HMDA Lending Examination Procedures PDF

V. Lending — HMDA V–9.22 FDIC Consumer Compliance Examination Manual — July 2021 V. Lending — HMDA Examination Objectives 1. 2. To determine the accuracy and timeliness of the financial institution’s HMDA LAR. To determine the financial institution’s compliance with disclosure requirements. Ex...

V. Lending — HMDA V–9.22 FDIC Consumer Compliance Examination Manual — July 2021 V. Lending — HMDA Examination Objectives 1. 2. To determine the accuracy and timeliness of the financial institution’s HMDA LAR. To determine the financial institution’s compliance with disclosure requirements. Examination Procedures 22 Initial Procedures 5. A. Institutional Coverage Determine whether an institution is subject to Regulation C because it meets the definition of financial institution. 12 CFR 1003.2(g). Depository Financial Institutions A depository financial institution is subject to Regulation C if the requirements of 12 CFR 1003.2(g)(1) are met. If the institution is a bank, savings association, or credit union, determine whether it meets the Asset-Size Threshold Test, the Location Test, the Loan Activity Test, the Federally Related Test, and the Loan-Volume Threshold Test, which are listed below. If all five tests are satisfied, then the financial institution is required to report mortgage data in accordance with Regulation C. 1. 2. 3. 4. Asset-S ize Threshold Test. Determine whether, on the preceding December 31, the institution had assets in excess of the asset-size threshold published annually in the Federal Register, as included in the Official Interpretations, 12 CFR Part 1003, comment 2(g)-2. 12 CFR 1003.2(g)(1)(i). Location Test. Determine whether, on the preceding December 31, the institution had a home or branch office located in an M SA. 12 CFR 1003.2(g)(1)(ii). Loan Activity Test. Determine whether the institution originated at least one home purchase loan or refinancing of a home purchase loan secured by a first lien on a one-to-four-unit dwelling during the preceding calendar year. 12 CFR 1003.2(g)(1)(iii). Federally Related Test. Determine whether the institution meets one of following criteria: a. The institution is federally insured or federally regulated. (12 CFR 1003.2(g)(1)(iv)(A)); or b. The institution originated at least one home purchase loan or refinancing of a home purchase loan that was secured by a first lien on a one-tofour-unit dwelling and also (i) was insured, guaranteed, or supplemented by a Federal agency or (ii) was intended for sale to Fannie M ae or Freddie M ac (12 CFR 1003.2(g)(1)(iv)(B)). Loan-Volume Threshold Test. Determine whether the institution originated at least100 closed-end mortgage loans in each of the two preceding calendar years, or originated at least 500 open-end lines of credit in each of the two preceding calendar years. Determine whether transactions are appropriately excluded from coverage by Regulation C according to criteria in 12 CFR 1003.3(c)(1)–(13). The list of excluded transactions and definitions for closed-end mortgage loans and open-end lines of credit are described below in the Transactional Coverage section of these procedures. Nondepository Financial Institutions A nondepository financial institution is subject to Regulation C if the requirements of 12 CFR 1003.2(g)(2) are met. If the institution is a nondepository financial institution other than a bank, savings association, or credit union, determine whether it meets the Location Test and the Loan-Volume Threshold Test described below. If both tests are satisfied, then the financial institution is required to report mortgage data in accordance with Regulation C. 1. Location Test. Determine whether the institution had a home or branch office in an M SA on the preceding December 31. 12 CFR 1003.2(g)(2)(i). 2. Loan-Volume Threshold Test. Determine whether the institution originated at least 100 closed-end mortgage loans in each of the two preceding calendar years, or originated at least 500 open-end lines of credit in each of the two preceding calendar years. Determine whether any transactions are appropriately excluded from coverage by Regulation C according to criteria in 12 CFR 1003.3(c)(1)-(13). The list of excluded transactions and definitions for closed-end mortgage loans and open-end lines of credit are described below in the TRANSACTIONAL COVERAGE section. ____________________ 22 These procedures are substantially similar to those adopted as interagency examination procedures in 2019. See FIL-16-2019, FFIEC A Guide to HMDA Reporting: Getting It Right! for 2019 HMDA Data and Updated HMDA Examination Procedures. Revisions have been made to reflect amendments to Regulation C through a final rule that the Consumer Financial P rotection Bureau published in 2020. See 85 Fed. Reg. 