What a year we are seeing in the compliance world! It seems like every week, the CFPB is announcing a new proposal or a new final rule, and HMDA has been no exception. With all these updates, we decided it might be time to give you quick summary of how much damage to anticipate.
On April 25, the CFPB published a proposal, referred to as "technical corrections and clarifying amendments to the 2015 HMDA Rules," with a 30 day comment period ending May 30. On July 20, the CFPB published a second proposal, which was limited to an 11 day comment period, closing on July 31.
On August 24, the CFPB published what is now known as the 2017 HMDA Final Rule, combining both proposals. The final rule:
- allows financial institutions to report "NA" for "Loan Purpose" and "Mortgage Loan Originator NMLSR Identifier" when reporting purchased loans originated prior to January 1, 2018.
- allows reporting "NA" for property location, such as census tract and actual property address if information is not known at the time the application is denied, withdrawn or closed for incompleteness.
- provides that a financial institution should not include as "income" amounts considered in making a credit decision based on factors in addition to income, such as amounts derived from underwriting calculations of the potential annuitization or depletion of an applicant's remaining assets. The final rule further provides that actual distributions from retirement accounts or other assets relied on as income should be reported as "income."
- clarifies that a loan or line of credit is considered "temporary financing" if it designed to be replaced by separate permanent financing extended by any financial institution to the same borrower at a later time. In addition, a construction-only loan or line of credit extended exclusively for purposes of constructing a dwelling for sale, is also considered "temporary financing." Both categories are not HMDA reportable.
- clarifies the reporting requirements for home improvement loans secured by mixed-use property. The final rule establishes that a loan or line of credit to improve commercial space in a multifamily dwelling is not a reportable home improvement loan, but a loan or line of credit to improve commercial space in a dwelling other than a multifamily dwelling is a reportable home improvement loan.
- provides that any transaction providing new funds in advance of a consolidation as part of a CEMA is an excluded transaction. The exclusion does not change the exception that requires CEMAs to be reported as extensions of credit.
- explains that an "extension of credit" refers to the granting of credit pursuant to a new debt obligation. If a transaction modifies, renews, extends, or amends the terms without satisfying and replacing the original debt obligation with a new debt obligation, the transaction generally is not an "extension of credit."
- defines an automated underwriting system (AUS) as an electronic tool that has been developed by a securitizer, Federal government insurer, or a Federal government guarantor of closed-end mortgage loans or open-end lines of credit. The AUS must provide a result regarding both the credit risk of the applicant and the eligibility of the covered loan to be originated, purchased, insured, or guaranteed by the securitizer, Federal government insurer, or Federal government guarantor that developed the system being used to evaluate the application. Further guidance is provided to clarify that a person may be a securitizer, Federal government insurer, or Federal government guarantor even if not active at the time the AUS is used.
- clarifies that an error in reporting incorrect census tract information will not be a violation provided the financial institution used a geocoding tool, particularly the Bureau's geocoding tool which will be available on its website, entered an accurate property address into the tool and the tool returned a census tract for the address entered.
- provides "explicitly" that a loan secured by five or more separate dwellings in more than one location is NOT a loan secured by a multifamily dwelling, as the proposal had sought to establish. Thank goodness, the CFPB changed their mind on this one!
- temporarily raises institutional and transactional coverage thresholds for open-end lines of credit from 100 covered loans to 500 covered loans until January 1, 2020. In order to be required to report open-end covered loans data, you must meet the threshold in both 2016 and 2017 to determine your numbers for 2018 reporting.
- clarifies three aspects of demographic collection for race and ethnicity. The applicant is not required to select an aggregate category to be able to select a subcategory. The applicant may complete the free form field, without selecting the box indicating the specific subcategory. In addition, the rule clarifies how an institution is to report ethnicity if more than five are selected.
Here's another HMDA "update," on August 22, the FFIEC announced new HMDA Examiner Transaction Testing Guidelines for all HMDA reporters. These guidelines will apply to HMDA data collected beginning in 2018. Due to the new data fields that will be required beginning in 2018, the guidelines will establish new standards so that the sample review size will be driven by a financial institution's mortgage lending activities. Specifically, the number of files sampled and the error threshold for resubmission will vary based on the number of applications listed on an institution's LAR. These guidelines will also eliminate the existing file error resubmission threshold under which a financial institution would be required to correct and resubmit its entire LAR if the total number errors equaled or exceeded a certain threshold. The best news is that all federal supervisory agencies will use the same guidelines. HOORAY!
The last update we would like to give you is a GREAT one! One of our team members has been invited to attend the CFPB's Live HMDA Platform Demonstration with Q&A at the CFPB's headquarters in Washington, DC! We are very excited about the opportunity to view the upcoming platform before active user testing begins and to engage in a Q&A session with CFPB developers about this new platform. Stay tuned for more updates after the visit in September!