It’s never a good idea to “guess” how a new law will be incorporated into a regulation, but I have received quite a few questions regarding how small HMDA reporters will report HMDA data once the CFPB finalizes the changes required by the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018. Therefore, I want to share my understanding of what I think is going to happen, though you should know full well that this is (mostly) just speculation until changes to Regulation C become final.
Overview of Relief for Small HMDA Reporters
First and foremost, it is important to understand that this HMDA relief does not affect all HMDA reporters. Basically, large reporters will continue to report the January 1, 2018 HMDA fields without any relief while small reporters will still be required to report, but most will only have to report a reduced number of data fields. Though I am not an attorney (and cannot offer legal advice), the new law appears provides for three main amendments to HMDA rules:
Closed-End Mortgage Loans
Open-End Lines of Credit
Required Compliance Based on CRA Ratings
Let’s take a look at this relief by looking at the first two elements together, and then the third element separately.
Data Field Reduction for Small HMDA Reporters
The main part of the HMDA relief from the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 will come in the form of a reduction of data fields. Basically, most small reporters will only need to report about half of the data fields that large reporters must collect and report (though small reporters have had to collect all of this data during 2018 so far.)
To fully understand how the first two elements will affect small HMDA reporters, let’s take a quick look at the portions of the law that apply. There are, in fact, two similar, but different portions of the law which will reduce the number of data fields required for small HMDA reporters. One portion of the law relates to closed-end reporters while the second portion of the law relates to reporters who must report open-end lines of credit. The applicable parts of the new (relief) law are as follows:
For closed-end mortgage loans:
“(1) CLOSED-END MORTGAGE LOANS.—With respect to an insured depository institution or insured credit union, the requirements of paragraphs (5) and (6) of subsection (b) shall not apply with respect to closed-end mortgage loans if the insured depository institution or insured credit union originated fewer than 500 closed-end mortgage loans in each of the 2 preceding calendar years.”
For open-end mortgage loans:
“(2) OPEN-END LINES OF CREDIT.—With respect to an insured depository institution or insured credit union, the requirements of paragraphs (5) and (6) of subsection (b) shall not apply with respect to open-end lines of credit if the insured depository institution or insured credit union originated fewer than 500 open-end lines of credit in each of the 2 preceding calendar years.”
In layman’s terms, what these law changes are doing is removing the requirements in paragraphs (5) and (6) of the Dodd Frank amendments (12 U.S.C. 2803). Therefore, we can look at paragraphs (5) and (6) of 12 U.S.C. 2803 to see what data fields will be removed.
Paragraph 5 includes the following:
(5)the number and dollar amount of mortgage loans grouped according to measurements of—
(A) the total points and fees payable at origination in connection with the mortgage as determined by the Bureau, taking into account15 U.S.C. 1602(aa)(4);
(B) the difference between the annual percentage rate associated with the loan and a benchmark rate or rates for all loans;
(C) the term in months of any prepayment penalty or other fee or charge payable on repayment of some portion of principal or the entire principal in advance of scheduled payments; and
(D) such other information as the Bureau may require; and
Paragraph (6) includes the following language:
(6)the number and dollar amount of mortgage loans and completed applications grouped according to measurements of—
(A) the value of the real property pledged or proposed to be pledged as collateral;
(B) the actual or proposed term in months of any introductory period after which the rate of interest may change;
(C) the presence of contractual terms or proposed contractual terms that would allow the mortgagor or applicant to make payments other than fully amortizing payments during any portion of the loan term;
(D) the actual or proposed term in months of the mortgage loan;
(E) the channel through which application was made, including retail, broker, and other relevant categories;
(F) as the Bureau may determine to be appropriate, a unique identifier that identifies the loan originator as set forth in section 5102 of this title;
(G) as the Bureau may determine to be appropriate, a universal loan identifier;
(H) as the Bureau may determine to be appropriate, the parcel number that corresponds to the real property pledged or proposed to be pledged as collateral;
(I) the credit score of mortgage applicants and mortgagors, in such form as the Bureau may prescribe; and
(J) such other information as the Bureau may require.
One New HMDA Field Remains
When reviewing the information found in paragraphs (5) and (6) above, you may have notices one new field that was required by Dodd Frank, but is not included in either paragraph: the age of the applicant. It is important to note that the “age” data field was actually placed in paragraph (4) of 12 U.S.C. 2803 and, therefore, looks like it will still be required by small HMDA reporters.
CRA Rating Applicability to HMDA Reporting
One twist in the exceptions provided by the Economic Growth, Regulatory Relief, and Consumer Protection Act comes in part 3 to the exceptions in Section 104. This section states that if a depository institution has received a CRA rating of “needs to improve” during each of its 2 most recent examinations or a “substantial noncompliance” during its most recent examination, the depository institution must comply with the Dodd-Frank HMDA rules (paragraphs 5 & 6 of subsection b of 12 U.S.C. 2803).
From the law:
“(3) REQUIRED COMPLIANCE.—Notwithstanding paragraphs (1) and (2), an insured depository institution shall comply with paragraphs (5) and (6) of subsection (b) if the insured depository institution has received a rating of ‘needs to improve record of meeting community credit needs’ during each of its 2 most recent examinations or a rating of ‘substantial noncompliance in meeting community credit needs’ on its most recent examination under section 807(b)(2) of the Community Reinvestment Act of 1977 (12 U.S.C. 2906(b)(2)).”;
In layman’s terms, small HMDA reporters may be required to report all data fields - just like a large HMDA reporter - if they have a less than satisfactory rating on their CRA evaluation.
Planning for HMDA Relief for Small Reporters
The bottom line is that the final rule changes have not yet been released. That said, our best guess as to what will happen is that small reporters will essentially delete (for this year) or exclude (for future years) the items required by paragraphs (5) and (6), and everything else, including the new age field, will be reported the way it is now (for 2018) and will not revert to 2017 standards. The only catch in this relates to the CRA provision where a small reporter who has an insufficient CRA rating will be required to report the same data fields as a large HMDA reporter.
Going forward in 2018, small HMDA reporters should continue doing what they have been doing in accordance to guidance provided by the regulatory agencies. The truth is that both items 5(d) and 6(h) are fairly ambiguous, so the final rule could have a number of unexpected changes from the predictions described in this article. The CFPB has stated that they will release further guidance on how the law changes apply to small reporters “later in the summer,” though the CFPB has a record of not always making their good intentioned deadlines.
Links to HMDA Relief for Small HMDA Reporters
The law changes in the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 can be found here.
The CFPB statement on HMDA can be found here.
The FDIC statement on HMDA can be found here.
The OCC statement on HMDA can be found here.