New Changes to HMDA Proposed by CFPB - What they Mean for You
Are we having fun yet? One hand is started to loosen and then the other is starting to tighten. Regardless these fun filled awkward questions regarding your borrowers "demographics" are not going away and about to be a bit more complex.
Not too long ago, the Consumer Financial Protection Bureau had issued a proposal in an attempt to clarify the updates to the HMDA rules made in 2015. This action was taken to help ensure nationwide industry compliance and improve the quality and type of data that’s reported to financial institutions. Technically, the CFPB had given the industry three years to be compliant since the updated requirements would come into full effect by January 2018. The new HMDA rules are said to bring some much needed reform to the mortgage market, which is the largest consumer financial market in the world.
The HMDA was enacted in 1975 by Congress and embodies the lending performance of financial institutions across the United States. It helps highlight operational capabilities to collect data points accurately and provide the regulatory bodies with a proper mechanism to measure the compliance capabilities of an institution. In short, the HMDA is the recordkeeping mechanism of the FHA or Fair Housing Act and the ECOA which is the Equal Credit Opportunity Act. We are a couple of months away from the official HMDA kickoff in 2018. So, the general understanding of the new rules and field modifications need to be completed before that deadline. The following are some of the ways in which teams can move towards implementing the updated policy.
Now, more than ever, the HMDA 2018 is going to require carefully implemented and documented policies. As each line of business is going to make different types of loans, with different requirements, each business line will need its own policy and procedures of implementation, along with the necessary training. Types of businesses and commercial purpose transactions that are covered with under the new HMDA rules include but are not limited to: home improvement loan, home purchase loan, and refinancing. However, the new rules apply only if the financial institution determines the loan proceeds will primarily be used for a business or commercial purpose, while meeting the requirements of the Regulation C definition of these terms. The commercial loans which are to retain exclusionary status will include the closed-end mortgage loan and open-end lines of credit, where proceeds are to be used for the expansion of a business or to purchase equipment for a business. Under the new rule, the lender is not required to provide a disclosure statement or a modified LAR to the public, but rather, the current disclosures will be modified to provide a notice that the disclosure statement along with the modified LAR will be available at CFPB’s website.
Safe Harbor Provision
The good news for lenders is that the HMDA rule retains a “good faith” provision which means if you do take the effort to record the data accurately within 30 days after the end of the calendar quarter, but some of the data appears to be inaccurate, it will not be considered a HMDA violation if it’s corrected prior to the annual submission in 2019.