On December 9, 2022, the CFPB issued a technical amendment that formally updates the Code of Federal Regulations to reflect the closed-end mortgage loan reporting threshold of 25 mortgage loans in each of the two preceding calendar years. This change comes after the CFPB announced through a blog post that the HMDA loan volume threshold for reporting data on closed-end mortgage loans has now decreased from 100 to 25 loans in each of the two preceding calendar years in accordance with a September 2022 court decision.
Background on the HMDA Reporting Thresholds
In 2015, the CFPB issued a Final HMDA Rule that was essentially an overhaul to HMDA as bankers had known it for the prior few decades. The 2015 rule implemented a number of Dodd-Frank Act amendments to HMDA, and, among other things (like establishing new data fields to report), the 2015 rule established a reporting threshold of 25 loans in each of the two preceding calendar years. In other words, one of the tests to determine whether a financial institution was subject to HMDA reporting was the 25 loan threshold.
In April of 2020, however, the CFPB issued a new HMDA Final Rule that increased the reporting threshold from 25 closed-end mortgage loans, to 100 closed-end mortgage loans. At the time of this final rule, the CFPB explained that approximately 1,640 financial institutions would get relief from HMDA reporting by increasing the threshold from 25 to 100 closed-end loans. While this number of financial institutions comprised of approximately 40 percent of all HMDA reporters of the time (approximately 4,120 total reporters), it was estimated that the number of total reported HMDA loans would increased by only approximately 4 percent as the majority of HMDA loans were reported by the largest HMDA reporters in the country. The 44-page final rule include a large amount of text justifying the change, including explanations that this change provided relief to smaller financial institutions who would now be enabled to focus on lending activities and serving their communities better.
The September 2022 Court Ruling
When the 2020 Final HMDA Rule was adopted by the CFPB, a group of five non-profit organizations filed a lawsuit that challenged the reporting threshold change from 25 to 100 closed-end mortgage loans. Among other things, the plaintiffs asserted that HMDA data have been invaluable in “uncovering and addressing redlining, fair lending violations, and other inequitable lending practices” over the decades and that the loss of HMDA data in certain communities was detrimental to those communities. In addition, the plaintiffs challenged the rule as arbitrary and capricious, contrary to law, and exceeding the CFPB’s statutory authority.
In the September 23, 2022 court decision, it was ruled that the “CFPB’s justification for the loan-volume reporting threshold for closed-end mortgage loans under the 2020 Rule is arbitrary and capricious, requiring that this aspect of the rule be vacated and remanded to CFPB for further proceedings consistent with this decision.”
In other words, the September 2022 court decision invalidates the 100 closed-end reporting threshold, reverting the threshold to the 25 closed-end loan threshold as found in the 2015 final rule.
The CFPB’s Stance on Enforcement
As we have explained previously, the CFPB does not intend to initiate enforcement actions or cite HMDA violations for failures to report closed-end mortgage loan data collected in 2022, 2021, or 2020 for institutions subject to the CFPB’s enforcement or supervisory jurisdiction that meet Regulation C’s other coverage requirements and originated at least 25 closed-end mortgage loans in each of the two preceding calendar years but fewer than 100 closed-end mortgage loans in either or both of the two preceding calendar years.
Conclusion
The bottom line is that the CFPB has made it clear that the HMDA reporting threshold has gone back to 25 closed-end mortgage loans. While the CFPB stated they do not plan to initiate enforcement actions or cite HMDA violations for failure to report closed-end mortgage loan data in 2020, 2021, or 2022, it seems clear that the CFPB expects applicable financial institutions who are no longer exempt due to the 25 closed-end reporting threshold to begin collecting data in 2023. Therefore, applicable financial institutions should plan to begin collecting HMDA data for 2023.
The full technical amendment can be found here.