Your bank has the flexibility to determine whether it will categorize the applicant’s furnishing of additional cash flow information as a new application or as a continuation of a prior application.

Both the Home Mortgage Disclosure Act (HMDA) regulations and the adverse action notice regulations under the Equal Credit Opportunity Act (ECOA) define an “application” as any oral or written request “that is made in accordance with procedures used by a creditor for the type of credit requested.” 12 CFR 1002.2(f)12 CFR 1003.2. Similarly, the Official Staff Commentary for the ECOA emphasizes an institution’s discretion in determining what will be considered an “application,” stating that “[a] creditor has the latitude under the regulation to establish its own application process . . . .”  Comment 1, Official Staff Commentary, 12 CFR 1002.2(f) (which is incorporated into the HMDA rules under Comment 1, Official Staff Commentary, 12 CFR 1003.2, Application). Since the definition of an “application” depends on your institution’s procedures, and given the latitude granted by the regulators in establishing these procedures, we believe your institution could choose to treat the additional cash flow information as either a new application or a continuation of a prior application.

The HMDA regulations do not provide specific guidance on how to report the date and outcome of an application for which a rejected loan applicant has provided new information. However, HMDA’s Official Staff Commentary provides some guidance on transactions in which an applicant reinstates an application that had been denied due to incompleteness. For such “reinstated applications,” the commentary states that banks have the discretion to treat such transactions as separate applications or as continuations of prior applications, and if you treat the reinstatement as a new transaction, then you must report the date of the request for reinstatement as the application date.  Comment 3, Official Staff Commentary, 12 CFR 1003.4(a)(1).

While this Official Staff Commentary does not apply exactly to the transaction you described (since you denied the original application because it did not meet your underwriting standards rather than because it was incomplete), we believe its rationale provides some guidance as how you could report this transaction. If you decide to treat the transaction as a continuation of the original application, it would be logical to use the date of the original application as the application date, and to report the transaction as an origination. If you decide to treat the transaction as two separate applications, it would be logical to use the date on which you received the additional information as the application date for the second application, and to report the first application as a denial and the second application as an origination.

Importantly, the HMDA Official Staff Commentary repeatedly emphasizes that an institution’s approach to HMDA reporting should be consistent.  In other words, your institution should report similar transactions in the same manner each time that they arise. Consequently, we strongly recommend establishing a written policy regarding HMDA reporting for transactions in which you receive additional information from a loan applicant after denying an application, and that your procedures adhere to this policy.