LAGUNA HILLS, Calif. — As if credit union mortgage lenders did not have enough to contend with already, the Consumer Financial Protection Bureau has proposed numerous changes to the way home loan data will be collected — and possibly reported publicly.
During a Tuesday Webinar sponsored by QuestSoft, supplier of automated compliance services, two speakers urged credit unions to submit comments to the CFPB regarding the proposed rule by Oct. 22.
According to Warren Traiger, counsel for the law firm of BuckleySandler LLP, the Home Mortgage Disclosure Act, or HMDA, has been around since it was enacted by Congress in 1975 in reaction to allegations by public officials and community advocates that lenders were redlining and disinvesting in urban communities.
At first, HMDA applied only to larger banks, which reported the number and dollar amount of home improvement and residential mortgage loans by location, Traiger explained. Government monitoring information, such as gender, race and ethnicity, was not collected.
In 2002, the Federal Reserve Board, which at that time had the authority to issue regulations to enforce HMDA, began requiring reporting of pricing information for higher-priced mortgage loans and identification of loans subject to HOEPA [The Home Ownership and Equity Protection Act, enacted in 1994] and required lenders to ask applicants for their ethnicity, race and gender in telephone applications.
According to Traiger, much of the housing crisis last decade flowed from mortgages that were not underwritten well. This led to 2010 and the Dodd-Frank Wall Street Reform and Consumer Protection Act.
"The Dodd-Frank Act moved HMDA rulemaking responsibility from the Fed to the CFPB and directed the CFPB to expand the HMDA dataset to include additional information that would be helpful to better understand whether lenders are serving the housing needs of their communities and to identify possible discriminatory lending patters," he said.
Dodd-Frank specified new data fields be added. Traiger said what currently is being proposed is HMDA coverage would be expanded to mandate the reporting of open-end lines of credit, home equity loans, reverse mortgages and pre-approval requests that were approved but not accepted.
"This research, the CFPB says, will help identify risk factors that might increase systemic risk to the overall economy," he said.
New collection data include: applicant age will be added to race, ethnicity and gender. Property value, which used with the loan amount, will allow calculating loan-to-value ratio, which measures a borrower's equity in the property. Credit score, which allows for a more refined analysis and understanding of disparities in both underwriting and pricing outcomes. Loan term, total points and fees, interest rate and duration of teaser or introductory rates also will be collected.
All these factors point toward overall affordability for borrowers, Traiger pointed out. The CFPB says fair lending analyses will be more comprehensive and accurate, which will assist redlining reviews.
"One issue is now collected data will include what used to be proprietary information, such as applicants' credit scores, debt-to-income ratios, loan fees and interest rates," he noted. "Also, regulators no longer will have to wait until examination time to assess a lender's compliance with anti-discrimination laws."
According to Traiger, it may "only be a matter of time" until the enhanced data becomes public, leading to analysis by the media and advocacy groups. The CFPB has delayed consideration of what data should be released.
"Protecting the privacy of mortgage applicants will be the only limit on how the data is released. That is frightening," Traiger declared. "What is more frightening if personal information such as someone's FICO score is released."
Leonard Ryan, president of QuestSoft, noted in addition to the proposed 40 new data fields, the CFPB is adding HELOCs and reverse mortgages to the list of loans requiring reporting. The denial reason will be required, and the rate spread reported on all loans and amounts below spread must be reported.
"A lot of things that were optional under the Fed's version of HMDA no longer will be optional under CFPB HMDA," Ryan assessed, noting he had read all 575 pages of the proposed rule.
The company that originated the loan, and the loan officer, will be permanently associated with the loan for the duration of the loan. Each loan officer will have a personally identifiable number, said Ryan.
"This is a preliminary rule," he said. "After the final rule is issued Dodd-Frank mandates nine months to comply, so this is a rule for 2016 or 2017. The preliminary rule comment deadline is Oct. 22. QuestSoft is helping its customers craft a professional response to the CFPB."
According to Ryan, it is important for the CFPB to match changes to HMDA to RESPA/TILA as closely as possible to reduce overlap. In the proposed HMDA rule, he said there are many instances where there are contradictory definitions of terms, such as what is defined as an "application."
"This is not time to panic," said Ryan, who offered several recommendations to CUs as to where to focus their comments:
- Parcel number. "The CFPB is proposing to use it and make it public, but it is very controversial as there are huge privacy issues," he said.
- Property address, city, state and ZIP code.
- Reporting minimum at 25 loans per year. Ryan said QuestSoft feels this should be at least 50, better 100. "This affects small credit unions, community banks and non-depository private money lenders."
- Credit score reporting
- Definition of application. QuestSoft is advocating for use of the new TILA/RESPA standard with six data elements.
- Public disclosure. The CFPB is proposing limited disclosure to start, which Ryan said is good news, but then is expected to quickly move to full disclosure. "I really recommend you comment on that. There is a lot of data that should not be disclosed publicly."
