ONE VOICE: POLICY PRIORITIES - Major Issues and Concerns for HMDA Rule Implementation - Mortgage Bankers Association
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ONE VOICE: POLICY PRIORITIES
Major Issues and Concerns for HMDA Rule Implementation
Monday, October 23, 2017
Moderator:
Dorinda Smith, President and Chief Executive Officer, SunTrust Mortgage, Inc.
Panelists:
John Haring, Director, Compliance Enablement, Ellie Mae, Inc.
Richard J. Andreano, Jr., Practice Group Leader, Mortgage Banking Group, Ballard Spahr
Maurice Jourdain-Earl, Managing Director, ComplianceTech
Mitchel H. Kider, Chairman and Managing Partner, Weiner, Brodsky Kider PC
Track sponsored by
Major Issues and Concerns for HMDA Rule Implementation
October 23, 2017
Presented by
Richard Andreano, Jr.
Practice Group Leader
Ballard Spahr LLPRule Overview and Updates
Background Revised rule issued in October 2015; October 28, 2015 Federal Register • Modifies triggers for lender coverage • Modifies loans that are reportable • Significantly expands data to be collected and reported • Mainly effective January 1, 2018 Revised rule amended August 2017; September 13, 2017 Federal Register ECOA-Related Amendments, September 29, 2016 & October 2, 2017 Federal Registers
Lender Coverage
Closed-End Loans:
• Depository institution threshold modified from making one single-
family home purchase or refinance loan to making 25 covered
loans in each of prior two years effective January 1, 2017
• Non-depository threshold modified from making 100 home
purchase or refinance loans to making 25 covered loans in each of
prior two years effective January 1, 2018
HELOCs:
• For depository and non-depository, modified from optional to
required if, temporarily, making 500 in each of prior two yearsLoan Coverage
Closed-End Loans:
• Focus remains home purchase loans, home improvement loans
and refinancings
• Eliminates separate refinancing definitions for coverage and
reporting purposes
• Eliminates unsecured home improvement loan that is classified
by lender as a home improvement loan
HELOCs:
• Optional reporting changed to mandatory if threshold metData Expansion
CFPB modified various existing data elements and added data
elements
Based on CFPB summary:
• Current: 23 data points
• Revised: 48 data points
• 23 current data points, 14 modified and 9 unchanged
• 25 new data points, 11 from Dodd-Frank and 14 added by CFPBNew Data Categories—Non-Demographic New Dodd-Frank categories: Age Credit Score Prepayment Penalty Terms Loan Term Property Value Introductory Rate Period MLO NMLSR ID Property Address Non-Amortizing Features Total Loan Costs or Application Channel Total Points & Fees
New Data Categories—Non-Demographic
New CFPB-added categories:
Discount Points Lender Credits Origination Charges
Interest Rate DTI Ratio Total Units
CLTV AUS Multifamily Affordable Units
HELOC Reverse Mortgage Manufactured Home Secured
Business or Property Type
Commercial Purpose Manufactured Home Land
Property InterestRevised Demographic Categories—Ethnicity □ Hispanic or Latino □ Mexican □ Puerto Rican □ Cuban □ Other Hispanic or Latino – Print origin, for example, Argentinean, Colombian, Dominican, Nicaraguan, Salvadoran, Spaniard, and so on:
Revised Demographic Categories—Race □ American Indian or Alaska Native – Print name of enrolled or principal tribe: □ Native Hawaiian or Other Pacific Islander □ Native Hawaiian □ Guamanian or Chamorro □ Samoan □ Other Pacific Islander – Print race, for example, Fijian, Tongan, and so on:
New Data Categories—Race
□ Asian
□ Asian Indian
□ Chinese
□ Filipino
□ Japanese
□ Korean
□ Vietnamese
□ Other Asian – Print race, for example, Hmong, Laotian, Thai,
Pakistani, Cambodian, and so on:
Transition Rule; URLA; ECOA/HMDA Interplay
