In 2015, expectations loom large for lenders around finalization of rules for the new Home Mortgage Disclosure Act (HMDA) data collection requirements.
Created as part of the Dodd Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), the regulation authorizes the Consumer Financial Protection Bureau (CFPB) to expand the current HMDA dataset in order to help “financial regulators and public officials keep a watchful eye on emerging trends and problem areas in the mortgage market.”
CFPB Seeks More Data Transparency and Timeliness
The proposed changes include required reporting of 37 new data fields, including 20 not currently required under Dodd-Frank. Those 20 fields represent additional information that the CFPB proposes to collect for analytical purposes, including:
- Detailed property location information
- Total points and fees
- Rate spread for all loans
- Information on loan features such as teasers and introductory rates, and
- Applicant’s age and credit score
In addition, the CFPB proposes to collect data such as:
- Borrower’s debt-to-income ratio
- Combined loan-to-value ratio
- Loan’s qualified mortgage status, and
- Inclusion of manufactured housing in collateral
When the CFPB proposed the expanded HMDA data collection specifications in the summer of 2014, it argued for the need for greater transparency and timely access to regulate lending activity, citing concerns that “under the current regime, HMDA data may be reported as many as 14 months after final action is taken on an application or loan.”
Consequently, for financial institutions reporting at least 75,000 covered loans per year, which accounts for the vast majority of loan application registrations in the annual HMDA files, the new rules would require submission of HMDA data on a quarterly rather than annual basis. The CFPB estimates that this specific reporting provision would impact about 28 financial institutions that combined would report about 50% of all HMDA-reported transactions.
Potential for Data Misinterpretation Causes Concern for Many
The regulatory landscape changed dramatically with the 1975 enactment of HMDA and then again with the passage of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”). The latest proposed regulatory changes may have an equal or greater impact on institutions affected by the proposal. This observation is borne out in the anxiety over the new data reporting requirements evident in the October 2014 Regulatory & Risk Management Indicator report, conducted by Wolters Kluwer Financial Services.
According to the report, U.S. credit unions and banks specifically point to the Dodd-Frank Act and the associated HMDA data collection requirements as among their chief concerns. The new data collected will unleash a flood of additional public scrutiny of mortgage lending. And that development, by extension, will likely generate a new level of criticism of the mortgage industry, including credit unions, from those interpreting the newly available data.
It is clear from its recent enforcement actions and guidance that the CFPB holds accurate HMDA data as central to fair lending compliance and its ability to enforce fair lending laws. Inaccurate HMDA data will only serve to mislead the public and will not be tolerated. That said, the additional data, however accurately reported, will be an insufficient basis on which to ground definitive conclusions about discrimination on a prohibited basis. But, the data will generate more room for error as it gets interpreted – or misinterpreted – by regulators, analysts, and the public.
Stay tuned for part 2 of this series to get additional insights about HMDA compliance and technology challenges and a list of key tips you can use to help prepare your credit union for these changes. Get a sneak peak of the tips by watching Tim Burniston, Executive VP at Wolters Kluwer highlight the HMDA changes in the short video, New HMDA Fields Coming – Are You Ready?
Wolters Kluwer Financial Services is NAFCU Services Preferred Partner for consumer and member business lending and deposit services. For more information on Wolters Kluwer’s products and services, visit http://www.nafcu.org/wolterskluwer/