CFPB Faces Tricky Challenge in Finalizing HMDA Changes

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WASHINGTON — The Consumer Financial Protection Bureau is facing a tough balancing act as it attempts to expand a massive mortgage database.

During the past week, consumer and industry groups have lobbied the agency in different directions, with consumer groups arguing the agency did not go far enough and lenders saying it went too far in seeking more data from lenders.

The Dodd-Frank Act required the CFPB to expand and clarify data requirements under Home Mortgage Disclosure Act but the agency went beyond what was suggested by the law, proposing to add other fields for home equity lines of credit, reverse mortgages and multi-family properties.

Consumer groups say these additional areas are critical components in assessing the housing market but lenders contend that the added reporting is burdensome and goes beyond the purpose of the data reporting law.

"Our members are committed to the spirit of HMDA as it was originally enacted: to provide information about the availability of credit," said Kate Larson, regulatory counsel at the Consumer Bankers Association. "So it is important that CFPB stick to that and ensure HMDA is kept within the mortgage market and not extended to commercial loans and HELOCs… we feel the increase in data reporting will in turn, increase the cost to consumers in getting a mortgage."

At the same time, consumer advocates and civil rights groups argue the CFPB could have gone further in requiring lenders to submit additional mortgage data.

"Believe me, the CFPB sought out many more suggestions on other data fields they could have added to the proposal and they've narrowed it down a lot. I think they responsibly got this into a dataset that make sense," said Ellen Seidman, a senior fellow at the Urban Institute's Housing Finance Policy Center and a former director of the Office of Thrift Supervision. "It is absolutely critical that the CFPB does not cut back on the data fields that are currently proposed."

In another letter submitted to the CFPB, 10 consumer and civil rights divisions argued that the agency should require lenders to report a "business purpose" for the loan; applicants' current address; and detail why a loan is denied (something that is currently optional), among other changes.

 "We support the additional data fields outlined by CFPB in the proposed rule. However, we believe there are additional data enhancements that would be of great benefit to researchers and community groups in the efforts to promote fair access to credit, while also helping equip regulatory and enforcement agencies with fair lending compliance," said the groups, including the Center for American Progress, the Center for Responsible Lending, Consumer Action and the Consumer Federation of America. "Furthermore, we believe the financial and administrative costs to lenders associated with collecting this data, as well as any privacy threats to borrowers, are minimal."

The July proposal was partly designed to make lenders provide more details on why a loan was accepted or rejected and assist the CFPB in tracking the impact of regulations like the "Qualified Mortgage" rule implemented earlier this year. The proposal would require lenders to disclose to regulators more information on the loan, such as the age and credit score of homebuyers, the property value and details on the interest rate. Currently, publicly released data is primarily broken down by geography, race, gender and whether the applicant was approved.

A CFPB official said Dodd-Frank authorized the agency to require additional data points to meet the purposes of HMDA.

"The additional fields included in the proposal would provide a more accurate image of access to mortgage credit, and would help regulators spot troublesome trends in mortgage markets around the country and in all segments of the housing marketplace," said Samuel Gilford, a CFPB spokesman, in an e-mailed response to questions from American Banker. "In addition, the CFPB believes that many of these additional data points could improve the effectiveness of fair lending screening by, among other things, reducing the instances of 'false positives' in which HMDA data show disparities potentially indicative of discriminatory lending, but upon examination, the financial institution's decisions are explained based on credit characteristics nor currently reported under HMDA."

While all groups were concerned over how the CFPB would maintain consumer privacy as a result of seeking more information, commenters were also focused on the proposal's attempt to expand the database to include home equity lines of credit and other commercial loans.

Consumer groups say HELOCs in particular are an important part of the housing market. The CFPB cites in its proposal a sharp increase of HELOC originations in the mid-2000s and their use by speculative real estate investors before and after the financial crisis.

But industry groups are staunchly against including HELOCs in HMDA data, arguing that consumers use the money from a home equity line for spending unrelated to housing. They also say that such information is already available in call reports to prudential regulators.

Moreover, it also means additional time and costs to integrating systems since HELOCs tend to run on a different system than traditional mortgages, lenders said.

"HELOCs are actually often booked on a different system. They're set up differently and underwritten differently," said Rob Rowe, vice president and senior counsel at the American Bankers Association. Some "bankers say if this is a part of the HMDA process, they figure $5,000 will be the cutoff for any HELOC. So consumers won't be able to get anything under $5,000... just because of the costs of booking, maintaining and reporting HELOCs. And it will be more expensive."

Another complicated area of the proposal is a requirement to give each loan a "unique identifier" so it can be tracked throughout the life of the loan regardless of how many times it's sold or changed servicers. The industry's concern is that some banks already have their own identification process and it varies depending on each lender.

"It's a big undertaking and I don't think anyone has really looked at what it means because we have to create a single system," Rowe said. "I don't think the industry is opposed to it; it's just a matter of how are we going to get there?"

Both consumer groups and lenders appear to agree that the CFPB should establish universal identifiers, regardless of how long that might take.

"The unique loan identifier, in particular, will enable much better understanding of how the market works and how loans perform," said the Urban Institute in its comment letter. "Even if boldness — for example, having the CFPB rather than individual institutions establish the loan identifier — requires a longer phase-in for a specific section, the ultimate benefit of not having to catch up 10 years from now justifies this delay."

How quickly the CFPB will require data reporting changes is also another major area of debate. Consumer advocates acknowledged that the CFPB has had a full plate in meeting certain rulemaking deadlines under Dodd-Frank, but because there is a one-year lag before HMDA data is publically released, they are urging the CFPB to finalize its plan as fast as possible.

"The earliest year that it will be possible to implement is for 2016 mortgage origination for data that will not come out until 2017," Seidman said. "So it's really important to keep the train moving and that we get it done as soon as possible."

At the same time, lenders are still working through adjustments from the Qualified Mortgage and mortgage servicing rules that took effect in January and they must also be in compliance with updated mortgage disclosures rules by next summer — all of which affect what they report in HMDA. In response, lenders are hoping to get at least another two years before implementing new HMDA changes.

"We're advocating for hopefully, collecting the new HMDA data to implement in 2017 and then report in 2018," Larson said. "Currently, a lot of the resources are going to the regulatory implementation [of other rules] so inherently that takes away different products and services that those resources can be going to consumers."

The CFPB has not yet indicated a timeframe on when it might finalize its HMDA plan, the comment deadline for which just ended last week. But Gilford said the agency is "acutely aware" of any potential compliance burden.

"The CFPB recognizes that operationalizing a rule is a challenge. We understand that, with a final rule, financial institutions will need to retrain staff, make changes to automated systems, and in some cases, build new systems," he said. "We also understand that this will take time, and we anticipate that the final rule will provide an appropriate transition period for financial institutions to adjust their practices and systems to meet the goals of the rulemaking."

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