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The CFPB recently issued a revised version of the Home Mortgage Disclosure (Regulation C) Small Entity Compliance Guide to reflect a partial exemption to Home Mortgage Disclosure Act (HMDA) requirements made by the Economic Growth, Regulatory Relief, and Consumer Protection Act and a related interpretive procedural rule issued by the CFPB. Pursuant to the partial exemption, depository institutions and credit unions are exempted from the new HMDA reporting categories added by Dodd-Frank and the HMDA rule adopted by the CFPB with regard to (1) closed-end loans, if the institution or credit union originated fewer than 500 such loans in each of the preceding two calendar years, and (2) home equity lines of credit (HELOCs), if the institution or credit union originated fewer than 500 HELOCs in each of the preceding two calendar years.

There also are revisions that are not related to the partial exemption. Section 4.1.2 is revised to clarify loans that are not counted when determining if an institution’s lending volume triggers HMDA reporting. The table in Section 5.8 of the Guide regarding the loan amount reported is revised for (1) counteroffer situations when the applicant did not accept or failed to respond to the counteroffer and (2) situations in which an application is denied, closed for incompleteness or withdrawn.

The CFPB recently released an interpretive and procedural rule to implement and clarify the partial exemption from the Home Mortgage Disclosure Act (HMDA) adopted in the Economic Growth, Regulatory Relief, and Consumer Protection Act (also known as S.2155).

As we reported previously, the Act amended HMDA to create an exemption applicable to the new data categories added by Dodd-Frank and the HMDA rule adopted by the CFPB for insured depository institutions and insured credit unions that originate mortgage loans below certain thresholds.  Additionally, depository institutions must meet certain Community Reinvestment Act rating criteria.

For closed-end mortgage loans, the partial exemption will apply if the institution or credit union originated fewer than 500 such loans in each of the preceding two calendar years.  For home equity lines of credit (HELOCs), the partial exemption will apply if the institution or credit union originated fewer than 500 HELOCs in each of the preceding two calendar years.  The HELOC change will not initially affect reporting because, for 2018 and 2019, the threshold to report HELOCs is 500 transactions in each of the preceding two calendar years under a temporary CFPB rule.

Even if a depository institution originates loans or HELOCS below the applicable threshold, the Act’s partial exemption from reporting the new HMDA data categories does not apply if the institution received a rating of “needs to improve record of meeting community credit needs” during each of its two most recent CRA examinations, or “substantial noncompliance in meeting community credit needs” on its most recent CRA examination.

In July 2018 the CFPB advised that the partial exemption will not affect the format of 2018 Loan Application Registers (LARs) and that:

  • LARs will be formatted according to the previously-released 2018 Filing Instructions Guide for HMDA Data Collected in 2018 (2018 FIG).
  • If an institution does not report information for a certain data field due to the partial exemption, the institution will enter an exemption code for the field specified in a revised 2018 FIG that the CFPB expects to release later this summer.
  • All LARs will be submitted to the same HMDA Platform.

The CFPB also advised that it expected later in the summer to provide further guidance on the applicability of the partial exemption to HMDA data collected in 2018.  The interpretive and procedural rule contains the further guidance.  As previously indicated, the CFPB also issued a revised FIG for 2018 data to account for the partial exemption.

The interpretive and procedural rule:

  • Clarifies the HMDA data points that are covered by the partial exemption.  A table in the rule reflects that 26 data points are covered by the partial exemption, and that 22 data points still must be reported by institutions or credit unions that qualify for the partial exemption.
  • Provides that institutions and credit unions that qualify for the partial exemption may elect to report the exempted data, provided that they report all data fields within any exempt data point for which they report data.  For example, if an institution or credit union elects to report a data field that is part of the property address, it must report all other data fields that are part of the property address data point.
  • Clarifies that only closed-end loans and open-end lines of credit that are otherwise reportable under HMDA count toward the 500 loan and 500 line of credit thresholds.
  • Provides that if an institution or credit union elects not to report a universal loan identifier for an application or loan, it must report a non-universal loan identifier that meets specified requirements and must be unique within the institution or credit union.
  • Clarifies the exception to the partial exemption for negative CRA history must be assessed as of December 31 of the preceding calendar year.

