Do You Qualify for the HMDA Small Filer Exemption?

How do you know if your institution qualified for the HMDA small filer exemption? Read on to learn the basics of the partial exemption and learn what it means for you.

On Friday, August 31, the Consumer Financial Protection Bureau (CFPB) released their long-awaited HMDA Small Filer exemption. This Final Rule, referred to as "Partial Exemptions from the Requirements of the Home Mortgage Disclosure Act under the Economic Growth, Regulatory Relief, and Consumer Protection Act (Regulation C)," outlines the criteria for institutions that are now excluded from some HMDA reporting requirements.

When we wrote about the 5 myths of the Dodd-Frank rollback, we first touched on the idea of these partial HMDA exemptions. Here, we'll provide a deeper dive into this topic.

Who is Covered by the HMDA Small Filer Exemption?

If you can answer "yes" to all of the following, then the 2018 HMDA partial exemption applies to you:

1. Are you an insured depository institution, or an insured credit union?
2. Did you originate fewer than 500 closed-end mortgage loans in each of the two preceding calendar years, or fewer than 500 open-ended lines of credit in each of the two preceding calendar years?
   • Please note that these two partial exemptions operate independently of each other. If you originated fewer than 500 closed-end mortgage loans, but more than 500 open-ended lines of credit, you are only exempted from reporting the data for those mortgage loans. You would still have to report all the new HMDA data for those 500+ open-ended lines of credit.
   • Only loans and lines of credit that are otherwise HMDA reportable count toward the partial exemption threshold.
3. Did you receive a "Satisfactory" or "Outstanding" rating on each of your two most recent CRA (Community Reinvestment Act) evaluations?
   • If your institution received a "Substantial Non-Compliance" or a "Needs to Improve" on both of you most recent CRA exams, you will not qualify for the partial exemption. 

If your answer to all of the above questions was "yes," then you are considered a "small filer." That means you're exempt from reporting some HMDA data.

How Do You Know If This Small Filer Exemption Applies to You?

It's true that figuring out if you qualify as a small filer might be difficult. In fact, the CFPB spends the better portion of three pages on this topic.

Whether a partial exemption applies to you in a particular calendar year depends on your origination activity in each of the preceding two calendar years. In some instances, it may be impossible to determine if you qualify until just before the data collection must begin for a particular year.

You need to know the number of closed-end loans or open-ended lines of credits for which the final action was taken a year.

For example, if you're trying to figure out if you are exempted from reporting in your 2019 submission, you need to know the number of closed-end loans and open-ended lines of credits with a final action taken date in 2018 and 2017. If that number is less than 500 for both 2017 and 2018, you don't have to report the exempted data fields in 2019.

What Loans or Lines Count Towards that 500 Count?

Only loans or lines that are HMDA reportable are counted towards the 500 threshold.

What Data is Covered by this Partial Exemption?

In short, this Final Rule outlines:

• The data points that do not need to be collected and reported if a transaction qualifies for a partial exemption.
• Data points that must be collected and reported even if a transaction qualifies for a partial exemption. 

There are 48 data points required to be collected and reported for HMDA compliance. This small filer exemption says that 26 of those 48 data points do not need to be collected and reported if the transaction qualifies for a partial exemption. 

The Difference Between Data Points and Data Fields

Before we get into what data is discussed in the rule, it's important to understand some of the jargon of this rule. According to the rule, a "data point" is basically a small collection of related data.

For example, there is a "property address" data point. In that data point are four different "data fields": street address, city, state and ZIP code.

That's just one example. There are a lot of different data points with multiple data fields.

(Here is a list of all of the HMDA data points from the CFPB.)

Insured depository institutions and credit unions that qualify for the partial exemption may still choose to report those exempt data points, if they want. That said, know that if you choose to report a data point, you have to report ALL of the fields therein. You can't report one data field for a particular data point without reporting all the other data fields.

The 22 Data Points You Still Need to Report

Even if you're a small filer, you need to collect the following data points (and all their data fields), regardless of your exemption. Most of these data points are unchanged from prior years' submissions; they will probably look familiar to you. Here are all 22 that you still need to report:

1. Application Date (1003.4(a)(1)(ii))
2. Loan Type (1003.4(a)(2))
3. Loan Purpose (1003.4(a)(3))
4. Preapproval (1003.4(a)(4))
5. Construction Method (1003.4(a)(5))
6. Occupancy Type (1003.4(a)(6))
7. Loan Amount (1003.4(a)(7))
8. Action Taken (1003.4(a)(8)(i))
9. Action Taken Date (1003.4(a)(8)(ii))
10. State (1003.4(a)(9)(ii)(A))
11. County (1003.4(a)(9)(ii)(B))
12. Census Tract (1003.4(a)(9)(ii)(C))
13. Ethnicity (1003.4(a)(10)(i))
14. Race (1003.4(a)(10)(i))
15. Sex (1003.4(a)(10)(i))
16. Age (1003.4(a)(10)(ii))
17. Income (1003.4(a)(10)(iii))
18. Type of Purchaser (1003.4(a)(11))
19. HOEPA Status (1003.4(a)(13))
20. Lien Status (1003.4(a)(14))
21. Number of Units (1003.4(a)(31))
22. Legal Entity Identifier (1003.5(a)(3))

You may notice that a few of the older data points are missing from this list of requirements. One great example is the Loan/Application Number. Please note that the Loan/Application Number was replaced by the Universal Loan Identifier requirement on Jan. 1, 2018. See below for additional details on the changes to ULI requirements.

