HMDA: Haven or Havoc. Michigan Bankers Association. Compliance Services 2016 Temenos USA. All rights reserved.

About the Speaker Rachelle Dekker CRCM Rachelle Dekker is a Senior Compliance Advisor with the Temenos Compliance Advisory team. Rachelle was most recently the BSA Officer for a community bank. Her experience includes working for community banks as well as working for a regional auditing firm where she provided compliance auditing and consulting services to various financial institutions. Her background is specialized in BSA/AML, HMDA, and deposit compliance. Rachelle graduated from Grand Valley State University with her Master of Science in Accounting. She is also a Certified Regulatory Compliance Manager (CRCM). 2 2

What you will learn Effective dates Overview of changes to reporting requirements Who reports starting when Key definitions Data to collect or calculate What the changes mean to you Data collection 3

Where Did We Land? Final rule published October 15, 2015 26 ½ months to prep for havoc Published July 1, 2016 CFPB s Filing Instruction Guide (FIG) for 2017 and 2018 Effective January 1, 2017 Low-volume depository institution exemption 4

Where Did We Land? Let the real fun begin??? Effective January 1, 2018 New reporting definition Uniform loan volume thresholds New coverage definition Collect new/updated data elements Report 2017 data via CFPB electronic submission tool Disclosure Statement requirement modified (lobby notice and CRA file) 5

HMDA Disclosure Statement: 2019 Disclosure Statement upon request no longer required Provide notice that disclosure statement and modified LAR are available on the CFPB s website Model language for both CRA Public File and lobby notice included in Final Rule Home Mortgage Disclosure Act Notice The HMDA data about our residential mortgage lending are available online for review. The data show geographic distribution of loans and applications; ethnicity, race, sex, age and income of applicants and borrowers; and information about loan approvals and denials. These data are available online at the Consumer Financial Protection Bureau's Web site (www.consumerfinance.gov/hmda). 6

Where Did We Land? Effective January 1, 2019 Appendix A removed from regulation Report new/updated data elements using the CFPB s revised procedures and electronic submission tool Effective January 1, 2020 Quarterly reporting for large institutions 7

Overview - 2017 Low volume threshold for depository financial institution In each of the two preceding calendar years originated at least 25 home purchase loans (consumer and commercial), including refinancings of home purchase loans, that are not: Loans originated or purchased by the financial institution acting in a fiduciary capacity (such as trustee); Loans on unimproved land; Temporary financing (such as bridge or construction loans); The purchase of an interest in a pool of loans (such as mortgage-participation certificates, mortgage-backed securities, or real estate mortgage investment conduits); The purchase solely of the right to service loans; or Loans acquired as part of a merger or acquisition, or as part of the acquisition of all of the assets and liabilities of a branch office 8

Overview - 2018 Reporting threshold for all financial institutions Originate 25 or more covered closed-end mortgage loans in each of the past two calendar years; - OR - Originate 100 or more covered open-end lines of credit in each of the past two calendar years Transactions subject to reporting Include all dwelling-secured loans Include HELOCs and reverse mortgage Commercial loans home purchase, home improvement or refinance purpose Exempt home improvement loans not secured by a dwelling New data as well as changes to existing data fields Modified versus new 9

Overview - 2019 Submission of HMDA-LAR info Web-based data submission 10

Overview - 2020 Require certain large institutions to file reports quarterly Report at least 60,000 loans annually But all institutions must have data current within 30 days of each calendar quarter close 11

Categories of Data New 35 new elements to be collected Modified 11 revised from the current requirement No Change 8 remain the same 12

54 Data Elements 13

Key Definitions Dwelling: a residential structure, whether or not attached to real property includes but is not limited to: detached home, an individual condominium or cooperative unit, a manufactured home or other factory-built home or a multifamily residential structure or community Clarifies when dwelling no longer used as residence Homes converted for commercial purposes, such as a daycare or professional office No RVs or houseboats, even if used as a residence Service or medical component Assisted living vs. nursing home: determine principal purpose Mobile homes will only be referred to as manufactured homes (consistent with HUD) 14

Key Definitions Multifamily dwelling A dwelling, regardless of construction method, that contains five or more individual dwelling units Additional information will also be required such as number of individual income-restricted units pursuant to Federal, State, or local affordable housing programs Home improvement loan A closed-end mortgage loan or an open-end line of credit that is for the purpose, in whole or in part, of repairing, rehabilitating, remodeling, or improving a dwelling or the real property on which the dwelling is located Must be secured by a dwelling no more unsecured home improvement loans Assumption A transaction in which an institution enters into a written agreement accepting a new borrower in place of an existing borrower as the obligor on an existing debt obligation, even if new borrower merely assumes the existing debt obligation and no new obligation is created Includes successor-in-interest transactions, in which individual succeeds prior owner as the property owner and then assumes the existing debt secured by the property 15

Application Quick Reference Guide 16

New Data Applicant/borrower information Age Credit score Credit score model used Equifax, VantageScore, etc. Other Debt-to-income ratio Collection of GMI Based on visual observation or surname 17

New Data Application/Loan process Application channel Whether or not submitted directly to institution Whether or not initially payable to institution Automated underwriting system used and results 18

New Data Property information Property address (street, city, state, zip) Property value Construction method Number of individual dwelling units in property Multifamily affordable units Combined loan-to-value Manufactured Home secured property type Whether or not secured by home and land Manufactured Home land property interest Direct ownership, indirect ownership, paid leasehold, unpaid leasehold 19

New Data Loan features Loan term Interest rate Introductory rate period Special loan product features (Contractual Features): Whether or not balloon payment Whether or not interest-only payments Whether or not negative amortization Whether or not the loan has any other non-amortizing features Prepayment penalty term Total borrower paid origination fees Total loan costs/total points and fees Discount points Lender credits 20

