CFPB Implements Amendments to HMDA
On October 15, 2015, the Federal Register published the Consumer Financial Protection Bureau’s (CFPB) final rule amending Regulation C, Home Mortgage Disclosure Act (HMDA). The rule implements amendments to the HMDA made by Section 1094 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The rule sets out specific changes for the collection, recording, reporting and disclosure of mortgage lending information. In addition, it amends and adds data points financial institutions must collect. This information is important to improve the HMDA data quality in today’s housing market as well as the monitoring of fair lending compliance and access to credit.
Is Your Institution Covered?
The new HMDA rule will make changes to the institutional coverage in two phases.
Phase One will narrow the scope of depository institutions in 2017. A bank, savings association or credit union won’t be subject to the HMDA in 2017 if it doesn’t meet the asset size, location, federally related and loan activity tests and originated at least 25 home purchase loans, including refinances, in both 2015 and 2016.
Phase Two begins January 1, 2018, and will adopt a uniform loan volume test for all institutions. An institution will be subject to the HMDA if it originated at least 25 covered closed-end mortgage loans or at least 100 covered open-end lines of credit in each of the two preceding calendar years—2016 and 2017—and meets current HMDA asset size, location, federally related and loan activity tests.
The stated thresholds can result in exemptions for small-volume lenders within a metropolitan statistical area (MSA). However, if an institution exceeds either threshold, it will be required to report on those loan types. In addition, institutions outside an MSA remain excluded from coverage.
What Transactions Are Covered?
The new HMDA rule will modify the types of transactions covered from a purpose standard to a dwelling-secured standard. In general, the HMDA rule will include closed-end mortgage loans, open-end lines of credit and reverse mortgages secured by a dwelling. An open-end line of credit no longer is an optionally reported loan. Taking institutions back to the purpose standard of determination, dwelling-secured business-purpose loans and lines of credit will be covered if they are home purchases, home improvement or refinance. In addition, covered transactions won’t include agricultural-purpose transactions, even if they are dwelling-secured, and home improvement loans will be considered covered loans if secured by a dwelling.
Data to Be Reported
HMDA data collected after January 1, 2018, will include additional information about the application, origination and purchase of covered loans.
The new data points collected are:
|Applicant's & borrower's age||Application channel|
|Credit score||Total loan costs or total points & fees|
|Property address||Borrower-paid origination charges|
|Debt-to-income ratio||Discount points|
|Combined loan-to-value ratio||Lender credits|
|Automated underwriting system information||Loan term|
|Unique loan identifier, loan number||Prepayment penalty term|
|Property value||Non-amortizing loan features|
|Interest rate||Loan originator Nationwide Multistate Licensing System & Registry identifier|
|Introductory rate period||Reverse mortgage|
|Manufactured home-secured property type||Manufactured home land property interest|
|Total units||Multifamily affordable units|
|Open-end line of credit||Business or commercial purpose|
In addition, the collection and reporting of the applicant’s or borrower’s ethnicity, race and sex have been amended. The first change will require an institution to report how the ethnicity, race and sex information was collected—whether or not the institution collected this information on the basis of visual observation or surname. Second, institutions must allow applicants and borrowers to self-identify their ethnicity and race using disaggregated ethnic and racial subcategories. However, HMDA won’t permit the institution to use the disaggregated subcategories if the information is collected using visual observation or surname.
Data Submission, Disclosures & Reporting Requirements
In 2018, the CFPB will implement a website submission tool for reporting HMDA data. In addition, institutions no longer will be required to provide a disclosure statement or a modified loan application register (LAR) to the public, if requested. Rather, the institution will provide a notice that its disclosure statement and modified LAR are available on the CFPB’s website. This new requirement will apply to data collected after January 1, 2017, and reported in 2018.
Beginning in 2020, HMDA data will be reported quarterly for institutions claiming a combined total of at least 60,000 applications and covered loans in the preceding calendar year.
Financial institutions once again are faced with a monumental change to their operation and compliance process. As institutions learned with TILA-RESPA Integrated Disclosure, the sooner they begin planning and readiness efforts, the better.
If you have questions on how your institution can prepare, contact your BKD advisor.