IBA Compliance Connection

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We are a HMDA reporting bank. We had a corporate customer borrow money to purchase a 1–4 unit family dwelling. The loan is secured by the dwelling and the customer’s business assets. The credit decision was based on both the value of the dwelling and the business assets. For HMDA reporting purposes, would the property value include both the value of the dwelling and the business assets or just the value of the dwelling? For the combined loan to value ratio, should the loan amount be divided by the combined value of the collateral or just the value of the dwelling?

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For HMDA reporting purposes, the reported value of the property securing the covered loan includes only real property. Regulation C itself requires reporting “the value of the property securing the loan,” but it does not specify whether the value of the property to be reported is restricted to real property. Regulation C is implementing a provision in the Home Mortgage Disclosure Act (HMDA), which requires reporting “the value of the real property pledged or proposed to be pledged as collateral.” Consequently, we believe that your bank should report only the value of the dwelling as the property value.

However, the combined loan-to-value ratio reported should be the ratio calculated by your bank and relied on in making your credit decision — which may or may not include the value of the business assets (non-real property) in addition to the value of the dwelling securing the loan. The official interpretations for Regulation C clarify that “[a] financial institution reports the combined loan-to-value ratio relied on in making the credit decision” and that “[t]he property used in the combined loan-to-value ratio calculation . . . may include more than one property and non-real property.” Thus, if your bank used the loan amount divided by the combined value of the dwelling and business assets to calculate the combined loan-to-value ratio in making your credit decision, then that ratio should be reported as the combined loan-to-value ratio in your HMDA report.

For resources related to our guidance, please see:

  • Regulation C, 12 CFR 1003.4(a)(28) (“The data collected shall include the following items: . . . (28) The value of the property securing the covered loan or, in the case of an application, proposed to secure the covered loan relied on in making the credit decision.”)
  • Home Mortgage Disclosure Act, 12 USC 2803(b)(6)(A) (Requiring reporting of “the value of the real property pledged or proposed to be pledged as collateral . . . .”)
  • 2015 HMDA Final Rule, 80 Fed. Reg. 66127 (October 28, 2015) (“Regulation C does not require financial institutions to report information regarding the value of the property that secures or will secure the loan. HMDA section 304(b)(6)(A) requires the reporting of the value of the real property pledged or proposed to be pledged as collateral. The Bureau proposed § 1003.4(a)(28), which implements this requirement by requiring financial institutions to report the value of the property securing the covered loan or, in the case of an application, proposed to secure the covered loan relied on in making the credit decision.”)
  • Regulation C, 12 CFR 1003.4(a)(24) (“The data collected shall include the following items: . . . (24) Except for purchased covered loans, the ratio of the total amount of debt secured by the property to the value of the property relied on in making the credit decision.”)
  • Regulation C, Official Interpretations, 12 CFR 1003, Paragraph 4(a)(24), Comment 1 (“Section 1003.4(a)(24) requires a financial institution to report, except for purchased covered loans, the ratio of the total amount of debt secured by the property to the value of the property (combined loan-to-value ratio) relied on in making the credit decision.”)
  • Regulation C, Official Interpretations, 12 CFR 1003, Paragraph 4(a)(24), Comment 6 (“A financial institution reports the combined loan-to-value ratio relied on in making the credit decision, regardless of which property or properties it used in the combined loan-to-value ratio calculation. The property used in the combined loan-to-value ratio calculation does not need to be the property identified in § 1003.4(a)(9) and may include more than one property and non-real property. For example, if a financial institution originated a covered loan for the purchase of a multifamily dwelling, the loan was secured by the multifamily dwelling and by non-real property, such as securities, and the financial institution used the multifamily dwelling and the non-real property to calculate the combined loan-to-value ratio that it relied on in making the credit decision, § 1003.4(a)(24) requires the financial institution to report the relied upon ratio. Section 1003.4(a)(24) does not require a financial institution to use a particular combined loan-to-value ratio calculation method but instead requires financial institutions to report the combined loan-to-value ratio relied on in making the credit decision.”
  • Regulation C, 12 CFR 1003.4(a)(9) (“The data collected shall include the following items: . . . (9) The following information about the location of the property securing the covered loan or, in the case of an application, proposed to secure the covered loan: (i) The property address. . . .”)