New Data Unique identifiers Legal entity identifier (LEI #) Mortgage Loan Originator identifier (NMLS #) Business or Commercial Purpose Open-end line of credit Reverse Mortgage 21

Modified Data ULI- Unique Loan Identifier Purpose of loan New trumping order Cash out refinancing Other purpose Preapproval Preapproval requested Preapproval not requested Must be preapproval request for home purchase loan under preapproval program Preapproval requests for open-end lines, reverse mortgages and multifamily dwelling secured home purchase loans not covered transactions 22

Modified Data Occupancy type Principal residence Second residence Investment property Type of purchaser Originated and sold or purchased and sold in same reporting year 23

Modified Data Rate spread Approved but not accepted reportable Lien status Reasons for denial (no longer optional) Ethnicity, race and sex Hold that thought! 24

No Change Application Date Action Taken/Action Taken Date Loan Amount Loan Type Property Location (Geocode) Income HOEPA Status 25

Ethnicity, Race and Sex Welcome to the dark world How to get a Fair Lending Violation without any effort 26

Ethnicity, Race and Sex New requirement to report how institution collected applicant s or borrower s ethnicity, race and sex whether or not it collected on basis of visual observation or surname Must permit applicants to self-identify their ethnicity and race using disaggregated ethnic and racial subcategories Institutions not permitted to use disaggregated subcategories when identifying applicant s ethnicity and race based on visual observation or surname New Appendix B Form and Instructions 27

Ethnicity, Race and Sex Huh??? 28

Appendix B Collection Form 29

What are Disaggregated Subcategories? Ethnicity Hispanic or Latino Mexican Puerto Rican Cuban Other Hispanic or Latino 30

What are Disaggregated Subcategories? Race American Indian or Alaska Native Enrolled or principal tribe Asian Asian Indian Chinese Filipino Japanese Korean Vietnamese Other Asian 31

What are Disaggregated Subcategories? Native Hawaiian or Other Pacific Islander Native Hawaiian Guamanian or Chamorro Samoan Other Pacific Islander 32

Reporting Ethnicity Must report every aggregate category and subaggregate category selected If Hispanic or Latino selected, up to four subcategories may be selected: Mexican Puerto Rican Cuban Other Hispanic or Latino If Other Hispanic or Latino selected, ethnicity not listed in standard subcategories may be provided Report both Other Hispanic or Latino and additional information provided by applicant 33

Calculating Race Must report every aggregate race category selected by applicant and each subcategory selected, except: Must not report more than a total of five aggregate categories and disaggregate subcategories combined First, report aggregate categories selected: American Indian or Alaska Native Asian Black or African American Native Hawaiian or Other Pacific Islander White Next, report any subcategories chosen to bring the total to 5 Other along with its not listed subcategory is counted as 1 For example: Applicant chooses Other Asian and indicates Laotian in the provided space; the selection of both Other Asian and Laotian counts as 1 choice when calculating categories to be reported If the aggregate and subcategories added together total more than 5, institution must decide which subcategories to report to bring total to 5 34

Sex Requirements for collecting and reporting remained same Oh, but wait Check out the CFPB s FIG 35

Remember 36

Consider Fair Lending Risk Ethnicity, race and sex 37

By invitation only If you would like to start the party early, the CFPB has a special ticket just for you! 38

Collecting GMI with new URLA/1003 Beginning January 1, 2017, may collect ethnicity, race and sex under the new 2018 rules For reporting: Application Taken During 2017/Loan Originated 2017 Report only aggregate categories and codes, even if applicants have selfidentified using the expanded "disaggregated" categories Application Taken During 2017/Loan Originated 2018 May report using new disaggregated categories OR May abide by the transition rule and continue to report only aggregate categories and codes, even if applicants have self-identified using the expanded "disaggregated" categories 39

What These Changes Mean to You Small banks HOORAY for you! Costs Changes to your software systems Changes to policy and procedures Training Time Data collection Data verification/scrub 40

Action Plan Establish Implementation Committee and create timeline Include members from each line of business impacted Look at staffing needs Allow time for each step in the process Contact vendors How will they assist in data collection? When will they be ready for testing vs. live? What will it cost? 41

Action Plan Start training early Today is a GREAT start! Identify who needs to be trained Don t forget the Board of Directors! Develop training materials specific for each position (i.e., collection, input, etc.) Update policy and procedures Nail down any procedures that affect how you will collect and report certain elements 42

Action Plan Conduct self-testing Verify accuracy of data collected BEFORE reporting Audit data at least quarterly to test processes for any weaknesses Conduct assessment of lending practices Know what the data shows Fair Lending UDAAP How will you address any problems indicated? 43

Data Collection Create a HMDA Worksheet List each data field required to be collected Record the information to be inputted in the exact form it is to be inputted (e.g. Purpose of Loan 1; Action Taken 3; Reasons for Denial 3) Attach any copies from FFIEC Calculator or FFIEC Geocoding (or other vendor) Benefits Inputting Accountability Time (Less time digging in files) 44

Data Collection: HMDA Worksheet 45

Data Collection Create a HMDA Data Source Worksheet What are your actual source documents for each data element that must be captured for HMDA reporting? For example: Residential mortgage loan, you use the 1003; GMI information is located on page 4 of 5 Next, add a column to indicate what source documents have the correct (and consistent) information Complete this for each type of application Residential Mortgage Loans: 1003, GMI, Page 4 of 5 Commercial loans: separate GMI form 46

HMDA DataSource Worksheet 47

Data Collection Key factors to address in procedures Who collects the data? When is it collected? Where is it stored? How will it be captured electronically? Benefits Minimize errors Inadvertent Fair lending concerns Consistency Examiners Training 48