ONE VOICE: POLICY PRIORITIES - Major Issues and Concerns for HMDA Rule Implementation - Mortgage Bankers Association

ONE VOICE: POLICY PRIORITIES - Major Issues and Concerns for HMDA Rule Implementation - Mortgage Bankers Association
     Major Issues and Concerns for HMDA Rule Implementation
                                Monday, October 23, 2017

Dorinda Smith, President and Chief Executive Officer, SunTrust Mortgage, Inc.
John Haring, Director, Compliance Enablement, Ellie Mae, Inc.
Richard J. Andreano, Jr., Practice Group Leader, Mortgage Banking Group, Ballard Spahr
Maurice Jourdain-Earl, Managing Director, ComplianceTech
Mitchel H. Kider, Chairman and Managing Partner, Weiner, Brodsky Kider PC
                                                           Track sponsored by
ONE VOICE: POLICY PRIORITIES - Major Issues and Concerns for HMDA Rule Implementation - Mortgage Bankers Association
Major Issues and Concerns for HMDA Rule Implementation
                    October 23, 2017

                                       Presented by
                                       Richard Andreano, Jr.
                                       Practice Group Leader
                                       Ballard Spahr LLP
Rule Overview and Updates
Revised rule issued in October 2015; October 28, 2015 Federal Register
  • Modifies triggers for lender coverage
  • Modifies loans that are reportable
  • Significantly expands data to be collected and reported
  • Mainly effective January 1, 2018

Revised rule amended August 2017; September 13, 2017 Federal

ECOA-Related Amendments, September 29, 2016 & October 2, 2017
Federal Registers
Lender Coverage
Closed-End Loans:
  • Depository institution threshold modified from making one single-
    family home purchase or refinance loan to making 25 covered
    loans in each of prior two years effective January 1, 2017
  • Non-depository threshold modified from making 100 home
    purchase or refinance loans to making 25 covered loans in each of
    prior two years effective January 1, 2018
  • For depository and non-depository, modified from optional to
    required if, temporarily, making 500 in each of prior two years
Loan Coverage
Closed-End Loans:
  • Focus remains home purchase loans, home improvement loans
    and refinancings
    • Eliminates separate refinancing definitions for coverage and
      reporting purposes
    • Eliminates unsecured home improvement loan that is classified
      by lender as a home improvement loan
  • Optional reporting changed to mandatory if threshold met
Data Expansion
CFPB modified various existing data elements and added data

Based on CFPB summary:
  • Current: 23 data points
  • Revised: 48 data points
    • 23 current data points, 14 modified and 9 unchanged
    • 25 new data points, 11 from Dodd-Frank and 14 added by CFPB
New Data Categories—Non-Demographic
New Dodd-Frank categories:

Age                 Credit Score       Prepayment Penalty Terms
Loan Term           Property Value     Introductory Rate Period
MLO NMLSR ID        Property Address   Non-Amortizing Features
Total Loan Costs or                    Application Channel
Total Points & Fees
New Data Categories—Non-Demographic
New CFPB-added categories:

Discount Points  Lender Credits     Origination Charges
Interest Rate    DTI Ratio          Total Units
CLTV             AUS                Multifamily Affordable Units
HELOC            Reverse Mortgage   Manufactured Home Secured
Business or                         Property Type
Commercial Purpose                  Manufactured Home Land
                                    Property Interest
Revised Demographic Categories—Ethnicity
□ Hispanic or Latino
  □ Mexican
  □ Puerto Rican
  □ Cuban
  □ Other Hispanic or Latino – Print origin, for example, Argentinean,
  Colombian, Dominican, Nicaraguan, Salvadoran, Spaniard, and so on:
Revised Demographic Categories—Race
□ American Indian or Alaska Native – Print name of enrolled or principal
□ Native Hawaiian or Other Pacific Islander
  □ Native Hawaiian
  □ Guamanian or Chamorro
  □ Samoan
  □ Other Pacific Islander – Print race, for example, Fijian, Tongan, and
  so on:
New Data Categories—Race
□ Asian
  □ Asian Indian
  □ Chinese
  □ Filipino
  □ Japanese
  □ Korean
  □ Vietnamese
  □ Other Asian – Print race, for example, Hmong, Laotian, Thai,
    Pakistani, Cambodian, and so on:
Transition Rule; URLA; ECOA/HMDA Interplay
Transition rule for applications received in 2017, with final action in 2018
  • Institution can report demographic data based on 2017 approach

