On December 6, 2022, the CFPB issued a Notice rescinding its 2020 Home Mortgage Disclosure Act (HMDA) Final Rule changing the loan volume reporting threshold for closed-end mortgage loans. This was in response to a ruling by the United States District Court for the District of Columbia, in September of this year which stated that the CFPB did not have the authority to change the original reporting threshold from 25 to 100.
In the notice the CFPB states that they “recognize that financial institutions affected by this change may need time to implement or adjust policies, procedures, systems, and operations to come into compliance with their reporting obligations. In these limited circumstances, in allocating the CFPB’s enforcement and supervisory resources, the CFPB does not view action regarding these institutions’ HMDA data as a priority.” They go on to say they will not cite or bring enforcement against any institutions that do not report 2020, 2021, or 2022 data.
What does this mean?
For the roughly 1,700 financial institutions effected by this notice, it means that starting January 3, 2023, a HMDA program to collect and report the required data needs to be in place.
For most impacted institutions, this will require training, in addition to reviewing, updating, or creating processes to collect and report HMDA data.
An ineffective or inadequate data collection process can lead to errors in reporting and regulators continue to cite significant HMDA data error rates. Mistakes or inaccuracies in your institution’s HMDA data report could lead to penalties or flag other fair lending or redlining issues for your institution.
What now?
It goes without saying that the goal for a HMDA data collection program is to ensure accurate reporting to regulating agencies and safeguard the institution against any violations or penalties. But first, determine if your institution is one of the 1700 impacted by the notice and what you need to know if it is.
- Is my institution required to report?
HMDA (Reg. C) defines a HMDA reporter as a depository financial institution, that is a bank, savings association, or credit union that:
- On the preceding December 31 had assets in excess of the asset threshold established and published annually by the CFPB for coverage by the Act, based on the year-to-year change in the average of the Consumer Price Index for Urban Wage Earners and Clerical Workers, not seasonally adjusted, for each twelve-month period ending in November, with rounding to the nearest million
- On the preceding December 31, had a home or branch office in an MSA
- In the preceding calendar year, originated at least one home purchase loan or refinancing of a home purchase loan, secured by a first lien on a one- to four-unit dwelling
- Meets one or more of the following two criteria:
- The institution is federally insured or regulated; or
- Any loan that was insured, guaranteed, or supplemented by a Federal agency, or was intended by the institution for sale to the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation; and
- Meets at least one of the following criteria:
- In each of the two preceding calendar years, originated at least 25 closed-end mortgage loans or
- In each of the two preceding calendar years, originated at least 200 open-end lines of credit
HMDA describes a non-depository financial institution as:
- a for-profit mortgage-lending institution (other than a bank, savings association, or credit union) that:
- On the preceding December 31, had a home or branch office in an MSA; and
- Meets at least one of the following criteria:
- In each of the two preceding calendar years, originated at least 25 closed-end mortgage loans or
- In each of the two preceding calendar years, originated at least 200 open-end lines of credit
- What do I have to do?
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- Submit the required data to the appropriate Federal agency
- Disclose specific loan data to the public, including data on:
- Covered loans for which the financial institution receives applications
- Loans that the institution originates or purchases
- Loans that are secured by a dwelling located in the United States of America, the District of Columbia, or the Commonwealth of Puerto Rico
- When do I have to report?
- HMDA data from the previous year must be submitted no later than March 1st each year
Helpful Tips:
- Remember that bad data in means bad data out. Create and implement policies and procedures that will ensure accurate collection of your institution’s HMDA data.
- Compare the data on the LAR (Loan Application Register) to the original loan file.
- Using a sampling method to test the data collected.
- Maintain all original source documents that support the data being submitted on the LAR.
- Verify that every loan that is on the LAR is relevant and should actually be on the register.
- Training is key. Make sure every impacted employee knows the regulation’s requirements and how their role fits into the new processes.
- Consider how your institution will report its HMDA data. Will you utilize a LOS, HMDA transmission software, or submit manually?
As always, we at COMPLIANCE RESOURCE are here to help. If you or your staff need to brush up on what you need to do, we have an extensive database of HMDA courses and program materials.