The New CFPB HMDA Rules

Transcription

1 The New CFPB HMDA Rules What You Need to Know Thank you for attending. The webinar has started.

2 Today s Panelists Kathleen Ryan Counsel BuckleySandler LLP Leonard Ryan President QuestSoft Corporation Moderator Scott Mortenson Marketing Director QuestSoft Corporation

3 The New CFPB HMDA Rules: What You Need To Know May 24 and June 2, 2016 Kathleen C. Ryan Counsel

4 Overview of New HMDA Rule The new rule changes: Who must collect and report HMDA data What applications and loans must be reported What data points must be collected and reported When data are reported (for large-volume filers only) How the data be made public The new rule does not address: What data will be released to the public CFPB will seek public input on public release and the balance between borrower privacy and HMDA s disclosure purposes (800) BuckleySandler LLP / QuestSoft Corporation. All Rights Reserved.

5 When is the New Rule Effective? Most of the rule is effective for applications for which final action is taken on or after January 1, 2018 Exceptions: Expanded race and ethnicity categories (effective for information collected on or after January 1, 2018) Quarterly reporting for FIs who reported at least 60,000 LAR lines in the previous calendar year (effective in 2020) Exemption for depository FIs who make less than 25 closed-end covered loans (effective January 1, 2017) Submit data to CFPB (not FRB) by March 1, 2018 for Year 2017 data (800) BuckleySandler LLP / QuestSoft Corporation. All Rights Reserved.

6 Who Must Collect and Report Data? Financial Institutions that Made at least 25 closed-end dwelling-secured loans in each of the two preceding calendar years or Made at least 100 open-end dwelling-secured lines of credit in each of the two preceding calendar years; and Have a home or branch in an MSA But, depository FIs who fall below the asset threshold published annually by the Bureau are exempt in the next calendar year (800) BuckleySandler LLP / QuestSoft Corporation. All Rights Reserved.

7 What Loans Must Be Reported? More transactions must be reported: Closed-end dwelling-secured loans/applications if FI made at least 25 such loans in either of the last two calendar years Open-end dwelling-secured lines/applications if FI made at least 100 such lines in either of the last two calendar years Exceptions: The new rule has kept many of the current exceptions, e.g., temporary financing, construction-only loans, and agricultural loans Note: some commercial-purpose loans and lines must be reported if dwellingsecured and are for home purchase, home improvement or refinancing, and not otherwise excluded (eg. construction loan) Deletions: FIs will no longer report any unsecured home improvement loans under the new rule (800) BuckleySandler LLP / QuestSoft Corporation. All Rights Reserved.

8 What Data Must Be Reported? Application/loan information Application date Preapproval request (modified) approved but not accepted mandatory Loan amount (modified) Action taken/date (modified) Reason for denial (modified) includes free form field for other (800) BuckleySandler LLP / QuestSoft Corporation. All Rights Reserved.

9 What Data Must Be Reported? Application/Loan Information Application channel -wholesale vs. retail Reverse mortgage Flag Open-end Flag Business or commercial purpose Flag Home purchase, home improvement, refinancing purpose flags (modified) (800) BuckleySandler LLP / QuestSoft Corporation. All Rights Reserved.

10 What Data Must Be Reported? Property information Occupancy type (modified) Construction method (modified) site built vs. manufactured home Manufactured home secured property type(-secured by land or not Manufactured home land property interest(-is land owned or leased (800) BuckleySandler LLP / QuestSoft Corporation. All Rights Reserved.

11 What Data Must Be Reported? Property information Property value Total units Multifamily affordable units (new)-income restricted units Property information/location Property location (modified) Property address-street number, city, zip code (800) BuckleySandler LLP / QuestSoft Corporation. All Rights Reserved.

12 What Data Must Be Reported? Identifiers Mortgage Loan Originator (MLO) Identifier Legal Entity Identifier (LEI)-identifies reporting institution Currently, transmittal sheet requires ID Uniform Loan Identifier (ULI) must include the LEI Currently, loan/application number (800) BuckleySandler LLP / QuestSoft Corporation. All Rights Reserved.

