Dealing with regulatory changes is like wrestling with the ocean. Every time you manage to come up for air after one wave, another is coming over the horizon. For most of the past two years, the focus for credit union mortgage compliance executives has been on getting ready for the TILA/RESPA integrated disclosures or “TRID” that finally went live in early October.
And yet just as the ocean’s waves keep pounding, not two weeks after the TILA-REPSA rules went into effect, the Consumer Financial Protection Bureau introduced one more major regulatory change: the revised Home Mortgage Disclosure Act.
A Data-Focused Reform
Unlike the recent reforms for TRID, qualified mortgage and other new regulations, the HMDA revisions will have less impact on direct workflow and operations, and a heavier impact on data collection and reporting.
Beginning Jan. 1, 2018, the collected HMDA data elements will double, with 40 new fields required to be collected during the application process and reported to the agencies each year. These new data elements include almost all primary fields that are important to most credit decisions including:
- appraised value,
- credit scores of the primary borrowers,
- credit score provider and version relied upon for the credit decision,
- total points and fees,
- loan-to-value and combined loan-to-value (which considers more than one loan),
- debt-to-income ratios used for the credit decision,
- annual percentage rate (not just rate spread),
- loan channel (retail, wholesale, correspondent),
- amortization information (adjustment, interest only, interest rate, negative amortization, balloon payments),
- automated underwriting system decision,
- home equity line of credit/reverse mortgage information (to be mandatory rather than the current optional reporting).
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In addition to the credit data, there are fields to identify the borrower characteristics and the credit union (and its employees) for anti-discrimination purposes. These identification fields include:
- borrower/co-borrower age;
- property address, city, state, ZIP and possibly parcel number;
- Nationwide Mortgage Licensing System ID for branch and loan originator; and
- a universal loan identification number to track the loan through all secondary market transactions.
The new rule mandates that only lenders originating 25 loans or more per year have a filing requirement. The filing requirement starts in 2017, a year earlier than the data collection requirements.
Preparing to Implement the New Rules
The good news is that from a technical standpoint, the HMDA changes should be easier to implement than recent regulations. Since the changes are primarily driven by new data fields, for most credit unions their loan origination software already has many of the new fields, due to the updates made for TRID, QM and other recent regulations.
Although the CFPB has announced the final rules, the technical specs for programming are not expected to be available until late 2016. Therefore, don’t expect your providers to be prioritizing HMDA development until then. However, it would be wise to begin to align internal procedures toward the accurate collection of these new fields as the burden of correcting data errors will be the most severe initial impact of the new regulation.
In contrast to recent regulations, for all but the largest of originators, credit unions will have a full year after the start date to make sure numbers are properly reported. And that start date is still at least a year away. For most credit unions, 2018 data will be the first time the new fields will have to be included in the HMDA report. And that first report will be due March 1, 2019.
The bad news is that when the new HMDA rules go live, there will have to be new processes in place to better scrutinize data. The operational changes that will be needed include more stringent business rules, quality control and data integrity checks to ensure credit unions do not submit inaccurate information
This change is a substantial leap toward completely automated fair lending, so submitting incorrect data could have immediate and far-reaching effects. Since HMDA data is released publically each year, as time passes credit unions will be subject to having more loan information being reviewed by community groups that monitor lending trends for fair lending issues. Ensuring the data accurately represents the credit union’s positive impact on the community is critical.
There are still some questions out there – some of the exact field definitions and other details will be released by the CFPB over the course of 2016. However, credit unions should begin now to evaluate the technical needs for compliance with the new HMDA rules and what processes might change to ensure data integrity.
Leonard Ryan is president/founder of QuestSoft Corp. The company, founded in 1995, provides HMDA, CRA, fair lending and automated compliance solutions to over 2,000 lenders across the United States. Ryan has been recognized as a Mortgage Banking Tech All-Star and is a frequent speaker and panelist on the practical implementation of mortgage compliance issues.