United States: HMDA Clarification: Relief For Lower-Volume Banks, Credit Unions

Last Updated: September 6 2018
Article by Kristie D. Kully

The Bureau of Consumer Financial Protection (the Bureau) issued an interpretive rule on August 31, 2018, explaining how depository institutions that originate fewer than 500 open- or closed-end home mortgage loans annually may take advantage of data collection and reporting relief.

The Home Mortgage Disclosure Act (HMDA) has for decades required mortgage lenders to collect and report significant data on their applications for, and originations or purchases of, residential mortgage loans. In 2015, in response to the Dodd-Frank Act, the Bureau significantly amended the regulations under HMDA, revising which institutions must collect and report the data, what data those institutions must report and in connection with which transactions, and how the institutions must submit the data to the government. Those expansive changes, requiring significant systems updates and hours of training, have already largely become effective. For applicable institutions, the bulk of the changes kicked in on January 1, 2018

However, in May 2018, Congress enacted the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA), amending HMDA to allow certain depository institutions to avoid the collection and reporting of so-called "new" data elements. While those institutions may have wished this relief had come before they were forced to implement all the changes needed to collect the new data, the actual reporting deadline for that data is still months away. In the meantime, those institutions (and their regulators) had many questions about what exactly they could or should do now. The Bureau's interpretive rule attempts to provide them some guidance.

Which Institutions Get the Relief?

The HMDA relief from having to collect and report "new" data elements (discussed below) applies to certain insured depository institutions and credit unions. Specifically, the relief applies to an insured depository institution or credit union that originated fewer than 500 closed-end mortgage loans or 500 open-end mortgage loans in each of the two preceding calendar years, and that did not recently receive a negative credit rating under the Community Reinvestment Act (CRA). With regard to the negative CRA rating, the institution must not have received a rating of "needs to improve record of meeting community credit needs" during each of its two most recent examinations, or a rating of "substantial noncompliance in meeting community credit needs" on its most recent examination. The relief applies separately with regard to open- or closed-end mortgage loans. In other words, an institution that originated fewer than 500 open-end loans in each of the two preceding years will be relieved of the obligation to collect and report the new data with respect to open-end loans. If the institution also originated fewer than 500 closed-end loans during that time period, it will be relieved of the obligation to collect and report the new data with respect to closed-end loans, as well. (The Bureau had already, at least temporarily, increased the reporting threshold with regard to open-end loans for all lenders, raising it from 100 to 500 until 2020. The EGRRCPA solidifies that 500-loan threshold.)

What is the "New" Data?

As indicated above, if an institution is eligible for the new relief, as described above, it is relieved of the obligation to collect and report the data that was added by the Dodd -Frank Act and the Bureau's 2015 rulemaking. The Bureau's interpretive rule helpfully provides a table listing precisely which data elements are covered by the relief and which are not. For instance, the interpretive rule clarifies that applicable institutions will not have to collect or report an applicant's credit score; the institution's reasons for denial of an application; the loan's total loan costs/points and fees, origination charges, discount points, or interest rate; the debt-to-income ratio; or several other data fields. (However, the collection and reporting requirements applicable to race and ethnicity, among others, remain unchanged, even for applicable institutions.)

Interestingly, the Bureau indicates that a loan's rate spread (the amount by which the annual percentage rate on the loan exceeds the average prime offer rate) is among the "new" data elements, so institutions eligible for relief will not be required to collect or report that data, even for higher-priced mortgage loans. (The requirement to report the rate spread on higher-priced mortgage loans predates the Dodd-Frank Act and the Bureau, so in that sense the rate spread data is not "new.") Nonetheless, the Bureau indicates that it may initiate a separate rulemaking to consider reinstating the requirement to report the rate spread on higher-priced mortgage loans.

Recognizing that institutions already are collecting the new data, and that certain institutions may be near the cut-off thresholds and thus move in and out of eligibility for relief, the Bureau's interpretive rule clarifies that institutions may voluntarily report the new data. If an institution decides to report new data, though, they must report all the data fields within the data point.

The Bureau estimates that this relief, while perhaps late in arriving, could affect approximately 3,300 institutions. Many of those institutions may, nonetheless, decide to continue collecting that new data, even if they opt out of reporting it. Having gone to the immense trouble and expense of implementing the new data collection requirements, those institutions may at least want to reap the benefits internally – that data may certainly be useful to an institution seeking a better understanding of its lending activities, enhancement of its product offerings, and deepening of its market penetration.

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© Copyright 2018. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

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