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New Rules Change the Type and Amount of HMDA Data Financial Institutions Report
The Consumer Financial Protection Bureau (CFPB) at long last announced on October 15, 2015, that it updated the Home Mortgage Disclosure Act (HMDA). The changes modify who has to report HMDA information to the CFPB and the type of transactions that are reportable. They also outline new data to be collected starting January 1, 2018, and the type of information that will be made available to the public in 2019. Financial institutions should learn about the changes and the impact on their HMDA program.
It is estimated that 22 percent fewer financial institutions will be required to report HMDA data.
The CFPB issued a proposal back in July 2014, to change the information collected and reported for HMDA purposes.
The new HMDA rule adopts many of the proposed provisions, but based on comments received regarding the proposed rule, some changes were made to the new rule. For example, the new rule does not include several data points proposed by the CFPB, including the “risk-adjusted, pre-discounted interest rate.” The new rule also does not require reporting of all dwelling-secured transactions made for commercial purposes.
Who has to report?
In 2014, 7,062 financial institutions reported HMDA information involving 11.9 million mortgage applications, loans, and preapprovals. In 2017, the new thresholds and exclusions will result in fewer financial institutions being required to report HMDA data. It is estimated that 22 percent fewer banks and credit unions will be required to report HMDA data.
In 2017, a financial institution will have to comply with HMDA if it meets all of the existing coverage criteria (exceeds asset size threshold, has a home or branch office in a Metropolitan Statistical Area, is federally insured or regulated/insured, and is guaranteed or supplemented by a federal agency or is intended for sale to Fannie or Freddie Mac) and it originates at least 25 home purchase loans, including refinancing, in both 2015 and 2016. The 25 home purchase loan threshold is new.
In 2018, even fewer financial institutions will be subject to HMDA as covered open-end lines of credit are included in the threshold test. Starting in 2018, a financial institution will have to comply with HMDA if it meets the existing coverage criteria and it originates in the preceding two calendar years:
- At least 25 covered closed-end mortgage loans, or
- At least 100 covered open-end lines of credit.
Which transactions have to be reported?
The new rules use “dwelling-secured” as the standard for determining which transactions fall under HMDA coverage starting January 1, 2018. Generally, all closed-end mortgage loans and home equity lines-of-credit (HELOCs) will be HMDA-covered loans.
However, there is a special carve out for HELOCs. Only covered financial institutions that originate at least 100 HELOCs in each of the two preceding calendar years have to collect, record, and report HELOC information for HMDA. If the dwelling secured loan or line-of-credit is for a business purpose, it is covered by HMDA only if the loan is for a home purchase, home improvement, or refinancing. Even if a loan or line-of-credit is dwelling-secured, it will not be subject to HMDA if it is for an agricultural purpose or a specifically excluded loan. Home improvement loans will be covered by HMDA if they are dwelling-secured.
Under the current HMDA rules, it is optional for financial institutions to collect, record, and report preapproval requests that are approved but not accepted. However, starting in 2018, covered financial institutions must collect, record, and report preapproval requests that are approved but not accepted for home purchase loans. The key will be whether they are for home purchase loans. Preapproval requests for HELOCs, reverse mortgages, and home purchase loans secured by multifamily dwellings will not be considered covered transactions starting in 2018.
New and modified data
Beginning in 2018, covered financial institutions will report 24 pieces of new HMDA information for covered loans. In addition, 12 pieces of existing reporting information has been modified. The CFPB includes a chart outlining the new and modified reportable data.
Collecting and reporting applicant and borrower information
Starting in 2018, rules change for collecting and reporting applicant and borrower ethnicity, race, and sex information. HMDA-covered financial institutions will have to report whether or not it collected ethnicity, race, and gender information based on visual observation or surname.
HMDA-covered financial institutions will also have to allow applicants to self-identify race and ethnicity using disaggregated racial and ethnic subcategories, and report the disaggregated information provided. The reason for this change is it is thought that disaggregated data will more accurately reflect the race and ethnicity of applicants and provide more meaningful data. If the financial institution completes the race and ethnicity data based on visual observation or surname, the current rule applies whereby they must provide only aggregated racial or ethnic data. The new rule includes a new sample data collection form in Appendix B of Regulation C that provides the required aggregated categories and disaggregated subcategories for ethnicity and race.
Submitting HMDA data
The CFPB completed a pilot of the new web-based tool, which it hopes will collect HMDA information more efficiently. Industry stakeholders tested the pilot and the feedback was very positive. Several indicated that the new tool was simpler and easier to use. It is expected that implementing the new technology will reduce manual and paper-based systems currently used by regulators and reporting financial institutions. The hope is that this compliance change will be one of the rare ones that actually reduces compliance costs.
Starting in 2018, covered financial institutions will be required to use the CFPB’s new web-based HMDA submission tool. Also effective in 2018, Appendix A of Regulation C is amended to include transition requirements for data collected in 2017 and reported in 2018.
Appendix A goes is replaced in 2019 by a new electronic submission tool and revised HMDA procedures that will be available on the CFPB’s website.
Quarterly reporting for larger financial institutions
Starting in 2020, if a covered financial institution reported a combined total of 60,000 applications and covered loans in the preceding calendar year, it must report HMDA data quarterly. These larger institutions must also report data annually. The first quarterly submission will be due by May 30, 2020.
Disclosure statement and modified LAR on CFPB’s website
Starting in 2018, covered institutions will not have to provide an HMDA disclosure statement or modified loan application register (LAR) when requested by the public. Covered financial institutions will instead provide a notice that the disclosure statement and modified LAR are on the CFPB’s website. This new rule will apply to data collected starting January 1, 2017 and reported in 2018.