The Ever Changing Landscape of Mortgage Lending. HMDA & The New URLA

Transcription

1 The Ever Changing Landscape of Mortgage Lending HMDA & The New URLA Casey Reynolds Quality Response Manager, Pulte Mortgage, LLC Josh Weinberg EVP Compliance, First Choice Loan Services Inc. Jerra H. Ryan, CML SVP Compliance, First Choice Loan Services Inc. October 11, 2016

2 Change is inevitable.misery is optional

3 Those who adapt Succeed!

4 ECOA Equal Credit Opportunity Act & FHA Fair Housing Act Promote fair lending and equal access to credit for all creditworthy customers without regard to any prohibited basis: Race Color Religion National Origin Sex Marital Status Age (ECOA only) Receipt of income from public assistance (ECOA only) The exercise of any right under the Consumer Credit Protection Act (ECOA only) Family Status (Fair Housing Act only) Handicap (Fair Housing Act only) Sexual Orientation (Fair Housing Act only)

5 ECOA Requirements ECOA impacts all states of the loan process, including: Advertising Applicant Interview Application Credit Investigation Risk Decision Making ECOA requires Notice of Action Taken Collecting information about race, ethnicity and gender Record retention Providing applicant(s) with free copies of all appraisals and written valuations used in connection with the loan

6 HMDA Home Mortgage Disclosure Act A measurement of fair lending How lenders are serving the housing needs of the neighborhoods and communities where they are located Requires data reporting The collection, disclosure and reporting of data about applicant and borrower from applications with a credit decision by the creditor to assist in identifying possible discriminatory lending patterns and enforcing anti-discrimination statutes

7 If HMDA asked Curly s Question.

8 The Answer Would Be.

9 HMDA + New URLA Today Borrower s choose I do not wish to furnish this information applies to all or some of the GMI Ethnicity Hispanic or Latino Not Hispanic or Latino Race American Indian or Alaska Native Native Hawaiian or Other Pacific Islander Asian Black or African American White Next. Borrower s may choose to furnish some or all Gender, Ethnicity or Race in each section Hispanic or Latino Ethnicity will include Origin Mexican, Puerto Rican, Cuban or the ability for the applicant to write in other origins Race will include disaggregated fields Enrolled tribe Chinese, Korean, etc. Guamanian, Samoan, etc. or the ability to write in other race

10 URLA The Uniform Residential Loan Application Redesigned

11 Why Now? It has been over 20 years since any material change was made to the URLA Then Now

12 Why Now? It has been over 20 years since any material change was made to the URLA Then Now

13 Why Now? It has been over 20 years since any material change was made to the URLA Then Now

14 Familiar Style Similar design and style compared to the Loan Estimate and Closing Disclosure A similar approach to design including profession design and consumer tested Clear instructions to enable borrower self-service Updated fields to support current business model while removing obsolete fields Focus on enhanced data quality

15 How Many Pages Is The New URLA? 5, 7, 9, 13? The Answer = It Depends Separate Borrower and Lender Sections The new URLA is dynamic How is it dynamic? Expands and Collapses based on the information entered into the application

16 Dynamic Fields Borrower Does Not Apply Present Address Field Employers, Income Type, Assets, and Properties Drop Downs Calculations

17 What s Gone? Years in School Street Address of Banking Institution (Assets) Automobiles Owned

18 What Was Left Out? Language Preference Industry Outreach Compliance and legal concern over lack of federal rules surrounding Limited English Proficiency Creating expectations that can t be met Potential increased cost associated with both origination and servicing

19 Redesigned URLA Overview

20 Borrower URLA Section 1a

21 Borrower URLA Section 1b

22 Borrower URLA Section 1e 22

23 Borrower URLA Sections 2a and 2b 23

24 Borrower URLA Sections 2c and 2d

25 Borrower URLA Section 3a

26 Borrower URLA Sections 4a and 4b

27 Borrower URLA Section 4d

28 Government Monitoring Information

29 Lender URLA Section L1

30 Lender URLA Section L2

31 Lender URLA Section L3

32 When Can We Use the Redesigned URLA? According to FNMA and FHLMC the effective date is January Why? CFPB announcement September, 23, 2016 FNMA and FHLMC Update Changes to LOS Changes to Business Process Changes to AUS

33 Stay Tuned Demographic Information of Borrower CFPB Guidance Additional Guidance from FNMA and FHLMC Potentially put an X or Shade Out to GMI information on current loan application Add the Demographic Information Addendum for New URLA

