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Lien Status

The revisions to Regulation C include the addition of “lien status” as a new data field to be collected and reported on the HMDA-LAR. Lien status must be reported on loan applications and originations but not on purchased loans.

Lenders are required to report the lien status according to the best information readily available to them and that they believe to be accurate at the time final action is taken on an application. Although lenders may rely on the title search that they routinely require for home purchase loans, Regulation C does not require lenders to conduct title searches solely for HMDA reporting purposes. Other reliable sources of information would be the applicant’s credit report or the applicant’s statement on the application.

REASON FOR CHANGE

The collection of lien status data was added primarily to:

  • Enable regulators and the public to interpret the rate spread data.
  • Enable data users to differentiate between secured and unsecured home improvement loans.
  • Assist regulators and the public in analyzing pricing disparities between borrowers.

REPORTING LIEN STATUS

See the “lien status” field on the LAR and the codes for filling it out.

The reporting requirements add a data field and codes . The four code choices for this field are:

Code 1 – Secured by a first lien
For loans that a lender originates that are secured by a first lien or for applications that do not result in an origination but based on other reliable information indicate, if originated, the loan would have been secured by a first lien.

Code 2 – Secured by a subordinate lien
For loans that a lender originates and are secured by a second lien or for applications that do not result in an origination but based on other reliable information indicate, if originated, the loan would have been secured by a second lien.

Code 3 – Not secured by a lien
For loans that a lender originates and are not secured by a lien or for applications that do not result in an origination but based on other reliable information indicate, if originated, the loan would have not been secured by a lien.

Code 4 – Not applicable (purchased loans)
For loans that a lender has purchased.

EXAMPLE 1: REPORTING LIEN STATUS

FACTS: Peter and Mary Smith apply for a second mortgage loan with Alliance Savings Bank. The Smiths indicate on the application that they have a purchase money first mortgage loan on the property, and the mortgage will not be paid off as part of the transaction. The lender originates the transaction.

QUESTION

How would the lender report the loan?

ANSWER

In this instance, the lender would report a loan origination secured by a subordinate lien. If the same application is denied or withdrawn, the lender would also report the application as an application for a subordinate lien loan.

 

EXAMPLE 2: REPORTING LIEN STATUS

FACTS: Andy Kline applies for a secured home improvement loan of $7,500. Andy has an excellent credit history and sufficient monthly income to qualify under the bank’s underwriting standards. In fact, he actually would qualify for an unsecured home improvement loan. In order to keep his closing costs low, the bank opts not to have a title search performed. The bank files a deed of trust on his residence as an abundance of caution.

QUESTION

Should the bank have ordered a title search to determine lien status for HMDA reporting purposes?

ANSWER

Lenders are not required to conduct a title search solely for HMDA reporting purposes. In this example, bank management may be able to determine the lien status from information contained on the borrower’s credit report, such as the existence of a mortgage payment, or may rely on a statement on the application.

 

EXAMPLE 3: REPORTING LIEN STATUS

FACTS: ABC Bank’s compliance officer, Tom Henry, is concerned about the burden of collecting and reporting lien status for purchased loans. His bank purchases a large number of loans each year, which account for approximately one-third of the bank’s HMDA loan record volume.

QUESTION

Will the bank be required to report lien status for the loans it purchases?

ANSWER

Lenders are not required to collect and report lien status for loans they purchase. Since pricing information is not required for purchased loans and ethnicity, race, sex, and income are unavailable because the loans were purchased by the bank, the utility of lien status data on purchased loans would be limited and not justify the additional reporting burden.

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