HMDA
(Home Mortgage Disclosure Act)
What to Know Now &
What’s Next?
May 13, 2015

Presented by:

Susan Costonis, C.R.C.M.

Compliance Training & Consulting for Financial Institutions

E-mail:

INSTRUCTOR

Susan Costonis is a compliance consultant and trainer. She specializes in compliance management along with deposit and lending regulatory training. Most of her 37-year career was spent as a banker in several areas including lending, loan administration, electronic banking, and compliance risk management.

Susan has successfully managed compliance programs and exams for institutions that ranged from a community bank to large multi-state bank holding companies. She has been a compliance officer for institutions supervised by the OCC, FDIC, and Federal Reserve. Susan has been a Certified Regulatory Compliance Manager since 1998, completed the ABA Graduate Compliance School, and graduated from the University of Akron and the Graduate Banking School of the University of Colorado. She regularly presents to financial institution audiences in several states and “translates” complex regulations into simple concepts by using humor and real life examples.

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TABLE OF CONTENTS

Session Overview and Key Requirements 4

OVERVIEW 5

HMDA HISTORY 7

HMDA CHANGES PROPOSED 8

HMDA NOW AND IN THE FUTURE 12

PURPOSE AND COVERAGE 13

HMDA FLOW CHART 14

HMDA REPORTING BASICS 15

2014 AND 2015 REPORTING CRITERIA FOR DEPOSITORY INSTITUTIONS 16

IMPORTANT HMDA DEFINITIONS 17

HMDA DATA EXCLUSIONS 23

HOW TO TELL WHETHER A LOAN IS HMDA REPORTABLE: 24

Common Problems 25

STEP-BY-STEP CONTROLS 26

LIST OF HMDA PROBLEMS AND SOLUTIONS 30

COMMON HMDA PROBLEMS FOUND IN INDEPENDENT AUDITS 32

FDIC SUGGESTIONS TO PREVENT HMDA ERRORS 33

FAIR LENDING AND HMDA 36

HMDA DATA ANALYSIS 37

Session Overview and Key Requirements

OVERVIEW

On July 24, 2014, the Consumer Financial Protection Bureau published long-awaited proposed revisions to its Home Mortgage Disclosure Act rules. The 573-page proposed rule would make sweeping changes to Regulation C, and dramatically expand financial HMDA reporting and compliance obligations. There are potential fair lending implications – more data means more analysis to detect potential discriminatory lending practices. The proposed changes include required reporting of 37 new data fields, 20 of which are not required by HMDA and represent additional information the CFPB would like to collect. The proposal would require financial institutions to report home equity lines of credit (HELOCs), reverse mortgages, and commercial loans secured by a dwelling. In addition, the proposal would require “larger” HMDA reporters to report data every calendar quarter, rather than on an annual basis.

What do you need to know now? Attend this session to review the HMDA reporting requirements 2015 and learn practical tips for data collection and validation. What’s on the horizon? We’ll review the proposed rule to help prepare for the changes that will likely become effective in 2016. (UPDATE: As of the submission date of these materials a final rule has not been published. Under the requirements of Dodd-Frank, a nine month lead time was required for a January 1st implementation date. If the CFPB publishes a final rule this summer, the first possible effective date will require the new data collection requirements to begin January 1, 2017

HIGHLIGHTS:

Ø  Overview of the HMDA requirements for 2015 activity, including:

  1. Who reports HMDA data?
  2. What types of loans are covered?
  3. What data is reported?
  4. When is the data reported?
  5. How is the data reported?
  6. How to properly report data of the 26 required fields
  7. Common reporting mistakes and practical tips for managing the process

Ø  Best practices for HMDA data validation

Ø  What will the proposed rules change?

