There has been some question regarding how to report whether or not demographic information was collected based on a visual observation for applications that were not taken face to face. Specifically, the question relates to the following field for each part of demographic information: “Collected on the Basis of Visual Observation or Surname.”
The options for reporting in this field are:
Code 1 - Collected on the basis of visual observation or surname
Code 2 - Not collected on the basis of visual observation or surname
Code 3 - Not applicable
Code 4 - No co-applicant
The October NA chart now says the following under "Collected on the basis of visual observation or surname": NOTE: Use Code 3 if the requirement to report the applicant’s or borrower’s ethnicity does not apply to the covered loan or application that your institution is reporting.
In addition to this, the chart also causes some confusion because it does not specifically say to list NA for an application where you never see the applicant. That said, the CFPB has released validation edits that reflect that NA should be used if you don't see an applicant face-to-face. Further, some vendors have edits if you use NA and some have edits if you don't use NA. This has created quite a bit of confusion for HMDA reporters.
At this point, here is my thought. The Sample Data Collection Form in Appendix B states the following for the questions regarding whether or not demographic information was obtained via visual observation: “To be completed by the Financial Institution (for an application taken in person).” Therefore, it would appear to me that the 3 questions on whether or not a visual observation was made, do not apply to applications that were not taken face-to-face.
In addition, Item 10 of Appendix B states the following: “If the applicant chooses not to provide the information for an application taken in person, note this fact on the collection form and then collect the applicant's ethnicity, race, and sex on the basis of visual observation or surname. You must report whether the applicant's ethnicity, race, and sex was collected on the basis of visual observation or surname. When you collect an applicant's ethnicity, race, and sex on the basis of visual observation or surname, you must select from the following aggregate categories: Ethnicity (Hispanic or Latino; not Hispanic or Latino); race (American Indian or Alaska Native; Asian; Black or African American; Native Hawaiian or Other Pacific Islander; White); sex (male; female).”
As you can see, instruction 10 states to only collect this information for an application taken in person.
Therefore, it would appear that the requirement to report the DI does not apply to applications not taken face-to-face, based on the “NOTE” listed above, meaning that you should list NA for applications not taken face-to-face.
So, the bottom line here is that you will report NA for 3 reasons in 2018:
The application was not taken face-to-face
The applicant is a business (entity other than a natural person)
When the DI was collected in 2017 through a face-to-face application but a financial institution chose to not report codes 1 or 2.
All of this said, you could have a vendor that disagrees with this due to the lack of clear guidance by the CFPB, which would result in validation edits in certain HMDA software when NA is used. Therefore, it will be important to determine what you vendor is doing and possibly contact the CFPB for further guidance. The most important thing will be to stay consistent in how you report this.
NOTE: This option 3 listed above will probably only be used (if at all) for applications/loans with an action date in the first few months of 2018.