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 is president and managing director of Lenders Compliance Group, Brokers Compliance Group, Servicers Compliance Group and Vendors Compliance Group, national companies devoted to providing regulatory compliance advice and counsel to the mortgage industry. He may be contacted by phone at (516) 442-3456, or e-mail at [email protected].