HMDA: new data requirements, new opportunities for risk.

Author:Vong, John
Position:COLUMNS: EXECUTIVE SUITE - Home Mortgage Disclosure Act

IT'S PROBABLY SAFE TO ASSUME THAT MOST LENDERS AND VENDORS are totally focused on the Truth in Lending Act (TILA)-Real Estate Settlement

Procedures Act (RESPA) Integrated Disclosure (TRID) rule and its upcoming--now twice postponed--effective date. But compliance experts are also watching for the next shoe to drop: the final Home Mortgage Disclosure Act (HMDA) rule, due any day now, at the time of this writing.

Based on the Consumer Financial Protection Bureau's (CFPB's) proposal issued last July, the final rule will dramatically increase reporting requirements and potentially take by surprise those lenders who have been lax on HMDA reporting and analysis.

The changes will revamp Regulation C--the HMDA reporting regulation--in a variety of ways. The rule will most likely apply to a much broader class of transactions, essentially all dwelling-secured loans regardless of their purpose.

The data reported on each application or loan will be much more comprehensive than the annual loan application register (LAR) reports currently required from covered lenders. Compiling this information and preparing reports will certainly add to the already high cost of compliance. It will be particularly burdensome for those lenders who are not using advanced technology to handle the heavy lifting and are instead trying to do it with outdated software.

Wholly apart from the costs of compliance, however, the new requirements will expand potential fair lending liability for covered institutions. Using the new information, regulators, advocacy groups and plaintiffs' attorneys will draw their own conclusions as to whether discriminatory lending patterns exist. Accordingly, in addition to mastering the new reporting requirements, prudent lenders will also take steps to analyze and explain their lending data.

The Supreme Court's Texas Department of Housing and Community Affairs v. The Inclusive Communities Project Inc. decision in June heightens the importance of HMDA data. That ruling held that disparate-impact claims may be brought under the Fair Housing Act.

Under this theory, there is no need to prove that the outcomes in question were the result of discriminatory intentions. The expanded HMDA data will surely be cited as evidencing prohibited discrimination, especially now that it will reveal many more details of transactions.

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