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The Wisconsin Bankers Association has recently become aware of banks facing scrutiny over Home Mortgage Disclosure Act (HMDA) reporting. Specifically, reporting of the number of individual dwelling units when the covered loan is cross-collateralized by multiple properties. While the rules have not changed, there has been some confusion regarding the interplay of cross-collateralization clauses and HMDA rules. This article will discuss those HMDA requirements in relation to cross-collateralization considerations. 

Subject to certain exemptions, HMDA requires financial institutions to report data on covered transactions. Data is reported on those fields as required by Regulation C section 1003.4. For institutions which qualify for a partial exemption, some of those fields are optional. For purposes of this article, only one of those data fields is discussed, being the number of individual dwelling units related to the property securing the covered loan or, in the case of an application, proposed to secure the covered loan (total units). This data point is required by Regulation C section 1003.4(a)(31). Total units is not a field subject to optional reporting.

The total units field requires a reporting institution to enter, in numeral form, the number of individual dwelling units related to the property securing the covered loan. For example, if there are five (5) individual dwelling units, bank will enter 5 on the HMDA LAR. When a loan is secured by multiple properties, bank may need to consider each of those properties securing the loan to properly report this field. This includes property securing the loan by any means.

This could be the result of future advance language or other cross-collateralization. For example, when taking a loan using the WBA 451 Business Note, cross-collateralization language is included which provides broad coverage in support of the bank as lender. This language provides in part that the note is secured by all existing and future security agreements and mortgages by the borrower, by any indorser or guarantor, and by any other person providing collateral security. Lenders must carefully consider this language, and its relationship with the borrower, including guarantors and other parties, in order to determine those properties which secure the loan. This type of broad cross-collateralization language is most common on business notes.  

As a consumer example, when taking a loan secured by a WBA 428 Real Estate Mortgage, the mortgage document states that the mortgage will secure certain future advances. However, in general, most WBA consumer notes disclaim dwellings as collateral, unless the dwelling is specifically described in the note or agreement. So, a pre-existing mortgage on a dwelling does not secure a future consumer note or agreement unless the note or agreement specifically identifies the dwelling.¹

Lenders need to review their notes and security agreements for this, and similar language. While this is important for a number of reasons, this article strictly discusses the significance of such language as it relates to reporting HMDA total units. 

When reporting total units, HMDA provides clarity within its commentary. Comment 1 to section 1003.4(a)(31) makes a cross-reference to section 1003.4(a)(9) comment 2 regarding transactions involving multiple properties with more than one property taken as security (comment 2). This discussion provides clarity regarding how to report on various data points. Comment 2 draws distinctions between those data points which require reporting for a single property (selected by the lender), and those which must be considered for every property securing the loan (in addition to that single property selected by the lender). The information reported for total units is one of those which must be reported for every property securing the loan. Comment 2 in relevant part provides:

“…for aspects of the entries that do not refer to the property identified in § 1003.4(a)(9) (i.e., § 1003.4(a)(1) through (4), (7), (8), (10) through (13), (15) through (28), (31) through (38)), Financial Institution A reports the information applicable to the covered loan or application and not information that relates only to the property identified in § 1003.4(a)(9).”

Because the commentary includes total units as one of those categories for which information must be reported applicable to the covered loan, and not that which relates only to the single property identified under 1003.4(a)(9), then the lender must report total units based upon every property which secures the loan. As a result, lenders must consider whether the loan is secured by multiple properties. Lenders must review their language specifically to make this determination, but as a final point of distinction, note that the effect of cross-collateralization clauses is to secure the loan with multiple properties.

While this is not a new rule, it is recommended that banks review the above HMDA sections as a refresher. From there, banks should review their contracts and HMDA reporting to ensure that all applicable fields are being reported for all applicable properties. It may be that additional monitoring systems need to be put into place to account for multiple properties securing a loan. Banks should conduct this review in advance of any upcoming compliance exam and prepare accordingly. 

