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Still reeling from the new TILA-RESPA Integrated Disclosures, mortgage lenders got about a five-minute breather before the next big bombshell hit: the CFPB’s amendments to the Home Mortgage Disclosure Act. Through the Act, Congress has charged the regulatory agencies with identifying and combating discriminatory practices within the mortgage industry. Through Regulation C, first the Federal Reserve Board and now the CFPB has for many years required qualifying financial institutions to track and report specific pieces of information on the loans that they make for home purchase, refinances of home purchases and home improvement purposes.
However, over the years mortgage products and the delivery systems have changed significantly, and those changes have affected the value of the information being reported. As a result, HMDA has been revised from time to time to ensure that sufficient information is being received to enable the regulatory agencies to identify potential redlining and other discriminatory practices.
More recently, the Dodd-Frank Act required both an expansion of the scope of the loans for which information is gathered and an expansion of the scope of the information being gathered in order to provide a more robust picture of the mortgage lending activities within individual financial institutions and across the industry.
The new HMDA rule is lengthy and significantly expands the types of loans for which reporting will be required, expands the small lender exemption, modifies many of the existing data fields and adds a number of new fields. The only good news here from an operational perspective is that the CFPB has provided what appears to be a manageable lead time before the new tracking and reporting requirements take effect.
Small Lender Exemption
The first significant change is to the test for what determines whether a financial institution must collect and report data for the next calendar year. The new rule adds two additional tests designed to exempt financial institutions that do only a small volume of mortgage loans. These two additional tests are:
- Did the financial institution originate at least 25 home purchase loans, including refinancing of home purchase loans in each of the two preceding calendar years? or
- Did the financial institution originate at least 100 open-end lines of credit secured by a dwelling in the each of the previous two calendar years?
Once the specific provisions of the new rule are in effect financial institutions that fail any of the existing test or these two new tests will not have to collect and report HMDA data for the next calendar year.
Loan Types Covered Under the New Rule
As stated previously, there has been a significant expansion in the types of loans for which you will have to collect and report data. Under the new rule, the following loan types will be covered loans for which you will have to collect and report data:
- All closed-end mortgage loans secured by a dwelling. The purpose of the loan no longer matters;
- Open-end lines of credit (HELOCs) secured by a dwelling, but only if you originated at 100 open-end lines of credit in each of the two preceding calendar years;
- Dwelling secured, business purpose loans and lines of credit, but only if they are used for home purchase, refinances of home purchase loans or for home improvement purposes;
- Covered loans and open-end lines of credit used for agricultural purposes and NOT reportable, even if they are secured by a dwelling; and
- Unsecured home improvement loans will NO LONGER be reportable.
New Data to be Collected
There are a number of new pieces of information or data points that will need to be collected and reported beginning January 1, 2018. The new data points are:
- Postal or property address of the property securing the loan;
- Applicant’s or borrower’s age
- Credit scores relied on to make the loan decision and the name and version of the credit scoring model you used;
- Either the total loan costs (from the TRID closing document) or the total points and fees charged (if the loan was not subject to the TRID closing document);
- Total borrower-paid origination charges (from the TRID closing document);
- Discount points (the points the borrower paid to the lender to reduce the interest rate);
- Amount of lender credits (from the TRID closing document);
- Interest rate on the approved application or loan;
- Prepayment penalty term (in months)
- Debt-to-income ratio , which is the ratio of the applicant’s or borrower’s total monthly debt to the total monthly income relied on for decisioning purposes;
- Combined loan-to-value ratio, which is the ratio of the total amount of the debt that is secured by the property to the value of the property that was relied on for decisioning purposes;
- Loan term (in months)
- Introductory rate period, which is the number of months until the first date the interest rate can change;
- Non-amortizing features, which includes whether the loan involves a balloon payment, interest-only payments, negative amortization, or any other type of non-amortizing feature;
- Property value relied on for decisioning purposes;
- If the collateral is a manufactured home, whether the applicant or borrower owns or leases the land on which the manufactured home is located;
- Total number of individual dwelling units;
- Total number of multifamily affordable units, which are income-restricted units under federal state or local affordable housing programs;
- Application channel through which the application was submitted to you. The application may have been submitted directly to you or through a broker and whether the loan was originally payable to you;
- Mortgage Loan originator (NMLSR) identifier number;
- If applicable, the name of the automated underwriting system used to evaluate the loan application and the result the system generated (automated underwriting systems are only those that are provided by loan securitizes like FNMA, FHLMC, etc.);
- Whether the loan is a reverse mortgage;
- Whether the loan is an open-end line of credit; and
- Whether the loan is primarily for a business or commercial purpose.
Fortunately, there are a few data points that had been included in the proposed HMDA rule that did not end up in the final rule. These include whether the loan was a qualified mortgage (QM), the amount of any advances made at closing for a covered open-end line of credit, and the interest rate the borrower would have received if he/she elected not to pay points to reduce the interest rate.
