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CFPB Publishes White Paper On Manufactured-Housing
On September 30, the CFPB published a white paper claiming that manufactured-home owners typically pay higher interest rates for their loans than site-built borrowers. The white paper cites data in support showing that a greater share of manufactured-housing loans are classified as higher-priced mortgage loans or “high-cost” loans. The white paper further discusses the CFPB’s findings that: (i) manufactured homeowners are likely to be older, live in a rural area, and have a lower net worth than site-built borrowers; (ii) manufactured homes typically cost less than site-built homes; (iii) about three-fifths of manufactured-housing residents who own their home also own the land it is sited on; (iv) approximately 65 percent of borrowers who own their land and financed the purchase of their manufactured home between 2001 and 2010 did so using a chattel loan (rather than a manufactured-housing loan); and (v) manufactured-housing production contracted in the 2000s. The white paper does not propose any formal rule or guidance related to manufactured-housing. Rather, it indicates that the CFPB will continue to analyze facets of the manufactured-housing market to identify ways to fill in gaps in available data about that market. For example, the white paper states that the CFPB is considering adding a data field to the Home Mortgage Disclosure Act’s reporting requirements that would indicate whether a manufactured-housing loan is secured by real or personal property.
FFIEC and CFPB Announce Updates To Web-Based HMDA Database And Tools
On September 22, the FFIEC announced an update to its online database for analyzing HMDA data and the CFPB announced updates to the agency’s corresponding HMDA tools. Originally launched in September 2013, the tool focuses on the number of mortgage applications and originations, in addition to loan purposes and loan types, and allows the public to see nationwide summaries or employ interactive features to isolate the information for metropolitan areas. The updated database includes 2013 data of approximately 17 million records from 7,190 financial institutions. In both Director Cordray’s 2013 remarks and blog post, the CFPB appeared to indicate that HMDA data may be used to identify institutions that may be discriminating against protected classes of borrowers. On Monday, the Bureau encouraged the public to view the introductory video, maps and charts, data, and share their ideas and findings through its Twitter account.
Special Alert: CFPB Proposes Significant Expansion Of HMDA Reporting Requirements
On July 24, the Consumer Financial Protection Bureau (the CFPB or Bureau) issued a proposed rule that would expand the scope of the Home Mortgage Disclosure Act (HMDA) data reporting requirements and streamline certain existing reporting requirements. Although some of the new data points the Bureau is proposing to collect were expressly mandated by the Dodd-Frank Act, the Bureau also proposed a significant number of new data points based on discretionary rulemaking authority granted by the Act.
While we describe the proposal below in greater detail, highlights include:
- The proposal would substantially expand the number of data points collected from financial institutions, including requiring reporting of rate spreads on all loans, not just high cost loans. At least initially, however, this additional information would not be provided to the public on the Loan Application Register (LAR). Instead, the proposal states that the Bureau is still examining privacy concerns related to this information.
- The proposal would require financial institutions to report home equity lines of credit (HELOCs), reverse mortgages, and commercial loans secured by a dwelling.
- The proposal does not provide clarification on the definition of an “application” or the “broker rule.”
Those wishing to comment on the proposal must do so by October 22, 2014. Click here to view the special alert.
CFPB Proposes Rule To Implement Dodd-Frank HMDA Changes
On July 24, the CFPB issued a proposed rule to expand the scope of HMDA data reporting requirements. Section 1094 of the Dodd-Frank Act transferred responsibility for HMDA and Regulation C to the CFPB and directed the CFPB to conduct a rulemaking to expand the collection of mortgage origination data to include, among other things: (i) the length of the loan; (ii) total points and fees; (iii) the length of any teaser or introductory interest rates; (iv) the applicant or borrower’s age and credit score; and (v) the channel through which the application was made. The Dodd-Frank Act also granted the CFPB discretion to collect additional information as it sees fit. The proposed rule would implement all of the new data points required by the Dodd-Frank Act, and also would utilize the CFPB’s discretionary authority to substantially expand the number of new data points required to be reported. In addition, the CFPB’s proposal would require reporting for all dwelling-secured loans, which would include some loans not currently covered by Regulation C, including reverse mortgages, and all home equity lines of credit irrespective of their purpose. The proposal follows a review initiated by the CFPB earlier this year to assess of the potential impacts of a HMDA rulemaking on small businesses. The CFPB released a summary of that review with the proposed rule. Comments on the proposal are due by October 22, 2014. We are reviewing the proposed rule and plan to provide a more detailed summary in the coming days.
