The Who, What and When of HMDA rule changes
The Who, What and When of HMDA rule changes
The Consumer Financial Protection Bureau (CFPB) announced back on October 15, 2015, that it has updated the Home Mortgage Disclosure Act (HMDA). The changes modify who has to report HMDA information to the CFPB and what types of transactions that are reportable. They also outline new data to be collected starting January 1, 2018, and the type of information that will be made available to the public in 2019. It is time for financial institutions to prepare for the changes and the impact they will have on their HMDA program.
Who is required to report?
In 2017, a financial institution will have to comply with HMDA if it meets all of the existing coverage criteria (exceeds asset size threshold, has a home or branch office in a Metropolitan Statistical Area, is federally insured or regulated/insured, and is guaranteed or supplemented by a federal agency or is intended for sale to Fannie or Freddie Mac) and it originates at least 25 home purchase loans, including refinancing, in both 2015 and 2016. The 25 home purchase loan threshold is new.
In 2018, open-end lines of credit are included in the threshold test. Starting in 2018, a financial institution will have to comply with HMDA if it meets the existing coverage criteria and it originates in the preceding two calendar years, the following:
- At least 25 covered closed-end mortgage loans, or
- At least 100 covered open-end lines of credit.
What transactions have to be reported?
The new rules use “dwelling-secured” as the standard for determining which transactions fall under HMDA coverage starting January 1, 2018. Generally speaking, all closed-end mortgage loans and home equity lines-of-credit (HELOCs) will be HMDA-reportable loans. Only covered financial institutions that originate at least 100 HELOCs in each of the two preceding calendar years have to collect, record, and report HELOC information for HMDA. If the dwelling secured loan or line-of-credit is for a business purpose, it is covered by HMDA only if the loan is for a home purchase, home improvement, or refinancing. Under the new rule, home improvement loans will only be covered by HMDA if they are dwelling-secured.
Currently, it is optional for financial institutions to collect, record, and report preapproval requests that are approved but not accepted. However, starting in 2018, financial institutions must collect, record, and report preapproval requests that are approved but not accepted for home purchase loans. Keep in mind that preapproval requests for HELOCs, reverse mortgages, and home purchase loans secured by multifamily dwellings will not be considered covered transactions starting in 2018.
New York State CEMA transactions
New York CEMAs (Consolidated Extension & Modification Agreement) are certain loans secured by dwellings in New York State. They generally are used in place of traditional refinancing, either to amend interest rate or loan term or permit cash out to the borrower. Unlike traditional refinances, the existing debt obligation is not satisfied and replaced, it is consolidated into a new loan. The final rule also clarifies that CEMA’s (consolidation, extension and modification agreements) completed pursuant to section 255 of the New York State Tax Law are HMDA covered loans and will be reportable. Other MECA (Modification, Extension and Consolidation Agreements) are not covered loans under the final rule. The CFPB concluded that requiring reporting of New York CEMAs will improve HMDA data and resolve the past confusion about how Reg C applies to those types of transactions. The Bureau believes that New York CEMAs represent a new debt obligation in substance and should be reportable.
What data is new/modified?
In 2018, covered financial institutions will begin reporting 24 pieces of new HMDA information for covered loans. In addition, 12 pieces of existing reporting information has been modified. The CFPB includes a chart outlining the new and modified reportable data: http://files.consumerfinance.gov/f/201510_cfpb_hmda-summary-of-reportable-data.pdf
Changes have also been made related to the collection and reporting ethnicity, race and gender information. Beginning in 2018, if the data is collected by the loan originator due to the applicant’s choice not to provide the information, the loan officer must also report whether the data was collected by visual observation or the surname of the consumer.
It seems the most impact to mortgage lenders and brokers who presently report, will be the revisions to reportable data that must be collected. The majority of the burden in preparing for the rule changes begins now in 2017 in preparation for additional data reporting. The data collected during the year 2018 will significantly grow for the submission of the Loan/Application Register (LAR) due on or before March 1, 2019.
Are you ready? Do you have sufficiently trained personnel to aid in this rule change?
By Kay Scarselli