On June 23, 2020, the CFPB published a new interpretive rule (the “Interpretive Rule”) to update the Home Mortgage Disclosure Act (HMDA) data fields that are used to identify “underserved” areas. Certain provisions of Regulation Z, that apply to creditors doing business in “rural or underserved” areas, look to the HMDA-based identification of “underserved” areas for their applicability, such as the exemption for such creditors from the requirement to establish an escrow account on a Higher Priced Mortgage Loan and the ability of such creditors to originate Qualified Mortgages with a balloon-payment feature.
Currently, an area is considered “underserved” if, “according to the [HMDA] data for the preceding calendar year, it is a county in which no more than two creditors extended covered transactions [under the ability to repay rule] secured by first liens on properties in the county five or more times.” The existing Regulation Z Commentary addresses the transactions that are counted for purposes of determining an “underserved” area and, based on the HMDA data codes that existed before the CFPB’s October 2015 amendments to the HMDA rules, provides that transactions identified with the following codes are not counted:
- Owner-occupancy status is reported as “Not owner-occupied” (HMDA code 2)
- Property type is reported as “Multifamily” (HMDA code 3)
- The applicant’s or co-applicant’s race is reported as “Not applicable” (HMDA code 7), or
- The applicant’s or co-applicant’s sex is reported as “Not applicable” (HMDA code 4).
These HMDA data points are outdated based on the October 2015 amendments.
The Interpretive Rule supersedes the applicable Commentary provision and establishes an updated HMDA data methodology that the CFPB will use to identify “underserved” areas. Going forward, “underserved” areas will be identified by counting first-lien originations from HMDA data for the preceding calendar year, except for those loans with any of the below HMDA data values from the 2015 HMDA rule:
- Construction method status reported as “Site-built” (HMDA Code 1) and the number of units is greater than 4;
- Open-end line of credit status reported as “Open-end line of credit” (HMDA Code 1);
- Reverse mortgage status reported as “Reverse Mortgage” (HMDA Code 1);
- Business or commercial purpose status reported as “Primarily for a business or commercial purpose” (HMDA Code 1);or
- Both the applicant and the co-applicant’s ethnicity, race, sex and age all are reported as follows:
- Applicant Ethnicity reported as “Not applicable” (HMDA Code 4);
- Applicant’s Race reported as “Not applicable” (HMDA Code 7)
- Applicant’s Sex reported as “Not applicable” (HMDA Code 4);
- Applicant’s Age reported as “Not applicable” (HMDA Code 8888);
- Co-applicant’s Ethnicity reported as “Not applicable” (HMDA Code 4) or “No co-applicant” (HMDA Code 5);
- Co-applicant’s Race reported as “Not applicable” (HMDA Code 7) or “No co-applicant” (HMDA Code 8);
- Co-applicant’s Sex reported as “Not applicable” (HMDA Code 4) or “No co-applicant” (HMDA Code 5); AND
- Co-applicant’s Age reported as “Not applicable” (HMDA Code 8888) or “No co-applicant” (HMDA Code 9999)
The Interpretive Rule will be effective upon publication in the Federal Register. A new rural or underserved counties list, utilizing the data points in the Interpretive Rule, has been published on the CFPB’s Mortgage Resources website.