CFPB Announces First Steps In HMDA Rulemaking Process, Launches Additional HMDA Data Tools
On February 7, the CFPB announced the first public phase of its rulemaking to expand the scope of HMDA data reporting, as required by the Dodd-Frank Act. The CFPB is asking small businesses to provide feedback on its initial proposal to collect new mortgage origination data from financial institutions and potential changes to the data collection and reporting process.
Proposed Data Requirements
Section 1094 of the Dodd-Frank Act transferred responsibility for HMDA and its implementing regulation to the CFPB and directed the CFPB to conduct a rulemaking to expand the collection of mortgage origination data to include, among other things: (i) the length of the loan; (ii) total points and fees; (iii) the length of any teaser or introductory interest rates; (iv) the applicant or borrower’s age and credit score; and (v) the channel through which the application was made. The Dodd-Frank Act granted the CFPB discretion to collect additional information as it sees fit.
As detailed in its outline for small businesses, in addition to the statutorily required fields, the CFPB also is considering requiring financial institutions to report more underwriting and pricing information, such as the interest rate, the total origination charges, and the total discount points of the loan, which the CFPB believes will help regulators investigate “true trouble spots” in the mortgage market. The Bureau also states that it is considering new requirements that would “more accurately capture access to credit in the mortgage market.” Specifically, the CFPB is considering requiring institutions to (i) provide an explanation of rejected loan applications; (ii) explain whether the institution considers a loan to be a Qualified Mortgage; and (iii) report the borrower’s debt-to-income ratio. The CFPB states that debt-to-income data would allow the Bureau to determine whether financial institutions are making loans that are unsuitable for borrowers.
Potential Reporting Changes
In addition to the planned expansion in the types of data to be collected, the CFPB is seeking small business feedback on how financial institutions report HMDA data. The CFPB is considering streamlining the collection process to mitigate the burden on lenders, including by possibly aligning the HMDA data requirements with “well-established data standards already in use by a significant portion of the mortgage market.” The CFPB also is proposing to standardize the reporting threshold. It explains that currently, all banks, savings associations, and credit unions that meet certain conditions must submit annual reports if they make even a single loan, while nonbank mortgage lenders typically only report if they make 100 loans and meet other conditions. The Bureau is considering requiring all banks and nonbanks that meet certain conditions to report HMDA data if they make 25 or more loans in a year. Finally, the CFPB states it is seeking to improve data entry, including by potentially streamlining the data submission and editing processes for lenders by creating an interface that will allow lenders to connect their software to a CFPB intake system. The CFPB is consulting with other federal agencies on potential data entry streamlining options.
Enhanced Access To Existing HMDA Data
The CFPB also re-launched and expanded the capabilities of its new HMDA data tool, which it originally announced in September 2013. The tool now includes additional features, which allow users to (i) filter records by, among other things, geography (state, metropolitan area, county, and census tract), borrower characteristics, loan characteristics, and property type; (ii) create summary tables (e.g. to compare refinances, home purchases, and home improvement loans over a given time period); (iii) download data and summary tables to allow researchers and software developers to incorporate the CFPB-provided HMDA data into other applications and visualizations; and (iv) save and share results, including through social media platforms.
Next Steps
This initial framework for enhancing HMDA data collection and reporting was released as part of the small business review process required when a potential CFPB rule could have a significant economic impact on a substantial number of small entities. In such cases, including with this HMDA proposal, the CFPB must convene a panel of representatives from the Bureau, the Chief Counsel for Advocacy of the Small Business Administration, and OMB’s Office of Information and Regulatory Affairs (the Review Panel) to meet with small business representatives. The CFPB released a fact sheet explaining the process, and a list of issues the Review Panel will discuss with small businesses. Within 60 days of convening the Review Panel, it must issue a report on the feedback received from small business, which then must be considered as the CFPB prepares a proposed rule. The small business review process is the first public step in a lengthy rulemaking process. Along the way, financial institutions of all sizes will have opportunities to weigh-in on the proposal, which could evolve over the coming months.
CFPB Increases Asset-Size Thresholds Under HMDA, TILA
On December 30, the CFPB announced final rules adjusting the asset-size thresholds under Regulation C (HMDA) and Regulation Z (TILA). Both rules take effect on January 1, 2014.
HMDA and Regulation C require certain lenders to collect and report data about mortgage application, origination, and purchase activity, and make such data available to the public. Institutions that have an asset level below a certain dollar threshold are exempt from the requirements of Regulation C. The final rule increases the asset-size exemption threshold for banks, savings associations, and credit unions from $42 million to $43 million, thereby exempting institutions with assets of $43 million or less as of December 31, 2013, from collecting HDMA data in 2014.
