HMDA Basics and Beyond
By Mary Thorson
The CFPB published an HMDA fact sheet on Feb. 7, 2014, outlining its steps to improve information about access to credit in the mortgage market. It highlights changes to information lenders will be required to report and changes to improve the HMDA reporting process. Obtain the fact sheet online at www.cfpb.gov.
ICBA Urges the CFPB to Limit HMDA Reporting Requirements
ICBA is urging the Consumer Financial Protection Bureau not regulate beyond the primary policy purpose of the Home Mortgage Disclosure Act as it moves forward with implementing changes to HMDA’s regulatory requirements. The CFPB plans to propose changes to current HMDA requirements later in the year.
In a June comment letter to the CFPB, ICBA stated that financial institutions should not be required to collect and report additional HMDA data that is not mandated by statute. In addition, ICBA asked the CFPB to exempt financial institutions that provide fewer than 100 closed-end first-lien mortgage loans per year from HMDA requirements, and to consider consumer privacy issues when moving forward with any new requirements.
“The reality is the compliance costs of HMDA combined with all of the other regulatory changes to the mortgage requirements are making it significantly more difficult for all lenders and, in particular, community banks to continue to provide mortgage loan products to their customers,” ICBA Vice President and Regulatory Counsel Elizabeth Eurgubian wrote. “ICBA does not want to see community banks leave the mortgage business due to regulatory burden.”
Whether your community bank currently reports data under the Home Mortgage Disclosure Act or not, you have likely heard discussions about compliance reporting challenges involving the regulation with the “funny sounding” acronym. HMDA has regulated the most regulatory data points that must be reported in a timely way each year.
HMDA requires certain depository and nondepository lenders to collect, report and publicly disclose information about housing-related applications and the final disposition of each. Presently, 26 fields of data must be addressed for each application or loan, and the quantity and detail of that data will soon increase. The Dodd-Frank Act mandated certain HMDA changes that will be administered by the Consumer Financial Protection Bureau, and Congress has authorized the CFPB to further expand HMDA by adding data points that may help identify undesirable trends in home lending.
For these reasons, it is more important than ever for reporting banks to understand HMDA coverage and achieve a sound data collection and reporting process.
Who collects and reports HMDA data?
A federally insured bank becomes subject to current-year HMDA data collection when it meets all three of the following criteria:
- on the preceding Dec. 31, the total assets of the bank exceeded the designated threshold (the 2014 threshold for depository institutions is $43 million in assets);
- on the preceding Dec. 31, the bank had a home or branch office in a Metropolitan Statistical Area as designated by the U.S. Census Bureau; and
- in the preceding calendar year, the bank originated at least one home purchase loan (excluding temporary financing) or refinancing of a home purchase loan secured by a first lien on a one-to-four family dwelling.
The 2013 A Guide to HMDA Reporting: Getting it Right!, found at www.ffiec.gov, is a key resource for calendar year 2014 reporting. HMDA data is required to be collected in the Loan Application Register format illustrated in Appendix A to Regulation C—Home Mortgage Disclosure and reported by March 1 annually (March 2 in 2015). Software for electronic data collection and submission can be found at www.ffiec.gov/software/software.htm. Information on the LAR is required to be updated within 30 days of the close of each quarter for the applications and loans for which the final action occurred during the quarter.
What applications and loans are reported?
Applications and loans in three categories are required to be reported under HMDA rules:
- Home purchase—any loan secured by and made for the purpose of purchasing a dwelling;
- Home improvement—any loan, whether secured by a dwelling or not, to be used, at least in part, for repairing, rehabilitating, remodeling or improving a dwelling (or the real property on which the dwelling is located). Loans not secured by a dwelling are reportable if they are classified by the bank as a home improvement loan; and
- Refinancing—any dwelling-secured loan that replaces and satisfies another dwelling-secured loan to the same borrower.
Information about open-end home equity lines of credit for home purchase or home improvement are optional for reporting; however, if HELOC originations are reported, applications for those covered that do not result in originations must also be reported. Other exceptions and requirements can be found in the FFIEC’s guide.
What data are required to be collected, reported and disclosed?
The data currently required for HMDA present a snapshot of each application or loan. For each file reported on the LAR, the lender reports the type, amount and purpose of the loan; the location and type of property; the final disposition of the application, such as originated, withdrawn or denied; dates of significant events; and the sex, race, ethnicity and income of the applicant(s). A detailed explanation of reported data can be found in Appendix A to Regulation C and in the Guide.
A public disclosure statement is sent to the bank from the FFIEC for data submitted each calendar year. A bank must include the public disclosure in its Community Reinvestment Act Public File and post a notice at its home office and at each branch in an MSA to advise the public of the availability of the disclosure statements. Throughout the year, a bank must also make its LAR—modified to protect privacy interests of applicants and borrowers—available to the public in electronic or printed form upon request.
The Dodd-Frank Act expanded HMDA data collection to include these:
- total points and fees, and rate spreads for all loans;
- riskier loan features, including teaser rates, prepayment penalties and non-amortizing features;
- lender information, including a unique identifier for the loan officer and the loan;
- property value and enhanced property location information; and
- age and credit score for each applicant or borrower.
Lenders can face an enormous challenge to maintain accurate, consistent and comprehensive HMDA data reporting compliance, and to effectively incorporate upcoming changes. Process management is critical to ensuring all covered records are included and that file documentation supports each entry. LAR data that is not supported by file information is one of the most common HMDA errors. HMDA process management should include training, ongoing monitoring and periodic reviews to identify gaps early.
Mary Thorson, a former Federal Reserve regulator and regulatory compliance consultant, is a freelance writer in Virginia.