Knowledge and Insights

The Home Mortgage Disclosure Act (HMDA)/Regulation C remains one of the top three most commonly cited laws by regulatory agencies. In 2010, Congress amended HMDA in the Dodd-Frank Act, which also transferred HMDA rule-making authority to the Consumer Financial Protection Bureau (CFPB). Dodd-Frank expanded the scope of HMDA with new data fields, including pricing information; value of property; loan term; credit scores; and more. Congress also gave the CFPB authority to include additional data fields in order to increase the level of transparency and reflect business practices in the mortgage market.

In the years since HMDA was originally enacted, it has shifted from being a statute aimed at monitoring and redlining prevention to one widely used by regulators as a fair lending tool. With the new proposed changes, we see this trajectory continue.

In 2012, 7,400 financial institutions reported information about approximately 18.7 million mortgage applications and loans. While the HMDA dataset is the leading source of information about the mortgage market, it has not kept pace with the market’s evolution. For example, the HMDA data do not provide adequate information about certain loan features that helped contribute to the mortgage crisis, such as adjustable-rate mortgages and non-amortizing loans.

The rule would shed more light on consumers’ access to mortgage credit by updating the reporting requirements of HMDA regulations. The CFPB also aims to simplify the reporting process for financial institutions.
Following are the major upcoming changes:

1) RULE OF 25: There will be new thresholds for both banks and mortgage companies. This was not aligned in the past – mortgage companies had a 100+ loan threshold, while banks’ (depository institutions’) threshold was one.

Banks satisfying HMDA’s general reporting requirements must submit HMDA data, even if they make only a single home-purchase loan or refinancing in a given year. However, non-depository mortgage lenders may be required to report only if they make at least 100 loans. The proposal would generally require that institutions report HMDA data if they make 25 or more closed-end loans or reverse mortgages in a year. In addition, the proposal would eliminate reporting of certain home improvement loans. The CFPB states that this will reduce the overall number of banks required to report HMDA data by 25 percent.

2) TYPES OF TRANSACTIONS: New types of transactions, like reverse mortgages and home equity lines, will be included. Going forward, institutions will report all closed-end loans, open-end lines of credit, and reverse mortgages. Unsecured home improvement loans would no longer be reported. Open-end lines of credit and reverse mortgage loans would also have unique identifiers and characteristics to clarify reporting.

3) ALIGN DATA REQUIREMENTS: The new rule proposal aligns HMDA data requirements with the Mortgage Industry Standard Maintenance Organization (MISMO) data standards for residential mortgages. MISMO, a wholly-owned nonprofit subsidiary of the Mortgage Bankers Association, has developed an extensive set of data standards for electronic delivery of loan-level mortgage data. “The Bureau believes that grounding HMDA in the common vocabulary and data standards of the industry will continue to reduce burdens should the need arise to modify Regulation C in the future,” according to the CFPB.

4) NEW DATA POINTS REPORTED: Four new groups of data – some identified by the Dodd-Frank Act, others set forth by the Bureau are being proposed, totaling almost 40 new data points. That’s a lot of new HMDA Plus fields. The four new types of data are:

• Information about applicants: Age, credit score, debt-to-income, reasons for denial, application channel, automated underwriting system results
• Information about property: Construction method, property value, lien priority, number of individual dwelling units in the property, additional information about manufactured and multi-family housing
• Loan features: Additional pricing information, loan term, interest rate, introductory rate period, non-amortizing features, and the type of loan
• Certain unique identifiers: Loan identifier, property address, loan originator identifier, a legal entity identifier for the financial institution

5) MODIFICATIONS TO DISCLOSURE AND REPORTING REQUIREMENTS: Large financial institutions will have to formally submit their data quarterly, rather than annually. The Bureau is also proposing that the HMDA disclosure of data be available on a public website, versus available at the financial institution.

As with any major change, the industry is still seeking clarity on some aspects. These are around treatment of manufactured and modular homes; treatment of multiple properties; coverage of pre-approval programs and temporary financing; and reporting the action taken on an application. Privacy remains a major concern of all HMDA reporters, especially since much of these data are disclosed to the public. The Bureau is asking specifically for comments on how to address the potential risks to privacy interests. In addition, it is considering various improvements to the HMDA data submission process, including advanced encryption. Please provide your comments and concerns to the Bureau.

One thing is certain: More detail and transparency are coming to the business of mortgage lending. To discuss the HMDA changes in further detail or for assistance with your regulatory compliance, please contact me at [email protected] or 609-689-9700.