HMDA and Property Value

Issue/Inquiry

When the HMDA data integrity was audited, the Bank discovered that the appraised value of the property for purchase-money mortgage loans did not agree with the value in the appraisal field. When this was discussed with the Lending area, they indicated that they used the lowest value due to the loan-to-value (“LTV”) calculation. The Encompass representative indicated that the HMDA field (HMDA.X85) uses the purchase price (field 136) or appraised value (field 356) (whichever is lower), since this is involved in the LTV calculation. Should the actual appraised value on the appraisal be used instead?

Response Summary

HMDA does not require a particular valuation method to be used, but the Bank should report the valuation used in making the credit decision. When the LTV is calculated, the value of the property used in the calculation is the one that is reported. If the appraised value or another value was used in calculating the LTV ratio, that value is reported on the HMDA LAR. If the purchase price was used, that value is reported.

Response Detail

Under Regulation C, which implements the Home Mortgage Disclosure Act (“HMDA”), the value of the property securing the covered loan that is reported on the HMDA Loan Application Register (“HMDA LAR”) is the one that is relied on when making the credit decision. 12 CFR 1003.4(a)(28).

For example, if the Bank relies on an appraisal or other valuation for the property in calculating the LTV ratio, it reports that value, but if it relies on the purchase price of the property in calculating the LTV ratio, it reports the purchase price. Official Interpretations, 1003.4(a)(28) – 1.

When a financial institution obtains two or more valuations of the property securing or proposed to secure the covered loan, it reports the value relied on in making the credit decision. So, when a financial institution obtains an appraisal, an automated valuation model report, and a broker price opinion, and each method provides a different value for the property, the institution reports the value it relied on in making the credit decision. A financial institution is not required to use a particular valuation method, but should report the value relied on in making the credit decision. Official Interpretations, 1003.4(a)(28) – 2.

In this scenario, the Bank should report the value actually used in calculating the LTV ratio. This means that, if the Bank’s system automatically uses the lower of the appraised value or purchase price in calculating the LTV ratio for purchase-money mortgage loans, the value used in the calculation is the value reported on the HMDA LAR. The Bank, however, will have to determine what value is in fact used in making the LTV calculation for each loan reported.

This response is for informational purposes only and is not intended for legal guidance.

This entry was posted on Monday, December 30th, 2019 at 6:00 am.