28364 (May 12, 2020). FDIC Consumer Compliance Examination Manual — July 2021 V–9.23 V. Lending — HMDA Merger or Acquisition Activity If recent merger or acquisition activity has occurred, determine whether the surviving or newly formed institution meets the definition of financial institution in 12 CFR 1003.2(g). After a merger or acquisition, the surviving or newly formed institution is a financial institution according to 12 CFR 1003.2(g) if it, considering the combined assets, location, and lending activity of the surviving or newly formed institution and the merged or acquired institutions or acquired branches, satisfies the criteria included in 12 CFR 1003.2(g). For examples of institutional coverage by Regulation C after merger or acquisition activity, please see Official Interpretations, Supplement I to 12 CFR Part 1003, comment 2(g)-3. B. Transactional Coverage Determine whether a transaction is subject to Regulation C because it: (1) meets the definition of a covered loan as defined in 12 CFR 1003.2(e), and (2) is not an excluded transaction as defined in 12 CFR 1003.3(c)(1)–(13). Covered Loans Institutions that meet the definition of financial institution according to 12 CFR 1003.2(g) must report data on transactions that meet the definition of a covered loan in 12 CFR 1003.2(e). Types of transactions enumerated in 12 CFR 1003.3(c)(1)–(13) are explicitly excluded from Regulation C reporting requirements. 1. Covered Loan. Determine whether the transaction meets the definition of covered loan according to 12 CFR 1003.2(e) and should be reported under Regulation C. A covered loan is a closed-end mortgage loan or an open-end line of credit that is not a transaction specifically excluded from the reporting requirements of the regulation. a. Determine whether the transaction is a closed-end mortgage loan as defined in 12 CFR 1003.2(d). A closed-end mortgage loan is: i. An extension of credit; ii. b. V–9.24 Note: Further, a covered loan secured by five or more separate dwellings, which are not multifamily dwellings, in more than one location is not a loan secured by a multifamily dwelling. For example, assume a landlord uses a covered loan to improve five or more dwellings, each with one individual dwelling unit, located in different parts of a town, and the loan is secured by those properties. The covered loan is not secured by a multifamily dwelling as defined by § 1003.2(n). Likewise, a covered loan secured by five or more separate dwellings that are located within a multifamily dwelling, but which is not secured by the entire multifamily dwelling (e.g., an entire apartment building or housing complex), is not secured by a multifamily dwelling as defined by § 1003.2(n). For example, assume that an investor purchases 10 individual unit condominiums in a 100-unit condominium complex using a covered loan. The covered loan would not be secured by a multifamily dwelling as defined by § 1003.2(n). Comment 2(n)-3. 3. Excluded Transactions. Determine whether the type of transaction is listed as an excluded transaction in 12 CFR 1003.3(c). The following transactions are not required to be reported under Regulation C: a. A closed-end mortgage loan or open-end line of credit originated or purchased by a financial institution acting in a fiduciary capacity (12 CFR 1003.3(c)(1)); b. A closed-end mortgage loan or open-end line of credit secured by a lien on unimproved land (12 CFR 1003.3(c)(2)); c. Temporary financing (12 CFR 1003.3(c)(3)); d. The purchase of an interest in a pool of closed-end mortgage loans or open-end lines of credit (12 CFR 1003.3(c)(4)); e. The purchase solely of the right to service closedend mortgage loans or open-end lines of credit (12 CFR 1003.3(c)(5)); The purchase of closed-end mortgage loans or open-end lines of credit as part of a merger or acquisition, or as part of the acquisition of all of the assets and liabilities of a branch office as defined in 12 CFR 1003.2(c) (12 CFR 1003.3(c)(6)); A closed-end mortgage loan or open-end line of credit, or an application for a closed-end mortgage loan or open-end line of credit, for which the total Secured by a lien on a dwelling; and iii. Is not an open-end line of credit, as defined by 12 CFR 1003.2(o). Determine whether the transaction is an open-end line of credit as defined in 12 CFR 1003.2(o). An open-end line of credit is: i. ii. iii. Is an open-end credit plan as defined in Regulation Z, 12 CFR 1026.2(a)(20), but without regard to whether the credit is consumer credit, as defined in 12 CFR 1026.2(a)(12), is extended by a creditor as defined in 12 CFR 1026.2(a)(17), or is extended to a consumer as defined in 12 CFR 1026.2(a)(11). An extension of credit; Secured by a lien on a dwelling; and f. g. FDIC Consumer Compliance Examination Manual — July 2021