Following a lengthy rulemaking process, the Consumer Financial Protection Bureau (CFPB) issued a final rule on October 15 significantly amending and expanding the scope of data reporting requirements under Regulation C and the Home Mortgage Disclosure Act (HMDA).1 The rule implements changes to existing HMDA data reporting required by the Dodd-Frank Act. It also includes an entirely new set of data points that institutions were not previously required to collect and report.
The final HMDA rule, official interpretations and supplementary information together run almost 800 pages. We provide a summary of some key provisions below.
Changes to Covered Institutions
The final rule adopts a uniform loan-volume threshold for all depository and non-depository institutions. First, the scope of depository institutions covered by the new rule will be narrowed in 2017. Depository institutions—including banks, savings associations and credit unions—will not be subject to Regulation C unless they meet current asset-size, location, “federally related” and loan activity tests and originate at least 25 purchase or refinance transactions in each of 2015 and 2016.
Second, effective January 1, 2018, institutions (including depository institutions) that originated at least 25 closed-end mortgage loans or 100 open-end lines of credit in each of the two preceding years will be required to report HMDA data if they meet other coverage requirements, including in the case of non-depository institutions the existing location test but not the other existing standards, such as asset size.
The practical effect of these uniform threshold requirements is that more non-depository institutions will be subject to HMDA’s reporting requirements while many low-volume depository institutions will not.
Changes to Covered Transactions
The new rule modifies the transactions covered under HMDA by adopting a dwelling-secured standard for coverage, including most closed-end loans and open-end lines of credit secured by a dwelling (e.g., home-equity loans and lines of credit and reverse mortgages), thus significantly expanding reporting obligations. Beginning January 1, 2018, data must be collected and reported on all loans and lines of credit secured by a dwelling regardless of the purpose of a loan. However, business and commercial loans will retain the purpose-based criteria and collection and reporting of HMDA data for such loans and lines of credit will be required only if secured by a dwelling and made for purposes of home purchase, home improvement or refinancing. The CFPB rejected proposals that all loan modifications on covered transactions be reportable but does cover as extensions of credit loan assumptions and “consolidation, extension and modification” agreements under New York law.
Beginning January 1, 2018, covered institutions also will be required to collect, record and report information for approved but not accepted pre-approval requests for home purchase loans (excluding loans secured by multifamily dwellings, open-end lines, reverse mortgages and occasional ad hoc pre-approvals that are not part of a program for that purpose).
Institutions covered by the new rule will not be required to report in areas where they did not have sufficient loan volume to be treated as covered. For example, if an otherwise covered institution extended fewer than 100 open-end lines of credit, it would not be required to report that category of loans.
Amended and Expanded Data Points
Dodd-Frank mandated that the CFPB add new data points to HMDA collection and reporting requirements and authorized the CFPB to include additional data at its discretion. The CFPB exercised its mandated and optional authority under HMDA to require the collection and reporting of approximately 25 new data fields, for a total of 48 data elements in the new HMDA reporting regime, eliminating only a handful of the originally proposed new data fields. The final rule requires institutions to collect, record and report expanded information in four key areas:
The final rule also modifies several existing data elements. These revised and additional data points apply to HMDA data collected on or after January 1, 2018 and reported in 2019 and beyond.
Collection and Reporting Requirements
The HMDA final rule requires institutions to report how they collect required information concerning an applicant’s race, ethnicity and sex for data collected on or after January 1, 2018. For example, lenders must report whether they collected the information based on visual observation or surname.
Institutions must also allow applicants to self-identify their race and ethnicity using disaggregated categories (e.g., subcategories of Hispanic such as Mexican, Puerto Rican, Cuban, other Hispanic or Latino), but when the institution itself identifies applicant ethnicity or race based on visual observation or surname, disaggregation is not permitted. The final rule includes a sample data collection form that sets forth the various required and disaggregated subcategories for identification of race and ethnicity.
Submission and Reporting Requirements
The CFPB is developing a web-based submission tool for reporting HMDA data. In 2018, institutions will begin submitting HMDA loan/application register (LAR) data collected in 2017 electronically through that tool. On January 1, 2019, the CFPB will delete the current instructions for completing the HMDA LAR and incorporate revised procedures into the electronic submission tool. Beginning in 2019, lenders will be required to submit the new data points collected in 2018 through this tool.