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35 HMDA : Timing

36 HMDA : From The Source CFPB Resources: consumerfinance.gov/regulatory-implementation/

37 HMDA : What s Changing? Almost Everything! New Covered Transactions: HELOCs & Reverse Mortgages Additional Data Reported: More on this later, but Applicant & UW Age, Credit Score, DTI, AUS Findings, Denial Reason, QM Status Property Info Construction method, value, lien position, units, manufactured Loan Info Loan type, points & fees, pricing, term, rate/intro period, non-amortizing Unique Identifiers Universal Loan Identifier, property address, NMLS info Changes to the institutions that report Fewer banks, savings banks, and credit unions will be required to report More non-depository institutions will be covered Uniform loan-volume test in each of the two preceding calendar years, the institution originated either: At least 25 closed-end mortgage loans; or At least 100 open-end lines of credit Reporting Institutions will report their data to the Bureau, starting in 2018 Disclosure Institutions will no longer be required to provide their disclosure statement or modified loan/application register to the public Instead, the Bureau will disclose this information on behalf of each reporting institutions The Bureau is now conducting an analysis of what data will be disclosed, and will seek public feedback in the future

38 HMDA : Technology Dependent One Data Set, Multiple Places Source, Scrubbing, and Reported Data / Documents System Updates, Customization, and Release Coordination Support Historic and Current Data In Different Data Formats (.DAT or.csv vs. MISMO, or Pipeline Delimited) Reverse Compatibility Files in other Systems or Different Lines of Business Reverse Mortgages, HELOCs, etc. TPO, Assumptions, Multi-Family Challenges and Considerations GIGO Industry Data Quality is Not Great Timing Real Life Testing Difficult without updated releases, and/or Submission Portal Information Fee Hokey Pokey vs. Data Driven examination When Docs And Data Don t Match Collaboration Critical. Time is Ticking! Vendors with CFPB, LOS, Lender Who s ULI and What Are They Doing With LEI?!

39 HMDA : ULI & LEI The Universal Loan Identifier (ULI) is created by joining your Legal Entity Identifier (LEI), an internal loan number, and a check digit sequence to create a 45 character string. The internal loan number may use numeric or alphanumeric characters. 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 in many countries to track financial activities Mandated in the US for money funds and derivatives reporting Based on ISO standard17442 Where do I get one?

40 Regulatory Alphabet Soup Some Detail Without Getting Into the Weeds We Already Know About TRID, URLA, HMDA, so here s a few more: UCD (No It Doesn t Stand for UC Denver!) - Uniform Closing Dataset An ongoing effort by Fannie Mae and Freddie Mac to provide a common industry dataset to support the CD. Required for all loans delivered to the GSEs with a Note Date on or after Sept. 25, Currently Requires Alt LE/CD on Refinances

41 Regulatory Alphabet Soup LEP - Limited English Proficiency 9/15/16 - HUD GC disparate treatment and discriminatory effects apply in Fair Housing Act cases the link between national origin and LEP is fairly intuitive. refusing to allow an LEP borrower to have mortgage documents translated, or refusing to provide the borrower with translated documents that the lender or mortgage broker has readily available, is likely not necessary to achieve a substantial, legitimate, nondiscriminatory interest. Likewise, restricting a borrower s use of an interpreter, or requiring that an English speaker cosign a mortgage, likely will not prove justifiable. Some states require that if negotiations for a mortgage are conducted in a non-english language, certain mortgage documents must also be provided in that language.54 Avoiding compliance with a state consumer protection law would not be considered a substantial, legitimate, nondiscriminatory interest that would justify refusing to serve LEP borrowers. APA: Administrative Procedures Act vs. Regulation by Enforcement Section 8 and PHH ECOA Safe Harbor for HMDA Expanded GMI Early

42 HMDA Plus: What is it? Since HMDA was originally enacted, it has shifted from monitoring and preventing redlining to a Fair Lending tool used by regulators. This trajectory is likely to continue under the new changes

43 Break

44 HMDA Implementation Data Through Examples

45 HMDA Data Point Data Point Changes New Rule = 48 Data Points Current = 23 (20 are modified) New = 25 One data point may involve numerous fields

46 Data Point Categories - Before Pricing Elements Rate Spread (only if above threshold) - HOEPA Status Underwriting Elements Action Taken/Date - Reasons for Denial (optional) - Income - Type of Purchaser Loan Features Loan Type - Loan Purpose - Loan Amount Property Elements Property Type - Occupancy Type - Lien Status - Property Location App/Company Elements Application Date - Application/Loan Number - Reporter ID Preapproval Request - Race, Ethnicity, Sex

