The New Home Mortgage Disclosure Act (HMDA) Rule

On October 15, 2015, the Consumer Financial Protection Bureau (CFPB) issued a new final HMDA rule that significantly expands the data points to be collected and reported by lenders. The rule also changes the coverage requirements for institutions, transactions and reporting. Subsequently-on April 25, 2017-the CFPB issued a proposed clean-up rule to correct and clarify the 2015 rule. 

Overview:

  • Lenders are to collect the new data required by the rule for loan actions on or after 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 requires reporting on 48 data fields-adding 25 new data fields to the current 23-but also modifying 20 of the existing fields. The new data fields include those mandated by the Dodd-Frank Act, as well as fields required by the CFPB under its discretionary authority.
  • Some of the new HMDA fields include:
    • Age of borrower and credit score;
    • Application channel;
    • Mortgage loan originator NMLS identification;
    • Credit score;
    • Combined loan-to-value (CLTV) ratio;
    • Borrower's debt-to-income (DTI) ratio;
    • Borrower-paid origination charges;
    • Points and fees;
    • Discount points;
    • Lender credits;
    • Loan term;
    • Prepayment penalties;
    • Non-amortizing loan features;
    • Interest rate; and
    • Rate spread for all 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).
  • 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.
  • One important issue-protection of consumers' sensitive financial information-remains unresolved. For data collected for 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 disclosed to the public., The test will balance  applicant and borrower privacy against fulfilling HMDA's disclosure purposes. CFPB recently released for comment a proposal on how this balancing test will be applied and how the Bureau proposes to mask sensitive data.  

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 and data security concerns, because the new data set contains confidential information-such as credit scores-which if improperly released  could cause significant harm to borrowers' claims against lenders, and even undermine homeownership;
    • Increased litigation risk. HMDA has been a major source of fair lending claims in the past, and the new data will allow greater analysis of application and loan data to evaluate impacts 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. Considering that by mid-2017 the CFPB has not yet finalized either its clean-up rule or its reporting protocols, MBA believes the CFPB should consider delaying the rule's implementation-or at minimum delaying enforcement pending completion of a testing and transition period.
  • MBA will continue to urge the CFPB to provide authoritative, written guidance-developed with stakeholder input-on difficult implementation issues as they arise. The recent CFPB clean-up rule is at least in part an outgrowth of MBA's efforts.
  • In addition to written guidance, MBA has requested that the CFPB also regularly engage with the industry to understand and address implementation concerns as they arise.
  • CFPB recently released for comment its proposal to mask certain data fields and withhold others to maintain consumer privacy.  MBA believes that the risk of re-identification for individual consumers from publicly available HMDA data is a significant concern and will submit comments to the CFPB proposal.
  • MBA plans to continue being engaged in several areas to help its members comply:
    • Strongly advocating for satisfactory resolution of privacy and data security concerns;
    • Submitting implementation questions on behalf of member companies to the CFPB;
    • Urging the CFPB to provide reliable written guidance as necessary to address issues under the rule;
    • Conducting standalone seminars and webinars on HMDA implementation  and including meaningful content in all MBA meetings-with the CFPB and other stakeholders-to focus on key implementation issues and options for resolution; and
    • Offering 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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