On October 15, the Consumer Financial Protection Bureau (the CFPB or Bureau) issued a final rule that will expand the scope of the Home Mortgage Disclosure Act (HMDA) data reporting requirements while1 seeking to streamline certain existing requirements. Although some of the new data points the Bureau is requiring are expressly mandated by the Dodd-Frank Act, the Bureau is also requiring a significant number of new data points based on discretionary rulemaking authority granted by the Act.
While we describe the amended rule below in greater detail, highlights include:
Revised Scope of HMDA Reporting Requirement
Institutions Required to Report
The amended rule revises the loan-volume threshold for determining which institutions are required to report HMDA data. Generally, depositories and non-depositories must report to the Bureau if they originate at least 25 closed-end or reverse mortgages, or at least 100 open-end lines of credit, in the two
previous calendar years. The triggers will be applied separately—an institution will report closed-end and reverse mortgages only if it meets the 25-mortgage trigger and will report open-end lines of credit only if it meets the 100-lines-of credit trigger. The Bureau rejected industry suggestions to set a trigger substantially higher than 25 closed-end or reverse mortgages per year, noting the value to local governments of information about the activities of lower-volume institutions.
Currently, the loan-volume trigger is based only on activity in the previous calendar year. Expanding it to two years will give startups more time to prepare for HMDA compliance. Depository institutions will still be exempt if, among other things, they are below the minimum asset threshold, but the dollar-volume and asset tests for non-depository institutions have been removed and the Bureau rejected industry suggestions to retain or increase the current 100 loan-originations-per-year trigger.
Loans That Must Be Reported
The amended rule requires reporting of all loans and lines of credit secured by a dwelling that are for personal, family, or household purposes. This means that all home-equity lines of credit for consumer purposes, as well as reverse mortgages, will be reported on the Loan/Application Register (LAR).
The CFPB decided not to adopt its proposal to require reporting of commercial loans secured by a residential structure, except for commercial loans for the purpose of home purchase, home improvement, or refinancing. Furthermore, home improvement loans not secured by a lien on a dwelling will no longer be reported on the LAR.
Quarterly Reporting for High-Volume Originators
The Bureau generally adopted its proposal to require financial institutions that report a large volume of entries to submit data to the Bureau within 60 calendar days after the end of each calendar quarter. However, in response to industry comments, the final rule provides a broader safe harbor for correction of errors and omissions in quarterly data, which is designed to allow larger institutions to continue to apply “rigorous scrubbing” only to their annual HMDA submissions. The Bureau also has delayed the effective date for quarterly reporting to January 1, 2020—a year after annual reporting of expanded HMDA data begins. The Bureau reduced the threshold for reporting from the proposed 75,000 entries on the LAR for the preceding calendar year to 60,000 in the final rule, but purchased covered loans will not be counted. The Bureau indicates that, based on 2013 HMDA data, 29 institutions would have been required to make quarterly reports in 2014.
Privacy and Disclosure to the Public
The preamble to the final rule discusses heightened privacy concerns raised by the new data points described below. The Bureau has decided to defer consideration of which, if any, of the new data points will be made publicly available. It will use a “balancing test to determine whether and how HMDA data should be modified prior to its disclosure to the public in order to protect applicant and borrower privacy while also fulfilling the disclosure purposes of the statute” and will provide a process for the public to provide input on how that test should be applied to determine which HMDA data should be publicly disclosed.
Under the final rule, institutions will no longer be required to make a “modified” LAR, with certain fields removed to protect privacy, available to the public. Instead, they must provide a notice that clearly conveys that the institution’s modified LAR may be obtained on the Bureau’s website. This will shift the responsibility to disclose HMDA data to the agencies, and the CFPB will determine at a later time which of the new data points to disclose publicly.
New Data Points
The amended rule requires collection and reporting of a number of new data points. Starred data points indicate those items the Bureau will collect based on its own discretionary regulatory authority, while un-starred data points are new collection requirements mandated by the Dodd- Frank Act.
The Bureau notes that, in defining the new data points, it attempted to align the collection requirements with the Mortgage Bankers Association’s Mortgage Industry Standards Maintenance Origination (MISMO) data standards and the Uniform Mortgage Data Program, which governs data delivery to Fannie Mae and Freddie Mac.
Borrower Information and Underwriting Characteristics
The amended rule requires financial institutions to collect and report the following additional information about applicants and the characteristics of the loan. Other than age, these data points do not apply to purchased loans:
Financial institutions must collect and report the following additional information regarding the subject property:
Financial institutions must collect and report the following additional information regarding the loan product:
The Bureau also did not adopt either (i) a proposal to require institutions to report whether the mortgage was a “qualified mortgage,” viewing information such as non-amortizing features and the term of any prepayment penalty as adequate substitutes for qualified mortgage status; or (ii) a proposal to require reporting of the amount of the first draw, if any, made at account opening of a HELOC or reverse mortgage.
Financial institutions must collect and report the following identifiers related to the application or loan:
Clarifications and Revisions to Existing Data Points and Definitions
In addition to requiring the collection and reporting of new data, the final rule includes a number of clarifications and revisions to the collection and reporting of existing data points, including:
Questions regarding the matters discussed may be directed to any of our lawyers listed in this alert, or to any other Orrick attorney with whom you have consulted in the past.
1 A blackline of the final regulatory and Commentary text is available at http://www.buckleysandler.com/uploads/1082/doc/Blackline_of_proposed_vs final_HMDA_amendments.pdf