Piecing together the new HMDA puzzle.

Author:Ryan, Leonard


In many ways, loan regulations are like puzzles. Borrowers submit hundreds of individual pieces of data that, when taken together, must fit neatly into ever-complicated regulatory puzzles. Miss a few pieces at the end and you either have a non-saleable loan or the potential for fines, penalties or other retribution from the designers of the puzzles. [paragraph] All of this would be easier if the puzzles were similar in construction. But regulations such as the Truth in Lending Act (TILA)-Real Estate Settlement Procedures Act (RESPA) Integrated Disclosure rule (TRID) and Consumer Financial Protection Bureau (CFPB) Know Before You Owe initiative have a different definition of a loan application than the Home Mortgage Disclosure Act (HMDA). [paragraph] Further complicating the picture, state reports such as the Nationwide Multistate Licensing System & Registry (NMLS) Mortgage Call Report, the multi-state mortgage exam and North Carolina's reporting have different fields and conflicts in their definitions. So each regulation gets its own unique puzzle, and lenders must solve them all with each loan file to have a "compliant" loan.

To this end, the CFPB, thanks in part to requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act, has decided to make its latest puzzle three times larger with the same requirements for accuracy and attention to detail. That new, larger puzzle comes in the form of the latest changes from the CFPB for annual HMDA reporting.

Like many of the regulations impacting the mortgage industry, regulators have been working on a significant overhaul of the HMDA requirements since the financial crisis of 2008.

Major HMDA hearings were conducted by the Federal Reserve in 2010, and the resulting recommendations became part of the Dodd-Frank Act shortly thereafter.

In October 2015, the CFPB issued its long-awaited final rule for completely revised HMDA requirements. These changes will greatly impact most lenders by substantially expanding the scope of the reporting; but thanks to a long implementation timeline, mortgage bankers that proactively prepare for the changes will be prepared for a seamless transition to the new rules.

History of HMDA and its impact on the industry

Congress enacted HMDA in 1975 to address concerns about financial institutions serving their entire service area. Initially governed by the Federal Reserve Board's Regulation C, the rule required lending institutions to report public loan data for specified residential lending activities.

These reports were then used to determine whether financial institutions were serving the housing needs of their communities, as well as to identify potential discriminatory lending patterns. Public housing agencies also used the data to identify underserved geographies to try and attract private investment to those areas.

Over the decades, the HMDA regulations have been revised more than a dozen times. Each change to the regulation has added new data and expanded the scope of institutions that must report.

In 2011, oversight of HMDA reporting was shifted to the CFPB in accordance with the Dodd-Frank Act. While annual HMDA reports are still submitted to the Federal Reserve, that...

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