Transition rule for applications received in 2017, with final action in 2018
• Institution can report demographic data based on 2017 approach
ECOA requires collection of demographic data for monitoring purposes
• Regulation B was not modified to conform with new HMDA method
Fannie and Freddie release a revised version of the Uniform Residential
Loan Application in August 2016, and initial versions indicated “Effective
01/2018”
• Includes demographic information section that follows revised HMDA
RuleTransition Rule; ECOA/HMDA Interplay
In September 2016 (September 29, 2016 Federal Register) CFPB
authorizes use of revised URLA for ECOA purposes
• Allows voluntary collection of expanded HMDA demographic data in
2017
• Provides option of reporting expanded demographic data if
application received in 2017 and final action taken in 2018
In September 2017 (October 2, 2017 Federal Register) CFPB
• Allows ECOA-only data collectors to use existing or revised
demographic data approach
• Authorizes use of data collection forms for existing and for expanded
demographic dataReporting and Disclosure
Starting with 2017 data, reporting will be made to CFPB via an Internet-
based portal
CFPB will make HMDA reports and modified Loan Application Register
(LAR) for each reporting institution available on CFPB website
• Institutions will post in their offices notices of availability of reports
and modified LARs (no longer will need to make reports and
modified LARs available)Modified LAR, Proposed Content
Proposed policy guidance, September 25, 2017 Federal Register
• Comments due November 24, 2017
CFPB will make all reported HMDA data available in modified LARS,
except:
• ULI, date application received/date on application, date action taken,
property address, credit score, NMLS identifier for MLO, AUS result
and free form text fields for the following (standard fields will be
disclosed): applicant’s race and ethnicity, name and version of credit
scoring system, principal reasons for denial, AUS nameModified LAR, Proposed Content
CFPB will make available in modified LARS the following data:
• Midpoint of $10,000 range into which loan amount falls
• Applicant age in one of seven ranges, and also if the age is 62 or
over
• Actual debt-to-income ratio if between 40% and less than 50%
• Debt-to-income ratio in one of five ranges if not between 40% and
less than 50%
• Midpoint of $10,000 range into which property value fallsModified LAR, Proposed Content
CFPB will make available in modified LARS the following data:
• Midpoint of $10,000 range into which loan amount falls
• Applicant age in one of seven ranges, and also if the age is 62 or
over
• Actual debt-to-income ratio if between 40% and less than 50%
• Debt-to-income ratio in one of five ranges if not between 40% and
less than 50%
• Midpoint of $10,000 range into which property value fallsImplementation Information
CFPB HMDA Implementation Website
• https://www.consumerfinance.gov/policy-
compliance/guidance/implementation-guidance/hmda-
implementation/
• Recent items:
• Revised 2018 Filing Instructions Guide
• New—Reportable HMDA Data: A Regulatory and Reporting
Overview Reference Chart
• HMDA portal status
Federal Banking Agencies identify 37 of 110 data fields as key fields:
• https://www.occ.treas.gov/news-issuances/bulletins/2017/bulletin-
2017-41.htmlLegal Implications and Use of HMDA Data in Fair Lending
Enforcement
October 23, 2017
Presented by
Mitch Kider
Managing Partner
Weiner Brodsky Kider PCHMDA Implications
• HMDA data accuracy (or errors) sets the tone for an entire CFPB examination
• Most of the new data fields companies already have. Do you know what story
your data currently tells about your company:
• From a HMDA accuracy and a regulatory compliance perspective?
• From a fair lending perspective?
