The New Home Mortgage Disclosure Act Rule

On October 15, 2015, the Consumer Financial Protection Bureau (CFPB) issued a new final HMDA rule that includes significant changes to the reporting requirements for lenders, as well as changes in coverage for institutions, transactions and reporting. 

Overview:

  • Lenders are to collect the new data required by the rule beginning on January 1, 2018, and they will need to report this data by March 1, 2019, using the CFPB's web-based submission tool for HMDA data reporting.
  • The new HMDA rule adds 25 data points, modifies 14 others, and maintains an additional nine data points required by the existing HMDA rule. These changes include adding data fields mandated by the Dodd-Frank Act, as well as additional fields established by the CFPB under its discretionary authority.
  • Some of the new HMDA fields include:
    • Age of borrower and credit score;
    • Application channel;
    • Points and fees;
    • Borrower's debt-to-income (DTI) ratio;
    • Borrower-paid origination charges;
    • Discount points;
    • Lender credits;
    • Loan term;
    • Prepayment penalties;
    • Non-amortizing loan features;
    • Interest rate; and
    • Rate spread (collected, recorded and reported for a broader range of loans).
  • Covered institutions will be required to collect, record and report information for approved-but-not-accepted preapproval requests for home purchase loans (the collection, recording and reporting of this information is currently optional).
  • The CFPB has developed an additional prong to determine which institutions must report HMDA data. On January 1, 2018, an institution will only be subject to HMDA reporting requirements if it originated at least 25 covered closed-end mortgage loans, or at least 100 open-end lines of credit, in each of the two preceding calendar years and meets all other coverage requirements.
  • For data collected in or after 2018 and reported in or after 2019, the CFPB will use a balancing test to determine whether, and if so how, HMDA data should be modified prior to its disclosure, in order to protect applicant and borrower privacy while also fulfilling HMDA's disclosure purposes (at a later date, the CFPB says it will provide a process for the public to provide input regarding the application of this balancing test to determine the HMDA data to be publicly disclosed).
  • Also, beginning in 2020, covered institutions that reported a combined total of at least 60,000 applications and covered loans in the preceding calendar year will be required to report data quarterly. The first quarterly submission will be due by May 30, 2020.

Impact:

  • This new HMDA rule will bring major challenges to the residential mortgage industry, including:
    • Extensive implementation costs for systems and business process changes immediately on the heels of the implementation of the TILA-RESPA integrated disclosure (TRID) rule;
    • Privacy concerns for borrowers, because the new data set contains confidential information-such as credit scores-which if publicly released in the wrong manner could cause significant harm and even undermine homeownership;
    • New data security concerns; and
    • Increased litigation risk. HMDA has been a major source of fair lending claims in the past, and the new data will allow the government, community activists and plaintiffs to analyze lender application and loan data along with the risk factors used to evaluate the impact on protected classes. While HMDA's purpose is to shine light on lending practices, data can be misused to present unfair claims-forcing costly litigation defense, and/or settlements and causing significant reputational harm.

 MBA's Position / Next Steps:

  • The new final HMDA rule will require systems changes to be made for the next several years. MBA will continue to urge the CFPB to provide authoritative, written guidance-developed with stakeholder input-on difficult implementation issues as they arise.
  • In addition to written guidance, MBA has requested that the CFPB regularly engage with industry to understand and address implementation concerns as they arise.
  • MBA plans to be engaged in several areas to help its members comply. MBA will continue to:
    • Strongly advocate for satisfactory resolution of privacy and data security concerns;
    • Submit implementation questions on behalf of member companies to the CFPB;
    • Urge the CFPB to provide reliable written guidance as necessary to address issues under the rule;
    • Conduct standalone seminars and include meaningful content in all MBA meetings, with the CFPB and other stakeholders, to focus on key implementation issues and options for resolution; and
    • Offer compliance guidance through forums and other venues, including MBA's Compliance Essentials (CE) resource guide, CE self-study and other materials to train member employees.

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