ECOA requires collection of demographic data for monitoring purposes
  • Regulation B was not modified to conform with new HMDA method

Fannie and Freddie release a revised version of the Uniform Residential
Loan Application in August 2016, and initial versions indicated “Effective
  • Includes demographic information section that follows revised HMDA
Transition Rule; ECOA/HMDA Interplay
In September 2016 (September 29, 2016 Federal Register) CFPB
authorizes use of revised URLA for ECOA purposes
   • Allows voluntary collection of expanded HMDA demographic data in
   • Provides option of reporting expanded demographic data if
     application received in 2017 and final action taken in 2018
In September 2017 (October 2, 2017 Federal Register) CFPB
   • Allows ECOA-only data collectors to use existing or revised
     demographic data approach
   • Authorizes use of data collection forms for existing and for expanded
     demographic data
Reporting and Disclosure
Starting with 2017 data, reporting will be made to CFPB via an Internet-
based portal

CFPB will make HMDA reports and modified Loan Application Register
(LAR) for each reporting institution available on CFPB website
  • Institutions will post in their offices notices of availability of reports
    and modified LARs (no longer will need to make reports and
    modified LARs available)
Modified LAR, Proposed Content
Proposed policy guidance, September 25, 2017 Federal Register
  • Comments due November 24, 2017

CFPB will make all reported HMDA data available in modified LARS,
  • ULI, date application received/date on application, date action taken,
    property address, credit score, NMLS identifier for MLO, AUS result
    and free form text fields for the following (standard fields will be
    disclosed): applicant’s race and ethnicity, name and version of credit
    scoring system, principal reasons for denial, AUS name
Modified LAR, Proposed Content
CFPB will make available in modified LARS the following data:
  • Midpoint of $10,000 range into which loan amount falls
  • Applicant age in one of seven ranges, and also if the age is 62 or
  • Actual debt-to-income ratio if between 40% and less than 50%
  • Debt-to-income ratio in one of five ranges if not between 40% and
    less than 50%
  • Midpoint of $10,000 range into which property value falls
Modified LAR, Proposed Content
CFPB will make available in modified LARS the following data:
  • Midpoint of $10,000 range into which loan amount falls
  • Applicant age in one of seven ranges, and also if the age is 62 or
  • Actual debt-to-income ratio if between 40% and less than 50%
  • Debt-to-income ratio in one of five ranges if not between 40% and
    less than 50%
  • Midpoint of $10,000 range into which property value falls
Implementation Information
CFPB HMDA Implementation Website
  • Recent items:
     • Revised 2018 Filing Instructions Guide
     • New—Reportable HMDA Data: A Regulatory and Reporting
       Overview Reference Chart
     • HMDA portal status
Federal Banking Agencies identify 37 of 110 data fields as key fields:
Legal Implications and Use of HMDA Data in Fair Lending
                     October 23, 2017

