Financial institutions must follow stringent regulations to protect consumers and the wider market. One example is the Home Mortgage Disclosure Act, enacted in 1975 to require in-depth reporting from private lenders and other financial institutions.
The HMDA mandates that organizations provide detailed information and documentation, which can be challenging. This HMDA compliance guide makes it easier for private lenders to meet reporting requirements and understand how the laws apply to your financial institution.
What Is the HMDA?
The Home Mortgage Disclosure Act obliges financial institutions to account for how they have served their communities’ housing needs and met anti-discrimination regulations.
After the 2007-2008 housing market crash, the Dodd-Frank Act created the Consumer Financial Protection Bureau to prevent unfair business practices. HMDA management was one of the responsibilities transferred to the CFPB. Under its oversight, the reporting requirements expanded to include more detailed data.
Lenders must now report information about the property, the applicant and the loan — including its purpose and whether it’s a first or subordinate lien. When individual borrowers take out loans, the HMDA requires even more data points to ensure transparency and fair lending practices.
Financial institutions that have 60,000 loan applications and covered loans throughout the preceding calendar year must provide this data quarterly. All other institutions report annually on March 1.
Does HMDA Apply to Private Lenders?
Financial institutions must meet specific HMDA reporting thresholds, which vary depending on whether they are depository or non-depository. Non-depository thresholds typically apply to private lenders. Specifically, private lenders must report to HMDA if they had an office in a metropolitan statistical area at the end of the preceding year, and either:
- Originated at least 25 closed-end mortgage loans that aren’t exempt by § 1003.3 (1) through (10) or (13).
- Originated at least 200 open-end lines of credit that are not excluded by § 1003.3 (1) through (10).
However, insured depository institutions and credit unions that originated fewer than 500 closed-end mortgage loans or open-end lines of credit in the preceding two calendar years could be partially exempt from HMDA reporting requirements, allowing them to provide less information.
The Importance of HMDA Compliance
Lenders have additional motivations to comply with HMDA beyond supporting the local housing market and ensuring adherence to anti-discrimination regulations.
Financial institutions that submit incomplete or inaccurate data risk serious consequences. Regulators can require lenders to resend corrected information, which demands additional time, staffing and expense. Authorities can also initiate audits and pursue legal action if they uncover violations of anti-discrimination laws. Intentionally withholding required HMDA data may trigger these same penalties.
What Loans Must Lenders Report?
Financial institutions that report to HMDA must include data on closed-end mortgages or open-end lines of credit used for home purchase, home improvement or refinancing. Loans that do not fall into these categories — such those used to finance a business — don’t require reporting.
Some closed-end mortgages and open-end lines of credit are also exempt. For example, institutions don’t need to report loans that were:
- Originated or purchased by a financial institution acting in a fiduciary capacity, such as a trustee.
- Used primarily for agricultural purposes.
- Temporary financing.
- Secured by a lien on unimproved land.
- Made primarily for a business purpose, unless it was for a home improvement loan under § 1003.2(i), a home purchase loan under § 1003.2(j) or refinancing under § 1003.2(p).
Find a full list of exemptions at Excluded Transactions under Regulation C, 12 CFR § 1003.3(c).
What Data Must Lenders Report?
Private lenders must provide up to 110 information points for each qualifying loan, including:
- Loan type, purpose and amount.
- Property information, such as the occupancy type, construction method, property location and value.
- Applicant or borrower information, such as their ethnicity, race, sex, age, income, purchaser type and credit score.
Financial institutions that qualify for partial exemption must only provide data for 52 of these information points.
What Happens to the Data You Provide?
Since HDMA’s primary objective is to provide transparency, information you provide will be publicly available.
This data will also be available to regulators, who will determine whether lenders meet their communities’ housing needs.
How to Prepare and File HMDA Reports
Financial institutions that haven’t previously filed HMDA reports should follow this step-by-step process:
- Determine whether you meet the HDMA reporting thresholds.
- Register your financial institution on the HMDA Platform.
- Identify which loans you need to report on.
- Collect the required data.
- Check that the data is true and accurate.
- Prepare the loan/application register.
- Test and validate the LAR.
- File the HMDA report.
- Keep copies of the records on file.
- Promptly answer post-submission requests.
HMDA Best Practices
HMDA reports require a wealth of complete and accurate information. Follow these best practices to streamline the process.
- Assign an HMDA lead: Appoint a single point of contact to collect all the necessary data.
- Retain submissions: Keep faithful records for future reference.
- Provide the right tools: Give your staff tools such as flowcharts, checklists and industry guidance to simplify data collection.
- Provide HMDA collection training: Staff who know how to collect HMDA data can work more accurately and quickly.
- Create effective procedures: Easily repeatable data collection processes empower staff to collect accurate data.
Simplifying HMDA for Private Lenders
Your financial institution could benefit from legal counsel if HMDA reporting has become a burden, you are unsure about the requirements, have received enforcement letters or have previously filed inaccurate information.
Let the experts at Private Lender Law demystify the law for you. Through our regulatory and licensing services, we’ll explain how HMDA applies to you and what information you need to provide. We can also assist with audits or enforcements.
To learn more about how we can assist your financial institution in complying with HMDA, please contact us today.