"This HMDA Small Filer exemption is a big relief for our bank. We began the year collecting the new data, but it took additional time, resources, and skill. At least three people were spending hours on each HMDA loan application; it was just overly burdensome, with not a lot of benefits. 

It’s good to know that we may finally have some regulators who relate to us as bankers!"

- Edith Stevens, Head of Risk at Heritage Bank

The 26 Data Points You Don't Need to Report

If you're considered a small filer for HMDA purposes, these are the 26 data points you don't need to report:

1. Universal Loan Identifier (ULI) (1003.4(a)(1)(i))46)
   • The rule now designates a non-universal loan identifier for partially exempt transactions for institutions that choose not to report a universal loan identifier. Every loan or application needs a unique identifier; the difference now is whether it's unique nationwide, or just unique to your institution. There are more nuances, but that's a good way to start thinking about it.
     • This non-universal loan identifier needs to be unique within the institution, and must correspond to a single application and ensuing loan, as applicable.
     • If you have multiple branches, you must ensure that the non-universal loan identifier is unique across the entire institution for the year, not just the branch.
     • In our opinion, it's more work to come up with a non-universal loan identifier than it is to just use a ULI. This is especially true if you're planning on selling any of these loans to other institutions, because they may still need or require it.
2. Property Address (1003.4(a)(9)(i))
3. Rate Spread (1003.4(a)(12))
   • You are still required to collect Rate Spread, but you are not required to collect it in the new format. This particular exemption only applies to changes introduced in the 2017 HMDA Final Rule.
4. Credit Score (1003.4(a)(15))
5. Reasons for Denial (1003.4(a)(16))
   • OCC-regulated institutions still have to report this data, even if they qualify for the small filer exemption. So do institutions that were regulated by the now-defunct OTS and are currently regulated by the FDIC.
6. Total Loan Costs or Total Points and Fees (1003.4(a)(17))
7. Origination Charges (1003.4(a)(18))
8. Discount Points (1003.4(a)(19))
9. Lender Credits (1003.4(a)(20))
10. Interest Rate (1003.4(a)(21))
11. Prepayment Penalty Term (1003.4(a)(22))
12. Debt-to-Income Ratio (1003.4(a)(23))
13. Combined Loan-to-Value Ratio (1003.4(a)(24))
14. Loan Term (1003.4(a)(25))
15. Introductory Rate Period (1003.4(a)(26))
16. Non-Amortizing Features (1003.4(a)(27))
17. Property Value (1003.4(a)(28))
18. Manufactured Home Secured Property Type (1003.4(a)(29))
19. Manufactured Home Land Property Interest (1003.4(a)(30))
20. Multifamily Affordable Units (1003.4(a)(32))
21. Application Channel (1003.4(a)(33))
22. Mortgage Loan Originator Identifier (1003.4(a)(34))
23. Automated Underwriting System (1003.4(a)(35))
24. Reverse Mortgage Flag (1003.4(a)(36))
25. Open-End Line of Credit Flag (1003.4(a)(37))
26. Business or Commercial Purpose Flag (1003.4(a)(38))

All of these data points are listed out on page 18 of the Final Rule.

When you're working on your submission, you can report these data fields and points as “Exempt” or code 1111, depending on the field. Here is the guide that lists all of the file specifications.

For access to all of the filing-related resources, you can check out the HMDA resources for filers provided by the CFPB.

What Data Should You Keep Collecting?

Remember: collecting data is not the same as reporting it.

Based on what we've heard through the grapevine, plenty of institutions who are now eligible for the small filer exemption are planning to keep collecting this data. 

If you're on the border of that threshold, or your loan volume fluctuates year-over-year, or you might be involved in a merger or acquisition that would put you over the threshold, collecting this data might be valuable for you. You may not know whether you qualify for the exemption until the very end of the year.

At a minimum, we recommend that you continue collecting credit score, rate spread, interest rate, debt-to-income (DTI), combined loan-to-value (CLTV).

This data is so valuable to fair lending and HMDA data analysis. 

We strongly encourage our clients to collect all of the HMDA data they can in order to help improve the quality of their analysis and the depth of insights offered. There are a lot of benefits to compliance and beyond to having this data, such as:

• A clearer and more comprehensive understanding of your customers.
• The ability to identify marketing and sales opportunities more quickly.
• Clarity in the results of your analysis and the story your data tells.
• More in-depth fair lending risk analysis and the ability to proactively address that risk.
• Better monitoring, trending, and reporting on lending performance, which is helpful for both compliance and sales.

Good compliance is good business!

Even if you choose not to report data points for which you are exempt - it is still worth it to collect at least some of these fields. Collecting them can strengthen your analysis and help you manage risks.

Related: How to Build a Strong Fair Lending & Redlining Compliance Management System