                                        Presented by
                                        Mitch Kider
                                        Managing Partner
                                        Weiner Brodsky Kider PC
HMDA Implications
• HMDA data accuracy (or errors) sets the tone for an entire CFPB examination
    • Most of the new data fields companies already have. Do you know what story
      your data currently tells about your company:
       • From a HMDA accuracy and a regulatory compliance perspective?
       • From a fair lending perspective?
• One of HMDA’s stated purposes is to identify possible discriminatory lending
  patterns & enforcement of antidiscrimination laws
    • Regulators & enforcement agencies use HMDA data to identify institutions with
      potential fair lending issues
    • CFPB continues to focus on fair lending, including:
       • Discretionary pricing & underwriting criteria
       • Redlining
       • Fair lending monitoring efforts
HMDA Implications
• Currently, regulators must request “HMDA plus” data for a fair lending review
     • Much of the data currently used for fair lending enforcement will be in the new
       data set to be reported by most of the industry starting in 2019
• Allows examiners to easily drill down to specific information that was more difficult
  to obtain before
     • Pricing information – e.g., origination charges, discount points, lender
       credits, interest rates
     • Underwriting information – e.g., combined LTV ratio, credit score, DTI ratio,
       AUS results
     • Identify a lender’s “bad apple” – MLO unique identifier
• Today lenders use the new data points defensively to explain apparent
    • Apparent discrepancies will be harder to justify (but may also prevent false
      positives that trigger unnecessary investigations)
HMDA Data Used in Fair Lending
•   Fair lending will receive greater visibility when federal agencies & private litigants have
    additional data under HMDA to support analysis
    • CFPB & DOJ Consent Order with Large Regional Bank: $10.6 million ($4M in direct
      loan subsidies in minority neighborhoods in Memphis; $800,000 for community
      outreach and programs; $2.78M in redress; and $3M penalty to CFPB’s Civil
      Penalty Fund)
      • Allegations of discriminatory practices, among others, included:
         – Underwriting: Denying Black applicants’ mortgage loans more often than
           similarly situated non-Hispanic White applicants
         – Pricing: Charging Black customers for certain mortgage loans more than non-
           Hispanic White borrowers with similar loan qualifications
         – Redlining: Received significantly fewer applications from Memphis MSA
           minority neighborhoods than its peers
           • Lack of branches & advertising in minority neighborhoods
HMDA Data Accuracy
• Although most of the focus and attention on HMDA is on what it may show with
  respect to discriminatory lending, do not forget that the accurate collection and
  submission of data is independently important
• CFPB is focused on HMDA accuracy
   • CFPB is a data-driven agency, and HMDA data is one of the first things
     reviewed in an exam
   • Heavily scrutinized: CFPB considers failure to accurately record and report
     HMDA data an indication of a weak compliance management system (CMS)
• CFPB HMDA Consent Order with Large Independent Mortgage Bank
   • $1.75 million civil penalty for allegedly failing to report accurate HMDA data
   • CFPB allegedly found error rates of 13% (2012), 33% (2013), and 21% (2014)
New HMDA Resubmission Thresholds
FFIEC published uniform resubmission guidelines for 2018 HMDA data
   • Joint effort by OCC, Fed, FDIC, CFPB, NCUA
   • Changes thresholds and general approach; also provides some new tolerances (adding
     leniency on accuracy of certain data points)
   • The following discrepancies do not count as errors:
      • 3 calendar days or less in the application date
      • $1000 or less in loan amount
      • 3 calendar days or less in the action date
      • Rounding errors in dollar amount, rounded to nearest thousand, of gross annual income
Ethnicity or Race Data Errors
   • Errors in any of the 6 Filing Instructions Guide (FIG) fields of an applicant/borrower ethnicity
     collectively counts as 1 error
   • Errors in any of the 8 FIG fields of an applicant/borrower race collectively counts as 1 error
New HMDA Resubmission Thresholds


• Resubmission may be required even if thresholds are not met if the errors make data analysis unreliable
New HMDA Resubmission Thresholds
Key Data Fields
  • The Fed, FDIC and OCC announced key data fields for their examinations
    (Oct. 17, 2017)
     • Examples of key data fields include: origination charges, discount points,
       lender credits, interest rates, DTI ratio, combined LTV ratio
     • CFPB has not traditionally used key data fields
Major Issues and Concerns for HMDA Rule Implementation
                    October 23, 2017

                                       Presented by
                                       John Haring
                                       Director Compliance Enablement
                                       Ellie Mae
HMDA Technology Update
Recent CFPB Updates
July 2017
• CFPB updated 2018 FIG with updated data point examples and published Edit Specifications
• CFPB issued final rules on technical changes and temporary open-end line of credit threshold

August 2017
• CFPB updated 2018 FIG based on final rule, made multiple changes to Edit Specifications.

October 2017
• Additional updates made to Small Entity Compliance Guide & 2018 FIG and Reporting Reference
   Chart published
• Announcement re availability of Data Collection Portal

• CFPB to release Data Collection Portal
• CFPB to make Geo-Coding Tool Available
Reporting Reference Chart Sample
Technology Impacts of Final Rule
• Geocoding Tool – Rule clarifies safe harbor provisions. Implementation pending.

