HMDA Changes Headed Your Way. Not If, But When?
Through the years, HMDA has been one of the primary tools used to detect predatory lending and fair lending violations. HMDA data is the starting point in examinations with the regulators. This reliance upon the data (combined with the limitations associated with the current data set) has led to efforts to significantly expand the data fields included in HMDA.
There are two data-gathering requirements headed our way via the CFPB (currently in the prerule stage):
- Section 1094 of the Dodd-Frank Act will expand the data fields of HMDA. The expanded HMDA Plus data fields are often referred to as the “HMDA Plus data.”
- Section 1071 of the Dodd-Frank Act will impose data-gathering obligations for small business loans.
With HMDA Plus (Section 1094), financial institutions will need to report additional transaction-specific mortgage factors as to mortgage loan applications and originations, including:
- Applicant’s age;
- Applicant’s credit score;
- Total points and fees;
- The APR for a loan and the “benchmark rate” for all loans;
- Prepayment penalties;
- The value of the real property pledged as collateral;
- The introductory or teaser rate for a loan (in months);
- The amortization terms;
- The loan terms;
- The channel through which the loan was originated (e.g. retail, broker, other);
- The loan originator’s identifier under the S.A.F.E. Act;
- A universal loan identifier (assigned to a particular loan);
- The value of any real property pledged as collateral; and
- Other information the Bureau may require.
Small Business (Section 1071) says that financial institutions will be required to collect and report the following woman-owned, minority-owned, or small business loan data to the Bureau:
- Information regarding the individual application;
- The loan purpose;
- The credit decision (action taken and date taken);
- The census tract in which the business is located;
- Financial information regarding the business (e.g. gross annual revenue);
- The race, sex and ethnicity of the principal owners of the business; and
- Any additional data that the Bureau determines would aid in facilitating the enforcement of fair lending laws.
There has been some speculation that the final list of data fields will be tweaked based on various lobbying efforts. The regulatory bodies continue to prioritize the collection of data and the associated statistical analysis to review the potential for discriminatory lending activity. The new data fields that will provide the government agencies more data to identify potential discriminatory lending activity. More than ever before, it will be important that lenders review their lending activities to determine whether the data warrants further investigation.
When? It has been widely speculated that the new data elements will need to be recorded starting on January 1, 2013. While Dodd-Frank did not mandate deadlines for these rules, it is only a matter time before the changes come. Everyone should start thinking about how they plan to collect and analyze the new HMDA Plus data.
TRUPOINT Viewpoint: History has demonstrated that it requires a lot less time and expense to maintain a well-designed compliance management system compared to the costs associated with defending against an allegation of discriminatory lending.
On one hand…the collection, verification and submission of the new data fields will require additional effort to compile and submit the data. On the other hand…the data fields should bring more clarity to the rules required for fair lending and bring more consistency in the analysis process.
Have you reviewed your fair lending risk lately? We can walk you throught the basic steps.