HMDA and Reporting Requested Loan Terms

Issue/Inquiry

What loan term should be reported on the HMDA LAR for a loan that was declined? In this case, the customer had applied for a loan with a 120-month maturity, but the credit department made its decision based on its counter-offer of a loan with a 240-month maturity.

Response Summary

When a loan request is denied, the Bank should report data taken from the application with respect to the terms of the loan.

Response Detail

Regulation C requires a financial institution to collect data regarding applications for covered loans that it receives, originates, and purchases for each calendar year. This includes the scheduled number of months after which the loan will mature or terminate, or would have matured or terminated. 12 CFR §1003.4(a),(a)(25).

The institution reports data for applications that did not result in an origination, but for which actions were taken (e.g., an application that the institution denied, an application the institution approved but was not accepted, an application that the institution closed for incompleteness, or an application that the applicant withdrew during the calendar year covered by the loan/application register). Official Interpretations, 1003.4(a) – 1.ii.

When a loan request does not result in an origination, the data reported is taken from the application. This is indicated by the Official Interpretations with respect to loan requests subject to a counteroffer:

Covered loan amount—counteroffer. If an applicant accepts a counteroffer for an amount different from the amount for which the applicant applied, the financial institution reports the “covered loan amount granted.” If an applicant does not accept a counteroffer or fails to respond, the institution reports the amount initially requested.

Action taken—counteroffers. If a financial institution makes a counteroffer to lend on terms different from the applicant’s initial request (for example, for a shorter loan maturity, with a different interest rate, or in a different amount) and the applicant does not accept the counteroffer or fails to respond, the institution reports the action taken as a denial on the original terms requested by the applicant. If the applicant accepts, the financial institution reports the action taken as covered loan originated. Official Interpretations, 1003.4(a)(7) – 1,9.

In each case, the denial pertains to the original terms requested by the applicant. Therefore, the institution would report the amount initially requested, and it would also report the term of the loan originally requested when a loan is denied. Whether the institution may have made a counteroffer is not relevant to the terms reported if the applicant did not accept the counteroffer.

It should be noted that the terms of the loan requested may change over the course of the application process. If the applicant initially requested a loan with a 120-month term, but subsequently changed the request to a loan with a 240-month term, the institution would report the loan term as 240 months.

This entry was posted on Monday, August 27th, 2018 at 6:00 am.