• Demographic Information – Systems will likely need to be updated to conform to
  revised rule and FIG that permits unconditional data entry e.g. reporting an
  “other” description for Other Hispanic / Latino, Other Asian, Other Hawaiian or
  Pacific Islander and American Indian or Native Alaska Tribe even if the consumer
  does not check the box next to “Other” or conflicting information e.g. Hispanic /
  Latino and Not Hispanic / Latino. Rule also addresses reporting beyond 5
  selection limit.

• Demographic Information – Based on the rule modifying the language on the
  sample data collection form, Fannie Mae and Freddie Mac have updated the
  pending URLA and the transitional URLA demographic information addendum.
Technology Impacts of Final Rule
• Purchased Loans – Rule provides that Loan Purpose may be reported as “NA”
  for purchased loans that were originated prior to January 1, 2018. Additionally,
  the MLO NMLS ID may be reported as “NA” if the loan was originated prior to
  January 1, 2014 (January 1, 2018 if the loan is for commercial purposes)
• Property Information – Rule provides that Address, State, County and Census
  Tract may all be reported as “NA” if an address is not identified by the time action
  is taken.
• Corrections - The rule identifies several data points (APR used in determining
  APOR, Total Loan Costs, Origination Charges, Discount Points, Lender Credits
  and Interest Rate) that are reported using corrected values provided that the
  corrected disclosures were issued before the end of the reporting period
  (calendar year or quarter) in which action is taken.
Technology Impacts of Final Rule
• Counter Offers – Rule clarifies that counter offers are reported with initial
  application values if consumer does not accept counter offer terms (rejects,
  withdraws or fails to respond) or based on counter offer terms if the consumer
  accepts or proceeds with counter offer (even if ultimately denied).

• Credit Score – Rule clarifies handling of multiple scores and multiple consumers
  including allowing NA for borrower’s credit score if co-borrower’s credit score is
  relied upon.

• AUS – Rule clarifies definition of AUS and confirms that CFPB expects TOTAL
  score card and associated results on FHA loans regardless if DU or LP are run.
Technology Impacts of Final Rule
• Multi-Family Units – Rule clarifies and provides examples for how to report Loan
  Purpose on multi family units and what constitutes a multi-family dwelling.

• Introductory Rate Periods – Rule clarifies handling of introductory rate periods
  that are not whole months. Note – rule requires that calculation be based on
  consummation and not first payment.

• NY CEMA – Rule clarifies reporting requirements based on when initial advance
  and final consolidation occur. Requires separate reporting if events occur in
  separate calendar years.
GSE Updates
• GSE’s publish proposed Uniform Residential Loan Application and transitional URLA
   Addendum for Demographic Information.

July 2017
• Fannie Mae updated FNMA 3.2 and DU to collect expanded demographic information

September 2018
• Updated URLA Demographic Information Addendum Published

2019 – 2010
• ULDD Phase 3 incorporates expanded demographic information (May 2019)
• Effective date for new URLA (Optional 7/1/2019, Required 2/1/2020)
• Most but not all vendors are ready save for adjustments required as a result of
  the final rule or ongoing clarifications being made by CFPB.

• When and how the Geocoding tool are implemented will need to be addressed
  once the tool is made available. Lenders should plan on having back up tools.

• Technology vendors are waiting on CFPB to release their HMDA platform to test
  both 2018 and 2019 filings.

• The new URLA will be a major factor in how future information is collected.
   Concerns for HMDA Rule Implementation

                 October 23, 2017

                                    Presented by:
                                    Maurice Jourdain-Earl
                                    Managing Director
New HMDA Rules will be a
    Game Changer

Both a “Friend and a Foe”
Changes to HMDA
Changes to HMDA, cont.
The Home Mortgage Disclosure Act (HMDA) requires certain
 institutions to collect, report, and disclose information
 about their mortgage lending activity. This information is
 important because it:

1. Helps show whether financial institutions are serving the
   housing needs of their communities;
2. Assists public officials in distributing public-sector investment
   to attract private investment to areas where it is needed; and
3. Assists with the identification of potentially discriminatory
   lending patterns and enforcement of antidiscrimination laws.
Fair Lending Analysis Progression
Use HMDA Data to Benchmark Fair Lending Performance
Benchmarking is the process of comparing one's business processes and performance
metrics to industry norms or best practices. In the context of fair lending, dimensions
measured are racial disparities in underwriting, pricing, steering and redlining. In the
process of fair lending benchmarking, management identifies the norms in the industry by
choosing either all lenders or lenders that may be similarly situated based on lender type,
regulator, asset size or number of HMDA reported applications.

