VIDEO: Reg B Data Collection for Ag or Commercial Loans
In this Compliance Clip (video), Adam answers a question for a member about Reg B data collection of government monitoring information (GMI) for agricultural loans. This abnormally long Compliance Clip lasts over 10 minutes and goes over three different scenarios. This clip would be great for any newly exempt HMDA reporter who will soon be transitioning to GMI collection under Reg B instead of DI information under HMDA.
Video Transcript
The following is a transcript of this video.
This Compliance Clip is going to talk about Reg B data collection for agricultural loans. Specifically, this is a question I received recently. I know there are quite a few HMDA reporters who are going to be exempted as of July 1, 2020, and those HMDA reporters have to switch from data collection under HMDA to Regulation B. So the question I received this week is this. It says, “We are a newly exempt HMDA reporter and will be following Regulation B data collection on July 1, 2020. Many of our agricultural business loans have an ‘any and all’ blanket security agreement which often includes the primary residence. So we are wondering, does Regulation B data collection apply to various ag loans that use this blanket security agreement?” That's a great question. Does Regulation B data collection and government monitoring information collection apply to agricultural loans?
The answer of course comes from 1002.13(a) of Regulation B. So let's take a look at this. This is actually something that we cover in our program for those of you who are newly exempt HMDA reporters. We actually covered all this in detail, so this is just a piece from that section. So let's take a look at this.
First of all, what's the difference between Regulation B and HMDA when it comes to data collection for agricultural loans? Now, first of all, for HMDA, you're only going to collect demographic information when the loan is not primarily an agricultural purpose. So if it is an agricultural purpose, you're not going to collect the demographic information, but if it is, you would generally collect it if the purpose was a purchase or refinance or home improvement loan, if it is a commercial purpose loan. So that is how HMDA currently works today. For Regulation B, you are going to collect government monitoring information for owner-occupied dwellings that have a purpose of a purchase or refinance and are secured by the dwelling. That's a general overview. Let's take a look in just a second at the actual definition of how we collect government monitoring information on agricultural purpose loans.
It is important to understand that information is only going to be collected for natural persons. So if this is an agricultural loan to an LLC or corporation, you're not going to collect it. You're only interested in those agricultural purpose loans that apply to individuals. So first and foremost, we're talking about Reg B data collection. If it's an ag loan to an entity, then you don't collect the information, but if it's an ag loan to an individual, then we can proceed on to see if it meets our tests under the rule.
The technical definition for Reg B government monitoring information data collection covers this. It covers an application from a natural person for credit primarily for the purchase or refinancing of a dwelling occupied or to be occupied by the applicant as a principal residence, where the extension of credit will be secured by the dwelling. This is what the rule says. This is when you collect government monitoring information under Regulation B. In summary, what we have is we need to collect GMI when we have a natural person and it is primarily for a purchase or refinance of a dwelling and it is occupied, or to be occupied as a primary residence, and it is secured by that 1-4 family dwelling. So if we have more than 1-4 family dwellings, then it wouldn't apply. If it is a multifamily complex, five or more units, then it won’t apply. But if you pass all these tests, then it might apply.
So let's take a look a little bit further because Comment 5 to 1002.13(a) of Regulation B also says that there are certain transactions that are not covered. It says, “The information collection requirements of this section apply to applications for credit primarily for the purchase or refinancing of a dwelling that is or will become the applicant's principal residence. Therefore, applications for credit secured by the applicant’s principal residence but made primarily for a purpose other than the purchase, or refinancing of the principal residence, such as maybe a home improvement loan or debt consolidation loan, maybe even agricultural purpose loans, are not subject to the information collection requirements.” In other words, the purpose has to be to purchase or refinance a dwelling that is going to be occupied as a primary residence by the applicant and secured by that dwelling. So if our purpose is something else, then it's not going to require this GMI collection.
Now, this question that I received from one of our viewers ended up having some examples they were wondering about. I apologize up front because I don't feel like I have enough information on these to give a firm example and everything, but let's walk through these examples. A couple of scenarios. First scenario is let’s say we have Loan A. It's an application that was submitted on April 2, 2009. So a long time ago, that would've been subject to HMDA. Let's just consider that we're under Reg B’s rules for this ‘cause this bank was a HMDA bank that would have been submitted for HMDA for them. But let's say it's under Regulation B, it's in the future. The purpose is for a purchase of ag land, including a primary residence dwelling and a blanket security agreement. I'm not exactly sure what this question means, but it says for the purpose of purchasing ag land. So if that's the primary purpose, then you're going to have an agricultural purpose and it’s not for the purchase or refinancing of a dwelling. So you would not collect government monitoring information. The question is asking, it’s for the purpose of ag land that also has a house on it. Just happens to, they're not planning to occupy that home, then still, you're not going to collect GMI under Reg B. Now, if they’re planning to buy this as their primary residence to live in it, and that was the main purpose and only might form a little, or might do some hobby farming a little bit, but the primary purpose is for them to live there, then government monitoring information would be required. So I think in this question, we need a little bit more information to give a specific answer though I think I've given you the guidance on what you need to answer that.
Another scenario: Loan B. The application is submitted on July 15, 2020 and the purpose of the new loan is for the purchase of a tractor. So in this case, we have a clear purpose for a tractor. So just because the dwelling is taken as collateral, doesn’t mean that we collect government monitoring information on Regulation B. What we have to look at is the primary purpose, and in this case, the primary purpose is to purchase a tractor and therefore we do not need to collect GMI under Regulation B.
Let’s look at one more scenario. Loan C, the application is submitted a year from now and what we have is we're refinancing Loan A and B with new money added for the purchase of a combine. So they're going to use this blanket security agreement that has the primary residence that they live in. So the question is, what is our primary purpose, because this doesn't really tell us. Is our primary purpose to refinance their existing dwelling that they live in to get a better rate? Because they want a better rate because loan rates have gone down, which you really can't get much lower than they are today. But if that's the case, if the purpose is to refinance an existing loan to get a better rate, then that would require government monitoring information. But down the road, if the true purpose is to purchase a combine and they just happened to say, “You know what? If the bank requires me to refinance this as well, to get the combine, then I'm going to do that, just refinance the debt. But the real reason I'm doing this one is to get the combine, but to get the combine, I’m gonna do the loan.” In that case, it seems like the primary purpose will be to purchase a combine, then GMI would not be required.So again, I don't know that we have exactly enough information for this third scenario, but I think this explains it.
The bottom line is what is the purpose of your loan? And that is what will trigger Regulation B GMI collection if, of course, you meet all the other criteria.
So this was a little bit long for a typical Compliance Clip, but I thought this question is very timely for us this week. And I know there are quite a few HMDA reporters who are going to be exempt as of July 1, 2020, and they may be looking to flip to Regulation B data collection monitoring because Reg B government monitoring information data collection is going to be required if you're no longer collecting under HMDA. So for those of you who are making that switch, take a look at our product in our store. We actually walked through all of the Reg B data collection requirements and everything you need to know to transition away from being a HMDA reporter and now being subject to GMI collection under Regulation B. I hope this helps. I hope this answers the question of our member and hope this is beneficial for the rest of you. That's all I have for this Compliance Clip.