The interpretative and procedural rule will become effective upon publication in the Federal Register.  The CFPB advises that it expects to initiate a notice-and-comment rulemaking to incorporate the interpretations and procedures contained in the rule into Regulation C and to further implement the Act.

 

The CFPB recently released a File Format Verification Tool for 2018 Home Mortgage Disclosure Act (HMDA) data. As we reported, in October 2015, the CFPB adopted significant changes to the HMDA rules that significantly expanded the amount of information that must be collected and reported. Calendar year 2018 is the first year in which the expanded data must be collected.

The Tool can be used by HMDA filers to test whether their HMDA data file meets the following formatting requirements: (1) whether the file is in the pipe-delimited format, (2) whether the file has the proper number of data fields, and (3) whether the file has data fields that are formatted as integers, when applicable. The Tool cannot be used to file HMDA data. The CFPB advises that there are no login requirements to use the Tool, the Tool will not log identifying information about users or the files that they test using the Tool, and no federal agency will receive or be able to view the files that users test using the Tool.

The Consumer Financial Protection Bureau (CFPB) recently issued a statement regarding the partial exemption from Home Mortgage Disclosure Act (HMDA) reporting requirements for certain lower mortgage volume depository institution lenders that was adopted in the Economic Growth, Regulatory Relief, and Consumer Protection Act (Act).

As we reported previously, the Act exempts depository institutions and credit unions from the new reporting categories added by Dodd-Frank and the HMDA rule adopted by the CFPB with regard to (1) closed-end loans, if the institution or credit union originated fewer than 500 such loans in each of the preceding two calendar years, and (2) home equity lines of credit (HELOCs), if the institution or credit union originated fewer than 500 HELOCs in each of the preceding two calendar years. The HELOC change will not initially affect reporting because, for 2018 and 2019, the threshold to report HELOCs is 500 transactions in each of the preceding two calendar years under a temporary CFPB rule.

The Act’s partial exemption from reporting the new HMDA data does not apply if the institution received a rating of “needs to improve record of meeting community credit needs” during each of its two most recent Community Reinvestment Act (CRA) examinations, or “substantial noncompliance in meeting community credit needs” on its most recent CRA examination.

The CFPB advises in its recent statement that it expects later this summer to provide further guidance on the applicability of the partial exemption to HMDA data collected in 2018. The CFPB also advises that the partial exemption will not affect the format of 2018 Loan Application Registers (LARs) and that:

  • LARs will be formatted according to the previously-released 2018 Filing Instructions Guide for HMDA Data Collected in 2018 (2018 FIG).
  • If an institution does not report information for a certain data field due to the partial exemption, the institution will enter an exemption code for the field specified in a revised 2018 FIG that the CFPB expects to release later this summer.
  • All LARs will be submitted to the same HMDA Platform.

The CFPB also notes that a beta version of the HMDA Platform for submission of data collected in 2018 will be available later this year for filers to test.

In Financial Institution Letter FIL-36-2018 and in OCC Bulletin 2018-19 the Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency, respectively, issued similar guidance to institutions.

In a blog post entitled “How S.2155 (the Bank Lobbyist Act) Facilitates Discriminatory Lending” Professor Adam Levitin claimed that “This bill functionally exempts 85% of US banks and credit unions from fair lending laws in the mortgage market.”  The claim was set forth in bold and italic text.  If the intent was to draw attention to the claim, it worked.  Members of this firm saw the claim.  In short, the claim greatly mischaracterizes the limited implications of the amendment.

