President & Managing Director
Lenders Compliance Group
“It’s just a way to keep the PhD’s employed in Washington, DC!” Such was the statement that a CEO of a regional mortgage banker said to me recently about the new changes to the Home Mortgage Disclosure Act, known by its acronym HMDA. “More statistics that go nowhere and tell us nothing,” he said, “and more ways to interfere in our loan origination process.” I grant that the regulatory burdens these days are demanding, but I was surprised by the sense of futility in those remarks.
Over the years, in fact, HMDA data has played a very useful role in identifying fair lending concerns, helping financial institutions to avoid disparate impact and disparate treatment violations. It certainly is important to mortgage lenders and originators in their obligation to ensure a level market to all consumers, without the impediment of discriminatory practices by bad actors. Perhaps another way to make sense of the Bureau’s amendments to HMDA is to recognize that a primary reason for those changes is to create a better tool for rectifying adverse fair lending patterns.
At the core of the revisions undertaken by the Consumer Financial Protection Bureau (“Bureau”) is the commitment to consumer protection laws generally, and, by enhancing the metrics of HMDA data collection, the commitment in particular to strengthening fair lending standards. What better way to understand fair lending than through a deep analysis of the HMDA Loan Application Register or “HMDA-LAR.” The fact is, the new changes to HMDA will derive over 250 million data points from financial institutions related to mortgage loan applications and originations in 2018.
The amendments to existing HMDA requirements, effectuated through HMDA’s implementing Regulation C, will be spread over four effective dates between January 1, 2017, and January 1, 2020.[i] However, the key date that contains most of the amendments, will be the compliance effective date of January 1, 2018. On that effective date, financial institutions will be required to collect HMDA data for applications they receive and loans they originate on or after January 1, 2018.[ii] [iii]
Certain changes will be new to non-banks, though familiar to depository institutions. For instance, beginning in 2018, non-banks will be required to record HMDA data internally within 30 days of the end of the quarter in which final action was taken. Regulation C has not previously required quarterly recording for non-banks, so this will be a new undertaking for non-depository institutions.[iv]
I am going to provide an outline of four HMDA-related areas that the Bureau revised in its update to Regulation C, promulgated through its issuance of the Final Rule (“Rule”) on October 15, 2015.
These changes to Regulation C affect the following guidelines:
- Covered institutions (financial institutions required to collect and report HMDA data);
- Covered transactions (transaction types and applications);
- Loan-level data (transaction data to collect and report on); and
- Reporting and disclosure (method and frequency of data reporting and public access to that data).
The Rule provides guidelines to both depository and non-depository institutions. Both of these institution types are covered if, among other things, they originated at least 25 covered closed-end mortgage loans or 100 covered open-end lines of credit in each of the previous two calendar years. This standard is called a “uniform loan volume threshold,” and is part of the new evaluation process to determine if an institution is required to collect and report HMDA data. Regulation C eliminates the existing origination volume and asset size criteria and replaces them with the “uniform loan volume threshold.”
The standard will have the most impact on non-depository institutions, sweeping up many non-bank creditors into Regulation C compliance. This is due to the fact that the Rule actually removes the current coverage requirement that, in the preceding calendar year, a non-depository institution should have originated home purchase loans (including refinancings) equaling: (A) at least 10 percent of the institution’s origination volume in dollars, or (B) at least $25 million.
Comparatively, the Rule removes the current coverage requirement for a non-depository institution; to wit, (a) have total assets of more than $10 million as of the preceding December 31, or (b) have originated at least 100 home purchase loans (including refinancings) in the preceding calendar year. Furthermore, currently a non-depository institution must satisfy at least one prong (either (a) or (b) above) or both of these coverage criteria in order to be covered. Consequently, the removal of the foregoing thresholds for non-depository institutions will increase the number of non-depository institutions required to collect and report data.
Yet, the Rule will actually decrease the number of depository institutions covered, because it adds the uniform loan volume threshold to the existing coverage criteria for those institutions. The Bureau estimates that the new coverage criteria will exclude from coverage approximately 1400 depository institutions that are currently covered by the rule and include about 450 non-depository institutions that are not currently covered by the rule. Clearly, the Bureau is casting a wide net in order to apprehend the largest, reliable data set possible!