Article By: Ben Giumarra, Spillane Consulting Associates, Inc.
What to do when borrower wants to change answers to HMDA demographic information post-application.
The topic for today how to handle a situation where a borrower wishes to change his original answers to HMDA’s demographic information post-application.
At application stage (by telephone), Joe Borrower declines to provide demographic information when the loan officer asks for HMDA purposes. The loan officer correctly captures that they do not wish to provide. Joe Borrower signs the initial 1003 that reflects this decision. But at closing, when asked to sign the final 1003, Joe Borrower asks that the lender allow him to fill out his demographic information. He says his sister works in public policy and had only recently explained how the government uses that information to help distribute federal housing aid.
For HMDA purposes, do you report Joe Borrower’s original response at application (“I do not wish to provide this information.”)? Or do you report the full demographic information that he added only at closing?
Why this is a problem
It’s kind of a pain to have to “watch our backs” for later updates to the demographic data. It would certainly be preferable to just “lock” the demographic data as of the time of application and forget about it.
But what does HMDA require? The problem is that the HMDA regulation doesn’t exactly say what to do. The Rule merely states that “A financial institution shall collect data regarding applications …”
Recommended Practice & Analysis
I recommend a policy that we always update the demographic data with the most recent information available and thus to allow subsequent borrower instructions to override the borrower’s input at application (at least until we file the LAR).
That said, I believe reasonable minds could disagree. I believe different approaches would also be compliant, so long as applied consistently.
But here are my reasons behind the recommendation:
Lowest Compliance Risk: If courts/regulators do take a position on this, I think they should agree that “anything goes.” But if they don’t, I think they’re mostly to agree with this position. Either way- you’ll be safe with this policy.
Human Decency/Customer Service: Sometimes, maybe too often, compliance comes at the cost of a good customer experience. But in a gray area like this, are we really going to let that happen? What if Joe Borrower is extremely proud of his ethnicity and feels morally responsible for gov’t efforts to help others like him? Some things are more important than HMDA … Note: You might say that we could allow the borrower to update the 1003 but then report the information from the initial 1003. Putting aside whether that’s sneaky, what I don’t like about that is that this now creates a documentation problem, with the most recent 1003 no longer being the official record for all items. …. Some things are more important than HMDA.
Allows for greatest consistency: We all agree that if, instead of changing his mind, Joe Borrower pointed out a mistake by the lender, that we would have to use the most recent information available when reporting HMDA. Can you imagine doing a HMDA scrub on a closed loan and trying to decide whether the borrower was changing his answer or claiming the lender incorrectly collected his original answer?
Logical: Why are we asking the borrower to sign and verify the accuracy of the final 1003 if we’re not going to allow the borrower to make changes to it?
So to bring this point home, I believe we would rely on the most recent information and comply with the borrower’s instructions in all of the following examples
Corrects Mistake. Borrower completes telephone application and MLO marks down Borrower’s selection as Hispanic. At closing, the borrower notices and wants this changed to Not Hispanic. There is some confusion over whether the MLO made a collection error or whether the borrower no longer identifies as Hispanic.
Changes Mind. At application (by telephone), borrower declines to provide demographic information. Lender correctly records that they do not wish to provide. But a week later, the borrower returns the initial 1003 signed with instructions to add demographic information – the borrower has filled out the appropriate fields.
Ancestry.com. Borrower completes demographic data at application as Asian-Japanese. During loan origination process, he gets DNA tests through Ancestry.com and discovers that he actually identifies as Asian-Vietnamese. At closing he insists that the lender update demographic data to show his new information.
Gender Change. Borrower at application (telephone) reports that he is a male (and does not decline to provide info.). The lender correctly captures this information. During the application process, borrower goes through surgical operation and becomes a female. At or before closing, she insists that the lender update this information to reflect her new gender. *This seems unlikely, and is not meant to be insulting on my part – I include it because this was an actual scenario that I came across in researching this.
Remove Everything. In-person application, borrower inputs demographic data. Lender correctly collects this information. On the day of closing, the borrower requests to change and remove all demographic data, reporting instead Do Not Wish to Provide.
In Other News
What do you know about the CFPB’s plans for small business data collection? If you don’t know anything yet: Dodd-Frank requires the CFPB to pass a regulation requiring new HMDA-like reporting requirements for small business lending. We don’t expect a new rule very soon – the CFPB is still gathering information. Kill two birds with one stone and review the CFPB’s May 2017 report “Key dimensions of the small business lending landscape” – you might find some of the information interesting (this isn’t a compliance document) and understanding the CFPB’s view of the industry will make the rules they pass more understandable.
What happens now that Richard Cordray has retired? Many are delighting in it, like this bank blogger (who makes me laugh, even if I may disagree with his opinions). But like him or not, I believe we should recognize how much he accomplished … hats off to him for taking care of business. And it’s time to focus on the more important question of: What happens next?
Pay attention to regulatory reform bill S.2155 that just passed the Senate. It doesn’t kill Dodd-Frank, but it might actually succeed and does address a number of items: Pace loans, originator licensing, Closing Disclosure waiting period, and protective provisions for community lending institutions. This free article from K&L Gates gives more information – Dodd-Frank Reform Efforts Intensify.
On My Mind …
Have a great Thanksgiving everyone. I myself am thankful for my family who make my world go ’round … who I’ll take comfort in protecting and being protected by always and forever.
But I’m also thankful for people I work with, who I strive to help with my work, and the sense of community I receive in return. I’m proud of the type of work I do, but honestly, I’d be happy doing almost anythingif it allowed me to have a meaningful and positive impact on the type of loving, charitable, and all-around good people that I’m getting to work with now as part of this industry.
“Your influence is determined by how abundantly you place other people’s interests first.” – From The Go-Giver by Bob Burg and David Mann
Thanks so much for reading our weekly newsletters. We’re not always going to be perfect, but because we always do our best and try not to overpromise, we hope that we’re always going to be trustworthy. Your calls and e-mails are very helpful – please keep contributing.
**These are our opinions. We’re not authorized, or willing, to express those of others.**
Thank you to Ben Giumarra, Spillane Consulting Associates, Inc., a member of our Education Committee, who with the support of other experts at SCA have put together this newsletter.