Reporting for Data Duty


New HMDA information reporting is complicated with calculations

By Mary Wright Thorson

Abundant details appear in the Consumer Financial Protection Bureau’s final rule for Home Mortgage Disclosure Act reporting. In fact, the CFPB has added 25 new HMDA data-reporting points and has modified 14 existing HMDA data-reporting fields. That brings the total to 48 unique data fields for which many community banks must collect and report data on most residential mortgages and mortgage applications they handle.

Although ICBA supported a broader exemption for community banks, the CFPB did add an exemption for small-volume lenders. Banks originating fewer than 25 closed-end loans or fewer than 100 open-end lines of credit secured by a dwelling in the two preceding calendar years will be exempt from reporting requirements. The rule also maintains an exemption for banks with less than $44 million in assets (a threshold that will be adjusted annually) and banks with no offices in Metropolitan Statistical Areas.

Lending data collection for banks affected by the rule begins Jan. 1, 2018, and the new data points will first be reported in 2019. However, institutions will report 2017 data to the CFPB using a new Web-based submission tool beginning in 2018. Once the Web-based submission tool is operational, a bank’s HMDA disclosure statement and modified Loan Application Register will be available on the CFPB’s website on an ongoing basis.

Although those dates may seem eons away, regulators, loan system vendors, and compliance consultants recommend that banks begin formulating a compliance action plan soon. Integrating new, modified and existing data to ensure integrity and consistency will span the elements of the loan compliance process. Much of the compliance preparation—similar to recent compliance efforts under the TILA-RESPA Integrated Disclosure rule—will involve coordinating software-system adjustments by and with third-party technology service providers.

Banks affected by the rule will need to take a multipronged process-management approach, including:

  • Operational tools: worksheets, loan documentation systems/vendor tools, workflow processes, and written or unwritten procedures;
  • Training in technical and nontechnical requirements: employees and third parties involved in the process;
  • Testing and adjusting: early checks to catch errors and correct processes.

Some of the new data fields can be completed with simple code selection—for instance, whether a loan is for a home purchase, a home improvement, a refinancing, a cash-out refinancing or another purpose. Other HMDA data fields, such as debt-to-income ratio and combined loan-to-value ratio, will require precise calculations to report data.

Joe Gormley, ICBA assistant vice president and regulatory counsel, envisions that particular compliance complications and risk for data fields will require calculations. For data fields that require calculations, community banks should prepare now to develop a process to ensure those calculations are consistently accurate, Gormley says.

“It will not be as simple as taking information that may exist all in one place or even in different silos, depending on how the bank’s systems are configured,” he points out. “Banks will need to run the calculations and ensure the data are correct before submitting the HMDA data.”

The new data reporting falls into four categories:

  • The applicants/borrowers and underwriting process: age, credit score, debt-to-income ratio and automated underwriting system results;
  • The property securing the loan: property address, property value, construction method, and information about manufactured and multifamily housing;
  • Features of the loan: pricing information, loan term, points and fees, borrower-paid origination charges, discount points, lender credits, introductory rate period, non-amortizing features, prepayment penalties, application channel, and the type of loan; and
  • Unique identifier codes: the universal loan identifier, loan originator identifier, and a legal entity identifier for the financial institution.

“HMDA reporting changes may not be as dynamic as TRID, where the entire loan origination and closing process was affected,” Gormley points out, “but it is a huge amount of data—48 unique data fields of which 25 are new. There are a lot of moving parts that need to be considered to maintain integrity and consistency in the process.

“At this stage, having a plan and being ready to execute on that plan in the coming months will be key to successful implementation for community banks.”

HMDA Data to Report

Four categories of information are listed under the new framework of Home Mortgage Disclosure Act data-reporting fields.

1. Loan applications and underwriting

  • Applicant’s or borrower’s age
  • Credit score/name and version of the credit-scoring model
  • Debt-to-income ratio
  • Automated underwriting system name

2. Property securing the loan

  • Value of property to secure the loan
  • Combined loan-to-value ratio
  • Total dwelling units securing the loan
  • Multifamily affordable units—number of units that are income-restricted under affordable housing programs
  • Manufactured home property type—land or without land
  • Manufactured home land interest—ownership or leasehold

3. Features of the loan

  • Total loan costs, including total points and fees charged
  • Origination charges paid by borrower
  • Points paid to reduce interest rate
  • Amount of lender credits
  • Interest rate of the approved loan
  • Prepayment penalty term in months
  • Loan term in months
  • Introductory rate period in months
  • Non-amortizing features
  • Application channel—whether the loan was directly submitted to the financial institution
  • Reverse mortgage indicator
  • Open-end line of credit indicator
  • Commercial-purpose indicator

4. Unique identifiers

  • Address of property to secure the loan
  • Loan originator National Mortgage Licensing System and Registry identifier
  • Universal Loan Identifier

Mary Thorson Wright, a former Federal Reserve managing examiner and compliance consultant, is a financial writer in Virginia.