The Current Data Fields That Are Being Modified
A number of existing data fields for which we now collect information are being modified. These are:
- Occupancy type – It used to be a choice between owner-occupied and non-owner occupied. Under the new rule you will need to indicate whether the property will be used as a principal residence, second residence or an investment property;
- Loan amount – You will enter the actual amount of the loan rather than rounding to the nearest thousand. For HELOCs, you will enter the credit limit and for reverse mortgages you will enter the initial principal limit;
- Preapprovals – Currently, if you have a formal preapproval program in place, you must report preapproval requests that are approved and accepted by the applicant and preapproval requests that are approved, but not accepted by the applicant. The reporting of preapproval requests that are denied is voluntary. Under the new rule, the denials will be reportable, as well.
- Type of purchaser – You will select the type of entity that purchased a loan you originated and sold;
- Rate spread – This has been expanded to include all loans, except purchased loans and reverse mortgages;
- Lien status – This has been expanded to include purchased loans;
- Reason for denial – This used to be a voluntary field. It becomes mandatory under the new rule to identify the reason or reasons for denial.
Collection of Borrower Information
If you as the lender are reporting the information regarding the applicant’s or borrower’s race, ethnicity or gender (rather than the applicant or borrower self-reporting the information), you will have to indicate whether you made your determination based on visual observation or surname. Applicants and borrowers who self-identify their ethnicity and race will have a wide choice of options to select from (referred to in the rule as disaggregated ethnic and racial subcategories). For example, instead of being limited to identifying his/her ethnicity as Hispanic, an individual will be able to select whether he/she is Mexican, Puerto Rican, etc. Financial institutions, however, will continue to use the current categories for race and ethnicity and are not permitted to use the disaggregated subcategories.
As stated previously, the data collection provisions are effective for calendar year 2018, but some of the other provisions have different effective dates. Here is a summary of those dates and what you will need to do in each of the years that are affected by one or more rule changes:
For 2017 – 1/1/2017 is the effective date for excluding financial institutions that did not originate at least 25 home purchase loans or refinances of home purchase loans in each of the two preceding years. On 3/01/2017, you will report 2016 data collected under the current rule in the same manner that you have in the past. If you are a covered institution as of 12/31/2016, you will collect data for 2017 also under the current rule.
For 2018 – 1/01/2018 is the effective date for also excluding financial institutions that do not originate at least 100 open-end lines of credit secured by a dwelling in each of the two preceding years. In addition, on 1/01/2018, the new data collection rules go into effect for data you collect during 2018. On March 1, 2018, you will report 2017 data collected under the current rule to the CFPB using a new web-based submission tool.
For 2019 – January 1, 2019 is the effective date for changes to the HMDA enforcement provisions. You will report to the CFPB data you collected for 2018 under the new data reporting requirements on 3/01/2019.
For 2020 – Large lenders (those covered institutions that reported a combined total of at least 60,000 covered applications and loans in the preceding year) must begin reporting their HMDA data on a quarterly basis with the first quarterly submission due by 5/30/2020.
New Submission Process
The CFPB is developing a new web-based submission tool for reporting HMDA data. Covered institutions will have to begin using this tool for electronic submissions beginning in 2018 for data collected in 2017.
Changes to Public Disclosures
Here is one area where the new rule will make our lives easier. Beginning January 1, 2018, financial institutions will no longer have to provide a copy of the aggregated disclosure statement or a modified LAR to a consumer who requests these documents; at least not if they are requesting them for data collected on or after January 1, 2017. Instead, consumers will be referred to the CFPB’s website to obtain both of these disclosures.
So between now and the effective dates for the new rule, you should begin to do the following:
- Ensure that you can collect, store and report all of the new and modified data points;
- Work with your consumer loan application system provider if you currently originate your HELOCs on that platform versus a mortgage application platform to be sure that the required data points are retrievable for your HELOCs, as well;
- Revise your loan application forms to include the disaggregated subcategory options for race and ethnicity;
- Learn how to use the new web-based data reporting system;
- Conduct staff training, where applicable;
- Make revisions to policies and procedures; and
- Obtain new lobby signage that refers applicants to the CFPB for disclosure statements and modified LARs.
A copy of the entire text of the new HMDA rule and Official Staff Interpretations can be found at: https://www.federalregister.gov/articles/2015/10/28/2015-26607/home-mortgage-disclosure-regulation-c
Prior to joining AffirmX July 2012, Ms. Pannier was President and CEO of a federal credit union. Ms. Pannier also previously served as Senior Compliance Counsel for the National Association of Federal Credit Unions (NAFCU) and Director of its Regulatory Compliance Department.
In addition to her expertise in the legal and regulatory fields, Ms. Pannier has 20 years of credit union operational experience having previously served in a variety of capacities, such as Credit Manager, Director of Research and Development, and Vice President of Marketing.
Ms. Pannier holds a Bachelor of Science degree in Economics from Towson University and a Juris Doctorate from the University of Maryland School of Law. Ms. Pannier is a member of the Maryland Bar Association and the American Bar Association and has served on the faculty of the NAFCU Compliance School, the CUNA Mortgage Lending School and the Credit Union Executive Society School of Business Lending.