Article By: Ben Giumarra, Spillane Consulting Associates, Inc.
While Ben’s away, Gregg will play … a special [re]issue of the Wednesday compliance newsletter while Ben is on vacation, with commentary from Gregg.
Alright, Ben’s traveling through Australia, probably trying to remember to drive on the opposite side of the road, and probably listening to a playlist frustratingly including an equal mix of songs by Jim Croce, Volbeat, and Taylor Swift (*shake my head in disgust). So get a chance to help continue the weekly newsletter tradition. My name isGregg and I’ll be your guide today. Any commentary I have to Ben’s previous work will be marked as such.
Some of you have met me over the past few months as we all (calmly without any sense of panic, right?) work towards HMDA 2018. One of the most common areas of anxiety has been the collection of demographic information. As many of you probably already are, or will soon be collecting the new demographic information, let’s take a quick look back at Ben’s guide to when demographic information is not required.
The expanded requirements for ethnicity, race, sex, and age is probably the most significant change coming with the new HMDA requirements. Understanding how to collect this will be a major training topic throughout the coming year. Here’s a picture of what the new collection form will look like (this is all just for one borrower):
But maybe just as important – understanding when NOT to collect this information.
Let’s jump into that issue now …
[Gregg’s Commentary: Maybe I should use this opportunity to steal Ben’s follower base as phase one of my takeover. Should probably release this newsletter comically late at an odd time to gain maximum attention … oh hey everyone, welcome to my SCA newsletter debut.
I’d like to hear from any of you with feedback, and I’ll occasionally phrase my comments to elicit some discussions around topics that I haven’t fully explored yet. So please feel free to email me [email protected] with your thoughts, or tweet us @SCA_Spillane and I’ll tweet back.]
When NOT to Collect Demographic Data
Here is the list of circumstances when we would NOT collect the demographic data of a borrower. E-mail me if I forgot one and I’ll update this post!
1. Third Borrower*
We only collect demographic data on two borrowers. In cases where there is a third borrower, their demographic data is not collected. How do we choose who the “third” borrower is? It will simply be taken in order of how the application is filled out. See below that the third co-borrower is Nancy Johnson in this example:
*Or second co-borrower – however you want to look at it. :/
[Gregg’s Commentary: I see a distinct difference between “collecting” and “reporting” demographic information. Clearly we are only required to report the first and second borrowers listed on the LAR. When a clean 1003 comes in with two borrowers information, this is simple. But consider other scenarios: what if 3+ borrowers, and one of the two GMI was collected for falls out of the loan, or some other event occurs in which you now need the GMI for the third borrower? I can see various business reasons you may want to have the GMI for all co-borrowers collected at the start of the loan, and then report only two. Bottom line: if you see a scenario in your business where NOT having all co-borrower’s GMI data collected early could cause delay, consider collecting GMI on all co-borrowers. (feel free to email me [email protected] with your thoughts, I’m still exploring this idea)]
We also do not collect demographic data on someone signing as a mere “guarantor.” The HMDA rule doesn’t directly define “guarantor”, but does refer to it as someone “who is only secondarily liable.” (See page 741 … I know, I know). This basically tracks with separate TILA language on this. So I don’t see this causing mass panic – they’re just reusing old language. No one’s ever called me with an urgent question about whether someone qualified as a guarantor.
3. Purchased Loans
When you purchase a closed loan, you may choose not to report the applicant’s ethnicity, race, sex, and age. Why might you choose to report that voluntarily? That’s an issue for another day ...
4. Borrower is Not a Natural Person (LLC, Trust, Etc.)
We only collect demographic data on human beings – so we do not collect it when the applicant is actually an organization, such as an LLC, partnership, or Trust.
But Note: Be careful to distinguish identify on who the applicant is. For example, while we do not collect demographic when a Trustee (human being) signs for a loan on behalf of a Trust, we DO collect demographic data when the loan is actually to the Beneficiary of a Trust individually. So there you go!
[Gregg’s Commentary: Trust me, I know this point causes some confusion (bad pun count=1). To be clear, Ben’s “for example” is applicable only to Trusts, an LLC or other entity borrower will never have GMI collection requirements.
What is clear for Trusts is 1) when the Trust is the applicant, report NA; 2) when the applicant is both a natural person and the beneficiary of the Trust, you would collect the beneficiary GMI. I’m still working through real world issues on this point, and will likely include a blog about it within the next few weeks. Tip of the hat at that time to anybody who emails me their thoughts on this. Crowdsourcing=Good]
Bonus HMDA Hotlist –
Planning a training for staff on the upcoming HMDA requirements? Have them come prepared, so they get the most out of the training session. Here are the best materials to provide:
Executive Summary from Private Law Firm
Appendix B -Instructions on Demographic Information
1003 Addendum for Demographic Data
CFPB Video #1
CFPB Video #2
In Other News
GOP tax plan would lower the cap on mortgage interest deductions from the first $1 million of the mortgage, down to $500,000. This would apply to new purchases. Specifically, coastal areas with higher property values, and areas where second and vacation properties make up a disproportionate number of properties in the local community will be impacted. Could the loss of deductions impact demand for Jumbo loans or vacation properties? I don’t know, but given the description of highest impact areas, this is worth following.
On My Mind …
I’ve been focused a lot on training lately, and how best to engage an audience on some of the thrilling topics we deal in. Last week, Jeff Lipes was inspired by HMDA. Jeff recalled a beloved classic movie from his early teenage years. He loved it so much, that Jeff actually used it to introduce Bryan Noonan and I for a presentation.
“Gregg, make certain you send the newsletter AT 6:00 AM! You have ONE JOB, don’t ruin my reputation for punctuality while I’m on vacation. And none of your sarcasm.” – Ben Guimarra, shortly before heading Down Under
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.