In 2020, institutions that reported at least 60,000 applications and covered loans in the preceding calendar year must submit quarterly reports; loans purchased by institutions should not be included. These large-volume lenders will be required to report HMDA data within 60 days following the end of a quarter and to include fourth quarter data with their annual submissions. The first quarterly report is due on or before May 30, 2020.
Disclosure and Privacy Concerns
To address potential privacy issues, the final rule does not require institutions to provide a modified LAR or disclosure statement to the public. Instead, beginning in 2018 institutions must direct the public to the CFPB’s website; the final rule includes sample language that institutions can provide in response to requests for HMDA data. The CFPB will use a “balancing test” to determine whether and how HMDA data will be disclosed in light of privacy issues surrounding sensitive applicant data, such as credit scores. The CFPB plans to solicit feedback from the public before making a final determination on disclosure of HMDA data.
Other Changes and Clarifications
In addition to the topics referenced above, the final rule includes a raft of modifications and clarifications that will affect reporting obligations. For example, a number of new comments are added to address questions related to the characterization of various types of properties, such as certain types of medical facilities or mixed-use properties, as “dwellings.” Reporting entities will need to cull these detailed changes for those that will affect their reporting obligations.
The new HMDA rule represents a sea change in the collection and reporting of HMDA data. Institutions should carefully review the new rule and prepare for the substantial operational, systems and compliance changes that will be required to effectively implement its provisions. Just as important, mortgage lenders will want to perform their own analyses of the new HMDA data sets as soon as possible to better understand what those data may suggest about lending patterns that may become subject to question.
1 The final rule and ancillary documentation are available here.
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The final HMDA rule, official interpretations and supplementary information together run almost 800 pages. We provide a summary of some key provisions below.
Changes to Covered Institutions
The final rule adopts a uniform loan-volume threshold for all depository and non-depository institutions. First, the scope of depository institutions covered by the new rule will be narrowed in 2017. Depository institutions—including banks, savings associations and credit unions—will not be subject to Regulation C unless they meet current asset-size, location, “federally related” and loan activity tests and originate at least 25 purchase or refinance transactions in each of 2015 and 2016.
Second, effective January 1, 2018, institutions (including depository institutions) that originated at least 25 closed-end mortgage loans or 100 open-end lines of credit in each of the two preceding years will be required to report HMDA data if they meet other coverage requirements, including in the case of non-depository institutions the existing location test but not the other existing standards, such as asset size.
The practical effect of these uniform threshold requirements is that more non-depository institutions will be subject to HMDA’s reporting requirements while many low-volume depository institutions will not.
Changes to Covered Transactions
The new rule modifies the transactions covered under HMDA by adopting a dwelling-secured standard for coverage, including most closed-end loans and open-end lines of credit secured by a dwelling (e.g., home-equity loans and lines of credit and reverse mortgages), thus significantly expanding reporting obligations. Beginning January 1, 2018, data must be collected and reported on all loans and lines of credit secured by a dwelling regardless of the purpose of a loan. However, business and commercial loans will retain the purpose-based criteria and collection and reporting of HMDA data for such loans and lines of credit will be required only if secured by a dwelling and made for purposes of home purchase, home improvement or refinancing. The CFPB rejected proposals that all loan modifications on covered transactions be reportable but does cover as extensions of credit loan assumptions and “consolidation, extension and modification” agreements under New York law.
Beginning January 1, 2018, covered institutions also will be required to collect, record and report information for approved but not accepted pre-approval requests for home purchase loans (excluding loans secured by multifamily dwellings, open-end lines, reverse mortgages and occasional ad hoc pre-approvals that are not part of a program for that purpose).
Institutions covered by the new rule will not be required to report in areas where they did not have sufficient loan volume to be treated as covered. For example, if an otherwise covered institution extended fewer than 100 open-end lines of credit, it would not be required to report that category of loans.
