I'm sure we can all think of different scenarios we've come across that have made us stop and go "hm". Well, the new rules in HMDA are no exception and have certainly given us many reasons to stop and go "hm". Today we're going to focus on a few of these "hm" situations in the new rules and provide you with guidance to make these a little clearer on how to report.
First, the scenario where you have an entity applicant and an individual co-applicant. The credit decision appears to have been based on the income of the co-applicant. Do you report the co-applicant's income even though the entity's income would be reported as "N/A"? Hm... We have reached out to the CFPB and they have provided that even though you relied on the income from the natural individual co-applicant, you would still report income as "N/A" since the applicant is a non-natural person. They believe that by reporting income when there is a non-natural person as an applicant, it can skew the data and that is not exactly what they are looking for. They refer to the CFPB HMDA Small Entity Guide where on page 53 it states to report income as "N/A" if the applicant or co-applicant is not a natural person.
Second, the scenario where you have two applicants with two credit report results. The applicant's result shows a credit score of 650 and the co-applicant's result shows "N/A" "00 - Beacon not available, no qualifying accounts present." (This usually occurs when there has not been sufficient credit history established with which to rate.) So, how do you report the credit scores if you relied on the applicant's score? Hm... Again, we reached out to the CFPB for guidance and this is what they provided, "For credit reports that are returned as "N/A", please use "8888". The "7777" option is available for credit reports that are non-numeric." Well, that's not very helpful, but using the CFPB's response, along with the guidance provided in the Filing Instruction Guide, we are advising the following:
- Use code 7777 if your institution relied on a credit score that is not a number.
- Use code 8888 to report when the credit score data element does not apply to the covered loan/application that is being reported (credit score is N/A).
- Use code 9999 in the co-applicant field if there are no co-applicants or co-borrowers.
Last, but certainly not least, the scenario when you use "GUS" as the AUS System to evaluate an application and the result given was an "Accept/Eligible." On the CFPB Reference Chart it states that the only options for "GUS" are Codes 5,8,10,13,14,15. Do you report "Code 8 - Accept" or "Code 14 - Eligible"? The option for "Other" is not available for "GUS". Hm... We submitted this question to the CFPB where the AUS is returning multiple results, but the 2018 Filing Instruction Guide doesn't seem to indicate that you combine results to report them in this manner. Again, the CFPB's response was very vague and not helpful. They said, "You would have to select the most applicable result. The codes cannot be combined in an individual field, for ex. 8/14 for a result of "accept" and "eligible" cannot be reported in that manner. You must choose whichever of the two is the better option and report accordingly." We advise that you will need to come up with a process for making the determination of which is the better. If you have a program that automatically pulls a result, look at which result they are pulling and make that your reportable result (we are seeing most vendors pulling "Code 8 - Accept"). Be sure to document this process in your policy and procedures, train your folks on the process and then try to be as consistent in your reporting as possible. When you do have exceptions, document the reasoning and move forward.
These are just a few of those "Hm" moments that you've likely encountered in your HMDA data collection. We know there are many more scenarios that have you saying "Hm". Remember that you can reach out to the CFPB and submit a question yourself by completing the form at https://reginquiries.consumerfinance.gov/ or, if you are a customer of Temenos' Compliance Advisory Services, we are always available to assist you.
Here’s another “Hm” for you. After the newsletter was published, I was reminded that the 2018 FIG has been updated to allow for the additional choice “16 – Other” if you are using GUS as your underwriting system. I was also told that the CFPB had provided unofficial guidance which was that if your findings do not match any of the other codes allowed for GUS (5, 8, 10, 13, 14 and 15), then you should report “Code 16-Other” and then include the actual finding in the free form text field for “Code 16.” Hm… While I have not received this guidance directly, I do see the addition of this choice in the FIG and find the information credible so I wanted to pass it along to you.