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With all the COVID-19 craziness, it’s been easy to overlook other compliance updates and changes. In case you missed it, on March 6, 2020, the CFPB published an update to its HMDA FAQs.
This update addressed the burning question about reporting the collection method for demographic information when an application is NOT submitted in person (i.e., mail, internet, phone applications, etc.). The FAQ states that when an applicant does not provide demographic information for a mail, online or phone application, you can report either Code 2 (Not collected based on visual observation/surname) OR Code 3 (Not applicable). It states, for consistency of data…, the Bureau suggests, but does not require, that financial institutions use Code 2. So, while either will technically work, we recommend you keep in line with the CFPB’s suggestion of reporting Code 2 in these instances.
Click on the video to listen to David explain more about HMDA Demographic Information collection.
View the Video Transcription Below
Hi, Dave Dickinson with Banker’s Compliance Consulting. I want to talk with you about HMDA and collecting demographic information. Specifically what if the applicant doesn’t provide the information, the ethnicity, the race, the sex? Now let’s start out with the easy one.
Someone Doesn’t Fill Out Demographics Info In-Person
You come in and talk to me. I’m the loan officer. You say I do not wish and you mark all three or one of the three or two of the three, it doesn’t matter. But you leave it incomplete but you mark I do not wish. You’re slamming the door saying, “I don’t want to give you this.”
All right because it’s in person then I am going to mark down it was taken face to face and then I’m going to guess what your ethnicity, race and sex are and then I mark those yes, yes, yes boxes. The section that says to be completed by the institution for applications taken in person. I saw you. I filled it out so that makes sense. That’s easy.
Someone Doesn’t Fill Out Demographics Info and They Are Not In-Person
What’s not easy is when you have an application that is not in person. So I’m receiving an application through the mail. You dropped it off. You fill it out online and you said, “I do not wish.” In those cases you’ve slammed the door again. You said, “I don’t want to, I don’t have to.” So do I put down what your ethnicity, race and sex are? No, I don’t ever try to collect again. You’ve slammed the door. You’ve affirmed by saying I do not wish. So the yes and no boxes on did I complete this would be no, no, no. That one’s easy. Sure enough.
But what happens when we have a case where somebody mails in online or drops it off and they mark nothing. They don’t say I do not wish, and they don’t give me their ethnicity, race, and sex. I like to call that the open door. They just left it ambiguous.
Ruling Undefined HMDA Demographics Application Info
Well, there’s a rule that says that if I ever see you during the application process and that’s an undefined term, application process, I would say, listen, if you’re at closing table, don’t get it. Don’t try to get it. You’re going to skew your results for those situations where you’re closing loans versus where you didn’t close them. Denied, withdrawn, those kinds of things. So don’t collect at the closing table.
But if I ever see you, I am at the who attempt to try to get it. Now that’s not quite the reg. I’m saying if you ever see them, technically during the application process. The problem, when is the application process complete? And that’s a little bit ambiguous.
All right, so if you see them, you’re going to get it or I’m going to guess because I’m seeing them. So it’s just like we’re still in person. But what if I don’t see them? So we end up denying them or we just don’t see them to the closing table.
Which Code to Use When Filling Out Demographics Information
What do I fill in for the yes or no boxes on the to be completed by institution. It says for applications taken in person. Well the CFPB released some guidance, some FAQs that said you can put down no, that’d be code two or not applicable, code three. Your choice. Be consistent.
I’m in the camp, it goes to code two because the filing instruction guide says that code three is only to be used for non-natural persons like businesses, entities, and for purchased loans. But it is okay if your system can’t handle that or you just decide three is best. You can mark code three, it’s not applicable for those situations where they felt they’d left nothing and they didn’t mark, I do not wish. It’s just totally open. That’s the answer. Either one, just be consistent about it.
I hope this helps. If you have any HMDA questions or any regulatory compliance questions, give us a call or email us. We’re here to answer those questions for you. Thanks for watching.
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