Four decades ago, Congress passed the Home Mortgage Disclosure Act. The purpose of the law was to provide the public with more and better information about the mortgage market and help ensure market transparency.
The financial crisis of 2008 exposed some serious shortcomings in market transparency. To help address these issues, the Dodd-Frank Wall Street Reform and Consumer Protection Act transferred HMDA administration to the Consumer Financial Protection Bureau, and required the CFPB to expand the types of information collected through HMDA.
On Oct. 15, the CFPB finalized its updates to HMDA reporting requirements. These updates significantly expand both the scope and frequency of HMDA data reporting by mandating new data points that must be collected through HMDA. The updates also give the CFPB considerable discretionary authority to require that additional data points be collected if they would further HMDA’s purposes.
Financial institutions must start collecting the new data sets on Jan. 1, 2018, in order to report the data in 2019.
Additionally, the updates expand the types of loans to be reported under HMDA to include home equity lines of credit and reverse mortgages. They lower the HMDA reporting threshold to just 25 covered loans for depository and nondepository institutions while requiring large institutions to report data to the CFPB quarterly.
The new data points that lenders must now report include the following:
• Total points and fees paid on a mortgage loan
• Prepayment penalty terms (if applicable)
• Loan term and interest rate
• Property value and parcel ID
• Duration of teaser or introductory interest rates
• Non-amortizing loan features
• Borrower’s age and credit score
In addition, lenders must provide more information about their loan underwriting practices and pricing, including applicants’ debt-to-income ratios.
Steve Beecham, president of Home Town Mortgage in Alpharetta, Ga., said the CFPB is trying to obtain data for mortgage loans that weren’t made to uncover potential lending discrimination.
“The data that’s most helpful in determining this is data that applies to loans that were not made,” Beecham said. “This data is not that readily available.”
Industry groups like the Mortgage Bankers Association and the National Association of Federal Credit Unions are expressing serious concerns about several aspects of the updated HMDA reporting requirements.
“The enormous data collection and reporting required by the CFPB raises serious consumer privacy and data security concerns,” the MBA stated in a blog on its website. “HMDA data does not include personal identifiers. Nevertheless, the loan-level data currently collected under HMDA in combination with publicly available data sources can result in identification of individual borrowers and disclosure of their confidential data.”
The MBA blog stated that a recent GAO report concluded the CFPB must undertake additional efforts in several areas to reduce the risk of improper collection, use or release of consumer financial data. The MBA contends the CFPB should institute specific data security safeguards before receiving additional HMDA data and confine its expansion of HMDA data to only those data elements required by Dodd-Frank, or possibly only those data fields relevant to underwriting requirements.
In addition, the expanded scope, lower thresholds and increased frequency required by the updated reporting requirements place significant new compliance burdens on many lenders, according to the MBA blog. “The perceived benefits of quarterly reporting by larger institutions are not justified by the additional costs and burdens,” it stated. “Also, the HMDA reporting threshold of 25 loans for all lenders is too low and will discourage mortgage lending by some entities, thus lessening the availability of credit.”
Alicia Nealon, director of regulatory affairs for NAFCU, acknowledges the Dodd-Frank legislation includes express legal mandates that the CFPB expand the HMDA data collection set. “However, the updated reporting requirements are a comprehensive overhaul of Regulation C, which implements HMDA,” she said. “They don’t just expand the HMDA data collection set — they also change the transactional and institutional coverage tests.”
From the credit unions’ perspective, Nealon said the most burdensome aspects of the new HMDA reporting requirements are the expanded data collection set and the fact that home equity line of credit reporting is now mandatory.
“We’re disappointed to see how many data points there are now,” she said. “It’s questionable what benefit many of them will provide to consumers.”
Nealon explained most credit unions track home equity lines of credit through their consumer loan origination system, not their mortgage origination system. “Now that HELOC reporting is mandatory, credit unions will have to run HMDA data collection through two different origination systems,” she said. “This will be both time-consuming and costly.”
Nealon said financial institutions also will need to make sure their vendors are compliant with the new HMDA rules.
“Credit unions and banks are going to need to rely on their vendors to make necessary modifications to their data collection and reporting systems,” Nealon said. “So it’s smart to engage your vendors sooner rather than later.”
Freelance writer Don Sadler contributed to the writing and research of this article.