TILA and Regulation Z, among other things, require creditors to establish escrow accounts when originating higher-priced mortgage loans. However, TILA exempts certain entities from this requirement, including entities that meet an asset-size threshold established by the CFPB. The final rule increases this asset-size exemption threshold from $2 billion to $2.028 billion, thereby exempting creditors with assets of $2.028 billion or less as of December 31, 2013, from the requirement to establish escrow accounts for higher-priced mortgage loans in 2014.
Special Alert: CFPB Announces First HMDA Enforcement Actions, Issues HMDA Guidance
On October 9, the CFPB (or Bureau) announced it had assessed civil money penalties totaling $459,000 against two financial institutions—one bank and one nonbank—after examinations identified significant data errors in mortgage loans reported pursuant to the Home Mortgage Disclosure Act (HMDA). The Bureau simultaneously issued a HMDA bulletin to all mortgage lenders regarding the elements of an effective HMDA compliance management system, resubmission thresholds, and factors the Bureau may consider when evaluating whether to pursue a public HMDA enforcement action and related civil money penalties.
Enforcement Actions
According to the consent orders (available here and here), both financial institutions maintained inadequate HMDA compliance systems that resulted in the reporting of “severely compromised mortgage lending data.” The nonbank, which reported 21,015 applications in its 2011 HMDA Loan Application Register (LAR), agreed to pay a penalty of $425,000. The consent order notes previous violations identified by the state regulator and states that the Bureau sampled 32 loans and concluded that the sample error rate unreasonably exceeded the Bureau’s resubmission threshold, although the error rate was not disclosed. The investigation of the nonbank was conducted in cooperation with the Massachusetts Division of Banks, which announced its own consent order imposing a $50,000 administrative fine at the same time that the CFPB announced its order. The bank, which reported 5,785 applications in its 2011 HMDA LAR, agreed to pay a penalty of $34,000. The consent order against the bank states that the bank’s sample error rate was 38 percent but does not disclose the size of the sample. Both institutions will be required to correct and resubmit their 2011 HMDA data and develop and implement an effective HMDA compliance management system to prevent future violations. Neither of the orders reveals the specific deficiencies in the institutions’ HMDA compliance programs.
Guidance
As noted above, the Bureau also issued a bulletin regarding HMDA compliance along with HMDA resubmission guidelines. The bulletin discusses the components of an effective HMDA compliance management system, including: (i) comprehensive policies, procedures, and internal controls; (ii) comprehensive and regular internal, pre-submission HMDA audits; (iii) a process for reviewing regulatory changes; (iv) reporting systems commensurate with lending volume; (v) one or more individuals responsible for oversight, data entry, and data updates, including timely and accurate reporting; (vi) appropriate, sufficient, and periodic employee training on HMDA, Regulation C, and reporting requirements; (vii) a process for effective corrective action in response to deficiencies identified; and (viii) appropriate board and management oversight.
In addition, the bulletin announces the Bureau’s new HMDA Resubmission Schedule and Guidelines, which sets forth thresholds that will apply when determining whether resubmission is required when errors are discovered in a HMDA data integrity examination. The new resubmission schedule creates a two-tier system in which resubmission thresholds are lower for institutions reporting fewer than 100,000 entries on the HMDA LAR. Under the guidance, institutions that report 100,000 or more entries on their LAR should correct and resubmit their entire HMDA LAR if the error rate exceeds four percent of the total sample (or two percent in any individual data field), while institutions with fewer than 100,000 entries on their LAR should correct and resubmit their LAR if the error rate exceeds ten percent in the total sample (or five percent in any individual data field). The guidance states that resubmission for error rates below the applicable thresholds may be called for if “the errors prevent an accurate analysis of the institution’s lending.” Under the Bureau’s current standards, institutions, regardless of size, must resubmit a corrected LAR if any “key fields” have an error rate of five percent, or if at least ten percent of the institution’s records have an error in at least one of the key fields. The new resubmission schedule and guidelines will apply to all HMDA data integrity reviews initiated on or after January 18, 2014.
Finally, the bulletin provides a non-exclusive list of factors the Bureau may consider when evaluating whether to pursue a public HMDA enforcement action, including: (i) size of the institution’s HMDA LAR and observed error rates; (ii) whether errors were self-identified and independently corrected outside of an examination; and (iii) history of previous HMDA errors that exceed the permissible threshold. In addition, the guidance states that the Bureau may seek civil money penalties for HMDA violations depending on such factors as (i) size of financial resources and good faith effort of compliance by the institution; (ii) gravity of the violations or failure to pay; (iii) severity of harm to consumers; (iv) history of previous violations; and (v) such other matters as justice may require.