• One of HMDA’s stated purposes is to identify possible discriminatory lending
patterns & enforcement of antidiscrimination laws
• Regulators & enforcement agencies use HMDA data to identify institutions with
potential fair lending issues
• CFPB continues to focus on fair lending, including:
• Discretionary pricing & underwriting criteria
• Redlining
• Fair lending monitoring effortsHMDA Implications
• Currently, regulators must request “HMDA plus” data for a fair lending review
• Much of the data currently used for fair lending enforcement will be in the new
data set to be reported by most of the industry starting in 2019
• Allows examiners to easily drill down to specific information that was more difficult
to obtain before
• Pricing information – e.g., origination charges, discount points, lender
credits, interest rates
• Underwriting information – e.g., combined LTV ratio, credit score, DTI ratio,
AUS results
• Identify a lender’s “bad apple” – MLO unique identifier
• Today lenders use the new data points defensively to explain apparent
discrepancies
• Apparent discrepancies will be harder to justify (but may also prevent false
positives that trigger unnecessary investigations)HMDA Data Used in Fair Lending
• Fair lending will receive greater visibility when federal agencies & private litigants have
additional data under HMDA to support analysis
• CFPB & DOJ Consent Order with Large Regional Bank: $10.6 million ($4M in direct
loan subsidies in minority neighborhoods in Memphis; $800,000 for community
outreach and programs; $2.78M in redress; and $3M penalty to CFPB’s Civil
Penalty Fund)
• Allegations of discriminatory practices, among others, included:
– Underwriting: Denying Black applicants’ mortgage loans more often than
similarly situated non-Hispanic White applicants
– Pricing: Charging Black customers for certain mortgage loans more than non-
Hispanic White borrowers with similar loan qualifications
– Redlining: Received significantly fewer applications from Memphis MSA
minority neighborhoods than its peers
• Lack of branches & advertising in minority neighborhoodsHMDA Data Accuracy
• Although most of the focus and attention on HMDA is on what it may show with
respect to discriminatory lending, do not forget that the accurate collection and
submission of data is independently important
• CFPB is focused on HMDA accuracy
• CFPB is a data-driven agency, and HMDA data is one of the first things
reviewed in an exam
• Heavily scrutinized: CFPB considers failure to accurately record and report
HMDA data an indication of a weak compliance management system (CMS)
• CFPB HMDA Consent Order with Large Independent Mortgage Bank
• $1.75 million civil penalty for allegedly failing to report accurate HMDA data
• CFPB allegedly found error rates of 13% (2012), 33% (2013), and 21% (2014)New HMDA Resubmission Thresholds
FFIEC published uniform resubmission guidelines for 2018 HMDA data
• Joint effort by OCC, Fed, FDIC, CFPB, NCUA
• Changes thresholds and general approach; also provides some new tolerances (adding
leniency on accuracy of certain data points)
Tolerances
• The following discrepancies do not count as errors:
• 3 calendar days or less in the application date
• $1000 or less in loan amount
• 3 calendar days or less in the action date
• Rounding errors in dollar amount, rounded to nearest thousand, of gross annual income
Ethnicity or Race Data Errors
• Errors in any of the 6 Filing Instructions Guide (FIG) fields of an applicant/borrower ethnicity
collectively counts as 1 error
• Errors in any of the 8 FIG fields of an applicant/borrower race collectively counts as 1 errorNew HMDA Resubmission Thresholds
≥
≥
• Resubmission may be required even if thresholds are not met if the errors make data analysis unreliableNew HMDA Resubmission Thresholds
Key Data Fields
• The Fed, FDIC and OCC announced key data fields for their examinations
(Oct. 17, 2017)
• Examples of key data fields include: origination charges, discount points,
lender credits, interest rates, DTI ratio, combined LTV ratio
• CFPB has not traditionally used key data fieldsMajor Issues and Concerns for HMDA Rule Implementation
October 23, 2017
Presented by
John Haring
Director Compliance Enablement
Ellie MaeHMDA Technology Update
Recent CFPB Updates July 2017 • CFPB updated 2018 FIG with updated data point examples and published Edit Specifications • CFPB issued final rules on technical changes and temporary open-end line of credit threshold August 2017 • CFPB updated 2018 FIG based on final rule, made multiple changes to Edit Specifications. October 2017 • Additional updates made to Small Entity Compliance Guide & 2018 FIG and Reporting Reference Chart published • Announcement re availability of Data Collection Portal TBD • CFPB to release Data Collection Portal • CFPB to make Geo-Coding Tool Available
Reporting Reference Chart Sample
Technology Impacts of Final Rule • Geocoding Tool – Rule clarifies safe harbor provisions. Implementation pending. • Demographic Information – Systems will likely need to be updated to conform to revised rule and FIG that permits unconditional data entry e.g. reporting an “other” description for Other Hispanic / Latino, Other Asian, Other Hawaiian or Pacific Islander and American Indian or Native Alaska Tribe even if the consumer does not check the box next to “Other” or conflicting information e.g. Hispanic / Latino and Not Hispanic / Latino. Rule also addresses reporting beyond 5 selection limit. • Demographic Information – Based on the rule modifying the language on the sample data collection form, Fannie Mae and Freddie Mac have updated the pending URLA and the transitional URLA demographic information addendum.
