QUESTION
Our investor reviews the loan before closing. Please let us
know whether we are supposed to report the loan as a brokered or correspondent
loan on the HMDA-LAR?
ANSWER
Under Regulation C, the implementing regulation of the Home
Mortgage Disclosure Act, a special broker rule applies to the reporting of
loans on the Loan Application Register (“HMDA-LAR”) made by a broker and sold
to an investor, where the investor reviews the loan before closing. Before
determining who has the responsibility to report, it is necessary to define the
terms “broker” and “investor” as they are used in Regulation C.
For purposes of the special broker rule, a “broker” is an
institution that takes and processes a loan application and arranges for another
institution to acquire the loan at or after closing; and an “investor” is an
institution that acquires a loan from a broker at or after closing. [12 CFR,
Part 203, Supplement I § 203.1(c)-2]
A broker that makes a credit decision in connection with a
loan application reports that decision, and a broker that does not make a
credit decision in connection with a loan application does not report the
application. [12 CFR, Part 203, Supplement I § 203.1(c)-2]
Where an investor reviews a loan application and makes a
credit decision regarding the application before closing, the investor reports
that decision.
Thus, if the investor reviews an application before closing
and acquires the loan following closing from the broker, the investor reports
the loan as an originated loan and not as a purchased loan, regardless of
whether the loan closes in the broker’s name or the investor’s name. In such
instances, the broker would not report that it originated the loan.
In the subject scenario, the investor, and not the broker,
is deemed to have made the credit decision, even if the broker also reviewed
the loan application. The origination of a loan is reported by only one
institution. [12 CFR, Part 203, Supplement I §§ 203.1(c)-2, 203.4(a)-1(iii),
(iv)]
However, if the investor does not review a loan application
from a broker before closing, the investor reports only the closed loans that
it purchases from the broker as purchased loans. In this situation, the
investor does not report closed loans that it elects not to purchase from the
broker. [12 CFR, Part 203, Supplement I § 203.1(c)-2]
Jonathan Foxx
President & Managing Director
Lenders Compliance Group