47 Data Point Categories - After Pricing Elements Rate Spread (all) - Origination Charges - Lender Credits - Total Loan Costs/Points & Fees - Discount Points - Interest Rate - HOEPA Status Underwriting Elements Action Taken/Date - Reasons for Denial (required) - Income - Debt Ratio - Type of Purchaser - Credit Score - AUS - CLTV Loan Features Loan Type - Loan Purpose - Loan Amount - Loan Term - Business or Commercial Purpose - Reverse - Open-End Line of Credit - Prepayment Penalty Term - Introductory Rate Period - Non-Amortizing Loan Features Property Elements Construction Method - Occupancy Type - Lien Status - Property Location - Property Address - Property Value - Manufactured Home Secured Property Type - Manufactured Home Land Property Interest - Multifamily Affordable Units - Total Units App/Company Elements Application Date - Universal Loan Identifier - Legal Entity Identifier - Preapproval Request - Race, Ethnicity, Sex - Age - Application Channel - MLO NMLSR ID

48 Data Through Examples Things to think about during implementation: Dual Tracking Historical Loan Data Business Processes

49 Income Example Income Section (a)(10)(iii) Existing Data Point If credit decision is made, gross annual income relied on in making the credit decision; or, if a credit decision was not made, the gross annual income relied on in processing the application Borrower who is retired qualifies for a mortgage with social security income of $2,500 per month. Due to lack of other income sources and substantial borrower assets the financial institution uses either an annuitized income or depletion of assets in the amount of $2,500 per month. The borrower s total income relied on for the credit decision was $5,000 per month. What does the lender report for income relied on? $2,500 - Reportable income does not include funds or amounts in addition to income, such as funds derived from annuitization or depletion of an applicant s assets, even if the Financial Institution relied on them when making the credit decision.

50 Property Value Property Value (a)(28) New Data Point Value of the property relied on that secures the loan. Reported for originated, denied and approved not accepted. Not Applicable is reported for an action taken of withdrawn or closed for incompleteness prior to a credit decision (even when an appraisal has been obtained). A financial institution originates a purchase transaction in February 2018 with the following characteristics: $250,000 Appraised Value $245,000 Sales Price What property value is reported? What if the contract reflects a $7,000 sales concession?

51 Interest Rate Interest Rate (a)(28) New Data Point Action taken types that do require a financial institution to report interest rate include: Approved but not accepted Closed loans Approved But Not Accepted From the Rule: Requires a financial institution to report the applicable interest rate only if the application has been approved by the financial institution but not accepted by the borrower. In such cases, a financial institution reports the interest rate applicable at the time that the application was approved by the financial institution.

52 Interest Rate Approved But Not Accepted Example: Initial Disclosure Initial Rate Set 6/1/ % Rate Lock - 6/15/ % Loan received final approval 6/20/ % Borrower Decides to Buy Down Rate 6/22/16 3.5% Reported Interest Rate based on 6/15/ %

53 Rate Spread Rate Spread (a)(28) Modified Field - Previous requirement was to report the rate spread on a 1 st lien if the rate spread was over 1.5 percentage points. Report the rate spread on a 2 nd lien if the rate spread was over 3.5 percentage points. Otherwise this field was reported as NA. Previous rule was on closed loans only. The new HMDA rule requires you to report the rate spread regardless of the amount on closed loans and loans that are approved but not accepted. The APR vs the APOR the day the interest rate was set.

54 Rate Spread Financial Institution needs to determine the rate set date for the final time before closing or account opening. What day was the loan locked Long term lock with float down option Lock agreement was extended but the rate was not re-set Change in program after rate lock

55 Rate Spread Loan locks 6/1/16 Borrower extends lock 6/30/2016 with a 7 day extension and the rate does not change APOR table applicable as of 6/30/16 APR disclosed on CD Loan locks 8/15/16 Conventional Financing Change in product and lock 8/25/16 to FHA financing APOR table depends on company policy and whether it is applied consistently. If updated interest rate is based on 8/15 pricing sheet then use that date for the APOR. If rate is based on price sheet of 8/25 then use that date for the APOR. If company is not consistent on how they apply this rule then use the 8/25 date. APR disclosed on CD

56 Loan Purpose Loan Purpose (a)(3) Modified Data Point Current Rule: Home Purchase, Home Improvement, Refinancing, Multifamily Dwelling New Rule: allows for Home Purchase, Home Improvement, Refinancing, Cash-Out Refinancing and Other Purpose