13 What Data Must Be Reported? Applicant information (GMI) Whether collected by visual observation or surname Ethnicity (modified)-allow subcategories, other Race (modified)-allow subcategories, other Sex Age in years as computed from date of birth on application (800) BuckleySandler LLP / QuestSoft Corporation. All Rights Reserved.

14 What Data Must Be Reported? Applicant/underwriting information Income (clarified) DTI ratio - relied on CLTV ratio Credit score - score, name, version AUS results - result, system that is used to evaluate (800) BuckleySandler LLP / QuestSoft Corporation. All Rights Reserved.

15 What Data Must Be Reported? Pricing information Total loan costs From TRID Closing Disclosure or points and fees for loans not subject to TRID Origination charges From TRID Closing Disclosure Discount points From TRID Closing Disclosure Lender credits From TRID Closing Disclosure Interest rate (800) BuckleySandler LLP / QuestSoft Corporation. All Rights Reserved.

16 What Data Must Be Reported? Pricing information cont d Rate spread (modified)-expanded to all Reg Z loans Other information Type of purchaser HOEPA status Lien status Loan type, e.g., FHA (800) BuckleySandler LLP / QuestSoft Corporation. All Rights Reserved.

17 What Data Must Be Reported? Loan features Loan term (new) Prepayment penalty term (new) Introductory rate period (new) Non-amortizing features (new) (800) BuckleySandler LLP / QuestSoft Corporation. All Rights Reserved.

18 When Must The Data Be Submitted? Annual submissions for all FIs covered by the rule submissions are due by March 1 of the calendar year that follows the calendar year in which the data was collected Quarterly submissions only for FIs who reported at least 60,000 LAR entries (excluding purchases) in the preceding calendar year must submit data within 60 days of the end of each of the first 3 quarters (Q4 is filed with the annual submission). Effective in (800) BuckleySandler LLP / QuestSoft Corporation. All Rights Reserved.

19 How Will The Data Be Made Public? LARs--FIs will make their LARs available upon request by pointing requestors to the CFPB s website FFIEC--The CFPB has not yet announced what data, if any, will be redacted for privacy reasons The CFPB has indicated that it will give the public an opportunity to comment on privacy protections (800) BuckleySandler LLP / QuestSoft Corporation. All Rights Reserved.

20 The New CFPB HMDA Rules: Rule Implementation May 24 and June 2, 2016 Leonard Ryan President

21 Universal Loan Identifier (ULI) The New Required Way to Identify Loans A 45 character string of specific numbers The internal loan number may use numeric or alphanumeric and you as an lender have up to 23 charters to use.

22 Universal Loan Identifier (ULI) Elements Legal Entity Identifier (LEI) 20 Character Field to be standard for all lending institutions Your Loan Number Up to 23 characters PLUS a 2 digit check digit ULI Required for All HMDA Transactions Action Code 1 Always Assigns Action Code 6 (Purchased) Assigns for loans prior to 2018

23 Legal Entity Identifier (LEI) What is the LEI? The LEI is a unique, 20-digit alphanumeric identifier associated with a single legal entity and is intended to serve as a uniform international standard for identifying participants in financial transactions Already in use by many countries Mandated in the U.S. for money funds and derivatives reporting Where do you get one today?

24 Government Monitoring Information (GMI) Expansion New GMI will be problematic Ethnicity Adding Four Sub-Ethnicities 11-Mexican, 12- Puerto Rican, 13-Cuban, 14-Other If other, specify Race Adding Eleven New Sub-Races 21-Asian Indian, 22-Chinese, 23-Filipino, 24-Japanese, 25-Korean, 26-Vietnamese, 27-Other Asian, If other, specify 41-Native Hawaiian, 42, Guamanian or Chamorro, 43-Samoan, 44- Other Pacific Islander (specify)

25 Government Monitoring Information (GMI) Expansion Free Form Entries For American Indian or Alaskan Native, must provide tribe. (According to the Federal Register, there are 567 tribes as of July 2015.) All Other Fields require entries. Other Race can be anything Visual Observation Confirmation Expanded Separate confirmation fields for Ethnicity, Race and Sex How is a LOS or HMDA Management System supposed to monitor this? Any loan taken in person would require Sex field? What if you accidentally check out their Linked In page? You receive their driver s license and it says F under the Sex field? Few or No LOS really has a background Race, Ethnicity, Sex field so your visual observation prints on the URLA or has data issues.

