IBA Compliance Connection

Your go to source for compliance!

We serve as a correspondent bank for other local community banks on home mortgage loans. Those banks accept loan applications in their names and forward the applications to us to review. For each application that we receive from them, we pull credit reports, run the application through our underwriting systems, and provide a list of conditions that must be met for us to purchase the loan. The other bank closes the loan in its name, initially funds the loan, and then sells the loan to our bank. Under the new Home Mortgage Disclosures Act (HMDA) final rule that takes effect this year, should we report these applications as submitted to our institution? Should we report these loans as initially payable to our institution?

—

by

admin

Based on the facts provided, we believe you should indicate that the applications are not submitted directly to your institution.

For “origination” loans, the 2015 HMDA Final Rule requires you to report whether the application was submitted directly to your bank (identified in new data field number 93). The Official Interpretations explain that a financial institution does not directly receive an application if “an applicant contacted and completed an application with a broker or correspondent that forwarded the application to a financial institution for approval. . .” In our view, your facts are analogous to this scenario, where community banks receive and complete the applications and forward them to your bank to review. Consequently, we suggest reporting such applications as not received directly by your financial institution.

The HMDA final rule also requires reporting banks to identify whether the loan is initially payable to that bank (identified in new data field number 94). Whether to report a loan as “initially payable” to your bank depends on whether the note made the obligation initially payable to your bank. For example, “if a financial institution reported an origination of a covered loan that it approved prior to closing, that closed in the name of a third-party, such as a correspondent lender, and that the financial institution purchased after closing, the covered loan was not initially payable to the financial institution.” The facts you provided sound similar to this example, where the loans would not be initially payable to your bank, but we recommend reviewing the language of your loan notes to confirm.

For resources related to our guidance, please see:

  • Regulation C, 12 CFR 1003.4(a)(33) (“Except for purchased covered loans, the following information about the application channel of the covered loan or application: (i) Whether the applicant or borrower submitted the application for the covered loan directly to the financial institution; and (ii) Whether the obligation arising from the covered loan was, or in the case of an application, would have been initially payable to the financial institution.”) (Data field numbers 93 and 94)

  • Official Interpretations, Regulation C, 12 CFR 1003, Paragraph 4(a)(33)(i), Comment 1(iii) (“If an applicant contacted and completed an application with a broker or correspondent that forwarded the application to a financial institution for approval, an application was not submitted to the financial institution.”)

  • Official Interpretations, Regulation C, 12 CFR 1003, Paragraph 4(a)(33)(ii), Comment 1 (“Section 1003.4(a)(33)(ii) requires financial institutions to report whether the obligation arising from a covered loan was or, in the case of an application, would have been initially payable to the institution. An obligation is initially payable to the institution if the obligation is initially payable either on the face of the note or contract to the financial institution that is reporting the covered loan or application. For example, if a financial institution reported an origination of a covered loan that it approved prior to closing, that closed in the name of a third-party, such as a correspondent lender, and that the financial institution purchased after closing, the covered loan was not initially payable to the financial institution.”)