With new HMDA benchmarking will expand to include age, more granular ethnicity
grouping, channel, etc.

•   Origination Disparities - ODI™
•   Denial Disparities - DDI™
•   Fallout Disparities - FDI™
•   Market Penetration Disparities – ADI™ or LDI™
White – Black Disparities 2016 HMDA
Loan Type Distribution by Race and Ethnicity 2016 HMDA
Data Submission Process
The Bureau is developing a new web-based submission tool for reporting HMDA data. Covered
institutions will report data using the new web-based submission tool beginning in 2018.
Appendix A, which provides instructions for completing and submitting the HMDA
loan/application register (LAR), is amended effective January 1, 2018 to include new transition
requirements for data collected in 2017 and reported in 2018. In particular, amended appendix
A requires that a covered institution electronically submit its LAR.

In 2018, covered institutions will report 2017 data required under current Regulation C, but will
use the new electronic submission tool and will submit data in accordance with amended
appendix A and procedures that will be available at

Effective January 1, 2019, appendix A is removed from Regulation C. Beginning in 2019,
covered institutions will report the new dataset required by the HMDA Rule, using the new
electronic submission tool and revised procedures that will be available at
Quarterly Reporting
Beginning in 2020, the HMDA Rule requires quarterly reporting for covered
institutions that reported a combined total of at least 60,000 applications and
covered loans in the preceding calendar year. When determining whether it is
required to report on a quarterly basis, an institution will not count covered
loans that it purchased in the preceding calendar year. In addition to their
annual data submission, these larger-volume reporters will submit HMDA data
for the first three quarters of the year on a quarterly basis. The first quarterly
submission will be due by May 30, 2020.
Data Submission

For HMDA data collected in or after 2017, a web-based data submission and
edit-check system (the HMDA Platform) is being created to process Home
Mortgage Disclosure Act (HMDA) data. It is expected that the HMDA Platform
will streamline the HMDA submission process and reduce burden on HMDA
Interacting with the HMDA Platform
The HMDA Platform will be available online only and will guide filers through
the entire filing process, including the review of any edits and the certification of
the accuracy and completeness of the loan/application register (LAR). A
separate Filing Instructions Guide (FIG) describes the file format and other
Disclosure Requirements
Beginning in 2018, covered institutions will no longer be required to provide a disclosure
statement or a modified LAR to the public upon request.

Instead, in response to a request, a covered institution will provide a notice that its disclosure
statement and modified LAR are available on the Bureau’s website.

The HMDA Rule includes sample language that covered institutions can use for these purposes.
These revised disclosure requirements will apply to data collected on or after January 1, 2017
and reported in or after 2018.

For data collected in or after 2018 and reported in or after 2019, the Bureau will use a balancing
test to determine whether and, if so, how HMDA data should be modified prior to its disclosure in
order to protect applicant and borrower privacy while also fulfilling HMDA’s disclosure purposes.

