By Katalina M. Bianco, J.D.
The Consumer Financial Protection Bureau has adopted a final rule amending its October 2015 Home Mortgage Disclosure Act final rule. The 2015 rule was intended to reduce the number of lenders required to file reports but at the same time require more data to be collected and reported. The new 2017 final rule makes technical corrections, clarifications, and changes to certain requirements adopted by the 2015 HMDA rule and generally becomes effective Jan. 1, 2018.
HMDA proposals. The final rule is based on two earlier proposals the CFPB issued in 2017. An April 2017 proposal addressed technical errors, clarified some key terms, and was intended to ease the burden of certain reporting requirements. A second proposal, issued in July 2017, sought to offer community banks and credit unions some regulatory relief by proposing a temporary 400-percent increase in the HMDA reporting threshold for home equity lines of credit.
Threshold changes. The 2017 HMDA final rule temporarily increases the threshold for collecting and reporting data with respect to open-end lines of credit from 100 to 500 for the 2018 and 2019 calendar years. Financial institutions originating fewer than 500 open-end lines of credit in either of the two preceding years will not be required to begin collecting such data until Jan. 1, 2020.
When proposed, the Bureau indicated that it was considering making the threshold increase permanent after 2020. However, it chose not to do so in the final rule. The CFPB noted it was "vitally important to begin the collection and reporting of data on the growing market for open-end lines of credit and that the increase in open-end origination volume since 2013 further demonstrates the importance of these data." The CFPB did add that the two-year period will allow time for it to decide, through an additional rulemaking, whether any adjustments to the open-end threshold are needed; and that it "intends to make that determination in sufficient time so that if institutions are covered under any permanent threshold set by the Bureau but not under the temporary threshold, those institutions will be able to resume and complete their implementation processes."
Excluded transactions. The 2017 HMDA final rule also creates a reporting exception for certain transactions related New York Consolidation, Extension and Modification Agreements (New York CEMA) transactions. Covered financial institutions generally will not be required to report any preliminary transaction where a consumer receives additional funds prior to consolidation into a New York CEMA transaction. However, financial institutions will continue to be required to report the New York CEMA transaction.
In addition, the rule clarifies two categories of transactions that are excluded as temporary financing and not reported in HMDA data: (1) a construction-only loan or line of credit that is extended to a person exclusively to construct a dwelling for sale; and (2) a loan or line of credit designed to be replaced by separate permanent financing extended by any financial institution to the same borrower at a later time.
Key terms clarified. The 2017 HMDA final rule clarifies certain key terms defined in the 2015 HMDA rule, including "multifamily dwelling," "automated underwriting system," and the meaning of income for the purpose of reporting the gross annual income relied on in making the credit decision or processing the application if a credit decision was not made.
Race and ethnicity information. Finally, the 2017 HMDA final rule clarifies three aspects of collecting and reporting race and ethnicity information. First, it states that an applicant is not required to select an aggregate race or ethnicity category as a precondition to selecting one of the race or ethnicity subcategories. Second, it clarifies that an applicant may provide a particular other ethnicity or race in the free-form field, whether or not the applicant selects the "Other" ethnicity or race subcategory. Third, it clarifies how a financial institution should report ethnicity if an applicant selects more than five ethnicity categories and subcategories combined.
Filing Instructions Guides. To assist financial institutions, the CFPB has also updated the Filing Instructions Guides for data collected in 2017 and 2018.
FFIEC guidelines. The Federal Financial Institutions Examination Council also has provided HMDA guidance, the HMDA Examiner Transaction Testing Guidelines, for all financial institutions required to report HMDA data. Beginning in 2019, examiners will use the guidelines when assessing the accuracy of the HMDA data that financial institutions record and report. The guidelines will apply to data collected beginning in 2018.
For more information about HMDA and the final rule, subscribe to the Banking and Finance Law Daily.