In the wake of the Consumer Finance Protection Bureau’s (CFPB) recent $1.75 million civil penalty against Nationstar Mortgage for Home Mortgage Disclosure Act (HMDA) violations, mortgage lenders are well-advised to prepare for the changes in HMDA reporting requirements that take effect in less than six months.
Starting Jan. 1, 2018, the Home Mortgage Disclosure Act (HMDA) reporting requirements are going to roughly double to include dozens of new and revised data points about borrowers and the properties they use to secure their loans. The changes apply to those loans closed in the new year and afterward, even if those loans were originated this year.
Preparation Is Key
Brian Koss, executive vice president and national head of production at Mortgage Network, said his team has been preparing for compliance with the new HMDA data reporting requirements since they were announced. Koss plans to collect the new data and test Mortgage Network’s Loan Originating Software (LOS) before the new requirements take effect to ensure accuracy.
“We have our own proprietary LOS and we have been customizing it for a while,” Koss wrote in an email. “I can tell you we have been working on meeting the requirements since we saw the announcement.”
The Cape Cod Five Cent Savings Bank uses a third-party vendor for its LOS, according to David Brennan, the bank’s senior vice president and chief residential lending officer. He said the vendor is working on updating their software and Brennan expects it to be ready by the end of the third quarter or beginning of the fourth quarter of 2017.
“In the meantime we’re looking at new developments regarding interpretation of the new requirements,” Brennan said. “We’re also training our people in the new processes in data collecting and getting used to that. You know, we’ve been here before with TRID.”
The implementation of TRID in October 2015 was another big, federally-mandated change that changed the way lenders did business. There were some sticky moment in the beginning, but within few months, lenders and other stakeholders got used to it. Brennan expects the changes in the HMDA reporting requirements to unfold similarly. And to be sure, they’re going to step up their internal auditing.
“What we’ve done in the past and will do with HMDA is look at 100 percent of the loans out of the gate until we have a strong comfort level with the quality of the data,” Brennan said. “We want to be sure we’re doing it right and focus on what mistakes we might be making.”
Lenders Prep Their People
While their third-part LOS vendor is focused on updating the software, Jay Tuli, senior vice president of retail banking and residential lending at Leader Bank, is focused on training his people.
“Although there are several new reports we will need to run to ensure data accuracy for the CFPB, the real change from a personnel perspective is with regard to the way we interview customers to collect the data,” he said. “That’s where we might need to do some training.”
Under current rules lenders are required ask about the borrower’s race or ethnicity during the application process. Under the new rules they’ll have to get more specific. Borrowers can – and often do – decline to answer questions about their race. When borrowers decline, the loan originator has to guess (for an in-person interview only), which Tuli said is difficult, “but it’s one of those things we have to do.”
“If a borrower fills out an application online or on the telephone and they decline to tell us their race, we don’t have to guess,” he said. “We rarely take in-person applications these days; most of them are electronic or by phone.”
He’ll be spending the months leading up to 2018 making sure his bank is ready.
“Technically we can’t begin asking these additional questions until the live date of Jan. 1, 2018, but we will be doing extensive testing to ensure that our processes and systems are accurate prior to that date,” he said.
Mortgage compliance experts have suggested there is a benefit to start collecting the newly required data early and reviewing it to see if they show Fair Lending violations that wouldn’t have come up under the old rules.
“Being a community bank, I’m not as concerned about that. We’re already under a huge amount of scrutiny from the FDIC and we’re always doing internal reviews,” Brennan said. “My bigger concern is there are so many elements in one loan file I want them to be 100 percent correct. Data elements need to be 100 percent perfect. I am not concerned about us having issues with fair lending.”
A dozen of the top Massachusetts-based lenders in 2016 were contacted for this story. Most did not respond to requests for comment.