57 Loan Purpose Borrower owns 123 Main St. free and clear. Borrower wants to buy 456 Downing St. Borrower obtained a loan against 123 Main St. for $350,000 in order to purchase the new property. What is the loan purpose? According to the FNMA Selling Guide this would be considered a cashout refinance According to HMDA this is considered a purchase According to TRID this is a Home Equity

58 HMDA Implementation: Operational Impact Implementation Considerations Updates and Revisions Board / Senior Management Awareness and Involvement Policies and Procedures Definition of Application, etc., Training Materials Compliance Monitoring / Independent Audit Updates Project Management Approach Identify Implementation Team Automation / Customization Reviewed and Rewritten Comparative Gap Analysis Test, Test, and Test Again Some Good News: Submission Portal Should be Significantly Improved Help is Available CMLA, MBA MISMO Mentioned over 50 times in the Rule

59 MISMO

60 MISMO The Language of Mortgage There are two types of companies in the mortgage industry Those who use MISMO and know it, and those who use MISMO and don t! MISMO is a bridge providing an on-ramp for many institutions to participate in the larger ecosystem of the mortgage process. By using a unified and consistent standard, they are able to execute their business idea or strategy into the larger mortgage process because MISMO really is the language of mortgage. The creation of the MISMO standard is voluntary, but its use has become compulsory. If you re going to do business in today s mortgage world, you re going to use MISMO.

61 HMDA Implementation: Proof Reading Is Important

62 HMDA Implementation: An Ounce of Prevention Data Quality (especially HMDA) Sets Tone for Examination Bad Data = Bad Exam, Weak CMS, Fair Lending Risk Data Quality = Shorter Exam, Evidence of CMS, Accurate Fair Lending Assessment If You Can t Explain It and Show Your Work, Only a Miracle Will Avoid Exam and Regulatory Problems! Once Errors Are Identified, Correct Them And Get Guidance On If And What to Self-Report, As Well As How to Address During Examination.

63 URLA Implementation

64 URLA Implementation

65 URLA - Change Management Requires coordinated effort between all stakeholders All processes and updates require adequate time and resources (hint: now is a little late to be getting started!) Create and plot strategy, objectives, timeline Look Back what lessons can be learned from TRID implementation? Coordinate Implementation with HMDA Implementation

66 URLA Implementation Strategy

67 Assess Impact & Develop Business Strategy Business Channels retail, wholesale, correspondent, consumer direct Departments impacted Stakeholders Users Supporters Investor requirements or changes Cross-project management with new HMDA implementation Senior / Executive Leadership engagement, buy-in, support

68 Bridge the Gap = Opportunity!

69 Identify Gaps What are the existing functionalities compared to any new requirements Borrower vs. Additional Borrower Any changes to on-line applications Is On-Line App TRID Compliant (requested vs. required info/sequencing) Does Policy identify when you have a RESPA 6 if Borrower and Additional Borrower submit at different times? Will changes trigger new or increased responsibility for any job function now Bridge your gaps Technology Process Vendor Management and Analysis LOS, Doc Prep, AUS, Credit Reporting, etc.

70 Business Requirements Policies and Procedures Training Completing the new URLA On-line, Telephone, Face-to-Face Use of N/A, Military, Gifts & Grants Staged Implementation of GMI information for 2017 applications with Action Taken in 2018 Implications of 9/23/16 CFPB Approval to used expanded and disaggregated race and ethnicity information identified by applicant(s) As with HMDA, there may be training challenges with regard to land loans, loans to trusts/non-naturalized persons, and data relied on Scripts develop scripts for production to use with applicants Limited English Proficiency Spanish versions for assistance in completing the URLA watch state-specific rules for loan applications taken or terms & conditions negotiated in foreign language Presumptive Close for GMI for telephone or face-to-face applications

71 Scripts and Training Completing the One Thing aka Government Monitoring Information Choose Not to Provide Race & Ethnicity Understanding disaggregated ethnicity origins and race selfidentified by applicant Face to Face (visual observation/surname but category level only)

72 Testing On-line Apps LOS Mapping Data Capture Documents how do they look? Soft-Release/Testing What better way to test the ease of use or ability to understand: Engage your production teams Engage your consumers

73 Go Live Support for people Contract support while others deployed for go live? On-call for originators and production teams Identify the Subject Matter Experts Provide adequate support and sufficient resources to the SME! System Controls initial manual review of URLA s Ongoing Monitoring of change across organization, from origination through investor delivery

74 You Got This!

75

76 Contact Information Josh Weinberg (732) Jerra H. Ryan (303) Casey Reynolds (303) October 11, 2016