The Consumer Financial Protection Bureau (CFPB) has announced the finalization of a rule that will improve information about consumers’ access to residential mortgage credit by updating reporting requirements of the Home Mortgage Disclosure Act (HMDA).
Many lenders are required to report information about home loans for which they receive applications or that they originate or purchase under the HMDA, which was enacted in 1975. The information reported is used by both the public and regulators to monitor whether the housing needs of communities are being met by financial institutions, to assist in distributing public-sector investment in order to attract private investment where it is needed, and to identify possible discriminatory lending patterns.
“The Home Mortgage Disclosure Act helps financial regulators, the public, housing officials, and even the industry itself keep a watchful eye on emerging trends and problem areas in the nation’s mortgage market—the largest consumer financial market in the world,” CFPB Director Richard Cordray said. “With today’s final rule we are shedding more light to foster better understanding of the market, and also ensuring that lenders have sufficient time to come into compliance.”
According to CFPB, 7,062 financial institutions reported information on approximately 11.9 million mortgage applications, preapprovals, and loans. The HMDA dataset has not kept pace with the mortgage market’s evolution despite being the leading source of information for the market, CFPB said; for example, the HMDA data does not include adequate information about loan features such as adjustable-rate mortgages and non-amortizing loans which helped contribute to the mortgage crisis.
The Dodd-Frank Wall Street Reform and Consumer Protection Act was passed by Congress in 2010 in response to the crisis, and the legislation directs the CFPB to expand the HMDA dataset to include information about loans and applications that would help the public and regulators to better understand the mortgage market. The CFPB issued a proposed rule in July 2014 from a convention of a panel of small businesses five months earlier to provide feedback on potential changes to the rule. The CFPB is working on streamlining and modernizing the submission of the data in order to reduce the reporting burden for lenders.
“With today’s final rule we are shedding more light to foster better understanding of the market, and also ensuring that lenders have sufficient time to come into compliance.” Richard Cordray
“The new data collection rules represent the most significant modifications to the HMDA regulations in the past 35 years,” said Timothy R. Burniston, EVP, Finance, Risk & Compliance Consulting Practice, Wolters Kluwer Financial Services. “We expect the new rules to offer new opportunities for mortgage data analysis, but also to present additional regulatory compliance challenges for lenders.”
While the goal of the final rule is to improve the quality and type of HMDA data, some industry stakeholders expressed concern about the added regulatory burden the new rule would impose.
“While NAFCU and our members support HMDA requirements that further the goal of ensuring fair lending and anti-discriminatory practices, we are concerned that some of the additional reporting requirements will not achieve these goals and may only serve to impose significant additional compliance and reporting burdens on responsible lenders like credit unions who work to meet their members’ needs with safe, sound, and fair products,” said Alicia Nealon, Director of Regulatory Affairs for the National Association of Federal Credit Unions (NAFCU). “As the CFPB and Congress have repeatedly recognized, credit unions did not engage in the type of mortgage-related practices that the Bureau is seeking to identify through an expanded HMDA dataset. Moreover, mandating home equity lines of credit reporting will exacerbate compliance costs and burdens on credit unions since they will have to make costly modifications to their systems in order to collect data on these newly covered transactions.”
Click here for a copy of the final rule.