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Thursday, December 19, 2013

What is an “application” under HMDA?

QUESTION 
We are getting ready to complete our HMDA filing report and we have many prequalification requests. Are prequalifications considered “applications” under HMDA, and, therefore, must be included in our HMDA-LAR?

ANSWER 
In general, an “application” is an oral or written request for an extension of credit through a purchase money, refinance, or home improvement in a loan transaction that is originated pursuant to a financial institution’s loan origination procedures. 

A prequalification request is a request by a prospective loan applicant (other than a request for preapproval) for a preliminary determination on whether the prospective applicant would likely qualify for credit under an institution's standards, or for a determination on the amount of credit for which the prospective applicant would likely qualify.

The Home Mortgage Disclosure Act (HMDA), and Regulation C, its implementing regulation, use the Official Staff Commentary to Regulation B, the implementing regulation of the Equal Credit Opportunity Act, to define an “application,” except HMDA does not include prequalification requests.

The ECOA does include prequalification requests as applications, such as where these requests may constitute applications under Regulation B for purposes of adverse action notices, under certain circumstances. [12 CFR part 203, Supplement I 203.2(b)-1 and (b)-2]

Therefore, even if prequalifications may constitute an application under Regulation B (ECOA), they are not reported on the HMDA Loan Application Register under Regulation C (HMDA).

Jonathan Foxx
President & Managing Director
Lenders Compliance Group