The Consumer Financial Protection Bureau on Thursday finalized a rule to improve information reported about the residential mortgage market, including updates that will reveal more about consumers’ access to mortgage credit.
The rule updates the reporting requirements of the Home Mortgage Disclosure Act (HMDA) regulation. The CFPB is working with other federal agencies to streamline the reporting process for financial institutions.
HMDA, which was originally enacted in 1975, requires many lenders to report information about the home loans for which they receive applications or that they originate or purchase. The public and regulators can use the information to monitor whether financial institutions are serving the housing needs of their communities, to assist in distributing public-sector investment so as to attract private investment to areas where it is needed, and to identify possible discriminatory lending patterns.
Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) in 2010 in response to the mortgage market crisis. The Dodd-Frank Act directed the CFPB to expand the HMDA dataset to include additional information about applications and loans that would be helpful to better understand the mortgage market. The CFPB convened a panel of small businesses to provide feedback on potential changes to the rule in February 2014, and issued a proposed rule in July 2014.
In 2014, 7,062 financial institutions reported information about approximately 11.9 million mortgage applications, preapprovals, and loans. While the HMDA dataset is the leading source of information about the mortgage market, it has not kept pace with the market’s evolution. For example, the HMDA data do not provide adequate information about certain loan features that helped contribute to the mortgage crisis, such as adjustable-rate mortgages and non-amortizing loans.
"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,” said CFPB Director Richard Cordray. "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.”
The final rule changes what data financial institutions are required to provide in order to improve the quality of HMDA data in today’s housing market. The changes include:
- Monitoring fair lending compliance and access to credit: Financial institutions will be required to provide more information about mortgage loan underwriting and pricing, such as an applicant’s debt-to-income ratio, the interest rate of the loan and the discount points charged for the loan. This information will improve the ability to screen for possible fair lending problems, helping both institutions and regulators focus their attention on the riskiest areas where fair lending problems are most likely to exist, according to the CFPB. It also will help the CFPB and other stakeholders monitor developments in markets such as multifamily housing, affordable housing and manufactured housing. The rule also requires that covered lenders report, with some exceptions, information about all applications and loans secured by dwellings, including reverse mortgages and open-end lines of credit.
- Improving market information: In the Dodd-Frank Act, Congress directed the CFPB to update the HMDA regulation by having lenders report specific new information that improves public understanding of market conditions and could help identify emerging risks and potential discriminatory lending practices in the marketplace. This new information includes the property value, term of the loan and the duration of any teaser or introductory interest rates.
One of the CFPB's goals in updating the reporting requirements is to target opportunities for streamlining reporting to make it easier for financial firms to comply. The final rule is designed to:
- Ease reporting requirements for some small banks and credit unions: The rule retains the existing provisions that ease the burden on small banks and credit unions. For example, small depository institutions that are located outside a metropolitan statistical area remain excluded from coverage. Also, under a new standardized reporting threshold in the rule, small depository institutions that have a low loan volume will no longer have to report HMDA data. For small lenders with few staff members, this change could make a significant impact in easing compliance costs. The new threshold will reduce the overall number of banks and credit unions required to report HMDA data by an estimated 22%. However, because those lenders receive a low volume of applications and originate a low volume of mortgage loans, the change will not compromise the usefulness of the dataset.
- Align reporting requirements with industry data standards: Along with collecting data under HMDA, many financial institutions are collecting the same or similar data for their own processing, underwriting, and pricing of loans, or to facilitate the sale of loans on the secondary market. Many of the amended requirements align with well-established industry data standards, including definitions that are already in use by a significant portion of the mortgage market. The Bureau anticipates that this alignment will mitigate the burden on many lenders, and improve the quality and the value of the information reported.
The final rule adopts many of the provisions proposed in 2014 but several changes were made after considering comments received from the public. For example, the final rule does not include several of the data points proposed by the CFPB - such as the "risk-adjusted, pre-discounted interest rate” - and does not adopt the proposal to require reporting of all dwelling-secured transactions made for commercial purposes.
Most of the final rule’s provisions will take effect on Jan. 1, 2018. Lenders will collect the new information in 2018 and then report this information by March 1, 2019.