The new Home Mortgage Data Act (HMDA) data reporting requirements effecting the overwhelming majority of mortgage lenders don’t go into effect for over a year, but experts – and savvy lenders – say the time to prepare is now.

The new requirement more than doubles the amount of data lenders have to report electronically to regulators on loans that close on and after Jan. 1, 2018, even if the loan application is submitted in 2017.

According to the Consumer Finance Protection Bureau, the enhanced data will help determine if lenders are serving the housing needs of their communities, help public officials distribute public-sector investment where it is needed, and help identify discriminatory lending practices.

Lenders should at this point be familiar with the process of preparing for regulatory changes; after all, TRID went into effect this year and was fairly well received, said Ben Giumarra of Spillane Consulting, who works with lenders on compliance and regulatory issues. It’s one more change that the already heavily regulated industry should be able to absorb – as long as they take the time to prepare.

“It’s not all doom and gloom,” Giumarra said. “People know how to do this. There will be task groups and senior management is getting involved. That’s important, so they can make the right decisions. If you start preparing now, internally, you’ll save money down the road. People who start late will have to scramble.”

Originators and lenders are beginning to – or already have begun – to focus on this next regulatory hurdle.

“The rules and regulations have changed so much and we’ve put so much into compliance and legal support to make sure we’re doing things right,” said David Lazowski of Fairway Independent Mortgage. “It’s not going to change our course in any way. One thing that is consistent is change.”

Lazowski said Fairway intends to address the new rules in the first quarter of 2017.

That’s a good plan, says attorney Kathleen Ryan, of Buckley Sandler LLP in Washington, D.C., and former deputy assistant director for the Office of Regulations at the CFPB. It’s not just a matter of identifying and collecting new data, but also of testing it once it’s collected.

“Lenders absolutely should be trying to see what their HMDA data looks like before their regulators do in spring 2019, which seems far away, but in reality it isn’t,” she said. “Chances are you’ll find something in your data that doesn’t look good and you want to have time to understand it, explain it or fix it and be on top of it before regulators see it.”

Ryan also noted that lenders and their vendors are fatigued from TRID and Title XIV implementations and may not be allowing enough time to work out any differences in interpretations before a vendor product is used.

“If history is any guide, lenders may find themselves without sufficient time to test and be ready to roll with the changes when they need to,” she said. “They’re exhausted and counting on their vendors, who may be serving multiple institutions whose attorneys may not all agree on how things should be done.”

Error Rate Expected To Rise

HMDA reporting errors are already among the most common reported in New England by the CFPB; “lenders already had to have perfect reporting, but now it will be that much harder to get right,” Giumarra said. “They will be required to collect data on 48 different fields, instead of just 20 or so. That increases the likelihood of human error. Some clients pull this data electronically, which minimizes error, but 20 or 30 percent of lenders do it manually.”

Those errors can be costly; while fines are not an everyday occurrence, even lesser regulatory actions, such as resubmissions, add up.

“They might not be fined, but if the errors found in an examination of the data meets a fairly low error threshold, they may have to resubmit all of their data,” Ryan said. “An error rate of 10 percent of a sample of loan files can trigger resubmission. And, even outside of an exam, when an institution submits its data to the regulators initially by March 1, error reports are generated and the process of responding to the errors can go on and tie up staff for weeks or months.”

Also of concern, Under the new regulations, lenders will be required to report all of their pricing information. And since all HMDA information is online and searchable, that means “you can search the data by lender and by product in an Excel format,” Giumarra said. “You can sort by state, or highest average price and consumers and competitors can dig that up. That’s why business leaders should be involved. Lenders are always worried about the commoditization of the mortgage product, as opposed to it being seen as a special product.”

Lazowski said he’s not particularly concerned about pricing information being made public. He said Fairway’s rates and fees are competitive and he thinks consumers are more moved by excellent service than by saving a few dollars in fees.

“I think that if lender rates and fees are accessible to the consumer, it helps put us on a level playing field,” Lazowski said. “But at the end of the day, it’s always about service.”

Changes Wrought By New Administration

Even though the House is considering a bill that would replace the Dodd-Frank Act, a law the president-elect has also said he’d like repealed, Giumarra said lenders should take the requirements seriously.

“If you look at the Financial Choice Act, nothing in that from what I can tell is geared toward mortgage lending,” Giumarra said. “It is directed toward securities and Wall Street. I don’t see people repealing the regulations the CFPB put in place. It would take years to undo what took years to put in place.”

Ryan had a similar view, saying that if the CFPB and other federal agencies had to relax their Fair Lending enforcement, HMDA data is still publicly available and lenders could risk actions from other entities.

“The nature of the new HMDA data is such that a bank could still face action from an aggressive attorney general, investigative reporters or the private bar because the data will be quite revealing,” Ryan said. “There will be a lot of pricing information in the data and my guess is that at first blush it will appear on the surface that some lenders have patterns that appear to be troubling, even if the lender can ultimately explain the data. There are still risks outside of an aggressive CFPB.”

The nearly 800-page HMDA rule is online on the CFPB’s website. A five-page summary of the HMDA rule is also available.