In summary, if a loan is secured by multiple properties, those properties must be included for purposes of reporting total units. As a result, lenders must review their notes and security agreements to understand the extent of how their loans are secured. This is a contractual matter which can vary from note to note, and from one loan relationship to the next. As such, each loan relationship must be reviewed to determine HMDA reporting requirements. Lastly, as mentioned above, this article is specific to the implications of cross-collateralization clauses in relation to reporting of total units for HMDA purposes. However, cross-collateralization clauses are important to understand for reasons beyond HMDA reporting, and such matters will be addressed in a broader sense in a future article.

For any questions on this matter or others, please contact WBA’s legal team at wbalegal@wisbank.com or 608-441-1200. 

¹This is for purposes of flood rules. For further discussion on cross-collateralization as it relates to flood requirements, please review the WBA Compliance Journal from February, 2022. 

If you are like most banks running a large mortgage pipeline over the last ten months, you have had very little time to catch your breath before accepting that next application. And like most banks, your back-office support staff have had to adjust their processes and resources just to keep up the rate locks, TRID disclosures, and timely mortgage closing, all during a pandemic. But what about that pesky HMDA LAR we have all come to love and adore? It’s the last regulation down the mortgage production trough and comes in a close second to post-closing internal quality control that is required during the same time period. We really don’t have time or staff for either.

But don’t get yourself on the naughty list this close to the holidays. Unless your bank is considered a large institution, compliance with every aspect of updating your HMDA within thirty days of each calendar quarter is still in play. And even for large institutions, the only regulatory relief they saw due to COVID-19 is that their regulator would not cite it as a violation if they did not file their quarterly LAR timely. How many banks, large and small, can proudly raise their hand and say they nailed it? Not as many as you would think based on my observations.

For those of you who are required to file a HMDA LAR, we all know it was made much more difficult once the extra sets of data points were introduced, and accounting for up to five applicants on one mortgage has made your HMDA LAR as long as Santa’s list, making it almost impossible to keep it up-to-date. And while the adoption to automate HMDA systems has made reporting more efficient, we still need a few extra elves to edit, review and if necessary, scrub the LAR before it can be wrapped up with a pretty bow. Without further regulatory relief or extension of filing your 2020 HMDA LAR, bank management should consider now how to reallocate staff and resources as we head into the holiday season. Getting your HMDA LAR’s caught up in time for 2021 filing may just be a Christmas miracle.

For those banks who have seen their HMDA LAR grow three times it’s normal size, this is not necessarily a bad thing. Remember, your bank’s HMDA LAR tells a story. Not one of a baby born in a manger, but one of hundreds of people being homeowners. And as bankers, we helped those wishes come true.

So, if your bank lacks the necessary resources, or elves, to review your 2020 HMDA LAR before submission, don’t fret, ShareFI is here to help. Please contact Jeff Schmid, Director of Compliance and Management Services via email to learn how we can help your bank check this list twice.

Schmid, CRCM, CERP is director of compliance and management services at FIPCO. He can be reached via email or 608-441-1220. 

By, Eric Skrum

Events

Confused about HMDA reporting? You’re not alone. The real-life examples used in this timely webinar will help clarify the confusion on the top five issues — before the March 1 reporting deadline.

After This Webinar You’ll Be Able To:

  • Submit the 2022 data with added confidence and improved data integrity
  • Effectively use the HMDA resources in the CFPB’s 2022 FIG (Filing Instructions Guide)
  • Interpret several confusing issues such as what is and isn’t a dwelling, mixed-use property scenarios, and complex demographic information collection
  • Explain how to handle quality edits
  • Understand clarifications for complicated data points

Webinar Details
HMDA reporting continues to be a challenge for many financial institutions. Most importantly, this public data can be scrutinized for potential discriminatory practices that can challenge your financial institution’s reputation. Join this fast-paced webinar to learn about issues that challenge HMDA reporters and receive valuable tools to submit your 2022 HMDA data by March 1, 2023. The presentation will include citations, tips, and real-life examples. You will learn important information about the causes of reporting errors, including these top five issues:

  • Secondary market reporting rules
  • Dwelling definitions and mixed-use property scenarios
  • Demographic information collection tips
  • Reporting tips for applications made in the commercial loan area
  • Data integrity challenges — submission and resubmission steps

Who Should Attend?
This informative session is designed for all employees who need to understand and manage HMDA reporting, including loan operations staff, loan officers, loan assistants, processors, compliance officers, fair lending officers, IT support staff, and auditors.

