5 Tips to Prepare for New HMDA Reporting
Last October, the Consumer Financial Protection Bureau published a final rule amending Regulation C, which implements the Home Mortgage Disclosure Act. The CFPB drafted the amendments in response to specific congressional directives in the Dodd-Frank Wall Street Reform and Consumer Protection Act, and under its discretionary authority to implement HMDA through Regulation C. Broadly, the new rules change:
- Who must report HMDA data, by setting uniform loan-volume thresholds for depository and nondepository institutions, including thresholds for open-end lines of credit
- The data elements that must be reported, by adding new data elements and modifying existing ones
- What types of loans and applications (transactions) must be reported
- When HMDA data must be submitted to the CFPB, for certain large-volume HMDA filers
Given the magnitude of these changes to Regulation C, financial institutions should take steps now to ensure that they are prepared to submit accurate and complete HMDA data under the new rules. Violations of Regulation C can result in administrative sanctions, including fines and resubmission requirements. In addition, inaccurate HMDA data can also impair analyses of an institution’s performance under fair lending laws, including the Equal Credit Opportunity Act, the Fair Housing Act and the Community Reinvestment Act, which may negatively impact an institution.
The following are five tips to consider when preparing for reporting under the new HMDA rule. Most of the CFPB’s changes to Regulation C take effect on Jan. 1, 2018, with certain exceptions, as discussed below.
Tip 1 — Understand How the Effective Dates Work: The CFPB’s final rule contains several effective dates. Not only does an institution need to be aware of these dates, but it also needs to understand how the new rule will apply on each date so that it can plan and implement changes to systems, operations and training accordingly.
- Jan. 1, 2017: Depository institutions with low-loan volumes in 2015 and 2016 will be excluded from HMDA’s coverage for 2017 and will not have to collect and report data for 2017.
- Jan. 1, 2018: An institution covered by HMDA must collect and report the new and modified data points, and newly covered transactions, if the institution takes final action on the covered application, closed-end mortgage loan, or open-end line of credit on or after Jan. 1, 2018. Notably, however, an institution must not begin collecting information on ethnicity and race using the new HMDA rule’s expanded ethnicity and race subcategories until Jan. 1, 2018.
- Jan. 1, 2020: Financial institutions with large HMDA filings must begin submitting their HMDA data on a quarterly basis in 2020. Such an institution will submit its data for a calendar quarter within 60 days of the end of the quarter, except for the fourth quarter — the institution will submit its data for that quarter by March 1 of the next calendar year with its annual report.
As a result, institutions must be prepared to distinguish between loans for which the institution must comply with the 2017 requirements of HMDA as compared to the loans that must comply with the 2018 version of HMDA. This is especially important for the requirements that apply effective Jan. 1, 2018. Lenders are required to begin collecting, recording and reporting the new and modified data points for applications on which final action is taken on or after this implementation date. Therefore, an application for a home purchase in late November 2017 could close in December 2017 or January 2018. For such loans, lenders will need to be ready to collect the new data (with some exception as discussed above) and track the application to determine how it should report the information based on whether final action was taken in 2017 or 2018.