On July 24, 2014 the Consumer Financial Protection Bureau (CFPB) proposed a rule to change the information reported about the residential mortgage market. The proposal would update reporting requirements and aims to simplify the reporting process for financial institutions.
The Home Mortgage Disclosure Act (HMDA) requires many lenders to report information about the home loans for which they receive applications or that they originate or purchase. This information can be used to monitor whether financial institutions are serving the housing needs of their communities and identify possible discriminatory lending patterns. The Dodd-Frank Act directed the CFPB to expand the HMDA dataset to include additional information about loans that would be helpful to better understand these aspects of the mortgage market. Regulation C implements the provisions of HMDA.
In an effort to provide better information about residential mortgage credit, the CFPB is proposing amendments to Regulation C that would make changes to HMDA data to include new information that the bureau believes could help identify potential discriminatory lending practices. This new information includes: property value; term of the loan; total points and fees; duration of any teaser or introductory interest rates; and, applicant’s or borrower’s age and credit score. The CFPB is also proposing that financial institutions provide more information about underwriting and pricing, such as an applicant’s debt-to-income ratio, interest rate of the loan, and total discount points. The Bureau believes this would assist it in monitoring developments in specific markets such as multi-family housing, affordable housing, and manufactured housing. The proposed rule would also require covered lenders to report all loans (with some exceptions) related to dwellings, including reverse mortgages and open-end lines of credit.
As part of this rulemaking effort, the CFPB is also seeking to simplify reporting requirements for financial institutions. The Bureau aims to:
- Standardize the reporting threshold – The proposal would generally require that institutions report HMDA data if they make 25 or more closed-end loans or reverse mortgages in a year (excluding open-end lines of credit). Currently, depository institutions must submit HMDA data even if they make only a single home-purchase loan or refinancing in a given year. This would ease compliance costs for smaller banks.
- Align reporting requirements with industry data standards – The proposal contains methods to align HMDA data requirements with well-established industry data standards, including definitions that are already in use by a significant portion of the mortgage market. The Bureau believes this alignment would mitigate the burden on many lenders, and could improve the quality and the value of the information reported.
Under the proposal, financial institutions generally would be required to report all closed-end loans, open-end lines of credit, and reverse mortgages secured by dwellings. Unsecured home improvement loans would no longer be reported. This would eliminate the need for lenders to ascertain an applicant’s intended purpose for a dwelling-secured loan to determine if the loan is required to be reported under Regulation C. Reverse mortgages and open-end lines of credit would be identified as such to allow for differentiation from other loan types.
The CFPB is proposing to add new data points to the reporting requirements established in Regulation C, as well as to modify certain existing data points. Some of these new data points are specifically identified by Dodd-Frank; others are proposed pursuant to the Bureau’s discretionary rulemaking authority. The data points the CFPB is proposing to add or modify can be grouped into four broad categories:
- Information about applicants, borrowers, and the underwriting process, such as age, credit score, debt-to-income ratio, reasons for denial if the application was denied, the application channel, and automated underwriting system results.
- Information about the property securing the loan, such as construction method, property value, lien priority, the number of individual dwelling units in the property, and additional information about manufactured and multi-family housing.
- Information about the features of the loan, such as additional pricing information, loan term, interest rate, introductory rate period, non-amortizing features, 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.
Regulation C requires financial institutions to submit their HMDA data to the appropriate federal agency by March 1 following the calendar year for which the data are compiled. The CFPB is proposing to require institutions that report large volumes of HMDA data (at least 75,000 covered loans, applications, and purchased covered loans, combined, for the preceding calendar year) to submit their data to the appropriate agency on a quarterly, rather than an annual basis. The Bureau believes that quarterly reporting would allow regulators to use the data to effectuate the purposes of HMDA in a more timely and effective manner, would reduce reporting errors and improve the quality of HMDA data, and may facilitate the earlier release of annual HMDA data to the public.
The CFPB is also proposing to allow HMDA reporters to make their disclosure statements available by referring members of the public that request a disclosure statement to a publicly-available website. Currently, a financial institution is required to make its disclosure statement available to the public in its home offices and either post it in certain branch offices or post a notice of its availability and provide it in response to a written request.
The CFPB is also using this proposal to address certain longstanding aspects of Regulation C that are unclear or confusing. Examples of such clarifications include guidance on what types of residential structures are considered dwellings, the treatment of manufactured and modular homes and multiple properties, coverage of preapproval programs and temporary financing, how to report a transaction that involved multiple financial institutions, reporting the action taken on an application, and reporting the type of purchaser for a covered loan.
The CFPB will be accepting public comments on this proposal through October 22, 2014. The proposed rule can be found at the following link: http://files.consumerfinance.gov/f/201407_cfpb_proposed-rule_home-mortgage-disclosure_regulation-c.pdf