The Professor is referring to an amendment that S.2155 would make to the Home Mortgage Disclosure Act (HMDA) for insured banks and insured credit unions that satisfy certain conditions.  First, I will address what the amendment would not do.  The amendment:

  • Would not exempt any institution from the Equal Credit Opportunity Act, the Fair Housing Act or any other substantive fair lending law.
  • Would not exempt any institution from the mortgage loan data reporting requirements of HMDA that were in effect before January 1, 2018.
  • Would not prevent bank and credit union regulators from obtaining any information on the mortgage lending activity of institutions that they supervise.

What the amendment would do is exempt small volume mortgage lenders from the expanded HMDA data reporting requirements that became effective on January 1, 2018 if they met certain conditions.  The conditions are that:

  • To be exempt from the expanded data reporting requirements for closed-end mortgage loans, the bank or credit union would have to originate fewer than 500 of such loans in each of the preceding two calendars years
  • To be exempt from the expanded data reporting requirements for home equity lines of credit (HELOCs), the bank or credit union would have to originate fewer than 500 of such credit lines in each of the preceding two calendars years.
  • The bank or credit union could not receive a rating of (1) “needs to improve record of meeting community credit needs” during each of its two most recent Community Reinvestment Act (CRA) examinations or (2) “substantial noncompliance in meeting community credit needs” on its most recent CRA examination.

The exemption for HELOC reporting would have no implications initially, and perhaps longer.  For 2018 and 2019 the threshold to report HELOCs is 500 transactions in each of the preceding two calendar years.  The 500 HELOC threshold was implemented by a temporary rule adopted by the CFPB under former Director Cordray in August 2017, which amended the HMDA rule adopted by the CFPB in October 2015 to revise the HMDA reporting requirements.  The October 2015 rule for the first time mandated the reporting of HELOCs, and set the reporting threshold at 100 HELOCs in each of the two preceding calendar years.  The CFPB indicated in the preamble to the temporary rule that it had evidence that the number of smaller institutions that would need to report HELOCs under the 100 threshold may be higher than originally estimated, and that the costs on those institutions to implement reporting may be higher than originally estimated.  The temporary rule allows the CFPB time to further assess the appropriate threshold.

While Professor Levitin inaccurately claims that the S.2155 amendment creates a functional exemption from the fair lending laws for small volume lenders, the statement that 85% of banks and credit unions would be covered by the exemption mischaracterizes the scope of lending activity subject to HMDA reporting requirements.  Based on the data used by the CFPB to assess the 2015 rule, the change from the 100 to 500 threshold would reduce the number of institutions reporting HELOCs from 749 to 231, but would reduce the percentage of HELOCs reported only from 88% to 76%.  Additionally, 2016 HMDA data reflect that while credit unions and small banks comprised over 73% of HMDA reporting entities, the institutions received under 15% of the reported applications for the year.  While the CFPB now acknowledges it may have underestimated the number of institutions that would be covered at the 100 HELOC threshold, these statistics reflect that focusing on the percentage of institutions subject to reporting, and not the percentage of transactions subject to reporting, paints an inaccurate picture of lending activity subject to HMDA reporting requirements.

Even for institutions that would qualify for the exemption from reporting the expanded HMDA data, the CFPB and financial institution regulators will still receive the traditional HMDA data from these institutions.  And regulators can use that information to assess whether they should take a closer look at the mortgage lending activity of any institutions.  Of great significance, as noted above, the S.2155 amendment would not limit the amount of information on mortgage lending that bank or credit union regulators can obtain from institutions that they supervise.

While the expansion of the HMDA data is intended to permit regulators to better assess the mortgage lending of an institution before having to request additional information from the institution, even the expanded data does not provide for a conclusive assessment of whether or not a given institution has engaged in discrimination when evaluating mortgage loan applications.  In fact, even with data that is more comprehensive than the expanded HMDA data, a statistical analysis still does not provide for a conclusive determination regarding underwriting determinations.  You have to get your hands on the actual loan files.