  1. More types of loans will be covered; the “purpose” test will be eliminated and cover nearly all dwelling-secured loans.
  2. Data reporting is dramatically increased in these categories
  3. Borrower Information and Underwriting Characteristics (age, credit score, debt to income ratio, combined loan-to-value, application channel, automated underwriting system
  4. Property data (Postal address and location; property value, number of dwelling units in the property, construction method, manufactured housing information, multi-family housing information
  5. Product Features ( points & fees, borrower-paid origination charges, discount points, non-discounted interest rate, interest rate, loan term, non-amortizing features, prepayment penalty, qualified mortgage, first draw information
  6. Identifiers (Universal Loan Identifier, Mortgage Loan Originator Identifier)
  7. Clarification and Revisions to Existing Data points include reporting the reasons for denial, occupancy type, lien priority, rate spread, HOEPA status, Loan Type, Loan amount
  8. Technical changes and web-based data submission
  9. Privacy concerns about the public availability of the data
  10. Increased oversight will be required to prove that the data is accurate.

·  BONUS – HMDA TOOLKIT

o  HMDA Worksheets & Flowchart

o  Comparison of the current rules to the proposed rules

o  Step-by-step data collection definitions and important tips to avoid mistakes.

o  Helpful HMDA compliance resources including checklists and a matrix of 37 types of real estate secured lending regulation requirements

HMDA HISTORY

For nearly 40 years, the Home Mortgage Disclosure Act (HMDA) has provided the public with information about mortgage lending activity within communities throughout the nation.Here’s a brief timeline of HMDA's development:

1975: HMDA was enacted by Congress, and was implemented by the Federal Reserve Board’s Regulation C.HMDA originally identified its purposes as providing the public and public officials with information to help determine whether financial institutions are serving the housing needs of the communities in which they are located, and to assist public officials in their determination of the distribution of public sector investments in a manner designed to improve the private investment environment.

1989: Congress expanded HMDA to require financial institutions to report racial characteristics, gender, and income information on applicants and borrowers, among other things. This effectively moved HMDA from aggregated-level reporting to transaction-level reporting. In light of these amendments, the Federal Reserve recognized a third HMDA purpose of identifying possible discriminatory lending patterns and enforcing anti-discrimination statutes.

2002: The Federal Reserve began requiring identification of higher priced mortgage loans, identification of manufactured homes, reporting of denials from pre-approved programs, and conformed data on ethnicity and race to standards established by the Office of Management and Budget (OMB). Despite the changes, HMDA was still criticized for offering only limited loan pricing variables and did not offer transparency into the subprime mortgage market.

2010: Congress amended HMDA in the Dodd-Frank Act, which also transferred HMDA rule-making authority to the CFPB. Dodd-Frank expanded the scope HMDA with new data fields, including pricing information, value of property, loan term, credit scores, and more. Congress also gave the CFPB the authority to include additional data fields in order to “increase the level of transparency in the mortgage market” and to “reflect in business practices of the mortgage market.”

2014: The CFPB announces a proposed rule that contains the Dodd-Frank requirements and many additional reporting changes. In the years since HMDA was originally enacted, it has shifted from being a statue aimed at monitoring and redlining prevention to one widely used by the regulators as a Fair Lending tool. With the new proposed changes, it appears this trajectory will continue.

HMDA CHANGES PROPOSED

A copy of the 573 page proposed rule, which includes information on how to submit comments, is available at: http://files.consumerfinance.gov/f/201407_cfpb_proposed-rule_home-mortgage-disclosure_regulation-c.pdf A copy of the final report of the Small Business Review Panel is available at: http://files.consumerfinance.gov/f/201407_cfpb_report_hmda_sbrefa.pdf Link to July 25, 2014 announcement: http://www.consumerfinance.gov/newsroom/cfpb-proposes-rule-to-improve-information-about-access-to-credit-in-the-mortgage-market/

On July 25, 2014, the CFPB announced proposed changes to Regulation C (12 CFR Part 1003), which implements the Home Mortgage Disclosure Act. The proposal is intended to provide better information about residential mortgage credit by expanding the list of data that financial institutions are required to provide, including new information that could help identify potential discriminatory lending practices. It is also expected to provide additional information to help regulators monitor access to credit

