The Mortgage Bankers Association, the National Multifamily Housing Council, and several other prominent trade groups are calling on the Consumer Financial Protection Bureau to change the Home Mortgage Disclosure Act rules for multifamily lending.
In a response to the CFPB’s request for information on the bureau’s rulemaking authority, the MBA, the NMHC, the National Apartment Association, and the Commercial Real Estate Finance Council tell the CFPB that the multifamily housing industry experiences “unwarranted regulatory burdens and privacy issues” due to the “unnecessary application” of HMDA reporting requirements on multifamily lending.
According to the groups, lenders that originate multifamily business-to-business loans are still required to comply with HMDA reporting requirements, an obligation that creates “considerable cost” for the lenders.
Additionally, the trade groups say that the requirements are exceed the scope of what the HMDA law was supposed to accomplish.
“We believe that HMDA reporting on business-to-business loans secured by multifamily properties is not necessary to fulfill the statutory purposes of HMDA and that the burden of collecting and reporting that information therefore far outweighs the benefits of doing so,” the groups write.
As the groups state, HMDA was enacted in the 1970s in a response to concerns that lending institutions were not providing credit to all persons equally.
Single-family mortgage lenders are required to report their lending data as part of HMDA to ensure that there is no discrimination, whether purposefully or otherwise, in mortgage lending.
But as the groups argue, the world of multifamily financing is different and should therefore play by different rules.
“Business-to-business transactions to finance multifamily properties do not involve these concerns,” the groups write, speaking of potential lending discrimination against any certain group.
"For example, borrowers in transactions involving business-to-business loans secured by multifamily properties are businesses, e.g., corporations, limited liability companies or partnerships, and not natural persons,” the groups continue.
“In this regard, we note that the Bureau’s own explanation of why it elected to require HMDA reporting on multifamily loans provides no link to the congressional findings underlying HMDA, to the statutory purposes of HMDA, or to any of the Bureau’s authority,” they add. “This strongly suggests regulatory coloring outside the lines of what HMDA was intended to cover.”
The groups also argue that the cost of the HMDA reporting puts an unnecessary strain on multifamily lenders.
“Moreover, that coloring outside the lines imposes considerable cost. Multifamily lenders typically cannot readily standardize data collection around multifamily lending transactions to fit into a reporting regime designed with single-family lending in mind,” the groups write.
“For example, because many business-to-business multifamily lenders originate loans with multiple risk profiles for multiple investors, they may have a business need to document and underwrite different sets of loans differently,” they continue. “As a result, lenders may find that they have to develop separate HMDA processes for type of loan originated, for each investor, which results in a complex and cumbersome process.”
Put simply, the groups believe that any “public policy benefit” in requiring multifamily lenders to report HMDA data on B2B loans “does not outweigh” the “considerable” costs and burden placed on lenders to fulfill the requirement.
The groups also note that the CFPB recently indicated that it may move to change some of the HMDA reporting thresholds, and in the absence of removing the HMDA reporting standards on B2B loans entirely, the groups call on the CFPB raise the multifamily reporting threshold from 25 loans per two-year period to 500 loans.
The groups note that 500 loans was deemed by Congress to be an “appropriate order-of-magnitude threshold for HMDA purposes” in the recently passed Economic Growth, Regulatory Relief, and Consumer Protection Act, which rolled back some of the Dodd-Frank rules.
“The recent legislation described above provides only limited relief from HMDA reporting (i.e., by providing relief only from reporting on the new 2015 data fields, and providing relief only for insured credit unions and insured depository institutions),” the groups write. “In our view, relief provided by any new order-of-magnitude threshold that the Bureau may be considering should apply to all HMDA reporting, and should be applied across all types of institutions, consistent with the way the current 25-loan threshold applies under current regulations.”
While groups argue for relaxing the reporting threshold, they close by stating that increasing the limit from 25 to 500 would provide some relief, but not nearly as much as eliminating the HMDA reporting requirement altogether.