Thursday, August 7, 2014

Impacts of CFPB proposed rule on HMDA reporting

by Rebekah King, National Housing Conference


The Consumer Financial Protection Bureau (CFPB) has released a proposed rule that would expand Home Mortgage Disclosure Act (HMDA) reporting requirements. The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) requires CFPB to expand HMDA’s dataset to include more detailed information about mortgage lending.

Why does mortgage data matter? In summary, the proposed rule would greatly expand our understanding of what is happening in the mortgage market.  Up until now, HMDA has provided a limited (but still useful) view of mortgage lending. Although the final content of the rule is still being determined, as proposed, the HMDA data under the new rule would allow CFPB to see loan pricing and distribution in new and varied ways as well as gain an understanding of how reforms are impacting the mortgage market, like the Ability-to-Repay and Qualified Residential Mortgage rules. The expanded data collection could give everyone greater knowledge about actual loan costs and better information about applicants seeking mortgage financing. In short, we’ll know more about the effects of policy changes and whether more or different actions are needed.

What’s HMDA? It’s a 1975 law that requires lenders to report on home loans for which they receive applications, originate or purchase. Current data points include loan volume by loan type (purchase, refinance, improvement, non-occupant, geography, gender, race, ethnicity and income); they also include minimal pricing information and information on applications denied, withdrawn, incomplete and reasons for denial. 

What’s new in this proposal? New collected information will include total points, fees and rate spreads; duration of teaser rates, prepayment penalties and non-amortizing features; unique identifiers for the loan and loan officer; property value and improved property location data; and borrower age and credit score information. CFPB is also considering including other data points, in addition to the new requirements of Dodd-Frank. These potential data points include a borrower’s debt-to-income (DTI) ratio, more information on reasons for application denials, qualified mortgage status, combined loan to value ratio, automatic underwriting systems results and when a property is deed restricted for affordable housing. 

What’s covered? Essentially any dwelling secured loan would be reported on, and unsecured home improvement loans would no longer be included. 

Who reports and how? In addition to enhanced reporting, the proposed rule would standardize the reporting threshold for depository and non-depository lenders. Institutions making more than 25 closed-end loans or reverse mortgages in a year would have to report on those loans, but entities with fewer than 25 loans would not have to report. If depository institutions are below the minimum asset threshold, they would also continue to be exempt. The rule would align data requirements with industry standards, specifically the standards endorsed by Mortgage Industry Standards Maintenance Organization (MISMO), expressly to meet Fannie Mae and Freddie Mac data needs. This change is designed to make it easier for lenders to report required data points, but may impose an additional burden on smaller lenders and community banks that do not sell loans to GSEs. Lenders and financial institutions have also expressed concern about data security as well as privacy of borrower data. The CFPB is not planning to publicly disclose the new data points at this time.

Frequency of reporting? Financial institutions are still required to report annually under the proposed rule, but institutions with more than 75,000 reported transactions would be required to submit data quarterly; this change would have impacted 28 institutions in 2012.

What should I do? The number of potential new requirements is significant and NHC encourages its members to comment on this proposed rule so that the final rule accurately reflects practical realities of mortgage lending, while improving our knowledge of trends in the housing market. The proposed rule is available for comment until October 22, 2014.

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