Sue Quilty, Quilty & Associates (781)

Transcription

1 Sue Quilty, Quilty & Associates (781)

2 Agenda HMDA Today: Review HMDA in the Future: Proposed Changes Surviving HMDA Reporting 2

3 HMDA Review HMDA Overview Why is HMDA Important HMDA and Fair Lending HMDA: the Co plia e Repo t Ca d 3

4 Ho e Mortgage Disclosure Act HMDA Enacted by Congress in 1975 Requires depository and nondepository lenders to collect and publicly disclose information about housing-related loans and applications Does not prohibit any activity, nor is it intended to encourage unsound lending Data is used as basis for fair lending and community investment performance 4

5 HMDA Overview Loa Appli atio Registe LAR is the a e of the report LAR contains at least 26 data fields for each HMDA reportable loan LAR must be completed within 30 days of the end of each quarter Filed no later than March 1 st of every year 5

6 HMDA Overview Data Fields Currently on the LAR: Application Number Date Application Received Loan Type Property Type Loan Purpose Owner Occupancy Loan Amount Pre-approval code Action Taken Type Action Taken Date Property Location Codes: MSA, State, County and Census Tract Ethnicity Race Sex Income Purchaser Code Reasons For Denial (optional) Rate Spread HOEPA Status Lien Status 6

7 HMDA Overview HMDA Disclosure Requirements HMDA Poster must be displayed in the lobby of home office and each branch office Display in a prominent location 7

8 HMDA Overview HMDA Disclosure Requirements Modified LAR must be made available to the public within 30 days for requests made after March 1 Must delete application number, application received date and action taken date to protect member privacy Modified LAR must be available for 3 years 8

9 HMDA Overview HMDA Disclosure Requirements FFIEC posts by institution, which comprises an i stitutio s Dis losu e State e t Disclosure statement must be made available to the public within 3 days of posting to the internet Must be available for 5 years 9

10 HMDA and Fair Lending HMDA Data is core of Fair Lending Exams Data ust e elia le a d alidated Regulators follow clear HMDA Data Validation procedures Regulators follow clear HMDA Completeness Validation procedures Unreliable data results in mandated corrections, re-submissions and/or monetary penalties 10

11 The Fair Lending Exam CFPB Examination Guidelines ECOA Baseline Reviews: Modules HMDA Data Integrity ECOA Targeted Reviews Interagency Fair Lending Examination Procedures 11

12 The Fair Lending Exam ECOA Baseline Review Modules Module I Module II Module III Module IV Module V Module VI Fair Lending Supervisory History Fair Lending Compliance Management System (CMS) Risks Related to Mortgage Lending Policies and Procedures Risks Related to Mortgage Servicing Risks Related to Auto Lending Risks Related to Other Products 12

13 The Fair Lending Exam Module I Fair Lending Supervisory History Module II Fair Lending Compliance Management System (CMS) Review of policies, procedures, standards for monitoring Is there a Fair Lending Committee dedicated to issues? Is there a Fair Lending Officer? Detailed description of training Does the entity review major policies: pricing, underwriting, compensation? Are Fair Lending Audits conducted, including statistical analysis 13

14 The Fair Lending Exam Module III Risks Related to Mortgage Lending Policies and Procedures Review of underwriting: automated and manual What overrides or exceptions have been made, how are they tracked Review of compensation structures: including Regulation Z requirements Review of how loans are priced Review of any opportunities for employees to deviate from standard pricing up or down, to interest rate, fees or any other element Review of marketing and advertising practices 14

15 Fair Lending Data Analysis Critical Step: Collect and analyze the HMDA Data and other Fair Lending Fields Test the data integrity Add fields to a custom report Consider options for statistical analysis 15

16 Fair Lending Data Analysis Standard HMDA Data Fields: Census Tract Loan Type Loan Purpose Occupancy Loan Amount Action Type Applicant Race and Sex Co-applicant Race and Sex Applicant Income Purchase Type Denial Reason Enhanced Data Fields: Note Rate APR Loan to Value Credit Bureau Score Custom Credit Score Debt to Income Ratio Loan Type (Fixed, ARM) Loan Term Applicant Age or Birth Date Pre-paid Finance Charges Yield Spread Premium (if applicable) Broker Identifier 16

17 The Fair Lending Exam Transactional testing Designed to identify any patterns of discrimination in the credit-granting decision Compares approved and declined applications Pricing testing Designed to verify that borrowers were priced appropriately based on credit risk Looks for any trends that might indicate that charges were increased upon a prohibited basis 17

18 Fair Lending Data Analysis: Just a few examples Pricing disparities by prohibited bases Ex: APR for White versus Hispanic Ex: APR for age over 62 versus ages under 62 Ex: APR for females versus males 18

19 Fair Lending Data Analysis: Just a few examples Disparities for Cancelled Applications Denial rates for White versus Asian Denial rates for married versus unmarried Withdrawn/incomplete for White versus other races Processing times for White versus other races 19