Technology Impacts of Final Rule • Purchased Loans – Rule provides that Loan Purpose may be reported as “NA” for purchased loans that were originated prior to January 1, 2018. Additionally, the MLO NMLS ID may be reported as “NA” if the loan was originated prior to January 1, 2014 (January 1, 2018 if the loan is for commercial purposes) • Property Information – Rule provides that Address, State, County and Census Tract may all be reported as “NA” if an address is not identified by the time action is taken. • Corrections - The rule identifies several data points (APR used in determining APOR, Total Loan Costs, Origination Charges, Discount Points, Lender Credits and Interest Rate) that are reported using corrected values provided that the corrected disclosures were issued before the end of the reporting period (calendar year or quarter) in which action is taken.
Technology Impacts of Final Rule • Counter Offers – Rule clarifies that counter offers are reported with initial application values if consumer does not accept counter offer terms (rejects, withdraws or fails to respond) or based on counter offer terms if the consumer accepts or proceeds with counter offer (even if ultimately denied). • Credit Score – Rule clarifies handling of multiple scores and multiple consumers including allowing NA for borrower’s credit score if co-borrower’s credit score is relied upon. • AUS – Rule clarifies definition of AUS and confirms that CFPB expects TOTAL score card and associated results on FHA loans regardless if DU or LP are run.
Technology Impacts of Final Rule • Multi-Family Units – Rule clarifies and provides examples for how to report Loan Purpose on multi family units and what constitutes a multi-family dwelling. • Introductory Rate Periods – Rule clarifies handling of introductory rate periods that are not whole months. Note – rule requires that calculation be based on consummation and not first payment. • NY CEMA – Rule clarifies reporting requirements based on when initial advance and final consolidation occur. Requires separate reporting if events occur in separate calendar years.
GSE Updates 2016 • GSE’s publish proposed Uniform Residential Loan Application and transitional URLA Addendum for Demographic Information. July 2017 • Fannie Mae updated FNMA 3.2 and DU to collect expanded demographic information September 2018 • Updated URLA Demographic Information Addendum Published 2019 – 2010 • ULDD Phase 3 incorporates expanded demographic information (May 2019) • Effective date for new URLA (Optional 7/1/2019, Required 2/1/2020)
Summary • Most but not all vendors are ready save for adjustments required as a result of the final rule or ongoing clarifications being made by CFPB. • When and how the Geocoding tool are implemented will need to be addressed once the tool is made available. Lenders should plan on having back up tools. • Technology vendors are waiting on CFPB to release their HMDA platform to test both 2018 and 2019 filings. • The new URLA will be a major factor in how future information is collected.
ONE VOICE: POLICY PRIORITIES Major Issues and
Concerns for HMDA Rule Implementation
October 23, 2017
Presented by:
Maurice Jourdain-Earl
Managing Director
ComplianceTechNew HMDA Rules will be a
Game Changer
Both a “Friend and a Foe”Changes to HMDA
Changes to HMDA, cont.
The Home Mortgage Disclosure Act (HMDA) requires certain institutions to collect, report, and disclose information about their mortgage lending activity. This information is important because it: 1. Helps show whether financial institutions are serving the housing needs of their communities; 2. Assists public officials in distributing public-sector investment to attract private investment to areas where it is needed; and 3. Assists with the identification of potentially discriminatory lending patterns and enforcement of antidiscrimination laws.
