News
September 19, 2014

Proposed New HMDA Requirement Increase Burdens, Risks For Home Mortgage Lenders

Arnold & Porter Advisory

The Consumer Financial Protection Bureau (the CFPB) has proposed expanding the amount of data that financial institutions must disclose to regulators in connection with residential mortgage lending transactions.  On August 29, 2014, the CFPB published a proposed rule in the Federal Register (Proposed Rule) amending Regulation C to implement the Home Mortgage Disclosure Act (HMDA), as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).  The Proposed Rule would require financial institutions to report various new data points to prudential regulators in order to fulfill reporting requirements under HMDA.  Some of these new data points are mandated or expressly authorized by the Dodd-Frank Act, while others are being proposed under the CFPB's discretionary authority to require the submission of additional information.  The Proposed Rule also would alter the institutional and transactional coverage of reporting requirements under HMDA. 

The CFPB has requested comments on all portions of the Proposed Rule.  Comments must be submitted by October 22, 2014.

HMDA requires lending institutions to collect, report, and disclose certain residential mortgage loan data on a transaction-level basis.  The information collected through HMDA is used by public officials and community organizations to determine whether lending institutions are engaged in residential real estate lending that serves the housing needs of the communities that the institutions serve.  Regulators also use the information to assist in the enforcement of antidiscrimination laws such as the Equal Credit Opportunity Act and the Fair Housing Act.  Regulation C implements HMDA and provides instructions for collecting and submitting lending data through HMDA's collection format, the Loan Application Register (HMDA LAR).  Regulation C currently requires institutions covered under HMDA to collect the following data: application date and identifying number; loan or application type, purpose, and amount; property location and type; race, ethnicity, gender, and annual income of the loan applicant; action taken on the loan application (approved, denied, withdrawn, etc.), and date of that action; whether the loan is subject to the Home Ownership and Equity Protection Act of 1994 due to the loan's cost to a borrower; lien status; and certain other loan price and loan purchaser information.

In 2010, the Dodd-Frank Act both amended HMDA and transferred the administration of the statute to the CFPB.  Section 1094 of the Dodd-Frank Act expanded the scope of data to be collected by financial institutions.  The Dodd-Frank Act also provided the CFPB with discretion to use its new rulemaking authority under HMDA to require institutions to collect and disclose other such information as the agency may deem appropriate.  Through the Proposed Rule, the CFPB is implementing the new reporting requirements of HMDA and exercising its discretion to impose additional reporting requirements, while also revising coverage thresholds for reporting under the Act.  These proposed changes are described below.

HMDA Reporting Modifications

The Proposed Rule greatly expands the amount of information that a financial institution must report in connection with a residential mortgage loan transaction or application.  Only part of this information is expressly mandated by the Dodd-Frank Act.  The rest of the information required under the Proposed Rule has been added at the CFPB's discretion.  In adding these additional discretionary requirements,  the CFPB determined that the potential benefits of the submission of this expanded information outweighed the potential costs and burdens, including the privacy interests of borrowers and lenders.

The following list sets forth the new categories of HMDA data required by the Proposed Rule and whether that data is expressly authorized in the Dodd-Frank Act or is an exercise of the CFPB's discretion:

Information about applicants or borrowers:

New Item of HMDA Submission Data under Proposed Rule
Expressly Authorized by Dodd-Frank Act or Required by CFPB Discretion?
  • Age
Dodd-Frank Act
  • Credit score
Dodd-Frank Act
  • Debt to income ratio
CFPB Discretion
  • Reason for loan application denial (currently optional)
CFPB Discretion
  • Automated underwriting system used to evaluate an application and the recommendation generated from the system
CFPB Discretion

 

Information about the real property securing the loan:

New Item of HMDA Submission Data under Proposed Rule
Expressly Authorized by Dodd-Frank Act or Required by CFPB Discretion?
  • Property value
Dodd-Frank Act
  • Postal address1
Dodd-Frank Act
  • Loan to value ratio
CFPB Discretion
  • Whether manufactured home loans are secured by real or personal property
CFPB Discretion
  • Number of dwelling units
CFPB Discretion
  • Number of income-restricted units in a dwelling, if a multi-family dwelling
CFPB Discretion
  • Whether real property collateral is a principal residence, a second residence or an investment property
CFPB Discretion

 

Information about features of the loan:

New Item of HMDA Submission Data under Proposed Rule
Expressly Authorized by Dodd-Frank Act or Required by CFPB Discretion?
  • Total points and fees payable at origination
Dodd-Frank Act
  • Difference between the APR associated with a loan and the average prime offer rate for a comparable transaction
Dodd-Frank Act
  • Term in months of any prepayment penalty
Dodd-Frank Act
  • Term in months of any introductory period before an interest rate change
Dodd-Frank Act
  • Presence of any contractual terms that would allow the payments other than fully amortizing payments (balloon payments, interest only, negative amortization, etc.)
Dodd-Frank Act
  • Term in months of the mortgage loan
Dodd-Frank Act
  • Mortgage delivery channel (retail, broker, etc.)
Dodd-Frank Act
  • Unique identifier that identifies the loan originator
Dodd-Frank Act
  • Total origination charges
CFPB Discretion
  • Total discount points and the interest rate that a borrower would receive if no discount points were paid
CFPB Discretion
  • Interest rate
CFPB Discretion

