Ben Giumarra

Across the country, banks, credit unions and non-depository mortgage lenders are starting to brace for implementation of the final major regulatory reform provision from the Dodd-Frank Act. The Consumer Financial Protection Bureau has published final rules reforming the Home Mortgage Disclosure Act (HMDA), with a staggered rollout of provisions, some of which take effect on Jan. 1, 2017, with subsequent Jan. 1 implementation deadlines through 2020.The ability to adapt to new regulations has become a competitive advantage for the companies efficiently changing procedures, good training programs and decisive decision-making by company leaders.

I believe many (if not a majority of) mortgage lenders in New England are taking this seriously and starting to prepare in earnest. These Dodd-Frank veterans are battle-tested and have seen heavy action since 2010; I believe they’ll get through HMDA even better than they did the major compensation, servicing, underwriting or disclosure regulations passed in recent years.

When To Start? 

I suppose you could wager that President-Elect Donald Trump dismantles Dodd-Frank before your next compliance exam, but I vote for starting to prepare immediately. And some serious lenders appear to agree.

Early preparation and involvement by business leaders will enable strategic decision-making, such as with negotiations with vendors or other institutions or the allocation of resources. Companies are always betting on future events (e.g., how would a hypothetical trade war affect interest rates?). With a major regulatory change like this, future shifts in strategy could be readily apparent to anyone who studies the proposed rules. Institutions where the HMDA rules will be implemented by employees without the direct involvement of leadership may be disadvantaging themselves.

Where To Start? 

The first thing to understand are the various deadlines. The January 2018 deadline, when the new data collection and reporting requirements take effect, is the only one relevant to the vast majority of lenders.

Specifically, lenders must collect and report the new data fields for any loan where final action is taken on or after Jan. 1, 2018. So lenders will have to manage this transition, as a 2017 application may or may not be subject to the new requirements, depending on when final action is taken.

The particular issue of how to handle 2017 applications has caused mass confusion (recent CFPB rule changes contributing to this), but in summary:

• Where final action is taken in 2017 on a 2017 application, the new HMDA rule has no impact.
• Where final action is taken in 2018 on a 2017 application, the lender must report the new/modified data fields.
• A special rule applies regarding new data fields on race and ethnicity – “government monitoring information,” or GMI – which gives lenders flexibility in complying with the 2018 deadline: Where final action is taken in 2017 on a 2017 application, the lender must report the old GMI data but may voluntarily collect the new GMI data. Where final action is taken in 2018 on a 2017 application, the lender may choose whether to collect and report the old GMI data or to collect and report the new GMI data.

This flexibility is a good thing; collecting and reporting the GMI data requires personal questions to be answered by the borrower. This is unlike most of the other information, which can be collected without re-interviewing the borrower.

This flexibility was written into the rule for two purposes: to help lenders avoid violations of ECOA, and to permit lenders to ease compliance burden by starting to use new forms and processes early, at their own pace.

With more information on more loans, starting in spring 2019 regulators will use the new HMDA data to quickly identify (through statistical tools) fair lending issues they would never have found before (at least without spending a month digging through loan files). Certainly any lender will want to self-identify any such issues beforehand.

One example is with pricing discrimination. Regulators (and the public and competitors) will now have a complete set of pricing data on 100 percent of loans (previously we only reported a very small amount of pricing data on a very small number of loans). This will make it easier to find pricing discrimination. Lenders that still allow sales officers significant discretion in loan pricing should be paying sharp attention.

Another good early step will be to identify which loan products are affected. While all consumer-purpose loans and lines secured by a dwelling will now be reportable, there are special rules for business-purpose loans and unsecured loans are now not reportable. The big addition is HELOCs, which will now be subject to HMDA.

So despite sales recruiters still promising compensation packages that violate 2014 TILA rules, closing attorneys still resisting post-TRID closing realities, and the secondary market still grappling with ability-to-repay/qualified mortgage risks, mortgage lenders are forced to move on to the next major challenge.

Ben Giumarra is a risk management consultant with Spillane Consulting. He may be reached at BenGiumarra@SCAPartnering.com.