Changes are on the horizon for the mortgage industry; however, banks and credit unions are hoping the government rethinks its approach to new HMDA rules. The Home Mortgage Disclosure Act, enacted in 1975, requires that banks and lenders gather information about a borrower and provide loan details, including loan terms and conditions, in the form of early disclosures. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Consumer Financial Protection Bureau (CFPB) was tasked with providing a final HMDA rule with further enhancements dictated under the financial reform law.
As it stands now, the HMDA changes will go into effect on Jan. 1, 2018, and industry stakeholders need to consider the ramifications the rules will have if not altered. Banking associations such as the Independent Community Bankers of America and the National Association of Federally-Insured Credit Unions have both been putting tremendous pressure on the CFPB to halt implementation. Regardless, lenders should prepare now for the inevitable rule changes that will take effect in the future.
The CFPB has made some significant changes to the rule that will affect the majority of lenders and how they collect and disseminate loan data. So, it is important to see how HMDA changes will affect your business. First, HMDA only applies to dwellings. A dwelling includes principle residences, vacation homes, investment properties, condominiums, townhomes, mobile homes, and apartment buildings. What is not considered a dwelling under HMDA? Properties like RVs, commercial properties, and office parks do not fall under the category of a dwelling under HMDA.
So, how do you know you are required to comply with HMDA? Before discussing the changes scheduled to go into effect January 1st, let us look at the current rule and get an idea of who is mandated under HMDA. If, in the preceding calendar year, you originated home purchase loans that equaled at least 10% of your total loan volume; you originated home purchase loans that totaled at least $25 million; you have a home or branch office in a MSA; or received applications for, originated, or purchased five or more home purchase loans over that period, or originated over 100 loans, you must already be collecting data for 2017 to report to the CFPB next year.
As for the changes going into effect next year, if you originate at least 25 new loans over the past two preceding years (i.e. 2016 and 2017), or 100 open-ended lines of credit in each of the last two years, you need to start collecting data next year to report in 2019.
Let us take a look at the primary changes with the new rules:
Under the old rule, if a lender has $10 million in assets or originated 100 or more home purchase loans, it is bound by HMDA. The new rule does away with this asset stipulation and instead concentrates on the number of originations of closed-end purchase loans and open-end lines of credit that were originated.
New HMDA has added an additional 25 new data points that need to be collected in the Loan Application Register (LAR), with 14 data points being revised. The data points fall into four basic categories: Applicant, Property, Loan Features, and Unique Identifiers.
The CFPB is working on a new web-based submission tool that will allow brokers and lenders to submit HMDA data on March 1, 2018. According to the CFPB, the system will be operational sometime this summer, but that is yet to be officially determined. This tool is a free software download provided by the bureau, so there will not be any added cost to your company. You simply download the software on your system, and you are ready to go.
Under the old HMDA rules, you could mail copies of your loan applications, either in paper format or digitally stored on DVDs, or email the encrypted files. However, the new HMDA rules will not permit this. You must use the web submission tool for transferring your collected data.
Also, you would send your data to a particular agency depending on what type of lending business you were operating. This is no longer the case. Under the new HMDA rules, you will submit all information directly to the CFPB. Providing all your information to the CFPB will be considered reporting to the correct oversight agency, regardless of your business model.
There is more to HMDA, but this is a good starting point to learn just what the new rules will require of mortgage originators. We will need to monitor the implementation plan as it progresses. With so many banking groups lobbying for postponement, alterations, or outright scrapping of the new rules, it is yet to be seen how the CFPB will respond under the new administration.
It is okay to hope for changes to the new HMDA before it takes effect, but you still need to prepare your business for changes that will inevitably be coming.