CFPB Proposes Changes to HMDA

On April 13, 2017, the CFPB issued proposed amendments to Regulation C, the regulation that implements the Home Mortgage Disclosure Act (HMDA), to make technical corrections and to clarify certain requirements adopted by the CFPB’s 2015 HMDA Rule. According to the CFPB, the proposed changes would help financial institutions comply with the 2015 HMDA Rule by clarifying the information they are required to collect and report about their mortgage lending.

HMDA is an important tool that regulators use to determine whether a mortgage lender is in compliance with fair lending requirements. Congress originally adopted HMDA in order to assist the government in determining whether mortgage lenders were servicing the housing needs of their communities and identifying possible discriminatory lending patterns. However, on July 21, 2011, the Dodd-Frank Act significantly revised HMDA and transferred HMDA and Regulation C rulemaking, supervisory, and enforcement authority from the Federal Reserve to the CFPB, which subsequently issued the 2015 HMDA Rule pursuant to a Dodd-Frank Act directive. The HMDA Final Rule, among other things, expands the scope of who must collect and report HMDA data and expands the kinds of data that must be collected and reported with respect to each loan. Most of the updated requirements take effect on January 1, 2018.

Since publication of the HMDA Final Rule, the CFPB has identified a number of areas in which it believes implementation of the HMDA Final Rule could be facilitated through clarifications, technical corrections, or minor changes.

For example, the proposal would permit financial institutions to report “not applicable” for the data point, “loan purpose,” if the financial institution is reporting a purchased covered loan that was originated prior to January 1, 2018. Without such transition relief, loan purchasers of such covered loans would likely have to review each applicable loan file to differentiate cash-out refinancings from refinances generally to comply with the HMDA Final Rule reporting requirements because such information was not recorded under the old HMDA rule. Similarly, the proposed rule would allow financial institutions the option to report the unique identifier assigned by the NMLSR to a loan originator as “not applicable” when reporting purchased loans that were originated prior to January of 2014 (The effective date of the Regulation Z requirement to include a loan originator’s unique identifier on loan documents).

The proposal would clarify the definitions of certain key terms, such as “temporary financing” in the context of construction and permanent financing and “automated underwriting system” (AUS). With respect to AUS, the proposal would clarify that a system that otherwise satisfies the definition and was developed by a person that is or has been a securitizer, government insurer, or guarantor is considered an AUS, regardless of the person’s current status. The proposal would also add commentary to Regulation C providing guidance regarding the determination of whether a system was developed by a securitizer, government insurer, or guarantor.

The proposal also includes a new reporting exception for certain transactions associated with New York State consolidation, extension, or modification agreements (CEMA). While the proposal makes no changes to the requirement under the HMDA Final Rule that loans that are refinanced through a New York CEMA will generally be subject to reporting, the proposal would create a complementary exclusion from reporting for any preliminary transaction providing new funds to a borrower in advance of being consolidated in a New York CEMA, but only if the final action is taken on both transactions within the same calendar year.

In addition, the proposal would facilitate the reporting of the census tract of the property securing, or, in the case of an application, proposed to secure, the covered loan required by Regulation C. The CFPB plans to make available on its website a geocoding tool to provide the census tract based on the property address entered by financial institutions. The proposal would provide a safe harbor for bona fide census tract reporting errors if a financial institution properly uses the online CFPB geocoding tool, and the tool provided a census tract number for the property address.

The proposal also includes other substantive and non-substantive technical corrections to the HMDA Final Rule, with updates and modifications to the related commentary.

The proposed amendments will take effect when the related amendments to Regulation C adopted by the HMDA Final Rule take effect. The HMDA Final Rule takes effect in stages between January 1, 2017 and January 1, 2020, with most of the amendments taking effect on January 1, 2018.

The proposal is available here: http://files.consumerfinance.gov/f/documents/201704_cfpb_NPRM_HMDA.pdf.