MBBA-NH & MAMP Compliance Conference April 19, 2017
Agenda HMDA Overview Readiness Steps HMDA Expansion Fields 2
New HMDA Rule Summary Changes to Home Mortgage Disclosure: Regulation C Types of institutions that are subject to Regulation C; Types of transactions that are subject to Regulation C; Processes for reporting and disclosing data; and Specific information that covered institutions are required to collect, record, and report. 3
New HMDA Rule Summary Types of institutions that are subject to Regulation C Decreases coverage of depository institutions and expands coverage of non-depository institutions Uniform loan volume test: Originated either: At least 25 closed-end mortgage loans in each of 2 preceding years OR At least 100 open-end lines of credit in each of 2 preceding years 4
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New HMDA Rule Summary Types of transactions that are subject to Regulation C Consumer-purpose transactions: Dwelling secured, closed or open-end Ex: consumer purpose home equity, HELOCs, reverse mortgages NOT reportable: Unsecured Renewals, temporary financing 7
New HMDA Rule Summary Types of transactions that are subject to Regulation C Commercial-purpose transactions Dwelling-secured closed or open-end extension of credit Ex: commercial revolving line of credit to purchase or improve a multi-family or single-family investment property 8
New HMDA Rule Summary Processes for reporting and disclosing data. New web-based electronic data submission process File specifications available for LOS development Institutions no longer required to provide public disclosure statement Instead: provide notice that disclosure statement and modified LAR are available on CFPB web-site 9
New HMDA Rule Summary Specific information that covered institutions are required to collect, record, and report Total of 48 data points (versus 26 data points today) 25 NEW data points Pricing Elements: 2 today; 7 tomorrow Underwriting Elements: 5 today; 10 tomorrow Loan Features: 2 today; 9 tomorrow Applicant Information: expansion and addition of Age 23 Existing data points 14 modified 9 existing 10
New HMDA Rule Readiness Steps Fair Lending Analysis Fair Lending Training Systems Evaluation HMDA Data Integrity Health Check 11
New HMDA Rule Readiness Steps Fair Lending Analysis and Training What are you doing today? Analyze new HMDA Fields Identify gaps and trends Create Training Plan 12
Why is HMDA important? HMDA Data is core of Fair Lending Exams Data must be reliable and validated 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 13
New HMDA Rule and FAIR LENDING Three core purposes of HMDA 1. To help determine whether financial institutions are serving their communities housing needs; 2. To assist public officials in distributing public investment to attract private investment; 3. To assist in identifying potential discriminatory lending patterns and enforcing antidiscrimination statutes. 14
Fair Lending Data Analysis Today 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 15
Fair Lending Data Analysis in the Future Specific information that covered institutions are required to collect, record, and report Total of 48 data points (versus 26 data points today) 25 NEW data points Pricing Elements: 2 today; 7 tomorrow Underwriting Elements: 5 today; 10 tomorrow Loan Features: 2 today; 9 tomorrow Applicant Information: expansion and addition of Age 23 Existing data points 14 modified 9 existing 16
New HMDA Rule and FAIR LENDING Future? Expect increased fair lending scrutiny and claims Continued focus on access to credit Extensive peer data (Pricing) Examples of unchartered territory: Broker versus Retail NMLS ID Lender Credits Age HELOCs extensive data Property address versus census tract 17
New HMDA Rule and FAIR LENDING Today: CFPB/DOJ/HUD Fair Lending Focus Bancorp South (June 2016) Alleged discriminatory practices including redlining/underwriting/pricing First Citizens Bank & Trust (June 2016) Alleged discriminatory underwriting practices Provident Funding (June 2015) Alleged discriminatory pricing practices for brokered loans Sage Bank (December 2015) Alleged discriminatory pricing practices Hudson City (September 2015) Redlining: peer analysis was key 18
Fair Lending Action Plan Perform Risk Assessment of Fair Lending CMS Focus on CFPB Examination Modules and Guidance TRAINING think outside the box HMDA Compliance Management System 19
Best Practices of Well-Developed Fair Lending Compliance Systems Policies and procedures to address fair lending risks in each product line, including: An up-to-date fair lending policy statement; Policies and procedures that acknowledge and address areas of heightened fair lending risk; and Policies that do not contain prohibited basis criteria, such as impermissible exclusions of public assistance income, or use of age in credit scoring in a manner that violates ECOA. 20
Best Practices of Well-Developed Fair Lending Compliance Systems Effective monitoring for fair lending risks and violations. Appropriate measures will vary depending on the size and complexity of the institution. Where appropriate, monitoring should include regular analysis of loan data for potential prohibited disparities in pricing, underwriting, or other aspects of the credit transaction; evaluation of credit scoring models for potential disparate impact; and review of marketing practices for fair lending risks. 21
Best Practices of Well-Developed Fair Lending Compliance Systems Prompt and full corrective action in response to identified risks and violations, including consumer remuneration when appropriate. Regular and up-to-date fair lending training for employees, officers, and Board members. Policies and procedures for handling of consumer discrimination complaints. A robust fair lending audit function. Meaningful Board and management oversight of fair lending compliance. 22
Fair Lending Training Employee awareness Needs a fresh approach: FACE TO FACE!! Get their attention (LO NMLS ID) 23
Types of Lending Discrimination Three Methods of Lending Discrimination Proof Used by Courts: Overt evidence of disparate treatment Comparative evidence of disparate treatment Evidence of disparate impact 24
Fair Lending Cases/Examples U.S. v. Midwest Bank Centre (2011) Allegations include:* Branches exclusively in white census tracts CRA assessment area drawn around African-American communities in the City of St. Louis Fewer applications and originations from African-American census tracts than peers * Slides prepared by Department of Justice 25
Fair Lending Cases/Examples Map of Midwest Bank Centre CRA Assessment Area (2005 2009) Areas in color are census tracts with high African- American population concentrations 26
Fair Lending Cases/Examples Map of Midwest Bank Centre CRA Assessment Area Distribution of Loan Originations (2004 2008) 27
Fair Lending Cases/Examples U.S. v. Midwest Bank Centre (2011) Relief includes: $900,000 special financing fund, credit repair and access to low-cost checking accounts for residents of redlined communities Bank will open a branch in previously redlined community Bank will engage in affirmative outreach and marketing to previously redlined communities 28
New HMDA Rule Readiness Steps Systems and Application Evaluation Identify Systems: Residential/Consumer/Commercial Have vendors communicated their dates? Create Testing Timeline Expanded fields apply to action taken dates on and after 1/1/2018 Need to be finished with testing in 4 th quarter 29
Effective/Important Dates for HMDA Final Rule 1/1/2017: Effective date for excluding low volume depository institutions 1/1/2018:Effective date for most provisions related to institutional and transactional coverage, data collection, recording, reporting and disclosure 1/1/2019: Effective date for changes to enforcement provisions and additional amendments to reporting provisions 3/1/2019: Deadline for first submission of HMDA LAR with expanded data fields 1/1/2020: Effective date for quarterly reporting provisions for large institutions 30