The main impact from the S.2155 amendment would be the reduction of some HMDA information from small volume lenders that will be made available to the public.  With new leadership at the CFPB, we don’t know what parts of the expanded HMDA data will be released to the public.  However, even under Director Cordray, the CFPB did not plan to issue credit score information, which is an important item of information to conduct a fair lending analysis.  A significant concern of the mortgage industry regarding the expanded HMDA data is that members of the public will improperly use the data that is released to claim that the data conclusively show that the institutions engaged in discrimination.  Given that Professor Levitin paints an inaccurate picture of the impact of the HMDA amendment under S.2155, those concerns appear to be warranted.

The Federal Financial Institutions Examination Council (FFIEC) has just issued an updated version of The Guide to HMDA Reporting: Getting It Right!

The Guide reflects the extensive changes to the Home Mortgage Disclosure Act rules that were adopted in October 2015 and became effective January 1, 2018.  Until now, the most recent version of the Guide was the April 2013 edition.

As previously reported, in December 2017 the CFPB announced that it intends to engage in a rulemaking to reconsider various aspects of the revised HMDA rules, such as the institutions that are subject to the rules, including the related transactional coverage tests, and the discretionary data points that were added to the statutory data points by the CFPB.  Any HMDA rule changes may require revisions to the Guide.

On February 1, the CFPB announced the launch of the 2018 HMDA LAR Formatting Tool (the “Tool”). The Tool will help financial institutions create an electronic file to submit HMDA data collected in 2018 and reported in 2019.  The Tool is not needed if the financial institution uses vendor or loan origination software to format their HMDA data into a pipe delimited text file, so this Tool will be most useful to those with small volumes of covered loans and applications.

The CFPB also announced minor updates to its 2018 Filing Instructions Guide, such as providing explicit instructions not to include leading zeros in data fields, and allowing an additional AUS result code produced by the Guaranteed Underwriting System.

The CFPB has launched a new online “Digital Check Tool” to be used by companies reporting HMDA data starting January 1, 2018.

More specifically, the new tool supports the Universal Loan Identifier (ULI) requirements of the revised HMDA rule.  The CFPB states on its website that the new tool can be used for two functions.  The first function is to generate a two-character check digit when a company enters a Legal Entity Identifier and loan or application ID.  The second function is to validate that a check digit is calculated correctly for any complete ULI a company enters.

The CFPB also made its rate spread calculator available for use with applications on which the final action occurred on or after January 1, 2018.

In notices published in today’s Federal Register, the CFPB adjusted the thresholds of the asset-size exemptions for collecting HMDA data and establishing an escrow account for certain mortgage loans under TILA.

Pursuant to Regulation C, which implements HMDA, depository institutions with assets below an annually adjusted threshold are exempt from HMDA data collection requirements.  In its notice, the CFPB increased the 2017 threshold of $44 million to $45 million for 2018.  Thus, depository institutions with assets of $45 million or less as of  December 31, 2017 will be exempt from collecting HMDA data in 2018.  (An institution’s exemption from collecting data in 2018 does not affect its duty to report data it was required to collect in 2017.)

Regulation Z, which implements TILA, requires creditors to establish an escrow account to pay property taxes and insurance premiums for certain first-lien higher-priced mortgages.  The rule contains an exemption for creditors that operate predominantly in rural or underserved areas that meet certain other criteria, including an annually adjusted asset-size threshold.  In its notice, the CFPB increased the 2017 threshold from $2.069 billion to $2.112 billion for 2018.  Thus, loans made by creditors with assets of less than $2.112 billion on December 31, 2017 that operate predominantly in rural or underserved areas and meet the other exemption criteria will be exempt in 2018 from the TILA escrow account requirement for higher-priced mortgage loans.  The adjustment will increase the similar Regulation Z threshold for small-creditor portfolio and balloon-payment qualified mortgages.