Lending

Think compliance is hard now? Wait till the new HMDA regs kick in

Notes from the compliance town hall at the Ellie Mae Experience conference

black and white gavel

The last formal session of the Ellie Mae Experience conference was also its liveliest. The compliance experts on the official panel on the podium were joined by an unofficial group of GSE leaders on the front row, who gamely jumped in when called upon.

The Q&A forum gave lenders the microphone for some of their thorniest compliance questions, and they did not disappoint.

One notable exchange ended with a self-described rant by Jack Konyk, executive director of government affairs for Weiner, Brodsky, Kider, after a question about gathering Home Mortgage Disclosure Act demographic data.

“I’m amazed that we can’t do HMDA right — it’s been around since the 70s,” Konyk said. “If you can’t get HMDA right now when there are only, for example, three possible demographic answers, God help you next year when there are over 20.”

Konyk reminded conference-goers that any descriptions reported by borrowers on their ethnicity, race and sex should not be challenged by lenders, even if those characteristics don’t seem accurate. “It doesn’t matter what you think — report what they say about themselves. Don’t take it upon yourself to change what they said.”

On the new HMDA form, lenders will be able to check a box clarifying that they filled out information about the ethnicity, race and sex of the borrower from visual observation and surname. The current form lets lenders indicate that borrowers declined to answer, but doesn’t have a space to confirm visual inspection.

Konyk also warned lenders on the serious consequences of sloppy HMDA reporting.

“A regulator will not just see it as data inaccuracy — they will see it as incompetent management and inadequate control. That is how they will see you and your company, and if they come in and find bad data, they can and have issued an order to do a three-year scrub and re-file on all your HMDA data, to go back and get it right,” Konyk said.

Here are other highlights from the session, with the obvious caveat that neither the panelists nor HousingWire are dispensing legal advice.

  • There was wide agreement in the room that the new Uniform Closing Dataset form was a major improvement; the changes to the real estate owned section were especially appreciated.
  • On the UCD, the GSEs were surprised to learn that borrowers want to keep their personal information private from sellers, and lenders are able to do that within the new format.
  • Data that is too long for the UCD boxes, like email addresses, can wrap to other boxes and will render appropriately.
  • How is a family member defined on the new forms? The GSEs say a family member is not defined, apart from the AUS limit of four for underwriting.
  • In response to questions about how to handle a co-borrower addendum, Ellie Mae is committed to working to expand the functionality in Encompass.
  • When it comes to online applications, panelists predicted automated identity verification solutions coming in the future. For the moment, lenders expressed that they are concentrating on the verification of the information once it’s received.
  • One lender asked about offering the loan estimate or closing disclosure in different languages. There was a long discussion about the pitfalls of trying to do this compliantly, since there is no standard for Limited English Proficiency. Does compliance mean duplicate docs in a second language, or a simple translation of what the documents mean? The panel outlined many challenges associated with the effort, including the variety of languages spoken depending on the region, the fact that the GSEs won’t buy loans in a different language and the reality of county recording offices being unwilling to record the deeds. The bottom line? This is a long way from being solved.
  • Because of the rising interest rate environment, several lenders had questions about temporary buydowns, and there was a discussion about the difference between a payment buydown and a rate buydown, and what must be disclosed for each. The general consensus from the experts was to seek legal advice specific to the “flavor” of each buydown.
  • In answering a question about when is the absolute earliest a lender could send out a CD, the experts felt strongly that the earlier it was sent out, the more room there was for error. Josh Weinberg, executive vice president at First Choice Loan Services and director of compliance with First Choice Bank, said: “The real answer is that it’s up to lender policy, and you have to build a policy that meets your risk appetite. The challenge has been getting the CD out three days before closing, so how would it be accurate earlier than that?”

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