One might think that using the HMDA partial exemption for small filers would make life easier. Much easier. Well, for the most part, that is true. The CFPB’s interpretive and procedural rule provides relief for certain “small HMDA filer” so that they are exempt from reporting about half of the data fields (22 out of 48 total data fields). The problem with the HMDA partial exemption, however, is that the rules to comply with the partial exemption are actually quite confusing. For example, the CFPB interpretive and procedural rule provides a number of different ways to report exempt data fields, and even creates some confusion on one particular data field: the State data field.
The reality is that there has been quite a bit of confusion over the State point and this is actually a fairly complicated topic.
Background on the HMDA State Data Field
To understand how a small filer using the HMDA partial exemption must report the HMDA State data field, it is important to realize that the State code is actually required twice on the new version of the LAR: once under the property address as an abbreviation and once under the geocoding information as part of the Federal Information Processing Standards (FIPS) county and census tract codes.
The challenge with the CFPB HMDA changes is that the new validity edit (V-709) for the property address data point appears to only exclude three of the four data fields within the larger data point: the street address, city, and zip. As this validity edit does not include the State data field, it would initially appear to say that the State field is not exempt and must be reported by each small filer subject to the HMDA partial exemption.
HMDA Rules for Reporting the State Field
When we review the actual regulation and the CFPB’s Interpretive and Procedural rule, however, we will find that, while the State field is not technically exempt, it does not necessarily need to be provided for every single LAR entry. To explain, CFPB guidance is clear that the property address requirements of 1003.4(a)(9)(i) - which include the State field - are included in the partial exemption. On the other hand, the State disclosure requirement found in 1003.4(a)(9)(ii)(A) (which is part of the longstanding “geocoding” requirements) is not included in the partial exemption and are unchanged by the Act. This tells us two things: 1) that we don’t have to worry about the State data field requirements from the property address data point, but 2) that we do need to follow the “geocoding” requirement found in 1003.4(a)(9)(ii)(A) which may or may not require the State data field.
To explain, let’s take a look at the actual requirement of 1003.4(a)(9)(ii)(A) of Regulation C, which requires the following:
(ii) If the property is located in an MSA or MD in which the financial institution has a home or branch office, or if the institution is subject to paragraph (e) of this section, the location of the property by:
The commentary to Regulation C expands upon this as follows:
"1. Optional reporting. Section 1003.4(a)(9)(ii) requires a financial institution to report the State, county, and census tract of the property securing the covered loan or, in the case of an application, proposed to secure the covered loan if the property is located in an MSA or MD in which the financial institution has a home or branch office or if the institution is subject to § 1003.4(e). Section 1003.4(a)(9)(ii)(C) further limits the requirement to report census tract to covered loans secured by or applications proposed to be secured by properties located in counties with a population of more than 30,000 according to the most recent decennial census conducted by the U.S. Census Bureau. For transactions for which State, county, or census tract reporting is not required under § 1003.4(a)(9)(ii) or (e), financial institutions may report that the requirement is not applicable, or they may voluntarily report the State, county, or census tract information."
As you can see from 1003.4(a)(9)(ii) and its associated commentary, the State field (as well as the county and census tract of the property) are not required for every LAR entry, but are only required in three cases:
When the property is located in an MSA or MD in which the financial institution has a home or branch office;
If the financial institution optionally chooses to report the information found in 1003.4(a)(9)(ii) when the property is outside of an MSA or MD where they have a branch or home office; and
If the institution is a large CRA reporter subject to 1003.4(e).
The bottom line is that the State field can be reported for every LAR entry, but is not technically required every time (for most partially exempt reporters).
Large CRA Reporters and the HMDA State Field
The one caveat to all of this is that large CRA reporters - who are also small HMDA filers and choose to use the HMDA partial exemption - must always report the state data field. The reason for this, of course, is that HMDA rules require all CRA reporters to list the “geocoding” information for every LAR entry which includes the county, census tract, and State. The reality is that there will only be a very small number of HMDA reporters who are both large CRA reporters and who also qualify for the HMDA partial exemption - though it does happen occasionally. Either way, these institutions must always report the State data field.
Industry Responses for HMDA Reporting of the State Field
Even though the State data field is not required for every LAR entry, it is important to understand that the CFPB has been providing informal responses stating that the State field is not exempt, which is a misleading statement if not fully taken in context. While the State field is not technically exempt - as it must be included when the county and census tract codes are provided - it would not technically be required on a loan where the property was not in an MSA/MD where the financial institution had a branch and the financial institution also chose to opts-out of reporting the county and census tract codes.
Unfortunately, quite a few in the industry have taken the general and informal responses from the CFPB as stating that the State field must be reported on every loan. Again, we do not believe that this is technically correct as the State field is only required when county and census tract codes (the other elements of the Property Location field) are also provided on a LAR entry.
We did contact the CFPB and were able to confirm our thinking that there are some specific instances when the State field could be coded as NA and not provided.
Conclusion for Reporting the State Data Field
The result of this confusion is that, while the State field shouldn’t be required for every LAR, there is a good chance that some examiners and/or vendors will require the State field for every LAR entry. Therefore, some financial institutions may choose to just optionally report the State field (and other applicable data fields within the larger data points) for every LAR entry and not worry about utilizing the opt-out option found in 1003.4(a)(9)(ii).
The bottom line in all of this confusion is that you will be safe if you just go ahead and report the State data field for each HMDA LAR entry.
More Resources On the HMDA Partial Exemption
If you are interested in more resources regarding the HMDA partial exemption, you can view our Compliance Class (video webinar) on the CFPB’s interpretive and procedural rule found here.