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Game Changer for HMDA Reporting

Faith Schwartz    |    Housing Policy

The mortgage market is still digesting the recent release of the 2014 Home Mortgage Disclosure Act (HMDA) data. But significant changes to HMDA reporting requirements are coming under a new rule finalized last week by the Consumer Financial Protection Bureau (CFPB). In announcing the new requirements, the CFPB said it was simplifying the reporting process. They are working to improve HMDA reporting to make the process easier for the companies to adhere to improved data quality and less corrections using new technology and process for submissions. As CFPB Director Richard Cordray noted in a recent speech at the Mortgage Bankers Association meeting, a way to describe HMDA is a “sunlight” statute intended to provide the public and policymakers with information about how lenders are serving the housing needs of their communities.

One significant change is that the country’s largest lenders, who are already struggling with a huge reporting effort that produces 12 million records annually, are now required to tally their originations quarterly. But all lenders face additional reporting beyond the data they are now gathering. The CFPB could have pushed for a 2017 date for implementation but has given the industry more time to prepare for the new rules that will now go into effect Jan. 1, 2018. This is welcome news to many who have been working on completing implementation of regulation through the new “know before you owe” TRID implementation timelines.

Now, lenders that originated 25 purchase mortgages each of the last two years (or 100 covered open-end lines of credit each of the last two years) will be required to report data on all applications and loans secured by residential dwellings. That may increase the number of non-depository institutions that have to report by as much as 40 percent, based on CFPB analysis in the final rule. Other new information to be gathered includes the property value, term of the loan, and the duration of any teaser or introductory interest rates. Also, more information about mortgage loan underwriting and pricing, such as an applicant’s debt-to-income ratio, the interest rate of the loan, and the discount points charged for the loan.

The regulatory challenges in the post-crisis era have been to better understand activity in the market on a timely basis. The new rule will provide both timely information and more detailed information around the pricing and underwriting of mortgage credit. This transparency is a clear game changer for the lending industry. There are potentially significant implications for issues around fair lending laws, affordable housing, technology requirements, transparency for investors, and even privacy for lenders and borrowers, a concern raised by Mortgage Bankers Association’s CEO David Stevens in his reaction to the final rule.

It is important to remember that HMDA does not establish lending standards. But additional reporting can mean additional fair lending liability for institutions as regulators or consumer groups use the new data to allege discrimination. Lending patterns that have never been visible may now be (for better and for worse).

Access to credit is the overarching theme of the new HMDA transparency and it has big implications for lending and for public policy. Truly discriminatory lending practices may be rooted out. As with the recent experience with “know before you owe”, or TRID, implementation, it is clear that lenders cannot wait until the last minute to begin making these changes. They should be getting ready to start ramping up right away, getting more robust data for the 2015 HMDA release, which will have a reporting deadline of March 1, 2016. As with the cottage industry that sprang up to help lenders comply with the new TILA-RESPA simplification (disclosures that will be simpler for consumers, but not for lenders), lenders will have access to a robust array of assistance in complying.

HMDA reporting is core to understanding the patterns of lending across the country. Having strong reporting and analysis that clearly demonstrates lending in all markets is very important to a healthy thriving mortgage market. Turning these new rules into some positive momentum will be the ultimate win for the industry that desires to serve as many customers that are eligible and capable of obtaining mortgage credit. It is even possible that lenders may be able to use the added layers of reporting requirements as useful data for refining their analyses of profitable lending and expanding the universe of types of lending they are comfortable with.

But before those potential positives are achieved, there remains a concerted effort that lenders will have to make in order to implement these final rules.

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