Despite uncertainty involving the future of the Consumer Financial Protection Bureau (CFPB), recent regulatory agency findings highlight the continued significance of the Home Mortgage Disclosure Act and Regulation C (HMDA).
Covered institutions are required to collect and report specific information about certain mortgage lending activity to the federal government on an annual basis. HMDA data is used to accomplish the following goals:
- To help determine whether financial institutions are serving the housing needs of their communities;
- To assist public officials in distributing public-sector investment so as to attract private investment to areas where it is needed; and
- To assist in identifying possible discriminatory lending patterns and enforcing antidiscrimination statutes.1
In the 2025 Consumer Compliance Supervisory Highlights, the FDIC identified HMDA as the fifth-most cited violation. HMDA violations constituted 65 of the 1,275 total violations cited by the agency in 2024.2
In addition, in the Consumer Compliance Outlook: First Issue 2025, the Federal Reserve indicated HMDA violations constituted 253, or 38.2%, of the 662 total violations identified during exams in 2024.3
Both agencies identified “action taken required under §1003.4(a)(8)” as a source of violations.
Action Taken
“Action taken” has long presented reporting difficulties to reportable institutions. Confusion often arises from nuances associated with “approved but not accepted” applications, “withdrawn” applications, applications “closed for incompleteness,” and “counteroffers.”
Approved but Not Accepted
An institution must carefully consider the “conditional approvals” guidance when it issues an approval that is subject to the applicant meeting certain conditions, as these do not always constitute an “approved but not accepted” application. HMDA makes a distinction between approvals conditioned solely on “customary commitment or closing conditions” and those that are conditioned on any “underwriting or creditworthiness conditions.” The appropriateness of coding an application “approved but not accepted” when conditions are not met depends on the category of outstanding conditions.
“Customary commitment or closing conditions” include conditions such as “clear-title requirement, an acceptable property survey, acceptable title insurance binder, clear termite inspection, a subordination agreement from another lienholder, and, where the applicant plans to use the proceeds from the sale of one home to purchase another, a settlement statement showing adequate proceeds from the sale.”4
“Underwriting or creditworthiness conditions” include conditions “that constitute a counter-offer, such as a demand for a higher down payment; satisfactory debt-to-income or loan-to-value ratios, a determination of need for private mortgage insurance, or a satisfactory appraisal requirement; or verification or confirmation, in whatever form the institution requires, that the applicant meets underwriting conditions concerning applicant creditworthiness, including documentation or verification of income or assets.”5
An institution should report “approved but not accepted” when an approval is conditioned on “customary commitment or closing conditions” and the conditions are met but credit is not ultimately extended or when the conditions are not met and the loan is not originated as a result. For example, an application would be coded “approved but not accepted” when the approval is subject to a clear termite inspection and a clear inspection is obtained but the applicant changes their mind and decides not to purchase the property. In addition, an application would be coded “approved but not accepted” when the approval was subject to clear title requirements when the title report shows potential issues, and the institution is consequently unable to originate the loan.
An institution should not report “approved but not accepted” when an approval is subject to “underwriting or creditworthiness conditions” and the conditions are not met. The “action taken” should be reported as “denial” when an approval is subject to this category of conditions, and those conditions are not met. For example, “approved but not accepted” would not be acceptable if the approval were subject to the applicant paying down a credit card bill to improve their debt-to-income ratio and the applicant is unable to do so. The application should be coded “denial” under these circumstances. “Approved but not accepted” would be appropriate, on the other hand, if the application is subject to “underwriting and creditworthiness conditions” and these conditions are met but the loan is not originated. For example, “approved but not accepted” is appropriate if an approval is subject to income verification and this requirement is satisfied but the applicant ultimately decides to pursue financing elsewhere, and the loan is not originated.
Withdrawn Applications
HMDA indicates it is appropriate to report an application as “withdrawn” when the application is “expressly” withdrawn by the applicant before the institution makes a credit decision or before the application is closed for incompleteness.6
The concept of an “express” withdrawal is integral. The applicant must affirmatively communicate to the institution that they no longer wish to proceed with their application. “Withdrawn” is not an appropriate “action taken” when an institution is unable to contact an applicant. A withdrawal may not be inferred from a lack of communication. For example, “withdrawn” would not be the appropriate type of “action taken” when a loan officer repeatedly tries to contact an applicant to complete an application and the applicant does not respond. It is also important to document the date of express communication from the applicant for the purpose of confirming an additional data point, “date of action taken.” This means an institution should retain any written correspondence or create a memo or description of any oral correspondence for the purposes of documentation in the file.
“Withdrawn” is also appropriate when an approval is conditioned on “underwriting or creditworthiness conditions” and the applicant expressly withdraws the application before the institution obtains the related information necessary to make a credit decision or before the file is closed for incompleteness.
File Closed for Incompleteness
HMDA requires that a financial institution “reports that the file was closed for incompleteness if the financial institution sent a written notice of incompleteness under Regulation B, 12 CFR 1002.9(c)(2), and the applicant did not respond to the request for additional information within the period of time specified in the notice before the applicant satisfies all underwriting or creditworthiness conditions.”7 This type of action taken is also appropriate when an institution sends a written notice of incompleteness requesting information related to “underwriting or creditworthiness conditions” necessary to make a credit decision and the applicant does not respond within the designated timeframe. For example, an application should be coded as “closed for incompleteness” if the institution sends a notice of incompleteness requesting income verification and the customer does not respond within the specified time frame.
Counteroffers
The significance of a “counteroffer” in connection with “action taken” depends on the applicant’s response to the counteroffer. The institution should report a “denial” when an institution makes an offer to lend on different terms than those the applicant applied for and the applicant declines to proceed.8 For example, a financial institution might propose a lower loan amount when a property appraisal comes in low and no longer supports an appropriate loan-to-value calculation. If the applicant declines to proceed because they are disappointed in the property value, this means they have not accepted the counteroffer. Therefore, the applicant should be reported as a “denial.”
When an applicant agrees to proceed with a counteroffer, the appropriate type of action taken will depend on the outcome of the application under the revised terms. If, in the above example, the applicant agreed to proceed with the lower loan amount and was subsequently approved subject to customer closing and commitment conditions, the type of action taken would be subject to the conditional approval rules discussed above.
How ProBank Advisor Can Assist
Tackling the complex and evolving regulatory compliance landscape can be challenging for financial institutions. Digital solutions like ProBank Advisor can help your institution gain peace of mind to thrive in this complicated space.
If you have any questions, please reach out to a professional at Forvis Mazars.