With all of the industry focus on the passing of the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA) "the Act," one section of the Act has really been in the spotlight, which is HMDA. Over the last year, between adding several new data points, effective January 1, 2018, and the new amendment, which now exempts certain institutions from reporting all of the new data points, it seems appropriate to address what the "2018 HMDA Final Rule" covers.
The "2018 HMDA Final Rule," a result of the passing of EGRRCPA and Section 104(a), amends HMDA by adding a partial exemption from some of HMDA's reporting requirements for certain financial institutions. In general, there are five main components addressed by the final rule issued August 31, 2018, which include:
- Clarification that the count toward the threshold for the partial exemption includes only loans and lines of credit that are otherwise HMDA reportable;
- Addressing how a negative Community Reinvestment Act examination history affects an institution's ability to qualify for the partial exemption;
- Identification of which of the data points in Regulation C are covered;
- Designation of a non-universal loan identifier for partially exempt transactions; and
- Providing clarification on optional reporting for insured depository institutions and insured credit unions covered by the partial exemption
So let's start with who qualifies for the partial exemption. If you are an insured depository institution or insured credit union that originated fewer than 500 closed-end mortgage loans in each of the two preceding calendar years or originated fewer than 500 open-end lines of credit in each of the two preceding calendar years, you may qualify. However, the Act states that even if you meet the exemption criteria, the partial exemption would not apply if an institution subject to CRA receives a rating of "needs to improve" during each of its two most recent examinations or "substantial noncompliance" on its most recent CRA examination.
If your institution qualifies for the partial exemption, it doesn't mean that you don't have to file a LAR. It also doesn't mean that you can revert back to the well-loved "old rules" that reported a lot less data. The partial exemption qualification means you are no longer required to report data points that have been determined to be "exempt" based on the amendment. There are 26 data points that are now considered exempt, which leaves a remaining 22 data points that are still required to be reported. A listing of these data points, can be found within the "2018 HMDA Final Rule."
The "2018 HMDA Final Rule" also addresses the exemption of the Universal Loan Identifier (ULI) data point and the designation of a non-universal loan identifier for partially exempt transactions. While a partially exempt institution is no longer required to report a ULI, they must still provide each transaction with an identifying number to separate each transaction reported on their LAR; therefore, the new rule addresses requirements for a non-universal loan identifier. Those requirements state:
- May be up to 22 characters made up of letters, numbers or a combination;
- Must be unique in that you don't use the same number for more than one file; and
- It must not include identifiable information related to the applicant or borrower.
Lastly, if you have determined that you qualify for the partial exemption, and you understand what data points you don't have to report, how do you know when to change your HMDA procedures to no longer report these exempt data points? Do you go all the way back to January 1, 2018, when you started reporting the additional data; should you start May 24, 2018 when the Act was signed; or perhaps you should begin with September 7, 2018 when the rule was published in the Federal Register as effective?
You actually have three choices. Although the Act was signed on May 24, 2018, it is retroactive, meaning you can go back to January 1, 2018 and report exempt data as such. Another option is to report any data collected on or after May 24, 2018 as exempt. The last option is that you can voluntarily report. So if you qualify to be partially exempt and you have already prepared your LAR, by voluntarily reporting, you would not be required to go back through your LAR and code fields as "exempt" or "1111" as you would for the other two options. Keep in mind, if you do voluntarily report data that is otherwise exempt, you must report all data fields within a data point. For example, credit score is an exempt data point; however, it consists of two data fields including reporting the numeric credit score of the applicant or borrower and the name and version of the credit scoring model. If you decide to voluntarily report an applicant's numeric credit score, you must also report the credit scoring model.
Although the partial exemption may require less data reporting, establishing a non-universal loan identifier and determining what data you will voluntarily report or code as exempt for the year, all while considering the fair lending purpose behind HMDA and the LAR, may seem as though the exemption is less appealing than intended.