Mortgage

Your top 10 HMDA questions answered: Part 3

What do the recent amendments and publications to HMDA mean for a lender?

The Home Mortgage Disclosure Act deadline looms closer, but many questions still remain unanswered.

To combat this, HousingWire set to work to bring readers answers to the most asked questions as we countdown to the end of the year.

Most of the 2015 updates to HMDA take effect in January 2018.

Before reading today’s question, make sure you’re all caught up in the series by reading part one and part two.

This is part three.

What do the recent amendments and publications to HMDA mean for a lender?

One expert explained that there are training, potential Fair Lending and technology implications for lenders in the recent amendments.

“With the expanded demographic information data collection at time of application, loan originators will have to be trained on the new categories and questions to ask the consumer,” Scott Dunn, Wipro Gallagher Solutions head of product management, strategy and compliance, told HousingWire. “For internal HMDA officers/personnel, training on the additional data points, their meanings and context surrounding how to report this data will be needed.”

What’s more, with Fair Lending, the process in the future will become more automated, and there will be an increased level of judgement by the CFPB, Dunn explained. Fair Lending policies will need to be addressed and if there are any discrepancies in the current policy, mitigated.

“With technology, all loan origination and reporting systems will have to change to meet the new requirements,” he said. “This effort was quite large for some institutions to change and implement new technologies and automation surrounding the data collection and subsequent submission.”

Another expert agreed the new HMDA changes will bring many challenges to lenders as they struggle to capture the daunting 110 data points, including subsets. Digital Risk Senior Director Sheila Latiff agreed it will present a challenge on the technology side.

“Systems must be updated and edits included to ensure as much accuracy as possible,” Latiff said. “Additionally, even if an application was taken in late 2017 – unless there was ‘Action Taken’ as defined by the regulation, that application is subject to 2018 requirements. This means that lenders must have proactively incorporated the additional data elements into their LOS prior to effective date in 2018.”

She explained that originators aren’t the only ones who will need to be careful of the new changes, but also those who buy loans.

“For lenders that buy loans, data integrity issues are sure to crop up – particularly if either loans being purchased weren’t carefully monitored as described above, or if loans being purchased have incorrect data,” Latiff told HousingWire. “Scrubs of data by the purchasers will need to occur to ensure adherence to the new HMDA requirements.”

Another expert from Digital Risk explained that while the changes can be overwhelming, it doesn’t need to feel like TRID all over again.

“Most importantly, the HMDA amendments mean that lenders have had to make serious changes to their software and infrastructure, as well as policies and procedures, to ensure that the new and revised data points are properly captured and reported,” Digital Risk Staff Attorney Meaghan James said. “Furthermore, lenders need to implement training across all departments to ensure that all appropriate staff understand the changes and are prepared to identify what data needs to be captured and when.”

“In conjunction with this training, lenders should be, if they haven’t already, communicating these changes to executive leadership and the board; compliance is an all-inclusive function and it is important to have all levels of staff involved and aware, especially when there are changes as widespread and important as this,” James said.

ComplianceTech, a provider of fair lending and CRA solutions, gave three ways this will affect fair lending: market penetration, underwriting and pricing.

1) Market penetration analysis – It is unclear whether lenders will be expected to analyze the enhanced demographic information, but regulators will have the census data at their disposal to be able to determine whether lenders are meeting the credit needs of the demographic subgroups within their lending areas.

2) Underwriting – Regulators will be able to approximate apples-to-apples comparisons by filtering by: loan type, investor, loan amount, fixed versus variable rate, commercial versus consumer purpose, retail versus wholesale versus correspondent channel and whether the transaction is an open-end line of credit and/or a reverse mortgage. They could then analyze mean denial rates, credit scores, debt-to-income ratios and combined loan-to-value ratios by prohibited basis. While not being able to allege discrimination on this basis alone, regulators could use this as a way to scope for risk across many lenders.

3) Pricing – Here, in addition to the above, regulators will also be able to use loan term as a filter to approximate apples-to-apples comparisons. For loans that are subject to the Integrated Disclosures, regulators will be able to see mean rate spread, loan amount, origination charges, discount points, lender credits, credit scores and combined loan-to-value ratios. That's a rich dataset which again could be used as a scoping tool.

One expert explained the entire thinking behind HMDA reporting will need to change as now, instead of giving just data points, the data points are extensive enough that it is telling an entire story.

“HMDA reporting is not only about reporting numbers on a long string of data, but also focusing more on the Story / Timeline of the Loan,” said Beji Varghese, Navigant Capital Advisors managing director. “This is evidenced by CFPB’s recent publication in August 2017 HMDA Loan Scenarios.”

In the three scenarios presented by the CFPB, the CFPB is not merely seeing the borrower as codes pulled from loan origination documents, but rather each borrower with a story and how that story fits into the overall coding of the HMDA LAR,” Varghese told HousingWire.

Check back Monday to read part four of this series as we count down until the end of 2017.

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