On October 15, 2015, the Consumer Financial Protection Bureau (CFPB) amended Regulation C to implement changes to the Home Mortgage Disclosure Act (HMDA) required by the Dodd-Frank Wall Street Reform and Consumer Protection Act. Dodd-Frank transferred HMDA rulemaking authority to the CFPB from the Board of Governors of the Federal Reserve System.
According to the CFPB, HMDA’s purpose is to provide the public and public officials with sufficient information to:
- Determine whether institutions are meeting their obligations to serve the housing needs of the communities in which they are located
- Identify communities in need of targeted public and private investment
- Assist in identifying discriminatory lending patterns and enforcing antidiscrimination statutes
HMDA requires financial institutions (FI) to collect, report and disclose data about originations and purchases of mortgage loans, including denied or withdrawn loans. Home improvement loans also are covered if secured by a dwelling.
Final Rule Applicability & Effective Dates
Most changes from the new rule take effect January 1, 2018. Lenders will be required to collect the new information during 2018 and report it by March 1, 2019. Quarterly reporting requirements will apply to “high-volume” originators.
The final rule also amends requirements related to collection of information about the ethnicity, race and sex of applicants and borrowers. FIs are required to report whether ethnicity, race or sex information is collected on the basis of visual observation or surname when an application is taken in person and the applicant doesn’t provide the information. The final rule also requires FIs to permit applicants and borrowers to self-identify where ethnicity and race information is provided by the applicant or borrower.
The final rule narrows the scope of depository institutions subject to Regulation C in 2017. Reporters must meet the asset-size, location, federally related and loan activity tests under current Regulation C and must originate at least 25 home purchase loans, including refinancing of home purchase loans. Effective January 1, 2018, a bank, savings association or credit union will be subject to Regulation C 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 and it meets current Regulation C’s asset-size, location, federally related and loan activity tests. Small-volume lenders in a metropolitan statistical area (MSA) will be exempt. However, if an FI exceeds either threshold, it will be required to report on covered loans and lines of credit. FIs outside MSAs are excluded from reporting requirements.
Most consumer-purpose dwelling-secured transactions are subject to the regulation, including closed-end home equity loans, home equity lines of credit and reverse mortgage loans. Commercial-purpose transactions are subject to the regulation only if they are for the purpose of home purchase, home improvement or refinancing. Home improvement loans not secured by a dwelling are excluded, as are all agricultural-purpose loans and lines of credit. Loan modifications aren’t required to be reported.
New & Modified Data Points
The CFPB is modifying 12 existing requirements and adding 25 new reporting requirements. New data points fall into four broad categories:
- Information about applicants, borrowers and the underwriting process, such as age, credit score, debt-to-income ratio and automated underwriting system results
- Information about the property securing the loan, such as construction method, property value and additional information about manufactured and multifamily housing
- Information about the features of the loan, such as additional pricing information, loan term, interest rate, introductory rate period, nonamortizing features and type of loan
- Certain unique identifiers, such as a universal loan identifier, property address, loan originator identifier and legal entity identifier for the FI
The CFPB believes FIs already compile most of the new required or modified data for reasons other than HMDA compliance or that these are merely calculations derived from such data. However, the CFPB expects significantly more nondepository institutions to begin reporting under the new requirements. The data requirements are summarized in a chart, “Summary of Reportable HMDA Data.”
FIs no longer are required to provide disclosure statements to the public or the loan or application register. Instead, FIs will provide a notice to the public that the information is available on the CFPB website. Beginning in 2018, covered institutions will start using a new CFPB Web-based submission tool for reporting 2017 HMDA data. In 2019, FIs will begin reporting the new data set required by the final rule.
Summary & Implications
New reporting begins January 1, 2018, which could affect how data is collected in 2017. All the reported data will be available to bank regulators, and much of the data will be available to the public (subject to redaction of yet-to-be-determined personally identifiable information). Various commentators expect the enhanced HMDA data will increase scrutiny on fair lending practices. With enhanced data availability, some also believe reverse mortgages and home equity credit lines will be regulatory focus areas. In light of the expanded reporting requirements and the anticipated use of that data, FIs are advised to ensure vendors are adequately preparing to meet technical requirements. In addition, it will be imperative for FIs to ensure fair lending compliance through ongoing testing.
For more information on how these changes could affect your institution, contact your BKD advisor.