26 CFPB HMDA GMI Info Being Added to New URLA Summary of URLA Form Updates Removed a number of fields including (but not limited to) property legal description, automobile owned, year built, and net worth. Updated borrower contact information, such as cell phone number and address. Added a new military service section to assist veterans seeking and qualifying for VA loan opportunities. Made it easier to identify employer and self-employment information. Included fields to collect more detailed information about the property and loan purpose, including refinance types, energy improvements, and project types. Added amortization types and loan features describing the mortgage and loan terms. Updated the acknowledgement, agreement, and authorization sections to benefit the consumer and industry participants who use the loan application (e.g., mortgage insurers). Revised government monitoring information (ethnicity and race) in accordance with the new Home Mortgage Disclosure Act requirements issued by CFPB.

27 CFPB HMDA Field Collection Requirements Government Monitoring Information Existing selections can continue to be collected By law and regulation, the new selections CANNOT begin to be collected until 1/1/2018 Compliance RELIEF will issue validity error in CFPB HMDA screen if used for testing in All other Fields must be collected in 2017 for loans with Final Actions of 1/1/2018 or later PERIOD!

28 GMI Use in Future Regulations Where Else Might This New GMI Data Be Applied? Community Reinvestment Act (CRA) Dodd-Frank Act requires CFPB to develop rules to collect information on women-owned, minority-owned and small businesses. CFPB has stated it is building off of the HMDA rule as it works on this project. Expect to hear something from the CFPB in the fall of 2016 or later. Auto Lending Both Direct Sales and Auto Title Companies Student Loans Payday Lending

29 Regulation Specs That Make Software Companies Cringe What to Do With Other? Do we allow for Free Form entry? Will produce many inconsistencies For Indian tribes (Sioux, Sue, Seuw) For Other Asian do we get Philapino or Philipano or Philapines (or even Philadelphian) rather than the already added Filipino? Will be nearly impossible to manage in larger operations Do we lock in Other choices? Will that create fair lending issues with steering their Other selection choice? Will there be any statistical relevance to any of the Other categories or is this going to turn out as just a busy exercise for the industry?

30 Geocoding and Parcel Numbers Geocoding Combines Four Fields Into Two County Field is combo of State Code and County Code Census Tract is combo of State Code, County Code & Census Tract Property Address Required to Satisfy Parcel Info According to Page 213 of the final regs, the CFPB considered requiring parcel numbers too burdensome and non-standard. Therefore, they plan to use Property Address and shift the process of obtaining and storage of parcels to the bureau.

31 QuestSoft CFPB HMDA Geocoding Enhancements CFPB Expected to Upgrade Geocoding Will Allow QuestSoft to Integrate CFPB Geocoding into Instant Geocoder Will Enable Instant Geocoder to geocode using multiple sources without increased costs We will offer more Features and Protection More ability to cross reference sources to ensure accuracy for QuestSoft customers. There are between 1.2 MILLION and 2 MILLION address changes per year. Accuracy is still the most important element.

32 Industry and Vendor Considerations When Does the Work Start with LOS Systems? First The File Specifications LOS Vendors and HMDA Management Systems needed the File Specs before business analysts that design the systems can document the changes. These were not October, These were issued February, Then File Definitions The CFPB has indicated a July estimated time frame for these. Again, this affects the designers of the LOS systems Then Estimating the Scope and Scheduling programming Programmers want to do this once the first time and then deal with corrections. They are not sitting there waiting for the CFPB. They have to program in the new URLA, the ULDD, and deal with other enhancements that customers want to actually bring in business.

