HMDA is the Next Big Regulatory Wave Bearing Down on Lenders

Congratulations! You’ve survived TRID. You’ve adjusted to the Qualified Mortgage standards. All of your loan officers have been licensed in compliance with the NMLS standard.

But don’t relax now. The CFPB’s next wave-the Home Mortgage Disclosure Act (HMDA) – is bearing down. While the revisions to HMDA will be less intrusive than the recent TRID changes, this is still a major revision to a law that has not changed in more than a decade. The good news is that the standards do not go into effect until January 1, 2018. This gives lenders and their technology partners a little over a year to prepare.
The revisions impact three major areas of HMDA reporting. The new HMDA will change who is required to report, expand the data collected and adjust how the data is collected.

More Lenders Now Under the HMDA Reporting Umbrella
The first thing smaller lenders need to determine is whether they are now required to file an annual HMDA report. Beginning in January 2018, the rule provides for a uniform loan threshold for all institutions (depository and non-depository). Under this new approach an institution must submit a report if it originates at least 25 covered closed-end mortgage loans in each of the preceding two calendar years or at least 100 covered open-end lines of credit in the previous two calendar years. Depository institutions still must meet the requirements set forth in the regulations in addition to the loan volume tests.

The new rule also expands the types of loans that are subject to HMDA. The rule will apply to all closed-end and open-end mortgage loans that are secured by a dwelling. The rule also makes the optional preapproval request reporting mandatory. The preapproval requirement will not apply to open-end mortgages, reverse mortgages, and purchase loans secured by multifamily dwellings.

An Expanding Ocean of Data Collection
The most significant impact in terms of updating technology platforms is the sheer amount of new data the CFPB will now collect. The new rule adds new data points that were specifically required by Congress in the Dodd-Frank Act and other data points the CFPB added to support purposes of HMDA. It adds more than 100 new data points, including: age, credit score, automated underwriting system information, unique loan identifier, property value, application channel, points and fees, borrower-paid origination charges, discount points, lender credits, loan term, prepayment penalty, non-amortizing loan features, interest rate, loan originator identifier and more.

The new rule also changes requirements for collecting and reporting information about a borrower’s ethnicity, race, and sex. It adds a requirement that a lender must report whether it collected the information about ethnicity, race, and sex through visual observation or surname. It also requires lenders to allow applicants to self-identify their ethnicity and race using disaggregated ethnic and racial subcategories.

Moving Submissions Online
The other change that will impact operational processes is the rule changes the method of reporting HMDA data to a new web-based submission tool that the CFPB is developing. Also, in 2020 certain covered institutions will be required to submit quarterly HMDA reporting instead of the current annual reporting requirement.

How can lenders prepare for the updates? From a technology viewpoint, these changes will require significant updates to a lender’s LOS and HMDA reporting systems. Lenders will also need to modify processes and procedures, especially in training related to gathering the additional demographic data required by HMDA.

It is vital to understand the changes in the rule and ensure that your organization implements all the necessary modifications to systems and procedures to ensure compliance and survive the next big wave of regulations.

​Docutech Insights Blog by Fred Gooch