Here is HMDA Plus: What You Need to Know About the Changes
Last week, the CFPB released a 573-page proposal for a new HMDA rule. This is what you need to know.
As called for by the Dodd-Frank Act, the CFPB has recently proposed a new rule in order to improve information reported on residential mortgage lending. The CFPB’s stated goal is to collect more and better information about mortgage lending, and simplify the process behind the data reporting.
“It is critical that we shed more light on the mortgage market – the largest consumer financial market in the world,” said Richard Cordray, Director of the CFPB.
About the Home Mortgage Disclosure Act
For nearly 40 years, the Home Mortgage Disclosure Act (HMDA) has provided the public with information about mortgage lending activity within communities throughout the nation. Here’s a brief timeline of HMDA's development:
1975: HMDA was enacted by Congress, and was implemented by the Federal Reserve Board’s Regulation C. HMDA originally identified its purposes as providing the public and public officials with information to help determine whether financial institutions are serving the housing needs of the communities in which they are located, and to assist public officials in their determination of the distribution of public sector investments in a manner designed to improve the private investment environment.
1989: Congress expanded HMDA to require financial institutions to report racial characteristics, gender, and income information on applicants and borrowers, among other things. This effectively moved HMDA from aggregated-level reporting to transaction-level reporting. In light of these amendments, the Federal Reserve recognized a third HMDA purpose of identifying possible discriminatory lending patterns and enforcing anti-discrimination statutes.
2002: The Federal Reserve began requiring identification of higher priced mortgage loans, identification of manufactured homes, reporting of denials from pre-approved programs, and conformed data on ethnicity and race to standards established by the Office of Management and Budget (OMB). Despite the changes, HMDA was still criticized for offering only limited loan pricing variables and did not offer transparency into the subprime mortgage market.
2010: Congress amended HMDA in the Dodd-Frank Act, which also transferred HMDA rule-making authority to the CFPB. Dodd-Frank expanded the scope HMDA with new data fields, including pricing information, value of property, loan term, credit scores, and more. Congress also gave the CFPB the authority to include additional data fields in order to “increase the level of transparency in the mortgage market” and to “reflect in business practices of the mortgage market.”
In the years since HMDA was originally enacted, it has shifted from being a statue aimed at monitoring and redlining prevention to one widely used by the regulators as a Fair Lending tool. With the new proposed changes, we see this trajectory continue.
Proposed HMDA Changes
Last week, the CFPB published a proposed HMDA rule that is roughly 600 pages long. They are seeking commentary on the proposed updates. Here is a quick summary of proposed changes:
RULE OF 25: There will be new thresholds for both banks and mortgage companies. This was not aligned in the past – mortgage companies had a 100+ threshold and the depository institutions threshold was at one. The CFPB states that this will reduce the overall number of banks required to report HMDA data by 25 percent.
TYPES OF TRANSACTIONS: New types of transactions, like reverse mortgages and home equity lines, will be included. Going forward, institutions will report all closed-end loans, open-end lines of credit, and reverse mortgages. Unsecured home improvement loans would no longer be reported. Open-end lines of credit and reverse mortgage loans would also have unique identifiers and characteristics to clarify reporting.
ALIGN DATA REQUIREMENTS: The new rule proposal aligns HMDA data requirements with the Mortgage Industry Standard Maintenance Organization (MISMO) data standards for residential mortgages. MISMO, a wholly owned non-profit subsidiary of the Mortgage Bankers Association, has developed an extensive set of data standards for electronic delivery of loan-level mortgage data. “The Bureau believes that grounding HMDA in the common vocabulary and data standards of the industry will continue to reduce burdens should the need arise to modify Regulation C in the future,” according to the Bureau.
- NEW DATA POINTS REPORTED: Four new groups of data – some identified by the Dodd-Frank Act, others set forth by the Bureau - are being proposed, totaling almost 40 new data points. That's a lot of new HMDA Plus fields. The four new types of data are:
- Information about applicants: Age, credit score, debt-to-income, reasons for denial, application channel, automated underwriting system results
- Information about property: Construction method, property value, lien priority, number of individual dwelling units in the property, additional information about manufactured and multifamily housing
- Loan features: Additional pricing information, loan term, interest rate, introductory rate period, non-amortizing features, and the type of loan
Certain unique identifiers: Loan identifier, property address, loan originator identifier, a legal entity identifier for the financial institution
MODIFICATIONS TO DISCLOSURE AND REPORTING REQUIREMENTS: Large financial institutions will have to formally submit their data quarterly, rather than annually. The Bureau is also proposing that the HMDA disclosure of data be available on a public website, versus available at the financial institution.
- CLARIFY THE REGULATION: Some examples to clarify guidance on HMDA reporting include: types of residential structures are considered dwellings; treatment of manufactured and modular homes; treatment of multiple properties; coverage of pre-approval programs and temporary financing; and reporting the action taken on an application.
Concerns about Privacy
With the additional HMDA Plus data fields, many parties involved have expressed concerns about maintaining privacy. Exposing a consumer’s age, property address, debt-to-income, credit score, and mortgage interest rate certainly is not acceptable. The Bureau will likely modify the LAR data that will be made available to the public in order to protect the privacy interests of individual applicants or borrowers, perhaps by deleting information like credit score and age.
“The Bureau is mindful that privacy concerns may arise both when financial institutions compile and report the data to the Bureau and other agencies and when HMDA data are disclosed to the public,” according to the proposed rule.
The Bureau is asking specifically for comments on how to address the potential risks of privacy interests created by the reporting of HMDA. In addition, the Bureau is considering various improvements to the HMDA data submission process, including advanced encryption.
The proposed rule - all 573 pages - is open for comment until October 22. Instructions for how to comment are on the first page of the proposed rule; they are accepting submissions via email, an online submission process at regulations.gov (though this method does not appear to be active yet), by mail and by courier. Let the discussions begin! There is a lot to learn and consider.
One thing is certain: there is more detail and transparency coming to the business of mortgage lending.
- CFPB Press Release
- Proposed Rule
- Small Business Review Panel Report on HMDA
- Comparison of Old and Proposed Data Fields from Morrison & Foerster