Fair Lending Analysis Progression
Use HMDA Data to Benchmark Fair Lending Performance Benchmarking is the process of comparing one's business processes and performance metrics to industry norms or best practices. In the context of fair lending, dimensions measured are racial disparities in underwriting, pricing, steering and redlining. In the process of fair lending benchmarking, management identifies the norms in the industry by choosing either all lenders or lenders that may be similarly situated based on lender type, regulator, asset size or number of HMDA reported applications. With new HMDA benchmarking will expand to include age, more granular ethnicity grouping, channel, etc. • Origination Disparities - ODI™ • Denial Disparities - DDI™ • Fallout Disparities - FDI™ • Market Penetration Disparities – ADI™ or LDI™
White – Black Disparities 2016 HMDA
Loan Type Distribution by Race and Ethnicity 2016 HMDA
Data Submission Process The Bureau is developing a new web-based submission tool for reporting HMDA data. Covered institutions will report data using the new web-based submission tool beginning in 2018. Appendix A, which provides instructions for completing and submitting the HMDA loan/application register (LAR), is amended effective January 1, 2018 to include new transition requirements for data collected in 2017 and reported in 2018. In particular, amended appendix A requires that a covered institution electronically submit its LAR. In 2018, covered institutions will report 2017 data required under current Regulation C, but will use the new electronic submission tool and will submit data in accordance with amended appendix A and procedures that will be available at http://www.consumerfinance.gov/hmda. Effective January 1, 2019, appendix A is removed from Regulation C. Beginning in 2019, covered institutions will report the new dataset required by the HMDA Rule, using the new electronic submission tool and revised procedures that will be available at http://www.consumerfinance.gov/hmda.
Quarterly Reporting Beginning in 2020, the HMDA Rule requires quarterly reporting for covered institutions that reported a combined total of at least 60,000 applications and covered loans in the preceding calendar year. When determining whether it is required to report on a quarterly basis, an institution will not count covered loans that it purchased in the preceding calendar year. In addition to their annual data submission, these larger-volume reporters will submit HMDA data for the first three quarters of the year on a quarterly basis. The first quarterly submission will be due by May 30, 2020.
Data Submission For HMDA data collected in or after 2017, a web-based data submission and edit-check system (the HMDA Platform) is being created to process Home Mortgage Disclosure Act (HMDA) data. It is expected that the HMDA Platform will streamline the HMDA submission process and reduce burden on HMDA filers. Interacting with the HMDA Platform The HMDA Platform will be available online only and will guide filers through the entire filing process, including the review of any edits and the certification of the accuracy and completeness of the loan/application register (LAR). A separate Filing Instructions Guide (FIG) describes the file format and other requirements.
Disclosure Requirements Beginning in 2018, covered institutions will no longer be required to provide a disclosure statement or a modified LAR to the public upon request. Instead, in response to a request, a covered institution will provide a notice that its disclosure statement and modified LAR are available on the Bureau’s website. The HMDA Rule includes sample language that covered institutions can use for these purposes. These revised disclosure requirements will apply to data collected on or after January 1, 2017 and reported in or after 2018. For data collected in or after 2018 and reported in or after 2019, the Bureau will use a balancing test to determine whether and, if so, how HMDA data should be modified prior to its disclosure in order to protect applicant and borrower privacy while also fulfilling HMDA’s disclosure purposes. At a later date, the Bureau will provide a process for the public to provide input regarding the application of this balancing test to determine the HMDA data to be publicly disclosed.