Take-Away Toolkit

  • HMDA worksheets and flow chart for 2022 activity, including updated resources from the CFPB
  • Lists of data fields for each data point
  • Helpful HMDA compliance resources, including checklists for submission and fair lending considerations
  • Employee training log
  • Interactive quiz
  • PDF of slides and speaker’s contact info for follow-up questions
  • Attendance certificate provided to self-report CE credits

NOTE: All materials are subject to copyright. Transmission, retransmission, or republishing of any webinar to other institutions or those not employed by your agency is prohibited. Print materials may be copied for eligible participants only.

Presenter
Susan Costonis, CRCM – Compliance Training & Consulting for Financial Institutions
Susan Costonis
is a compliance consultant and trainer who began her career in 1978. She specializes in compliance management along with deposit and lending regulatory training. Costonis has successfully managed compliance programs and exams for institutions that ranged from a community bank to large multi-state bank holding companies. She has been a compliance officer for institutions supervised by the OCC, FDIC, and Federal Reserve. Costonis has been a Certified Regulatory Compliance Manager since 1998, completed the ABA Graduate Compliance School, and graduated from the University of Akron and the Graduate Banking School of the University of Colorado. She regularly presents to financial institution audiences in several states and “translates” complex regulations into simple concepts by using humor and real-life examples.

Registration Options

  • $245 – Live Webinar Access
  • $245 – OnDemand Access + Digital Download
  • $350 – Both Live & On-Demand Access + Digital Download

The Home Mortgage Disclosure Act (HMDA) is a complex, data-driven process. The CFPB has published many FAQs to clarify the correct codes and collection process. This webinar will provide effective training to help staff correctly document the demographic information based on the various types of application submission. These methods include in-person, phone, internet, and “hybrid” submissions. This is the second webinar in a three-part series. Attend Parts 1 and 3 to learn more about application basics and commercial lending issues.

HIGHLIGHTS

Successfully use toolkit resources to collect complex demographic information
Define the terms ethnicity, race, and gender
Explain the collection process to employees and accountholders
Distinguish between the requirements for various application channels
Realize the importance of collecting and reporting accurate information

TAKE-AWAY TOOLKIT

Step-by-step data collection definitions and important tips to avoid mistakes
Tool for collecting demographic information
Helpful HMDA compliance resources
Employee training log
Interactive quiz

WHO SHOULD ATTEND?
This informative session is designed for all employees who need to understand and manage HMDA reporting, including loan operations, loan officers, loan assistants, processors, compliance officers, and auditors.

ABOUT THE PRESENTER – Susan Costonis, CRCM
Susan Costonis is a compliance consultant and trainer who began her career in 1978. She specializes in compliance management along with deposit and lending regulatory training. Susan has successfully managed compliance programs and exams for institutions that ranged from a community bank to large multi-state bank holding companies. She has been a compliance officer for institutions supervised by the OCC, FDIC, and Federal Reserve. Susan has been a Certified Regulatory Compliance Manager since 1998, completed the ABA Graduate Compliance School, and graduated from the University of Akron and the Graduate Banking School of the University of Colorado. She regularly presents to financial institution audiences in several states and “translates” complex regulations into simple concepts by using humor and real-life examples.

REGISTRATION OPTIONS

Live Webinar – $245
Recorded Webinar and Digital Download – $245 plus tax
Live Webinar, Recorded Webinar and Digital Download – $320 plus tax