Tuesday, January 19, 2016

HMDA Highlights

HMDA Highlights

Last month I published an article on the changes coming in Regulation C,[1] the implementing regulation of the Home Mortgage Disclosure Act.[2] The article can be viewed here and downloaded here or here.

I would like to highlight a few of the salient features for you.

Essentially, HMDA serves three purposes: (1) it provides public and public officials with information to help determine whether financial institutions are serving the housing needs of the localities in which they are located and to assist public officials in their determination of where to distribute public sector investments to improve the private investment environment; (2) it requires the reporting of racial characteristics, gender, and income information on applicants; and (3) it identifies possible discriminatory lending patterns and enforcing anti-discrimination statutes. 

In 2010, the Dodd-Frank Act amended HMDA to expand the scope of information compiled, maintained and reported. In August 2014, the CFPB proposed amending Regulation C to implement the Dodd-Frank changes.

The CFPB chose not to adopt several data points specified in the Dodd-Frank Act and included a few on its own. Take the following summary listing of the changes made by the CFPB’s October 2015 Regulation C amendments (hereinafter, “Rule”) as a tool to be used along with my article and the CFPB’s own promulgated guides and issuances regarding the HMDA changes.

Institutional Coverage

Although it is not required by the Dodd-Frank Act, the CFPB nevertheless adopted uniform loan-volume thresholds for depository and non-depository institutions, which require an institution to report data if it originated in each of the two preceding calendar years at least 25 closed-end mortgage loans or at least 100 open-end lines of credit, assuming the institution meets the other criteria for coverage.

Institutions that meet only the closed-end threshold are not required to report open-end lending, and institutions that meet only the open-end threshold need not report closed-end lending.

The regulation retains the other coverage criteria for depository institutions, which require reporting by depository institutions that satisfy an asset-size threshold ($44 million in 2015), have a branch or home office in an MSA on the preceding December 31, originated at least one first-lien home purchase loan or refinancing secured by a one- to four-unit dwelling in the previous calendar year, and satisfy a “federally-related” test (i.e., the institution is federally insured or regulated or the loan previously mentioned was insured, guaranteed, or supplemented by a federal agency or intended for sale to FNMA or FHLMC).

For non-depository institutions, the above loan-volume threshold test replaces the current loan-volume or loan-amount test and Regulation C retains the criterion that the institution must have a branch or home office in an MSA on the preceding December 31.

Transactional Coverage

Also not required by the Dodd-Frank Act, the Rule adopts a dwelling-secured standard for reporting all loans or lines of credit for personal, family, or household purposes, whether the purpose of the loan is to finance the property serving as security or another property. Accordingly, the amendments discard the purpose test that previously required the reporting of home improvement loans, whether or not dwelling-secured. Among other things, this makes the reporting of dwelling-secured consumer open-end credit mandatory (no longer optional).

Most commercial-purpose transactions are subject to Regulation C reporting only if they are for the purpose of home purchase, home improvement, or refinancing (i.e., the Rule retains Regulation C’s traditional purpose test only for commercial-purpose transactions). The regulation does not apply to home improvement loans not secured by a dwelling, or agricultural-purpose loans/lines of credit. The regulation now uses the term “covered loans” as a shorthand term to refer to the universe of loans covered by HMDA.

·         The CFPB specifically noted that Regulation C does not require the reporting of loan modifications. There are two exceptions for which HMDA reporting is required because they represent new debt obligations in substance if not in form:[3] (1) assumptions, including successor-in-interest transactions (this differs from CFPB interpretations under TILA Regulation Z); and (2) New York consolidation, extension, and modification agreements (CEMAs) used in place of refinancings (this only refers to CEMAs made under § 255 of the New York Tax Law). The CFPB recognized that its determination that these New York CEMAs must be reported departs from past FRB guidance that they did not need to be reported. The CFPB noted that this Regulation C definition of the term “modification” differs from that of Regulation B, which defines it to include the granting of credit in any form, including the renewal of credit and the continuance of existing credit in some circumstances.

·         The amendments revise the definition of “dwelling.” Briefly put, the definition includes primary residences, second homes, investment properties (homes), multifamily properties, and manufactured home communities (whether or not any individual homes also secure the loan). The term excludes recreational vehicle parks, recreational vehicles, and pre-1976 mobile homes. The regulation retains the existing discretion for financial institutions to determine the primary use for multifamily properties (such as mixed-used properties with five or more individual dwelling units). Properties that provide long-term housing with related services such as a combined medical care component are reportable, while properties that provide medical care are not (consistent with the exclusion of hospitals).

·         The amendments in general repeat or clarify existing exclusions for: (1) loans originated or purchased by a financial institution in a fiduciary capacity; (2) loans secured by liens on unimproved land (unless the lender knows or reasonably believes at the time the application is received or credit decision is made that within 2 years after loan closing or account opening a dwelling will be constructed or placed on the land using the loan proceeds); (3) temporary financing (i.e., if the credit is designed to be replaced by permanent financing at a later time); (4) the purchase of an interest in a pool of loans; (5) the purchase solely of the right to service loans; (6) loans acquired as part of a merger or acquisition, or as part of the acquisition of all of the assets and liabilities of a branch office; (7) loans and applications for less than $500; (8) purchase of a partial interest in a loan; and (8) a loan used primarily for an agricultural purpose.

New Data Points

The Rule requires collection and reporting of new data points involving the following types of information: (1) information about applicants, borrowers, and the underwriting process; (2) information about the property securing the loan: (3) information about loan features; and (4) unique identifiers.

Changes to Current Reporting Requirements

The Rule requires lenders to report whether ethnicity, race, or sex information was collected on the basis of visual observation or surname when an application is taken in person and the applicant does not provide the information. Where applicants provide this information, the Rule requires lenders to permit applicants to self-identify using disaggregated ethnic and racial categories. When the lender completes race and ethnicity data, the Rule retains the existing requirement that lenders provide only aggregated ethnic or racial data.

Change to Submission Requirements

The Rule retains the general requirement that lenders submit their HMDA data by March 1 following the calendar year for which the data are collected, but the Rule requires electronic submissions. The Rule adds a special quarterly reporting requirement for large-volume lenders, beginning on May 30, 2020.

Change to Disclosure Requirements

The Rule removes the requirement that a lender provide to the public its disclosure statement and HMDA Loan Application Register (“HMDA-LAR”), modified to protect applicant privacy (by deleting application or loan number, date application received, and date action was taken). Instead, a lender must provide a notice to the public that the information is available on the CFPB’s Web site. This change moves the responsibility for providing modified HMDA-LARs to the CFPB, which will use a balancing test (pursuant to Dodd-Frank § 304(h)) to protect applicant privacy while also fulfilling the disclosure purposes of the HMDA statute. The CFPB promised to seek public input on its application of this balancing test.

President & Managing Director

[1] Home Mortgage Disclosure (Regulation C), FR 80, No. 208, Part II, Rules and Regulations, October 28, 2015
Final rule; official interpretations
[2] “The Home Mortgage Disclosure Act: Big Changes on the Way,” Foxx, Jonathan, National Mortgage Professional Magazine, December 2015, Volume 7, Issue 12, pp 74-77
[3] Op. cit. 1, Comment 2(d)-2i