For mortgage professionals still recovering from clearing the latest compliance hurdle, it is time to lace up for the next challenge—the Home Mortgage Disclosure Act (HMDA) decathlon. Less than two weeks after the compliance deadline for the TILA-RESPA Integrated Disclosure (TRID) rule, the CFPB issued its final rule revising HMDA (Regulation C). Expansive changes to the rule mean mortgage lenders don’t get much of a compliance breather, despite an effective date that for many is still nearly two years away.
Adopted in 1975, HMDA requires certain mortgage lenders to collect and report a wide array of home loan application information. This information was intended to help assess whether lenders were serving the housing needs of communities. In addition, HMDA data is an integral focus for the Department of Justice and Consumer Financial Protection Bureau (CFPB) in identifying red-lining and other fair lending violations.
The Dodd-Frank Act directed the CFPB to expand the data reported under HMDA and provided it with rulemaking authority. Consequently, the revised rule—some 797 pages with 560 footnotes—adds 25 new data points and modifies 14 others. And for the first time, it requires reporting data on other types of loans like reverse mortgages and home equity lines of credit. The new data that must be collected from each applicant includes total loan cost, interest rate, loan term, mortgage loan originator identity, property value and credit score.
HMDA mandates significant granularity around data collection. As an example, the revised rule not only requires the collection and reporting of “the credit score or scores relied on in making the credit decision,” but also “the name and version of the scoring model used to generate each credit score.” It is clear that the CFPB intends for these new requirements to provide both regulators and the public with greater insights. Much of the data collected under HMDA is and will continue to be made available to the public.
All lenders will require a sound HMDA implementation plan, most especially the 75–400 non-bank institutions that the CFPB estimates will be covered under the rule for the first time. The CFPB instituted a new threshold triggering coverage: the institution must report if it originates at least 25 closed-end mortgage loans or provides 100 covered open-end lines of credit in each of the two preceding calendar years. This exempts roughly 1,400 depository institutions. The CFPB was quick to add that the change will not compromise the HMDA database’s usefulness since the exempted lenders receive a low volume of applications and originate a low volume of mortgage loans.
There will also be changes in the method and frequency in which institutions report HMDA data to the federal government. The CFPB is developing a new web-based reporting tool that will be used by all “covered” institutions beginning in 2018. And in 2020, institutions with 60,000+ applications and covered loans in the preceding calendar year will be required to report on a quarterly basis.
Clearly, the compliance bar is being raised. Some industry analysts have noted that expanded data collection under the revised rule will now allow the CFPB to evaluate fair lending both on the basis of socioeconomic class, as well as on an individualized level. Furthermore, without having to initiate a formal investigation, the CFPB will be able to trace fair lending violations down to loan channel or even a specific originator.
The bulk of the revised rule will become effective January 1, 2018, with reporting commencing on March 1, 2019. Still, a number of legal experts have warned that compliance will put a strain on human and system resources, and if covered institutions have not yet commenced with implementation plans, they are behind.
It is, therefore, critical that mortgage lenders begin implementation work right away to be in championship form prior to the compliance deadline. Initial preparations should include a focus on data integrity and the development of an internal process with timelines that allow for a sufficient testing period to iron out the kinks. Keeping your favorite sports drinks and energy bars close by is also recommended.