Amended and Expanded Data Points
Dodd-Frank mandated that the CFPB add new data points to HMDA collection and reporting requirements and authorized the CFPB to include additional data at its discretion. The CFPB exercised its mandated and optional authority under HMDA to require the collection and reporting of approximately 25 new data fields, for a total of 48 data elements in the new HMDA reporting regime, eliminating only a handful of the originally proposed new data fields. The final rule requires institutions to collect, record and report expanded information in four key areas:
- information about applicants, borrowers and the underwriting process, such as age, credit score, debt-to-income ratio and automated underwriting system results
- information about the property securing the loan, such as construction method, property value and additional information about manufactured and multifamily housing
- information about the features of the loan, such as additional pricing information, loan term, points and fees, borrower-paid origination charges, discount points, lender credits, introductory rate period, non-amortizing features, prepayment penalties, application channel and the type of loan
- certain unique identifiers, such as a universal loan identifier, property address, loan originator identifier and a legal entity identifier for the financial institution
The final rule also modifies several existing data elements. These revised and additional data points apply to HMDA data collected on or after January 1, 2018 and reported in 2019 and beyond.
Collection and Reporting Requirements
The HMDA final rule requires institutions to report how they collect required information concerning an applicant’s race, ethnicity and sex for data collected on or after January 1, 2018. For example, lenders must report whether they collected the information based on visual observation or surname.
Institutions must also allow applicants to self-identify their race and ethnicity using disaggregated categories (e.g., subcategories of Hispanic such as Mexican, Puerto Rican, Cuban, other Hispanic or Latino), but when the institution itself identifies applicant ethnicity or race based on visual observation or surname, disaggregation is not permitted. The final rule includes a sample data collection form that sets forth the various required and disaggregated subcategories for identification of race and ethnicity.
Submission and Reporting Requirements
The CFPB is developing a web-based submission tool for reporting HMDA data. In 2018, institutions will begin submitting HMDA loan/application register (LAR) data collected in 2017 electronically through that tool. On January 1, 2019, the CFPB will delete the current instructions for completing the HMDA LAR and incorporate revised procedures into the electronic submission tool. Beginning in 2019, lenders will be required to submit the new data points collected in 2018 through this tool.
In 2020, institutions that reported at least 60,000 applications and covered loans in the preceding calendar year must submit quarterly reports; loans purchased by institutions should not be included. These large-volume lenders will be required to report HMDA data within 60 days following the end of a quarter and to include fourth quarter data with their annual submissions. The first quarterly report is due on or before May 30, 2020.
Disclosure and Privacy Concerns
To address potential privacy issues, the final rule does not require institutions to provide a modified LAR or disclosure statement to the public. Instead, beginning in 2018 institutions must direct the public to the CFPB’s website; the final rule includes sample language that institutions can provide in response to requests for HMDA data. The CFPB will use a “balancing test” to determine whether and how HMDA data will be disclosed in light of privacy issues surrounding sensitive applicant data, such as credit scores. The CFPB plans to solicit feedback from the public before making a final determination on disclosure of HMDA data.
Other Changes and Clarifications
In addition to the topics referenced above, the final rule includes a raft of modifications and clarifications that will affect reporting obligations. For example, a number of new comments are added to address questions related to the characterization of various types of properties, such as certain types of medical facilities or mixed-use properties, as “dwellings.” Reporting entities will need to cull these detailed changes for those that will affect their reporting obligations.
* * *
The new HMDA rule represents a sea change in the collection and reporting of HMDA data. Institutions should carefully review the new rule and prepare for the substantial operational, systems and compliance changes that will be required to effectively implement its provisions. Just as important, mortgage lenders will want to perform their own analyses of the new HMDA data sets as soon as possible to better understand what those data may suggest about lending patterns that may become subject to question.
1 The final rule and ancillary documentation are available here.
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Sidley Banking and Financial Services Practice
To receive Sidley Updates, please subscribe at www.sidley.com/subscribe.
Sidley Austin provides this information as a service to clients and other friends for educational purposes only. It should not be construed or relied on as legal advice or to create a lawyer-client relationship.
Attorney Advertising - For purposes of compliance with New York State Bar rules, our headquarters are Sidley Austin LLP, 787 Seventh Avenue, New York, NY 10019, 212.839.5300; One South Dearborn, Chicago, IL 60603, 312.853.7000; and 1501 K Street, N.W., Washington, D.C. 20005, 202.736.8000.