Banking and Finance Law Daily CFPB eases HMDA reporting duties for small lenders; clarifies 2015 final rule
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Thursday, August 24, 2017

CFPB eases HMDA reporting duties for small lenders; clarifies 2015 final rule

By John M. Pachkowski, J.D.

The Consumer Financial Protection Bureau has issued a final rule amending its October 2015 HMDA Final Rule that updated the regulations implementing the Home Mortgage Disclosure Act. The 2015 HMDA Final Rule sought to reduce the number of lenders that must file reports but require more data to be collected and reported (see Banking and Finance Law Daily, Oct. 15, 2015).

The 2017 HMDA Final Rule, which makes technical corrections, clarifications, and changes to certain requirements adopted by the 2015 HMDA Final Rule and generally becomes effective Jan. 1, 2018, is based on two earlier proposals that the CFPB issued in 2017.

An April 2017 proposal sought to address technical errors, ease the burden of certain reporting requirements, and clarify some key terms (see Banking and Finance Law Daily, April 13, 2017).

A second proposal, issued in July 2017, sought to offer community banks and credit unions some regulatory relief by proposing a temporary 400-percent increase in the HMDA reporting threshold for home equity lines of credit (see Banking and Finance Law Daily, July 14, 2017).

Threshold changes. The 2017 HMDA Final Rule temporarily increases the threshold for collecting and reporting data with respect to open-end lines of credit from 100 to 500 for the 2018 and 2019 calendar years. Financial institutions originating fewer than 500 open-end lines of credit in either of the two preceding years will not be required to begin collecting such data until Jan. 1, 2020.

When proposed, the Bureau indicated that it was considering making the threshold increase permanent after 2020. However, it chose not to do so in the final rule. The CFPB noted it was "vitally important to begin the collection and reporting of data on the growing market for open-end lines of credit and that the increase in open-end origination volume since 2013 further demonstrates the importance of these data." The CFPB did add that the two-year period will allow time for it to decide, through an additional rulemaking, whether any adjustments to the open-end threshold are needed; and that it "intends to make that determination in sufficient time so that if institutions are covered under any permanent threshold set by the Bureau but not under the temporary threshold, those institutions will be able to resume and complete their implementation processes."

Excluded transactions. The 2017 HMDA Final Rule also creates a reporting exception for certain transactions related New York Consolidation, Extension and Modification Agreements (New York CEMA) transactions. Covered financial institutions generally will not be required to report any preliminary transaction where a consumer receives additional funds prior to consolidation into a New York CEMA transaction. However, financial institutions will continue to be required to report the New York CEMA transaction.

In addition, the 2017 HMDA Final Rule clarifies two categories of transactions that are excluded as temporary financing and not reported in HMDA data: (1) a construction-only loan or line of credit that is extended to a person exclusively to construct a dwelling for sale; and (2) a loan or line of credit designed to be replaced by separate permanent financing extended by any financial institution to the same borrower at a later time.

Key terms clarified. The 2017 HMDA Final Rule also clarifies certain key terms defined in the 2015 HMDA Rule, including "multifamily dwelling," "automated underwriting system," and the meaning of income for the purpose of reporting the gross annual income relied on in making the credit decision or processing the application if a credit decision was not made.

Race and ethnicity information. Finally, the 2017 HMDA Final Rule clarifies three aspects of collecting and reporting race and ethnicity information. First, it states that an applicant is not required to select an aggregate race or ethnicity category as a precondition to selecting one of the race or ethnicity subcategories. Second, it clarifies that an applicant may provide a particular other ethnicity or race in the free-form field, whether or not the applicant selects the "Other" ethnicity or race subcategory. Third, it clarifies how a financial institution should report ethnicity if an applicant selects more than five ethnicity categories and subcategories combined.

Filing Instructions Guides. To assist financial institutions, the CFPB has also updated the Filing Instructions Guides for data collected in 2017 and 2018.

Promoting transparency. Commenting on the Bureau’s latest rulemaking, CFPB Director Richard Cordray said, "The Home Mortgage Disclosure Act is a vital source of information on the health and fairness of the mortgage market. Today’s amendments show that the Consumer Bureau is committed to ensuring that financial institutions are able to comply with the rule and to promoting transparency across the largest consumer financial market in the world."

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