Outlook
These recent CFPB announcements reinforce BuckleySandler’s experience to date that the CFPB is stepping up scrutiny of HMDA practices both at banks and nonbanks. These examination and enforcement initiatives dovetail with the CFPB’s other recent HMDA-related activities. The CFPB recently launched new tools to allow the public—including consumer and housing advocates—to leverage HMDA data to attempt to identify lending patterns. The CFPB also has started internally drafting a proposed rule to implement changes to HMDA data collection requirements, as required by the Dodd-Frank Act. Though a final rule is a distant prospect, once finalized the CFPB may require institutions to report, among other things: (i) ages of loan applicants and mortgagors; (ii) the difference between the annual percentage rate associated with the loan and benchmark rates for all loans; (iii) the term of any prepayment penalty; (iv) the term of the loan and of any introductory interest rate for the loan; (v) the origination channel; and (vi) the credit scores of applicants and mortgagors.
All of these developments suggest bank and nonbank mortgage originators should review their HMDA practices and processes to ensure they are reporting data that are accurate or at least within the CFPB’s revised tolerances.
CFPB HMDA Data Tool Launches with Banking Regulators' Release of 2012 HMDA Data
On September 18, the CFPB launched a new web-based tool for use in analyzing HMDA data. The CFPB explains that its new HMDA tool focuses on the number of mortgage applications and originations, in addition to loan purposes and loan types for 2010 through 2012, and allows the public to see nationwide summaries or employ interactive features to isolate the information for metropolitan areas. The CFPB is planning additional features for the site, including (i) “easy-to-use tools” that allow users to filter HMDA records and create summary tables and (ii) an application programming interface that will allow researchers and software developers to incorporate the CFPB-provided HMDA data into other applications and visualizations. During a CFPB Consumer Advisory Board meeting at which the new tool was demonstrated, Director Cordray explained that the CFPB’s HMDA tool is designed to enhance the value of the HMDA data to help identify potentially discriminatory lending patterns and determine whether lenders are serving the housing needs of their communities.
The launch corresponded with the FFIEC’s annual HMDA data release. The release provides data on mortgage lending transactions—including applications, originations, purchases and sales of loans, denials, and other actions related to applications—provided by 7,400 U.S. financial institutions covered by HMDA for the 2012 calendar year. The FFIEC release notes that 2012 HMDA data are the first to use the census tract delineations and population and housing characteristic data from the 2010 Census and from the American Community Survey and that the boundaries of many census tracts have been revised in the process of transitioning to the 2010 Census, and cautions users that boundary changes and updates to the population and housing characteristics of census tracts complicate intertemporal analysis of the annual HMDA data. The release further advises users that while the HMDA data can inform analysis of fair lending compliance, the HMDA data alone cannot be used to determine whether a lender is complying with fair lending laws because they do not include many potential determinants of creditworthiness and loan pricing, such as the borrower's credit history, debt-to-income ratio, and the loan-to-value ratio.
FFIEC Publishes Updated HMDA Reporting Guide
On April 18, the Federal Financial Institutions Examination Council published the 2013 Guide to HMDA Reporting. The updated edition reflects the transfer of HMDA and Regulation C authority to the CFPB, updates previously announced asset-size threshold exemption adjustments, and includes minor technical changes.
CFPB Issues Third Semiannual Report
On March 29, the CFPB released its third semiannual report, which covers the Bureau’s activities from July 1, 2012 through December 31, 2012. The report reviews, among other things, the CFPB’s supervision, enforcement, and rulemaking activities over the subject period. With regard to fair lending, the report confirms that the CFPB is developing a fair-lending focused component of its Compliance Analysis Solution system that collects, validates, and analyzes loan portfolio data, and highlights previously reported fair lending activities, including those in its December 2012 fair lending report. The report also touches on many other familiar topics – it again reviews the CFPB’s complaint handling process and summarizes complaints received to date, discusses challenges consumers have reported with regard to student loan obligations, and highlights “shopping challenges” allegedly present in small dollar lending. Finally, the report provides vague timeframes for rulemakings, including the CFPB’s plan to (i) “accelerate work on” amendments to HMDA to require creditors to collect and report additional lending data, and (ii) propose a prepaid card rule in 2013.