HMDA Purpose Statement From Applicant
In this HMDA video, Adam talks about the purpose field and the requirements (or lack thereof) for proving the purpose of the application.
Video Transcript
The following is a transcript of this video.
This Compliance Clip is going to focus on the purpose statement from the applicant under the Home Mortgage Disclosure Act. This video only applies to HMDA reporters.
The rule on loan purpose is found under Regulation C under Part 1003.(4)(a)(3). It’s pretty simple, it says to report whether the covered loan or application is a home purchase loan, a home improvement loan, a refinancing or a cash out refinancing, or an other purpose. Very simple. Problem is sometimes we have questions that dig a little bit deeper than just this rule.
For example, we have the question of how do you know the true purpose of a loan? What do you have to do in order to determine the purpose? Do you have to go out to the site? Do you have to do some research? What do you have to do?
The answer to this question is found in the commentary to Regulation C, specifically it's Comment 1 to 1003.(4)(a)(3). Comment 1 talks about the statement from the applicant. Specifically, it says “a financial institution may rely on the oral or written statement of an applicant regarding the proposed use of covered loan proceeds. So you can specifically ask them and say “Hey, can you tell me what your purpose is? What's the purpose for this loan? What is it? Tell me. Come on. Just say something. Anything. Is it for a purchase? Yes or no?” See? Sometimes they won't tell you. And that's okay. But you can rely on a statement from them.
Another example is that you can request this by using a check box or a purpose line on an application form to determine if an applicant intends to use proceeds something like for home improvement. So you can actually have them fill that out on an application form. You don't have to verbally ask if it could be on the application. They do say that if a statement is not provided and the loan is otherwise not clearly a purchase not clearly a refinance and not clearly a home improvement loan so you don't know that it’s home improvement and it doesn't meet the definition of purchase or refinance then you would report it as an other purpose.
That is the loan purpose and how we can rely on a statement from the applicant. I hope you found this video informative.