 

In addition to the new data requirements described above, the CFPB is also proposing new data standards for HMDA submissions.  In order to align HMDA data submission standards with lending industry standards, the CFPB is proposing that HMDA data requirements follow the standards of the Mortgage Industry Standards Maintenance Organization (MISMO).  MISMO is a voluntary non-profit organization and subsidiary of the Mortgage Bankers Association.  It has created a Uniform Loan Delivery Dataset (ULDD), which has been adopted by Fannie Mae and Freddie Mac, as the dataset standard for all loans sold to these governments-sponsored enterprises.  Throughout the Proposed Rule, the CFPB has sought to align data terms, formats and standards to those of the ULDD, to the extent practicable. 

HMDA Coverage

Institutional Coverage

The Proposed Rule would also significantly modify the institutional and transactional coverage of Regulation C.  Currently, HMDA coverage criteria varies by the type of financial institution that is engaged in the loan transaction and the purpose of the loan originated.  For example, a depository institution generally must report HMDA data if it originates at least one first-lien home purchase loan or refinancing secured by a one-to-four family dwelling, while similarly situated non-depository institutions are subject to the reporting requirements only if, among other requirements, they originate 100 home purchase loans annually.  The Proposed Rule seeks to standardize the reporting threshold among depository and non-depository institutions.  The Proposed Rule adopts a 25-loan volume test as the uniform threshold that applies to all depository and non-depository institutions that fit the criteria for a "financial institution" under Regulation C.

Transactional Coverage

The Proposed Rule would also expand the types of loans that are subject to coverage under Regulation C.  Regulation C currently requires financial institutions to report only on home purchase loans, home improvement loans and refinancing loans.  Regulation C does not separately identify reverse mortgages that fit within these three types of loans, and home equity lines of credit can be reported at the financial institution's option.  The Proposed Rule would expand the scope of Regulation C to require the disclosure of information related to closed-end mortgage loans, open-end lines of credit and reverse mortgages.  In addition, the CFPB is proposing to require HMDA submission data to identify whether loans within the data are reverse mortgages or home equity lines of credit.

Reporting Requirements and Public Disclosure Statement

Under the existing rule, financial institutions must submit a complete HMDA LAR to their appropriate regulating agency by March 1 following the calendar year for which the data is compiled.  The Proposed Rule would require financial institutions with a high transaction volume to report HMDA data quarterly instead of annually.  Specifically, a financial institution that has at least 75,000 covered loans, applications and purchased covered loans, combined, for the preceding calendar year would be required to submit HMDA data within 60 days after the end of each quarter.  This proposed reporting requirement, however, would not affect a financial institution's public HMDA disclosure statement, which will continue to be based on all data submitted by the financial institution for the previous calendar year.  A financial institution's public HMDA LAR would also continue to be modified to disclose only limited data under the Proposed Rule.  For privacy protection purposes, none of the new data required under the Proposed Rule would be subject to disclosure on a financial institution's public HMDA LAR.

The CFPB also has proposed to modify the manner in which a financial institution can satisfy the requirement of Regulation C to make available its disclosure statement to the public.  Currently, a financial institution must inform the public of how to obtain a copy of the institution's HMDA disclosure statement and must provide a copy within 15 days of receiving a written request statement.  Under the Proposed Rule, the CFPB would allow a financial institution to satisfy its disclosure requirement by referring the public to the website of the Federal Financial Institutions Examination Council (FFIEC) to access the HMDA disclosure statement.  The CFPB proposes that a financial institution make available a notice at its home office and branch offices notifying the public of how to access the institution's HMDA disclosure statement on the FFIEC's website. 

The Proposed Rule, if finalized, would expand considerably the data collection and submission requirements of HMDA, necessarily imposing additional compliance costs on financial institutions.  The additional data requirements would likewise increase the risk of error in compiling HMDA LARs, representing a corresponding increase both in the need to invest additional resources in the quality-control and pre-submission auditing functions and an increase in the likelihood of administrative enforcement actions.  Moreover, the increased volume of personal and sensitive borrower data that would be prepared and transferred to regulators under the Proposed Rule would increase the risk of identity theft as well as consequential damages related to any such theft.  It is also impossible to know what other uses a data-driven agency such as the CFPB may find for this additional information, underscoring the need for robust and proactive compliance and monitoring functions.

Arnold & Porter LLP is available to respond to questions raised by the Proposed Rule or to provide any assistance in drafting comments in anticipation of the October 22, 2014 submission deadline.

 

  1. The Dodd-Frank Act authorizes the collection of the parcel number that corresponds to the real property collateral, as the CFPB may determine to be appropriate.  The CFPB proposes the use of a real property's postal address to serve as the parcel number identifier.

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