Written by Brandy Bruyere, Director of Regulatory Compliance
For many credit unions, one of the challenges with implementing HELOCs is that these loans are on a separate loan origination system from closed-end mortgages. As credit unions gear up to implement changes to HMDA/Regulation C, one of our recent FAQs involves the timing of compliance for HELOCs. Spoiler alert – it’s probably sooner than you’d like.
Currently, open-end loans are not subject to mandatory HMDA reporting and the scope of transactions that are reportable is determined using a purpose-based standard. Effective January 1, 2018 HMDA will transition to a dwelling-secured standard, and apply to “covered loans” and applications for covered loans. As a reminder, covered loans include open-end lines of credit secured by a dwelling, unless otherwise excluded by the rule. Here are those key definitions for reference:
(1) In general. Application means an oral or written request for a covered loan that is made in accordance with procedures used by a financial institution for the type of credit requested.
(e) Covered loan means a closed-end mortgage loan or an open-end line of credit that is not an excluded transaction under §1003.3(c).
Several credit unions have asked what this means for HELOCs since the effective date of the new definition of covered loan, which brings HELOCs into the scope of the rule, is not until January 1, 2018. We have blogged about this a couple of times, but the key effective date for collecting on the new HMDA data points is based on the credit union taking “final action” on the loan/application on or after January 1, 2018. This is explained on page 10 of the CFPB’s HMDA Small Entity Compliance Guide:
“A financial institution collects, records, and reports the new and modified data points under the 2015 HMDA Rule for applications on which final action is taken on or after January 1, 2018. If a financial institution receives an application in 2017 but takes final action on it in 2018, it is required to collect, record, and report the new and modified data points under the 2015 HMDA Rule. There is a special transition rule that applies to the collection of an applicant’s ethnicity, race, and sex…”
In other words, will HELOC applications accepted in late 2017 but with a final action taken in 2018 be subject to the new HMDA reporting requirements? The short answer is yes, here’s an excerpt from the preamble to the rule:
“This final rule applies to covered loans [defined term including HELOCs] and applications [defined relating back to covered loans] with respect to which final action is taken beginning on January 1, 2018. Data on these covered loans and applications are submitted to the appropriate Federal agency pursuant to § 1003.5(a) beginning on January 1, 2019…if a financial institution…receives an application on December 1, 2017 and does not take final action on that application until January 1, 2018, data about that application would be collected and recorded pursuant to § 1003.4 and submitted to the appropriate Federal agency by March 1, 2019 pursuant to § 1003.5(a).” (Emphasis added.)
HMDA is triggered by a final action, not by application date. Final action can include origination or purchase of a covered loan, or denial or withdrawal of an application.
Trick or Treat. Nolan recently turned 2, so he does not really “get” Halloween yet, but he tolerated the Ewok costume we fashioned for him out of a bear suit and t-shirt. He also eventually realized he was supposed to go to doors and hold out his bucket. Meanwhile, we bribed Lemmy to behave with a treat. He has stolen chocolate and visited the emergency vet before, we did not want to repeat the experience.
Veteran’s Day. NAFCU will be closed on Friday in observance of Veteran’s Day. Those of us at NAFCU extend our gratitude and appreciation to those who have or are currently serving our country. We will be back to blogging on Monday.