  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+ threshold and the depository institutions threshold was at one. 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 because the “purpose test” is effectively eliminated. 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 non-profit 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 Bureau.
  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.The four new types of data are:

o  Information about applicants: Age, credit score, debt-to-income, reasons for denial, application channel, automated underwriting system results

o  Information about property: Construction method, property value, lien priority, number of individual dwelling units in the property, additional information about manufactured and multifamily housing

o  Loan features: Additional pricing information, loan term, interest rate, introductory rate period, non-amortizing features, and the type of loan

o  Certain unique identifiers: Loan identifier, property address, loan originator identifier, a legal entity identifier for the financial institution

  1. 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.
  2. CLARIFY THE REGULATION: Some examples to clarify guidance on HMDA reporting include: types of residential structures are considered dwellings; 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.

Concerns about Privacy

With the additional data fields, many parties involved have expressed concerns about maintaining privacy.Exposing a consumer’s age, property address, debt-to-income, credit score, and mortgage interest rate certainly is not acceptable. The Bureau will likely modify the LAR data that will be made available to the public in order to protect the privacy interests of individual applicants or borrowers, perhaps by deleting information like credit score and age.

“The Bureau is mindful that privacy concerns may arise both when financial institutions compile and report the data to the Bureau and other agencies and when HMDA data are disclosed to the public,” according to the proposed rule.

The Bureau is asking specifically for comments on how to address the potential risks of privacy interests created by the reporting of HMDA. In addition, the Bureau is considering various improvements to the HMDA data submission process, including advanced encryption.

CFPB GOALS IN THE HMDA PROPOSAL
BETTER INFORMATION ABOUT THE MORTGAGE MARKET - This rule includes a number of new categories of data to be collected, including the property value, term of the loan, total points and fees, the duration of any teaser or introductory interest rates, and the applicant’s or borrower's age and credit score.
MONITORING ACCESS TO CREDIT - In addition to market information, the CFPB is also using the proposed rule to gain data regarding access to credit. The rule would require financial institutions to provide more information about underwriting and pricing, such as an applicant's debt-to-income ratio, the interest rate of the loan, and the total discount points charged for the loan. The CFPB believes that such data would help the bureau observe how the ability-to-repay rule is impacting the market, and would also help the bureau monitor developments in specific markets such as multi-family housing, affordable housing and manufactured housing. The proposed rule would also require that lenders report, with some exceptions, all loans related to dwellings, including reverse mortgages and open-end lines of credit. However, unsecured home improvement loans would no longer need to be reported.
STANDARDIZE THE REPORTING THRESHOLD - Depository institutions, such as 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.
EASE REPORTING REQUIREMENTS FOR SOME SMALL BANKS. With the proposed standardized reporting threshold, small depository institutions that have a low loan volume—fewer than 25 mortgages a year—would not have to report HMDA data. In announcing the proposed rule, the CFPB stated that in addition to more robust reporting, the proposed rule furthered the bureau's goals related to aligning reporting requirements with industry data standards.
ALIGNING REPORTING REQUIREMENTS WITH INDUSTRY DATA STANDARDS. Using established industry data standards would mitigate the burden on lenders in providing the new data.
IMPROVING THE ELECTRONIC REPORTING PROCESS. The CFPB is analyzing new technological tools to make the data submission process more efficient, ease the data formatting requirements and help financial institutions prevent errors.
IMPROVING DATA ACCESS. Despite significant privacy concerns already being raised, the CFPB specifically stated that it is looking at ways to improve how the public can securely use HMDA data.

SPECIFIC DATA FIELDS:

  1. Information about applicants, borrowers, and the underwriting process, such as age, credit score, debt-to-income ratio, reasons for denial if the application was denied, the application channel, and automated underwriting system results.
  2. Information about the property securing the loan, such as construction method, property value, lien priority, the number of individual dwelling units in the property, and additional information about manufactured and multifamily housing.
  3. Information about the features of the loan, such as additional pricing information, loan term, interest rate, introductory rate period, non-amortizing features, and the type of loan.
  4. Certain unique identifiers, such as a universal loan identifier, property address, loan originator identifier, and a legal entity identifier for the financial institution

There are approximately 60 fields of data on the proposed HMDA LAR