Lending

Trending Thursday: CFPB finalizes new HMDA while Congress mulls ending CFPB structure

800-pages of new rules, which could be undone by next CFPB head

trending thursday

The Consumer Financial Protection Bureau finalized a rule to improve information reported about the residential mortgage market. A copy of all 800-plus pages of that bad boy can be found here.

The rule will shed more light on consumers’ access to mortgage credit by updating the reporting requirements of the Home Mortgage Disclosure Act regulation. The bureau is working with other federal agencies to streamline the reporting process for financial institutions.

“The Home Mortgage Disclosure Act helps financial regulators, the public, housing officials, and even the industry itself keep a watchful eye on emerging trends and problem areas in the nation’s mortgage market – the largest consumer financial market in the world,” said CFPB Director Richard Cordray. “With today’s final rule we are shedding more light to foster better understanding of the market, and also ensuring that lenders have sufficient time to come into compliance.”

HMDA, which was originally enacted in 1975, requires many lenders to report information about the home loans for which they receive applications or that they originate or purchase. The public and regulators can use the information to monitor whether financial institutions are serving the housing needs of their communities, to assist in distributing public-sector investment so as to attract private investment to areas where it is needed, and to identify possible discriminatory lending patterns.

In 2014, 7,062 financial institutions reported information about approximately 11.9 million mortgage applications, preapprovals, and loans.

The final rule issued today is supposed to “improve the quality and type” of HMDA data. The CFPB also says it is working to reduce the reporting burden for lenders, by streamlining and modernizing the submission of the data. It's all in the 800-plus pages that lenders will have to comb through.

Among the changes:

  • This new information includes the property value, term of the loan, and the duration of any teaser or introductory interest rates.
     
  • Financial institutions will be required to provide more information about mortgage loan underwriting and pricing, such as an applicant’s debt-to-income ratio, the interest rate of the loan, and the discount points charged for the loan. The CFPB says that this information will enhance the ability to screen for possible fair lending problems, helping both institutions and regulators focus their attention on the riskiest areas where fair lending problems are most likely to exist. Further, this information is also supposed to help monitor developments in specific markets such as multifamily housing, affordable housing, and manufactured housing.

Most of the provisions of the final rule will take effect on Jan. 1, 2018. Lenders will collect the new information in 2018 and then report this information by March 1, 2019.

National Association of Federal Credit Unions Director of Regulatory Affairs Alicia Nealon was first out of the gate expressing concerns with the rule changes, saying they’re a heavy burden.

“While NAFCU and our members support HMDA requirements that further the goal of ensuring fair lending and anti-discriminatory practices, we are concerned that some of the additional reporting requirements will not achieve these goals and may only serve to impose significant additional compliance and reporting burdens on responsible lenders like credit unions who work to meet their members’ needs with safe, sound and fair products,” Nealon says. “As the CFPB and Congress have repeatedly recognized, credit unions did not engage in the type of mortgage-related practices that the Bureau is seeking to identify through an expanded HMDA dataset. Moreover, mandating home equity lines of credit reporting will exacerbate compliance costs and burdens on credit unions since they will have to make costly modifications to their systems in order to collect data on these newly covered transactions.”

Of course, that all depends on the CFPB staying exactly the same industry-beloved entity that it is, with its current, one-man’s iron-rule structure in place. Things may be changing on that front.

In an op-ed in the Wall Street Journal written by a Democrat and a Republican, there’s growing bipartisan support to bring bipartisan changes to the CFPB’s current leadership structure.

Reps. Randy Neugebauer, R-Texas, and Kystern Sinema, D-Ariz., argue that the single, dictator/director (not their exact words) structure of the CFPB management makes it no more than a political tool of whomever is in the White House.

It’s not hard to imagine that a CFPB director appointed by a President Trump or President Paul could, simply with the wave of the scepter, undo everything undertaken by the director put there through a recess appoint by President Obama.

A single-director structure solidifies the policy positions of the political party in charge of the White House. Either Republican or Democrat, a single director will generally carry out his or her president’s wishes and approach the job in a partisan manner. A bipartisan commission allows for greater diversity of viewpoints, forcing more dialogue and a more balanced approach to rule-making.

This isn’t a novel concept. There is bipartisan leadership at the Federal Trade Commission, the Securities and Exchange Commission, the Commodities Futures Trade Commission, and the Consumer Product Safety Commission.

We believe consumer protection is critical to a well-functioning and sustainable financial marketplace, and the CFPB has an important role to play. To ensure a stable and deliberative regulatory process, the agency should be insulated as much as possible from the whims of partisan politics. A bipartisan commission leadership structure is best to achieve this outcome.

A commission structure at the CFPB would promote predictability in rule-making by preventing a new director from unilaterally and abruptly reversing the decisions made by a previous director. It would also help to reduce the risk of regulatory capture, as it is easier for special interests to inveigle one person than five.

The National Appraisal Volume was essentially flat, rising only 0.4% for the week beginning on Oct. 4, owing to the fact that appraisals follow mortgage applications. But what will be interesting within the next two weeks is to see how many of the mortgage applications in last week’s surge of applications really follow through. (Mortgage applications surged 25.5% for the week ending Oct. 2.)

“It appears that the applications submitted prior to the TRID implementation deadline were an apparition and haven’t lead to appraisal orders, which are needed to complete the mortgage process,” says Kevin Golden, director of analytics for a la mode inc. “This highlights one of the advantages to using appraisals over applications. Since the non-action by the Fed the week of 9/13/15, the activity level has been in a slightly downward trend.”

Appraisal volume is an indicator of market strength and has a few advantages over mortgage applications, especially since fallout is less for appraisals since they are ordered later in the mortgage process after credit worthiness has been approved. 

Here’s the latest appraisal volume:

After a hot summer-selling season, September home sales followed an expected seasonal trend and cooled off 8.6% lower than August, but were still 6.8% higher than September 2014, according to RE/MAX. 

The number of completed transactions was the highest seen in the month of September since the RE/MAX National Housing Report began collecting data in 2008.

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