HMDA Rule Released, Many Small Depositories Will Be Exempt

The Consumer Financial Protection Bureau (CFPB) has issued its final rule outlining information lenders must report under the Home Mortgage Disclosure Act (HMDA).  CFPB said the rules that have been in place regarding HMDA data have not kept pace with the market's evolution, For example, not providing adequate information about certain loan features that helped contribute to the mortgage crisis, such as adjustable-rate mortgages and non-amortizing loans.

HMDA, originally enacted in 1975, requires many lenders to report information about the home loans for which they receive applications or that they originate or purchase. In 2014, 7,062 financial institutions reported information about approximately 11.9 million mortgage applications, preapprovals, and loans. The information is available to the public and regulators to monitor whether financial institutions are serving the housing needs of their communities, to assist in distributing public-sector investment to attract private investment to needed areas, and to identify possible discriminatory lending patterns.

When Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010 it included a mandate for CFPB to expand the HMDA dataset to include additional information about applications and loans that would be helpful to better understand the mortgage market. The CFPB convened a panel of small businesses to provide feedback on potential changes to the rule in February 2014, and issued a proposed rule which updated HMDA reporting requirements in July 2014.

 "The Home Mortgage Disclosure Act helps financial regulators, the public, housing officials, and even the industry itself keep a watchful eye on emerging trends and problem areas in the nation's mortgage market - the largest consumer financial market in the world," said CFPB Director Richard Cordray. "With today's final rule we are shedding more light to foster better understanding of the market, and also ensuring that lenders have sufficient time to come into compliance."

The final rule changes the data financial institutions are required to provide. The changes include:

• Improving market information: In order to improve public understanding of market conditions and identify emerging risks and potential discriminatory lending practices in the marketplace HMDA requires new information that includes the property value, term of the loan, and the duration of any teaser or introductory interest rates.
• Monitoring fair lending compliance and access to credit: More information will now be required on loan underwriting and pricing including debt-to-income ratios, interest rates and points. This information will enhance the ability to screen for possible fair lending problems and focus attention on the riskiest areas where those problems are most likely to exist. It will also enable the Bureau and other stakeholders to monitor developments in specific markets such as multifamily housing, affordable housing, and manufactured housing.

The Bureau said it is working with other federal agencies to streamline the reporting process and burden for lenders. In line with this goal the final rule will:

• Ease reporting requirements for some small banks and credit unions:  The new rule continues to exclude small depository institutions that are located outside a metropolitan statistical area from the requirements and small institutions with low loan volume will no longer have to report HMDA data. The new threshold will reduce the overall number of banks and credit unions required to report HMDA data by an estimated 22 percent.
• Align reporting requirements with industry data standards:  Many financial institutions are collecting the same or similar data as required by HMDA for their own processing, underwriting, and pricing of loans, or to facilitate the sale of loans on the secondary market. Many of the amended requirements align with well-established industry data standards, including definitions that are already in use by a significant portion of the mortgage market.

The final rule adopts many of the provisions proposed in 2014 but also incorporates a number of changes that evolved out of public comments. For example, the final rule does not include several of the data points proposed by the Bureau (such as the "risk-adjusted, pre-discounted interest rate"), and does not adopt the proposal to require reporting of all dwelling-secured transactions made for commercial purposes.

CFPB said it is looking at ways to improve public access to HMDA data modified to protect applicant and borrower privacy. It continues to update an online tool that helps the public better use available mortgage loan data and which allows users to filter information, create summary tables, download the data, and save their results.

Most of the provisions of the final rule will take effect on January 1, 2018. Lenders will collect the new information in 2018 and then report this information by March 1, 2019.

David H. Stevens, President and CEO of the Mortgage Bankers Association (MBA) commended CFPB for what he said is the final mortgage-related rule from Dodd-Frank, and said MBA members appreciate the long lead-time to update their reporting systems.  "While there will be new reporting requirements for some market segments, we appreciate that the Bureau is making MISMO technology standards a core part of the new reporting. MBA wants to reiterate its concerns about data security and consumer privacy in light of all the additional detailed information on consumers that the government will be collecting and disclosing under the new HMDA guidelines. In the months to come, we look forward to working closely with the Bureau to ensure that consumers' data is protected." 

A copy of the final rule is available at: http://files.consumerfinance.gov/f/201510_cfpb_final-rule_home-mortgage-disclosure_regulation-c.pdf