HMDA – Relief or Confusion?
A little change can be a good thing. It can allow for improvements and challenge us. However, with all of the changes associated with the Home Mortgage Disclosure Act (HMDA), it seems the intended “relief” may be creating confusion.
Three new “final rules” on the topic of HMDA have been issued in the last four years. If that isn’t enough, on May 2, 2019 the Consumer Financial Protection Bureau (CFPB) issued a Notice of Proposed Rulemaking (NPRM) proposing additional changes to HMDA.
The NPRM addresses the coverage threshold and the partial exemption related to HMDA. Here is a recap of the adjustments to the transactional threshold and final rules over the last few years. First, the issuance of the 2015 HMDA Final Rule on October 15, 2015 created an overhaul of HMDA reporting. This resulted in changes regarding institutional coverage, transactional coverage, and additions and modifications of several data points. An institution was a HMDA reporter if it met the threshold of at least 25 closed-end mortgage loans in each of the two preceding calendar years or the origination of at least100 open-end lines of credit in each of the two preceding calendar years.
Next, the 2017 HMDA Final Rule was issued on August 24, 2017. As a result, the threshold to determine if open-end lines of credit were HMDA reportable was temporarily increased from 100 in each of the preceding two years to 500 for 2018 and for 2019.
The latest change came from the issuance of the 2018 HMDA Final Rule on August 31, 2018. Fortunately, the loan-volume threshold did not change; however, the partial exemption thresholds were added. Financial Institutions that originated fewer than 500 closed-end mortgage loans or 500 open-end lines of credit in each of the two preceding calendar years with a favorable CRA rating, if subject to CRA, would qualify for a partial exemption from reporting certain data points. All of this change leads us to the Notice of Proposed Rulemaking (NPRM) from the CFPB on May 2, 2019. So let’s cover what may be changing next.
The proposed rule has two components. First, it will adjust Regulation C’s institutional and transactional coverage thresholds. Second, it will implement the new partial exemption that came about from the passing of the Economic Growth Regulatory Relief Consumer Protection Act (EGRRCPA).
Currently, the transactional coverage threshold for determining whether an institution is to report closed-end mortgage loans is 25 in each of the two preceding calendar years. As I mentioned earlier, this was the threshold set under the 2015 HMDA Final Rule. However, the proposed rule would permanently raise that threshold to either 50 or 100 in each of the two preceding calendar years. The proposed change in threshold for closed-end mortgage loans would not take effect until January 1, 2020.
The other proposed change relates to the open-end lines of credit threshold. Currently, the temporary threshold for reporting open-end lines of credit is set at 500, which is set to expire in 2020. This temporary increase from 100 to 500 was established in the 2017 HMDA Final Rule. However, the proposed change would extend that temporary threshold of 500 effective January 1, 2020 and expiring on January 1, 2022. Once the temporary threshold expires on January 1, 2022, the threshold would decrease from 500 open-end lines of credit in each of the preceding two calendar years to 200. The proposed amendment means that the requirement for institutions that originate between 200 to 500 open-end lines of credit to collect HMDA data for open-end lines of credit would not begin until January 1, 2022.
The second component of the proposed change relates to the partial exemption, which was a result of the 2018 HMDA Final Rule and the passing of the Economic Growth Regulatory Relief Consumer Protection Act (EGRRCPA). This allowed qualifying institutions to be exempt from reporting certain data points added as part of Dodd Frank and the 2015 HMDA Final Rule. The proposed change will add section 1003.3(d) to Regulation C. This new section within the regulation will address the changes to data compilation for those institutions subject to the partial exemption. Overall, this will align Regulation C with the identification of what data points are exempt under the 2018 HMDA Final Rule. In addition, the proposed change will amend Regulation C to address how the partial exemption applies to a transaction after a merger or acquisition. These amendments to Regulation C would be effective January 1, 2020.
Overall, the proposed changes could allow relief to institutions that may not have been HMDA reporters prior to the 2015 HMDA Final Rule. At the same time, it prompts confusion on the status of a financial institution’s requirement to be a HMDA reporter. An institution may be a HMDA reporter one year and not the next year, but then qualify for the partial exemption in another year, which leads us to deliberate, is this relief or confusion?