You want the good news or the bad news on HMDA? Let’s go with the good news: After collecting expanded data on borrowers under the Home Mortgage Disclosure Act rule changes, lenders are going to have greater insight than ever before on their lending practices. The bad news? So is everyone else.
“Your lending practices are about to become a wide-open book,” said Mitchel Kider, chairman and managing partner, Weiner Brodsky Kider PC.
"When there is more information available to the public and to regulators, there will be a lot more scrutiny and potential liability.”
Kider was one of the experts who spoke Monday about HMDA rule implementation at the Mortgage Bankers Association's 2017 Annual Conference and Expo. The panel’s unofficial theme, as outlined by John Haring, director of compliance enablement at Ellie Mae, was “we scare because we care,” due to the anxiety some lenders feel about what the HMDA changes mean for them.
Updated HMDA requirements involve a significant expansion of data collection, including 25 new fields that have to be reported. These changes are the latest attempts by federal regulators to ensure fair lending by identifying possible discriminatory patterns.
In the past, Kider said, regulators looked at HMDA data as part of their fair lending review, but the data wasn’t comprehensive enough by itself to determine discrimination. With the HMDA changes, the data will provide a complete picture for regulators, and lending pattern outliers will trigger an investigation.
“Now, all that data is available in a consistent electronic format and it will be very easy for others to compare you to peers, to drill down to specific information that was more difficult to obtain before,” Kider said.
That new data includes pricing information, origination charges, discount points, lender credits, interest rates, combined LTV ratio, credit score and DTI ratio.
“Fair lending will receive greater visibility when federal agencies and private litigants have additional data under HMDA to support their analysis,” Kider said.
In addition, poor data quality by itself can be the basis for action against lenders.
“Substance is important, but the accuracy of HMDA data is independently important as well,” Kider said. “Does this [poor data quality] mean you have to resubmit? No, this means civil money penalties as well. It is a reflection of having a poor compliance management system in all other areas.”
Maurice Jourdain-Earl, managing director at ComplianceTech, compared the HMDA implementation to an iceberg, with the expanded data points making up an unseen, bulky mass under the water line.
“Things are about to get very real,” Jourdain-Earl said. “We’ve been tiptoeing with HMDA data and a lot of lenders go through the process of collecting and submitting, but many don’t do what they need to in order to understand what it says. That need is about to become paramount. The new HMDA rules will be a game changer. We are going to experience a major paradigm shift, and HMDA can be either friend or foe.”
All of the HMDA panelists, which also included Richard Andreano Jr., practice group leader, mortgage banking group at Ballard Spahr, saw the HMDA changes as an opportunity for lenders to see, understand and hopefully improve, their lending practices.
“The responsible thing for lenders to do, is understand what their data is saying. How can you use your data to establish a process of benchmarking where you compare your business process and performance metrics to industry norms and best practices,” Jourdain-Earl said.
Part of the new data collected includes the unique identifier for the loan officer, which means regulators will have transparency into the lending practices of not just companies or branches or managers, but all the way down to the level of loan officer.
“With new HMDA data, regulators will be able to more scientifically identify a peer, and a peer with a similar business model. Are their outcomes the same or different than yours?” Jourdain-Earl asked.
In addition to the challenges of the HMDA reporting, Haring pointed out the difficulties of getting ready for implementing the HMDA changes while the CFPB is still adjusting requirements, including changes to the filing instruction guides.
The bureau is still developing the platform that lenders will use to submit HMDA data starting on March 1, 2018, but has not provided a specific date when it will be completed.
“Lenders want to test against that platform today,” Haring said.