On April 13, 2017, the Consumer Financial Protection Bureau (CFPB) issued proposed amendments to clarify certain requirements of the Home Mortgage Disclosure Act (HMDA). HMDA requires that financial institutions collect and report certain information regarding their mortgage lending activities. The information that financial institutions are required to collect and report includes information about home loan applications, originations, and purchases. The purpose of the HMDA is to provide publicly available information that will allow for (1) evaluation of whether financial institutions meet community housing needs, (2) facilitation of government support for community investment opportunities, and (3) identification of discriminatory lending practices.
The CFPB issued a final rule in 2015 which dramatically overhauled the HMDA, changing the types of institutions and transactions that are subject to the HMDA’s reporting requirements, amending the way that HMDA data is collected and reported, and significantly increasing the number of data points that must be collected as to each covered transaction. The 2015 HMDA rule is very complex, and many institutions in the industry have spent the last year and a half working to change their processes in order to be ready to come into compliance when the new requirements take effect. The rule has already gone into effect as to some of its provisions, but most of the changes will take effect on January 1, 2018.
Since the CFPB finalized its HMDA rule in October 2015, it has identified a number of aspects of the rule that need to be amended slightly to better aid industry compliance. The CFPB’s recent proposal seeks to make those technical corrections and clarifications, and proposes a number of changes, including:
- A new transition rule for two of the data points that were added in the 2015 HMDA rule: loan purpose and the unique loan identifier (ULI). Under the proposed rule, these two data points could be reported as “Not Applicable” for certain loans that an institution purchased that were originated before certain regulatory requirements took effect.
- Clarification that “temporary financing,” which is not subject to the HMDA’s reporting requirements, applies when a loan or line of credit is designed to be replaced by separate permanent financing extended to the same buyer at a later time.
- Clarification that “automated underwriting system” means “an electronic tool developed by a securitizer, Federal government insurer, or Federal government guarantor of closed-end mortgage loans or open-end lines of credit that provides a result regarding the credit risk of the applicant and whether the covered loan is eligible to be originated, purchased, insured, or guaranteed by that securitizer, Federal government insurer, or Federal government guarantor.”
- Reiteration that financial institutions must report purchased loans (as well as originated loans and loan applications).
- Provision that incorrect entries reporting the census tract number of a property are not HMDA violations if the financial institution properly uses a geocoding tool, the financial institution enters an accurate property address, and the tool provides a census tract number for the property address entered.
These proposed clarifications and revisions are aimed at facilitating compliance with the HMDA by clarifying rules and terms and making technical adjustments to address problem areas in the 2015 final rule. Financial institutions should review the proposed rule and full list of proposed amendments to determine whether the CFPB has adequately addressed the concerns that had arisen in trying to comply with the original version of the 2015 HMDA rule. Once the proposed rule has been published in the Federal Register, industry members will have 30 days to submit comments on the proposal, either supporting the changes or suggesting additional or different revisions. HMDA compliance will continue to be a big part of institutions’ regulatory experience, so it is important for industry members to work actively with the CFPB to create a version of the HMDA rule that is as workable as possible for all parties.