we can look at the commentary to 1003.4(a)(10)(iii) and the commentary to 1003.4(a)(28). We can also look at the CFPB’s frequently asked questions, specifically, Frequently Asked Question Number Two under the topic of Multiple Data Points. So let's take a look at the answers to this question, to understand when income and property value should be reported.
First of all, if we look at Comment 1 to 1003.4(a)(10)(iii), it tells us that when a financial institution evaluates income as part of a credit decision, it must report the gross annual income relied on in making the credit decision. For example, the commentary says, if an institution relies on verified gross income of an applicant to make a credit decision, the institution is required to report the verified gross income. The Frequently Asked Question actually expands upon this and says that the comment does not state that verified gross annual income must be dispositive in the credit decision. It's pretty clear there that if you use, even at all, you need to include this, specifically income, in the HMDA data that you report for the application.
Moving on, we have a very similar answer under 1003.4(a)(28) where we're talking about the property value. The Comment 1 to 1003.4(a)(28) says that when a financial institution evaluates property value as part of a credit decision, it must report the property value relied on in making the credit decision. It specifically says, “For example, if the institution relies on an appraisal or other valuation for the property in calculating the loan-to-value ratio, it reports that value; if the institution relies on the purchase price of the property in calculating the loan-to-value ratio, it reports the purchase price.” You're essentially reporting what you rely on. That's the way it works.
Frequently Asked Question Number Two under the section of Multiple Data Points says a couple of things that help clarify this even further for us. First, it says there is no requirement in Regulation C for either of these data points, income or property value, to be the dispositive factor in order to be reported. So it doesn't have to be a dispositive factor, it just has to be a factor. And it goes on to also say, “Income and property value apply the relied-on standard in a similar way to credit score, debt-to-income, and combined loan-to-value, and should therefore be reported if relied on making a credit decision.”
That’s a lot but that is what the rules say. And this was a HMDA topic. That's all I have for you for this Compliance Clip.