33 Good News for QuestSoft Customers QuestSoft Already has most of the fields Only about 15% of fields need to be added by LOS vendors Fair Lending features and Integrations have already covered most of the fields. New Fair Lending fields to further protect our customers being added to formats.

34 Internal Challenges of CFPB HMDA Definitions of Application Differences Exist Between TRID and HMDA Differences Between HMDA and NMLS MCR How Many Application Dates Can a LOS Program Have? Error Rates and Data Integrity Issues New GMI Fields need to be programmed by all LOS systems Three Times the fields = Ten Times the possibility of errors Your organization has never scrubbed these new fields before Bad Data greatly expands exposure to fair lending risk

35 QuestSoft Products to Support CFPB HMDA Compliance RELIEF CFPB HMDA Available Jan 1, 2017 Real Submission = 2017 Format with Free Supplemental 2018 testing * * subject to data exported by your LOS vendor.

36 Examples of Data Expansion in CFPB HMDA

37 Difference - Current HMDA and CFPB HMDA

38 QuestSoft s Plans for Our Customers Data Specs to LOS Vendors In Process Since 4/16 Operational System By October 2016 QuestSoft will certify LOS Systems for CFPB HMDA During 4 th Qtr Error Testing Starting with 2017 Data Available in Compliance RELIEF and Instant HMDA only Use live data to discover errors using 2018 rules Objective is to have all data collection issues and customer training concerns addressed, corrected and adjusted by January 1, 2018.

39 QuestSoft Software Transition New CFPB HMDA Capabilities will Only Exist in Compliance RELIEF and Instant HMDA products HMDA RELIEF will be sunset December 31, 2017 Will be able to submit in new CFPB format when they take over the 2017 submission in First Quarter NMLS Mortgage Call Report Will be Solely Supported in Compliance RELIEF Beginning in 2017

40 Reasons Why Compliance RELIEF Will Remain The Best New CFPB HMDA Provided Error Checking Additional QuestSoft Error and Accuracy Checking Cross Reference of fields to Catch Inconsistencies Multiple Geocoding Sources to Ensure Better Accuracy Additional Fair Lending Coverage Above CFPB Fields You are Far Better Prepared to Defend Your Institution PRIVACY CFPB Watching Your Every Entry? Scrubbed Data Consistency Across Regulations HMDA, Fair Lending, CRA, NMLS MCR, State Reports

41 WARNING: Instant Fair Lending! Everything is pointing to highly automated FAIR LENDING The analysis will be created within minutes Data Accuracy and Integrity MUST be elevated There will be no second chance with the media and consumer groups Regulators will probably accept resubmissions Community groups will publish your first results on front page Corrections will be in a little box on an inside page, if at all

42 Impact on Fair Lending Compliance Information currently proprietary will now be shared among regulators Regulators and Examiners no longer need to wait until examination time to assess fair lending compliance. Agencies will have comparison data from all other institutions and geographies Determination of lowest tier or outliers will be immediate

43 Impact on Fair Lending Compliance (continued) It s probably only a matter of time for most of the data to be made public. public HMDA data [should] be modified only when the release of the unmodified data creates risks to applicant and borrower privacy interests that are not justified by the benefits of such release to the public. In other words, protecting the privacy of mortgage applicants will be the only limit on how the data is released New Fields to expect to be released immediately will be NMLS LO ID, New GMI info, possibly total points, fees, loan costs, application channel, loan type expansion for reverse mortgage, business purpose

44 What to Do Today Don t Panic Nothing Officially Changes on Data Collection until 2018 Don t Push LOS Vendors Until 2017 Most of the fields are in systems already. They just need some expansion of enumerations. Also CFPB is still tweaking specs. Do Start to Plan Data Collection and Training Think Fair Lending & Multiple Co-Borrowers

45 CFPB HMDA Resources Accessing Information on New HMDA Rules

46 Questions? Kathleen Ryan Counsel BuckleySandler LLP Leonard Ryan President QuestSoft Corporation

47 Thank you for attending. The webinar has now ended. You may continue to present questions for the next few minutes. For a copy of today s presentation, go to QuestSoft Corporation. All Rights Reserved.