Written By: Joel Palmer, Op-Ed Writer
In less than eight months, the mortgage industry will have to start complying with a host of new reporting regulations. Yet, neither the industry nor the regulators seem prepared for these changes.
In October 2015, the Consumer Financial Protection Bureau (CFPB) released an 800-page update to the Home Mortgage Disclosure Act (HMDA). The updates increased mortgage lenders reporting requirements and were designed to provide regulators with more information on consumers’ access to mortgage loans. The requirements are scheduled to take effect January 1, 2018.
The requirements stemmed from the 2010 Dodd-Frank Act, which transferred HMDA rule making authority to the CFPB. It also expanded the data related to mortgage applications and loans to be collected, reported and disclosed under HMDA. These new data points included age applicants, fees payable at origination, difference between the APR of the loan and benchmark rates, prepayment penalties, property values, loan terms, and credit scores of loan applicants.
The new rule also eliminates the asset test for lenders. If lenders made the lending decision on at least 25 loans in a given year they have to file. The current level is 100 closed loans.
The Dodd-Frank Act also authorized the Bureau to “require a unique identifier that identifies the loan originator, a universal loan identifier, and the parcel number that corresponds to the real property pledged or proposed to be pledged as collateral for the mortgage loan.”
Industry stakeholdershave repeatedly warned that the amount of data and the level of transparency that it will give regulators pose heightened compliance risks for banks and mortgage lenders.
Earlier this month, the CFPB issued a proposal to clarify the HDMA updates to help mortgage lenders comply.
“Since issuing the Final Rule, the Bureau has conducted outreach with stakeholders, through participation in conferences concerning the Final Rule, communications with HMDA vendors, and informal inquiries submitted by financial institutions,” stated the recent proposal.
“As part of these efforts and through its own analysis of the 2015 HMDA Final Rule, the Bureau has identified certain technical errors in the Final Rule, potential ways to ease burden of reporting certain data requirements, and clarification of key terms that will facilitate compliance with the Final Rule. This proposal addresses these issues.”
The proposal aims to clarify certain terms such as ‘temporary financing’ and ‘automated underwriting system.’ It also establishes transition rules for reporting loans purchased by financial institutions. The proposal also indicates that a bureau will provide a geocoding tool to facilitate census tract reporting of properties.
Somewhat clouding the issue more is the status of the CFPB and its leadership. Last month, the House Financial Services Committee held a hearing to debate the constitutionality of the bureau.
The Trump Administration’s Department of Justice filed an amicus brief in the case, asking the court to rule the CFPB’s leadership structure unconstitutional and grant the President the authority to remove the current director and appoint his own director. Currently, the President could appoint a new director in 2018, shortly after the HDMA rules take effect.
President Trump has been working to undo some of his predecessor’s initiatives, and it’s conceivable that a new Trump-appointed CFPB director could do the same with the HDMA.
Anybody interested in commenting on the latest proposal (identified by Docket No. CFPB-2017-0010 or RIN 3170-AA64)can submit comments, by email to FederalRegisterComments@cfpb.gov (include CFPB-2017-0010 or RIN 3170- AA64 in the subject line of the email) or online at www.regulations.gov.
About the Author
As an NAMU® Opinion Editorial Contributor, Joel Palmer is a freelance writer who spent 10 years as a business and financial reporter and another 10 years in marketing for the insurance and financial services industries. He regularly writes about the mortgage industry, as well as residential and commercial real estate, investments, and retirement income planning. He has also ghostwritten books on starting a business, marketing, and retirement income planning.