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Thursday, November 12, 2015

Denials under HMDA

We realize there are reasons for denials under HMDA. However, how many reasons for denial are we allowed? Also, what are the categories for denials?

For HMDA purposes, a financial institution may elect to report the reason it denied a loan. It may report up to three reasons for denial. [12 CFR § 203.4(c)]

To understand the categories for denials, it is best to base the denial reasons specified in the model Adverse Action Notice (i.e., Regulation B notice) for the denial reasons under HMDA. The model form for Adverse Action is Form C-1 in Appendix C to Regulation B, the implementing regulation of the Equal Credit Opportunity Act.

It is possible to extrapolate the denial categories into more precise reasons. The following table provides the adverse action notice denial reason and its corresponding HMDA denial reason. [12 CFR Part 203, Appendix A]

Adverse Action Notice Denial Reason
HMDA Denial Reason
Income insufficient for amount of credit requested.
Excessive obligations in relation to income.
Debt-to-Income ratio.
Temporary or irregular employment.
Length of employment.
Employment history.
Insufficient number of credit references provided.
Unacceptable type of credit references provided.
No credit file.
Limited credit experience.
Poor credit performance with financial institution.
Delinquent past or present credit obligations with others.
Garnishment or attachment.
Foreclosure or repossession.
Collection action or judgment.
Credit history.
Value or type of collateral not sufficient.
Unable to verify credit references.
Unable to verify employment.
Unable to verify income.
Unable to verify residence.
Unverifiable information.
Credit application incomplete.
Credit application incomplete.
Length of residence.
Temporary residence.
Other reasons specified on notice.

Jonathan Foxx
President & Managing Director
Lenders Compliance Group