At a later date, the Bureau will provide a process for the public to provide input regarding the
application of this balancing test to determine the HMDA data to be publicly disclosed.
HMDA edits
Once the HMDA Platform confirms that the LAR is in the correct format, it will check the accuracy and completeness of the
LAR using the HMDA edits. An interactive process will inform the filer of the current stage of review, any items that need to be
addressed, and next steps for completing the HMDA filing. At each stage, any edits identified in the LAR will be reported to
the filer.
For data collected in 2017, the edits are listed in Section 4 of the FIG for HMDA data collected in 2017. Edits for data
collected in 2018 will be released at a later date.
Syntactical and validity edit review
The HMDA Platform will identify any syntactical or validity edit and the rows in the LAR where each edit is triggered.
Additionally, a list of the edits identified in the LAR will be available for download.
Syntactical and validity edits must all be addressed prior to moving forward with the filing process. If the filer needs to correct
any data, the filer must refile the updated LAR to the HMDA Platform. The LAR will then be rechecked for syntactical and
validity edits.
Quality and macro quality edit review
Once the HMDA Platform has confirmed there are no syntactical or validity edits, the filer will be prompted to review any
quality and/or macro quality edits that the HMDA Platform identifies in individual rows in the LAR, groups of rows, or the
entire LAR. The filer must confirm the accuracy of the data flagged by the quality and/or macro quality edits. If a filer needs to
correct any data in the file in response to quality and/or macro edits, the filer must correct the data and refile the updated LAR
to the HMDA Platform.
Final validation steps
Once all edits have been addressed, the HMDA Platform will require an authorized representative of the filer’s institution to
certify the completeness and accuracy of the LAR (see FIG section 3.2).
It is important to recall that all edits must be resolved prior to the March 1st annual HMDA submission deadline. Filers are
encouraged to allow sufficient time, prior to the filing deadline, in order to address any edits. The submission must be
completed by the March 1st annual deadline.
Complete a HMDA submission
After the filer submits the LAR, the HMDA Platform will provide the filer
with a summary screen acknowledging the time and date of submission.
Resubmitting HMDA data
In cases where a submission has been completed and the filer wants to
refile, the HMDA Platform will alert the filer that the LAR for the reporting
year has already been filed, and prompt the filer to confirm that they wish
to refile their LAR.
A HMDA resubmission requires the same edit review and certification by
the institution’s authorized representative as with the previous
File Format Verification Tool
The CFPB has made available an electronic File Format Verification Tool (FFVT) for filers who wish to
confirm that a LAR is formatted in the required pipe delimited text file format, and meets certain formatting
requirements specified in the Filing Instructions Guide. The FFVT uses “client-side testing” which runs on
the user’s computer and does not transmit any HMDA data over the internet. The tool conducts the same
initial checks that the future HMDA Platform will perform, and provides a convenient test mechanism for
filers, prior to the roll out of the full HMDA Platform.
Open source policy
The CFPB is committed to developing the programming code for the HMDA Platform in an open way. The
HMDA Platform is being actively developed on the site, (see:
platform). This provides transparency to the algorithms and methodologies used to parse and validate a
HMDA file, as well as the code used to develop the HMDA Platform user interface and related tools for
filers. This code is in the public domain and does not impact the privacy or security of the data.
Resources for developers
As noted above, the CFPB is developing the HMDA Platform in the open. With the exception of internal
server deployment details, the source code will be available to review and use.
While most HMDA filers and interested members of the public will interact with the HMDA Platform
primarily through the web, the HMDA Platform is developed with an API-first approach, with a modern
architecture intended to be efficient and flexible.
Details of public APIs and other developer resources will be released on the Resources for Filers page on
the CFPB website and on GitHub.
Other tools for HMDA filers
A new online geocoding tool will be provided that identifies the census tract for a single address or
batches of addresses. Further information will be forthcoming.
Loan/Application Register (LAR) Formatting Tool
Beginning with the HMDA data collected in 2017, the Data Entry Software currently provided by the
FFIEC (DES) will no longer be available as a method of data entry or data submission.
Some financial institutions, typically those with small volumes of covered loans and applications, that
currently manually enter each loan into the DES for submission, will need a software solution to create
an electronic file that can be submitted to the new HMDA Platform.
Many solutions exist to create the electronic file. For example:
A financial institution’s current Loan Origination Software (LOS) may meet this need.
Software commonly available on desktop computers such as Microsoft® Access® or Excel® may also
be used for data entry and formatting.
In addition, the CFPB has published a Microsoft® Excel® HMDA LAR data entry formatting tool.
This tool will help filers enter and format their HMDA data into a pipe delimited text file needed to
submit the data to the CFPB’s HMDA Platform. Please visit theLAR Formatting Tool webpage for more
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