20 October 9, 2013: Consumer Financial Protection Bureau CFPB A ou es HMDA E fo e e t A tio s Ordered Mortgage Master to pay $425,000 and Washington Federal to pay $34,000 in civil money penalties for violating HMDA Puts mortgage lenders on notice about the importance of submitting correct mortgage loan information under HMDA 20

21 October 9, 2013: Consumer Financial Protection Bureau CFPB P ess Release: Whe fi a ial i stitutio s epo t i a u ate i fo atio, it obstructs the purpose of the Home Mortgage Disclosure Act and makes it more difficult for the CFPB to discover and stop dis i i ato le di g, said CFPB Di e to Ri ha d Co d a. Toda e a e se di g a st o g sig al that o o tgage le di g institution whether bank or nonbank should be able to islead the pu li ith e o eous data. 21

22 HMDA: the Co plia ce Report Card ECOA Compliance = HMDA Compliance for many fields HMDA data collection requirements from application through post-closing HMDA data integrity trends help identify compliance training needs overall Root cause of HMDA errors is typically compliance weakness with other regulations Quarterly review of LAR: perfect opportunity to monitor performance 22

23 In the Future: HMDA Proposed Changes Under the Dodd-Frank Act, administration of HMDA was transferred to the CFPB. Dodd-Frank amended HMDA to add new data elements Dodd-Frank permitted CFPB to expand HMDA further CFPB issued HMDA Proposal on August 29, 2014 Comment period closed October 29, 2014 Final Rule expected July

24 HMDA Proposed Changes Per CFPB intends, among other things, for the changes to: Provide better information about the mortgage market Simplify reporting requirements and relieve burden for some institutions 24

25 Additional Data Fields Additional data fields specified in Dodd-Frank: Age of applicant: in # of years as of date of application Rate spread (for all loans) Credit Scores: Enter the credit score relied on in making the credit decision Include the name and version of the model used to generate the credit score choosing from a list of 10 Codes Requires tie in to action taken type: for example use code 9 if file was closed for incompleteness or the application was withdrawn before a credit decision was made 25

26 Additional Data Fields Non-amortizing payment features Answer True or False to Balloon Payment, Interest-Only Payments, Negative Amortization or Other Non-Amortizing Features Total points and fees Prepayment penalty term Property values Use NA if property value was not used in making the credit decision 26

27 Additional Data Fields Introductory Rate Period Loan term Application channel Indicate whether the application was submitted directly to your institution by answering true or false Indicate whether the loan was initially payable to your institution by answering true or false As app op iate, ide tifie s fo loa o igi ato s, loa s a d p ope t parcels. Other information, as the Bureau may require 27

28 CFPB Proposed Data Fields Using discretionary authority, CFPB proposes to require: Debt-to-i o e DTI atio If file was incomplete or withdrawn prior to a credit decision, enter NA Qualified Mortgage (QM) status 6 codes to choose from Combined loan-to- alue atio LTV Automated underwriting results 11 codes to choose from Specific rules on which codes are used for which automated underwriting systems 28

29 CFPB Proposed Data Fields Pricing information including: total origination charges total discount points risk-adjusted, pre-discounted interest rate: the rate the borrower would receive if no discount points were paid interest rate # of units in the subject property Total units and and multifamily affordable units 29

30 CFPB Proposed Data Fields Manufactured housing information Construction method: site built, manufactured, other Legal classification of manufactured home: real or personal property under state law Land property ownership: direct ownership, indirect ownership, paid leasehold or unpaid leasehold Also: include NMLS ID for Loan Originator 30

31 CFPB Proposed Changes to Current Fields Pu pose: Add Othe to the hoi es Occupancy: Principal, Second Home, Investment with Rental Income, Investment without Rental Income Postal Address added HOEPA: 4 code choices, due to APR, points and fees, or both Lien Status: 1 st, 2 nd, 3 rd, 4 th lien choices 31

32 CFPB Expanded Coverage Reverse Mortgage: whether open or closed end reverse mortgage HELOC: HELOC or open-end line of credit that is not a HELOC Report the amount of the HELOC or Open-end Reverse Mortgage First Draw 32

33 Proposed HMDA Changes CFPB intends to simplify reporting requirements with the HMDA Proposal. Standardize the reporting threshold for depository and nondepository institutions A new lower threshold of 25 covered loans for both depository and non-depository institutions Institutions with fewer than 25 covered mortgages in a year do not have to report HMDA data New threshold reduces the overall number of HMDA reporters by 25% 33

34 Proposed HMDA Changes E pa ds the loa s to e epo ted to i lude all loa s se u ed a d elli g i ludi g ho e e uit li es of edit HELOCs a d reverse mortgages; Requires reporting for purposes other than home purchase, refinancing or home improvement Eliminates reporting of unsecured home improvement loans Requires large institutions to report their data to CFPB quarterly. Large institutions are those reporting more than 75,000 transactions in the preceding calendar year 34