HMDA edits Once the HMDA Platform confirms that the LAR is in the correct format, it will check the accuracy and completeness of the LAR using the HMDA edits. An interactive process will inform the filer of the current stage of review, any items that need to be addressed, and next steps for completing the HMDA filing. At each stage, any edits identified in the LAR will be reported to the filer. For data collected in 2017, the edits are listed in Section 4 of the FIG for HMDA data collected in 2017. Edits for data collected in 2018 will be released at a later date. Syntactical and validity edit review The HMDA Platform will identify any syntactical or validity edit and the rows in the LAR where each edit is triggered. Additionally, a list of the edits identified in the LAR will be available for download. Syntactical and validity edits must all be addressed prior to moving forward with the filing process. If the filer needs to correct any data, the filer must refile the updated LAR to the HMDA Platform. The LAR will then be rechecked for syntactical and validity edits. Quality and macro quality edit review Once the HMDA Platform has confirmed there are no syntactical or validity edits, the filer will be prompted to review any quality and/or macro quality edits that the HMDA Platform identifies in individual rows in the LAR, groups of rows, or the entire LAR. The filer must confirm the accuracy of the data flagged by the quality and/or macro quality edits. If a filer needs to correct any data in the file in response to quality and/or macro edits, the filer must correct the data and refile the updated LAR to the HMDA Platform. Final validation steps Once all edits have been addressed, the HMDA Platform will require an authorized representative of the filer’s institution to certify the completeness and accuracy of the LAR (see FIG section 3.2). It is important to recall that all edits must be resolved prior to the March 1st annual HMDA submission deadline. Filers are encouraged to allow sufficient time, prior to the filing deadline, in order to address any edits. The submission must be completed by the March 1st annual deadline.
Complete a HMDA submission After the filer submits the LAR, the HMDA Platform will provide the filer with a summary screen acknowledging the time and date of submission. Resubmitting HMDA data In cases where a submission has been completed and the filer wants to refile, the HMDA Platform will alert the filer that the LAR for the reporting year has already been filed, and prompt the filer to confirm that they wish to refile their LAR. A HMDA resubmission requires the same edit review and certification by the institution’s authorized representative as with the previous submission.
File Format Verification Tool The CFPB has made available an electronic File Format Verification Tool (FFVT) for filers who wish to confirm that a LAR is formatted in the required pipe delimited text file format, and meets certain formatting requirements specified in the Filing Instructions Guide. The FFVT uses “client-side testing” which runs on the user’s computer and does not transmit any HMDA data over the internet. The tool conducts the same initial checks that the future HMDA Platform will perform, and provides a convenient test mechanism for filers, prior to the roll out of the full HMDA Platform. Open source policy The CFPB is committed to developing the programming code for the HMDA Platform in an open way. The HMDA Platform is being actively developed on the site, GitHub.com (see: https://github.com/cfpb/hmda- platform). This provides transparency to the algorithms and methodologies used to parse and validate a HMDA file, as well as the code used to develop the HMDA Platform user interface and related tools for filers. This code is in the public domain and does not impact the privacy or security of the data. Resources for developers As noted above, the CFPB is developing the HMDA Platform in the open. With the exception of internal server deployment details, the source code will be available to review and use. While most HMDA filers and interested members of the public will interact with the HMDA Platform primarily through the web, the HMDA Platform is developed with an API-first approach, with a modern architecture intended to be efficient and flexible. Details of public APIs and other developer resources will be released on the Resources for Filers page on the CFPB website and on GitHub.
Other tools for HMDA filers Geocoding A new online geocoding tool will be provided that identifies the census tract for a single address or batches of addresses. Further information will be forthcoming. Loan/Application Register (LAR) Formatting Tool Beginning with the HMDA data collected in 2017, the Data Entry Software currently provided by the FFIEC (DES) will no longer be available as a method of data entry or data submission. Some financial institutions, typically those with small volumes of covered loans and applications, that currently manually enter each loan into the DES for submission, will need a software solution to create an electronic file that can be submitted to the new HMDA Platform. Many solutions exist to create the electronic file. For example: A financial institution’s current Loan Origination Software (LOS) may meet this need. Software commonly available on desktop computers such as Microsoft® Access® or Excel® may also be used for data entry and formatting. In addition, the CFPB has published a Microsoft® Excel® HMDA LAR data entry formatting tool. This tool will help filers enter and format their HMDA data into a pipe delimited text file needed to submit the data to the CFPB’s HMDA Platform. Please visit theLAR Formatting Tool webpage for more information.
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