Navigating the complexities of Regulation C as it applies to HMDA reporting can be daunting, but understanding key definitions and reporting requirements can ensure your financial institution remains in compliance.
Brad Stumpe, CPA, CRCM, partner and compliance and loan review practice leader, hosted a webinar, HMDA Refresher – Including What Reporters Must Know Prior to Section 1071 Implementation, to inform financial institutions of their obligations under HMDA reporting requirements.
What is a Dwelling?
The term “dwelling” is pivotal in Regulation C, encompassing a variety of residential structures, regardless of if that structure is attached to real property. This includes, but isn’t limited to, second homes, investment properties, apartments and manufactured home communities. It excludes recreational vehicles, boats, and other transitory residences. Under this definition, for instance, an assisted living facility or supportive housing for persons with disabilities can be considered dwellings.
Home Purchase Loans and Refinancing Definitions
A home purchase loan is defined as a loan that is both for purchasing a dwelling and secured by a dwelling and can be closed-end or open-end loan. Home purchase loans can involve multiple properties and can include:
- Second mortgages that finance the downpayment of first mortgages
- Assumptions if the lender accepts the new borrower as the obligor on the existing loan to finance the new borrower’s purchase of that dwelling via a written agreement
Refinancing, on the other hand, involves satisfying and replacing an existing dwelling-secured debt with a new one. Pay close attention to the “satisfy and replace” language, which means actions such as extensions and modifications don’t count. The new obligation must satisfy and replace the existing obligation.
Cash-out refinancing is a subset of refinancing where the cash-out component influences the new loan terms or the way an application is processed. These are most common with secondary market transactions. If there is no difference between how cash-outs are processed or priced compared to non-cash-out refinances, then under HMDA it shouldn’t be reported as a cash-out refinance.
Home Improvement Loans
These loans are for repairing, rehabilitating or improving a dwelling or the real property where it is located, such as landscaping or adding a pool or garage. It’s important to note that improvements to certain mixed-use properties can qualify if the improvements adequately benefit the residential portion.
Who Reports?
Financial institutions must report if they meet certain criteria, such as originating 25 or more applicable closed-end loans or 200 or more applicable open-end lines of credit in each of the preceding two calendar years. Partial exemptions are available for institutions that originated fewer than 500 applicable closed- or open-end loans in each of the last two years.
All potential reporters are also subject to the location test, which requires you to have a home or branch office in a metropolitan statistical area to be subject to the data collection and reporting requirements. The asset-size test only applies if you are a depository, like a bank, credit union or savings association. The asset threshold, adjusted annually, currently stands at $56 million.
Reportable Applications
The primary criterion with reportable applications is that the loan must be dwelling-secured. This means that if there is no dwelling involved, the application is not reportable under HMDA. Here are the main types of reportable applications:
- Business Purpose Applications: These include dwelling-secured home purchase, refinancing, cash-out refinancing and home improvement loans.
- Consumer Purpose Applications: Similar to business purpose applications, these include dwelling-secured home purchase, refinancing, cash-out refinancing, home improvement and other loans.
While the vast majority of home purchase and refinance loans will be secured by a dwelling, if you encounter one that is not, then it isn’t HMDA reportable but could be reportable under Section 1071 if it meets the criteria. It’s essential to determine whether a transaction is HMDA or 1071 reportable as early as possible since each has different data collection and reporting requirements that must be followed.
Non-Reportable Applications
Certain types of credit are excluded from HMDA reporting. The main categories of non-reportable applications include:
- Loans/Applications Secured by Unimproved Land: These are excluded unless the loan proceeds will be used to construct or purchase a dwelling to be placed on the land within two years of closing.
- Temporary Financing: Loans designed to be replaced by separate permanent financing extended by any financial institution to the same borrower at a later time are excluded. This typically includes construction-only loans.
- Primarily for Agricultural Purpose: Loans used primarily for agricultural purposes or secured by a dwelling that is located on real property that is used primarily for agricultural purposes are not HMDA reportable.
Important Dates for 1071 Small Business Lending
- Tier One data collection begins 7/18/2025
- Tier One report data by 6/1/2026
- Tier Two data collection begins 1/16/2026
- Tier Two report data by 6/1/2027
- Tier Three data collection begins 10/18/2026
- Tier Three report data by 6/1/2027
Remember that Section 1071 allows you to begin collecting data up to 12 months in advance so you can begin testing your systems. While you might not need a full 12 months, a dry run can help prepare you for your mandatory compliance dates. Understanding these definitions and requirements will help ensure compliance with Regulations C and B while streamlining your reporting processes.
Anders Banking and Financial Institutions advisors monitor shifting regulations and legislation impacting lenders of all types to ensure our clients remain in compliance. For more information about our services, and the associated cost, request a meeting below.
