On October 15, 2015, the Consumer Financial Protection Bureau ("CFPB") finalized a rule designed to update the kind of information reported under the Home Mortgage Disclosure Act ("HMDA") and ease reporting requirements on smaller financial institutions. According to CFPB director, Richard Cordray, the new rule will "shed[] more light to foster better understanding of the market, and also ensur[e] that lenders have sufficient time to come into compliance."
The HMDA was first passed in 1975 and requires lenders to report information concerning home loans for which they received applications or loans which lenders originated or bought. Members of the public and officers have used the information reported under the HMDA to, among other things, determine if lenders are adequately serving communities, to aid in distributing public sector investment, and to identify discriminatory lending practices. The Dodd-Frank Act, passed in 2010, directed the CFPB to ensure that the HMDA included more information concerning applications and loans to increase understanding of the mortgage market.
Last year, lenders reported on approximately 12 million mortgage applications, pre-approvals and loans. However, the reported data did not identify key features of these mortgages such as whether the loans were adjustable rate mortgages or non-amortizing loans.
The finalized rule will require reporting to include information regarding property value, the term of the loan, and the duration of any teaser or introductory interest rates. Lenders will also have to report an applicant's debt-to-income ratio, the loan's interest rate, and any discount points charged to the loan. The new rule also expands the kinds of loans covered for reporting purposes so that reverse mortgages and open-end lines of credit now fall under the reporting requirements.
Apart from these reporting requirements, the CFPB claims that the new rule will lessen reporting requirements for small banks and credit unions. Under the new rule, small depository institutions with low loan volume do not have to report data under the HMDA. As a consequence, the total number of banks and credit unions required to report data will be reduced by 22 percent.
The majority of the provisions under the new rule will take effect on January 1, 2018, meaning that lenders will collect information during that year and must report the information by March 1, 2019.
The finalized rule can be found at http://files.consumerfinance.gov/f/201510_cfpb_final-rule_home-mortgage-disclosure_regulation-c.pdf.
The CFPB's press release on the new rule can be found at http://www.consumerfinance.gov/newsroom/.
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