León Cosgrove

New HMDA Rule Doubles Data Collection for Mortgage Lenders

By: Brendan I. Herbert

Real-Estate-Today

The Home Mortgage Disclosure Act (HMDA) was passed into law in 1975. The Federal Reserve Board implements the Act through Regulation C, 12 CFR 203, requiring lending institutions to report public loan data to government authorities.

The HMDA requires financial institutions to maintain, report, and publicly disclose information about mortgage lending. The Consumer Financial Protection Bureau (CFPB) – to which the Dodd-Frank Act transferred Reg. C rule-writing authority – regards this data as a tool for gauging whether lenders are serving the housing needs of their neighborhoods and communities. The data is also intended to equip public officials with information that assists in public-sector investment distribution in an effort to attract new private sector investment, and to both shed light on and prevent discriminatory lending patterns.

On October 15, 2015, the CFPB issued a new rule that vastly expands mortgage data collection and reporting under the HMDA and Regulation C. These changes are intended to improve the quality of information about today’s housing market: to help the CFPB identify emerging risk and potential discriminatory lending practices in the marketplace, and to improve monitoring of fair lending compliance and access to credit. It is hoped than an improved ability to screen for possible fair lending issues would assist both institutions and regulators in focusing their attention on the riskiest areas of the market where fair lending problems are most likely to exist.

By the time the new rule goes into effect fully on January 1, 2018, lenders must have updated their information and compliance systems to capture the new data points and report all required information for calendar year 2018 by March 1, 2019. Reporting requirements will be expanded to include loan underwriting and pricing information such as property value, term of the loan, interest rate, duration of any teaser or introductory interest rate, discount points, and the borrower’s age, credit score, and debt-to-income ratio.

The CFPB claims that this underwriting and pricing information will help it and other stakeholders monitor developments in specific markets, such as multifamily housing, affordable housing, and manufactured housing. The new rule also requires that covered lenders report, with some exceptions, information about all applications and loans collateralized by dwellings, including reverse mortgages and open-end lines of credit.

The practical effect of the new rule is that it doubles the amount of HMDA data collection and heightens fair lending scrutiny for mortgage lenders, with associated regulatory risk. Each institution’s reported data will be made publicly available, raising privacy and reputational concerns for lending institutions.

Lenders should take a proactive approach by immediately launching efforts to assess their existing information systems and staffing, if they have not already. A self-assessment should be performed prior to the rule’s effective date to identify any deficiencies that may cause the institution to be out of compliance.

If you are a lender and would like assistance working through the implications of the HMDA rule changes, our team of experienced financial services litigators at León Cosgrove LLC would be happy to discuss your needs.

 

Brendan HerbertBrendan I. Herbert is an associate at León Cosgrove LLC who focuses his practice on commercial litigation with an emphasis on representing financial institutions in all manner of complex disputes.
bherbert@leoncosgrove.com