NEW YORK — There is no rest for the compliance weary.
Right after the new TILA/RESPA disclosure rules go into effect in August, the Consumer Financial Protection Bureau is expected to release another proposed rule: The Home Mortgage Disclosure Act (HMDA), which will be spiked with new data collection requirements, according to one industry insider.
"The Dodd-Frank Act gave the CFPB a mandate to require more fields of data collection, and that is exactly what the Bureau did," said Edward Kramer EVP of regulatory affairs for Wolters Kluwer Financial Services in New York. "Currently there are 37 additional data fields being proposed, and 20 of the 37 were not required under Dodd-Frank — they were added by the Bureau. Just as financial institutions are getting ready for TILA/RESPA, they will get hit with HMDA. Wolters Kluwer and other vendors hopefully will be offering software to help them deal with the new requirements."
The HMDA changes will apply to financial institutions with $44 million or more in assets. Kramer said it is possible the new data collection rules will not become effective until the 2016 data is reported in early 2017.
"That is the good news, but the bad news is there is a lot that has to be done," he said. "I am telling institutions they need to start getting ready right now for increased data collection requirements."
One element the CFPB does not look kindly on is a lack of data integrity, Kramer warned. He said the data collected has to be "pristine" because, "data is only good if it is accurate."
Because the changes are "so sweeping and broad," and will impact the credit union community in so many ways, Kramer said CUs must start thinking about the new requirements now. Much of the information was already being collected in some fashion, but FIs did not need to report it.
Among the fields that are expected to become required are: Detailed property location, total points and fees, the rate spread for loans, information on loan features such as introductory rates, the applicant's age and credit score, debt-to-income ratio, combined loan-to-value ratios, loan qualified mortgage status, and whether the collateral is manufactured housing.
"Know who is responsible for implementation," he advised. "Have a plan of action. Prepare for additional staff training and analytic capabilities. The last thing you want to do is submit data to the government that you have not fully analyzed yourself."
Public Reporting?
Another big concern is whether the CFPB will make this data public.
Kramer noted many groups are already examining HMDA data looking for discrimination, and he said the potential for scrutiny is frightening.
"Instead of one compliance regulator, financial institutions will have hundreds of regulators, even thousands by the time you count every attorney and community activist group," he said. "They will be looking to see if protected classes are getting denied for loans more often."
Kramer advises FIs to perform an analysis on their lending practices at the end of each quarter. Many times discriminatory practices happen unintentionally, he said. "A loan officer may not even realize he offered better terms to one borrower compared to another, but when the numbers come up that will stand out as an outlier."
The solution? Find it, fix it and report it.
"A root cause analysis will find disparate impacts and allow the credit union to rewrite its policies and procedures," Kramer said. "It is better to report to the regulator that you found something and fixed it. You get a little credit that way."
The new HMDA requirements, "will have an enormous impact. Every community group that monitors lending is chomping at the bit to get at that data."
