Large banks could stand to get similar relief from mortgage data reporting requirements that Congress just gave community banks, but that relief may not be all it's cracked up to be.
On the one hand, acting Consumer Financial Protection Bureau Mick Mulvaney's comments that he wants to ease Home Mortgage Disclosure Act requirements imposed by his predecessor is welcome news. But on the other, more data helps lenders know how they stack up to the competition, and lenders may end up collecting the data anyway. The data also would have exposed lenders to far greater scrutiny of fair-lending violations.
"The problem without comparable data is a lender can't figure out how they compare to everybody else," said Leonard Ryan, president of QuestSoft Corp., a Laguna Hills, Calif., provider of mortgage software.
The regulatory relief bill that President Trump just signed gave 85% of all banks relief from expanded HMDA data fields mandated by the Dodd-Frank Act. Congress enacted HMDA in 1975 to root out discrimination in mortgage lending.
Dodd-Frank mandated 14 additional data fields for HMDA data collection, on top of the nine that already existed. The statute also gave the CFPB the discretion to add additional data fields, and former CFPB Director Richard Cordray used that authority to establish 25 additional data fields.
But Mulvaney turned heads earlier this month in a speech to the National Association of Realtors when he signaled he plans to use the same authority to rescind all 25 data fields. Such a move would extend regulatory relief to a wider array of lenders than in the reg relief legislation signed by Trump.
"Eliminating the HMDA fields not explicitly mandated by Dodd-Frank is a big deal," said Warren Traiger, senior counsel at Buckley Sandler. "There are some significant data fields that will be removed but it's not the same as going back to pre-Dodd-Frank HMDA."
Banks and mortgage lenders had lobbied for the relief enacted by the Senate legislation, claiming that the expanded HMDA requirements under Dodd-Frank dramatically increased compliance costs.
But Traiger noted that HMDA data can be useful for the industry in certain cases, by shining a positive light on successful lenders.
"If, as suggested by Mr. Mulvaney, the CFPB is going to do away with the expanded data collection, it will make it less easy to compare the performance of different lenders," Traiger said. "But fair-lending enforcement really is driven by who's in power. There's so much discretion involved."
Scaling back the expanded data requirements may be viewed as a win for banks and mortgage lenders but it doesn't mean they will forgo collecting the data, which is embedded in loan operating systems from home loan applications. Prudential regulators, including the CFPB, routinely ask for additional HMDA data when conducting fair-lending exams.
Ryan said even though lenders can block the reporting of data fields to the CFPB at relatively little cost, they will likely continue to collect the data for other purposes.
"Millions of dollars have already been spent on this and no lender is going to spend money to undo HMDA," said Ryan.
Ryan had argued that lawmakers should have given relief only to banks that originated fewer than 250 home loans a year, which was not statistically significant. Instead, the regulatory relief bill raised the threshold to 500 loans, which he said went too far and distorts data collection, particularly in rural areas.
Lenders primarily have been concerned that consumer groups and state regulators would be able to access the expanded data to target certain lenders.
"For a year we were told that there would be a list of lenders that were doing a good job, or a bad job, and all examiners had to do was push a button to identify the bad actors," Ryan said. "Now, if you don't have to report it, you don't worry until somebody comes for a fair-lending exam to see if you're going to get whacked."
Mulvaney said in his speech on May 16 that Cordray's expansion of the requirements went too far since Dodd-Frank did not spell out the data fields that Cordray added.
"If Congress had wanted us to collect 23 or 26 or 30 or 100 [data fields], they would have told us collect 23 or 36 or 100," Mulvaney said. "I'm going to collect — we're looking at doing what the statute actually says under the theory that they make the law and we just execute it. So that's how we're going to — that's how we're going to be dealing with the de-reg."
"We're not doing it to be nice to the industry," he continued. "We're doing it to fulfill our mission. We're not doing it to undermine the consumer confidence in the system. We're actually doing it to help the marketplace. That's what we are told to do in the statute."
Mulvaney appears ready to move quickly to rescind the data fields, even though the agency has not released a proposed rulemaking. For any change in a regulation, the CFPB is required to propose a formal rulemaking, allow for public comment, consider the comments and then promulgate a revised regulation.
The CFPB declined further comment.
The expanded HMDA data collection was, in part, a response to the financial crisis because regulators had no way to identify home loans. Dodd-Frank mandated that lenders create a universal loan identifier to aid in tracking loans sold into the secondary market.
At issue is Regulation C in Dodd-Frank, which transferred rulemaking authority over HMDA from the Federal Reserve to the CFPB, and expanded the scope of information that lenders must report from mortgage applications.
Consumer advocates say a critical concern is whether rescinding the added data fields will make it more difficult to identify discrimination in home lending. Without the added data fields, advocacy groups will be hamstrung in analyzing the performance of lenders.
"One of the things that we know is that discrimination has not ended," said Kathleen Engel, a research professor at Suffolk University Law School and a member of the CFPB's consumer advisory board. "Essentially what Mulvaney is doing is saying we're going to cut back on gathering information used to detect discrimination even though we know discrimination is still occurring."
Before the mortgage crisis, the federal government had so little data on home loans that the Federal Reserve had to purchase data from private industry, which determined how it could be used, Engel said.
Still, lenders are not likely to incur additional costs if the expanded data fields are dropped. Ryan at QuestSoft said it is relatively easy for lenders to use the design tool in their operating systems to block the expanded data.
"Removing fields from what you're going to send to the CFPB is not a big cost," he said.
The data points that were mandated by Dodd-Frank, and cannot be changed, include the age and credit score of the borrower, points and fees paid on the loan, any prepayment penalties, and the property value. In addition, lenders have to report loan terms and any introductory interest rate, and the difference between the annual percentage rate associated with the loan and a benchmark rate or rates for all loans.
Some see efforts to roll back HMDA requirements as another sign of a major dismantling of fair-lending laws by the Trump administration. In February, Mulvaney gutted the CFPB's fair- lending office, and recently said he wants to re-examine how the agency enforces the Equal Credit Opportunity Act, which prohibits discrimination in lending.
"There was no shortage of fair-lending enforcement under the Obama administration, notwithstanding that the data was the old HMDA data," said Traiger. "But whether it's old or new HMDA, what's really important is the regulatory agency’s approach to fair lending."