35 Proposed HMDA Changes CFPB addresses issue of privacy, expansion of data collection raises privacy and security concerns. Currently, application number, date of application and date of action taken are removed from LAR modified for public Under proposed rule, CFPB intends to modify the aggregate and loan level data made available to the public, beyond the current modifications 35

36 Proposed HMDA Changes Under proposed rule, given privacy and security risk to consumer, lenders would not include the new data points in the publicly modified LAR. However, regulator release of data not addressed Intend to clarify reporting requirements with this proposal Areas to be clarified: residential structures, preapproval programs, temporary financing and action taken 36

37 Industry Comments on Proposal Concerns about Privacy: HMDA does not include personal id, but loan level data combined with other data sources can result in ID of borrowers Concerns about Data Security: CFPB should institute additional safeguards before expansion of data collection Implementation Date: Expected to release final rules July Industry has requested first data collection to be for loans on and after January 1, Multiple concerns about data collection, inclusion of commercial loans, etc. 37

38 Surviving HMDA Reporting Establish an effective HMDA Compliance Management System! #1: Comprehensive policies, procedures, and internal controls to ensure ongoing compliance with the collection and reporting requirements set forth in HMDA and Regulation C; #2: Comprehensive and regular internal, pre-submission HMDA audits, to test and evaluate data accuracy, and that include a reasonable amount of transactional analysis, written reports detailing findings, and recommendations for corrective actions; 38

39 #3: Reviews of any regulatory changes that may have occurred since the prior examination and/or data collection and reporting cycle; #4: Reporting systems that are appropriate given the volume of the i stitutio s le di g operations; #5: One or more individuals assigned responsibility for oversight, data entry, and data updates, including the ti el a d a u ate epo ti g of the i stitutio s data; 39

40 #6: Appropriate, sufficient, and periodic employee training to ensure that responsible personnel understand HMDA and Regulation C standards and reporting requirements; #7: Effective corrective action in response to previously identified deficiencies. Refer to Resubmission Guidelines #8: As appropriate, board and management oversight. 40

41 HMDA Survival Steps Step 1: Identify an employee who will be responsible for overall HMDA quality Must have an understanding of residential compliance requirements Loan Officers and Operations staff should share HMDA responsibilities An officer of the institution must monitor HMDA reporting throughout the year, and must certify to its accuracy at year-end. 41

42 HMDA Survival Steps Step 2: Write HMDA policy and procedures Provide detailed guidance for each of the data fields on the Loan Application Register ( LAR ) Procedures should reflect LOS functionality Consider using a HMDA checklist in each file Should be a custom HMDA Guide to Getting It Right for your institution Action Taken Dates for Non-made loans!! 42

43 HMDA Survival Steps Step 3: Identify the HMDA reportable loans Review all business lines for potential HMDA reportable products Institution making the credit decision reports the loan Do you have a Pre-Approval Program Omissions/Completeness Testing Production Reports!! 43

44 HMDA Survival Steps Step 4: Review HMDA reportable loans for data integrity Choose random sample of loans to test Review larger sample of denied/withdrawn loans Compare loan file to the actual LAR or HMDA export file for each of the data fields Retain audit work papers to document the file review Use regulator approach to calculate error rate! 44

45 CFPB HMDA Resubmission Guidelines 10/2013 Examiners validate HMDA Fields prior to starting HMDA Exam Select 79 files for review Re ie files St ea li ed Re ie If no errors noted during Streamlined Review, examiner stops review. If e o oted, e a i e o pletes Full Re ie of additio al files. If during the Full Review, 8 errors are noted, Resubmission is required. 45

46 Key Data Fields and Overall or Line Errors Data Fields o the LAR, a e o side ed Ke Fields Accuracy of Non-Key Fields may play a role in Resubmission if errors are excessive Resubmission required if 5% threshold exceeded for Key Fields Resubmission required if at least 10% of LAR entries have an error in a Key Field 46

47 HMDA Survival Steps Step 5: React to the error trends! Analyze the error trends: find the source of the problem SHARE THE INFORMATION! Strengthen Internal Controls TRAIN, TRAIN, TRAIN!! Revise HMDA procedures if necessary 47

48 HMDA Survival Steps Step 6: Don t Forget HMDA Disclosure Requirements HMDA Poster must be displayed in the lobby of home office and each branch office Display in a prominent location 48

49 HMDA Survival Steps Step 6: Don t Forget HMDA Disclosure Requirements Modified LAR must be made available to the public within 30 days for requests made after March 1 Must delete application number, application received date and action taken date to protect member privacy Modified LAR must be available for 3 years Train your staff (branch managers, CSRs) 49

50 Questions? 50