The Impact of HMDA and Fair Lending
Since the creation of the Dodd-Frank Act and its inception of the Consumer Federal Protection Bureau (CFPB) in 2010, treating borrowers fairly in the lending process and repayment phase has been making headlines, and the resulting regulations have been reshaping both the banking and mortgage industries.
One of these regulations that has been getting more attention lately is Regulation C, more commonly known as the Home Mortgage Disclosure Act or HMDA. Although originally enacted by Congress in 1975 and overseen by the Federal Reserve Board, the Dodd-Frank Act transferred the rule-writing authority for HMDA to the CFPB on July 21, 2011. This new power enables the CFPB to determine what lending institutions report data about borrowers and what data about borrowers is collected.
The original intent of HMDA in 1975 was to ensure that borrowers were receiving fair and equal treatment from lenders. The Federal Reserve Board did this by collecting information about the location of the property, age of housing stock, borrower’s income level, and borrower’s racial characteristics. Per the CFPB’s website, the importance of the data HMDA collects is to “help show whether lenders are serving the housing needs of their communities; they give public officials information that helps them make decisions and policies; and they shed light on lending patterns that could be discriminatory.” Per the CFPB, its reason for revising the information collected about borrowers and how this information is collected is because it didn’t believe the current processes were collecting enough of the right information to determine if lending institutions were treating all borrowers fairly.
So what impact will the pending changes to HMDA have on lenders? The first impact occurs in 2017 and states that a bank, savings association, or credit union will not be subject to Regulation C unless it meets the asset-size, location, federally related, and loan activity tests under the current Regulation C and originates at least 25 home purchase loans in both 2015 and 2016.
The second impact goes into effect January 1, 2018. Per the CFPB, it establishes a loan-volume threshold for depository institutions “of at least 25 covered closed-end mortgage loans or at least 100 covered open-end lines of credit in each of the two preceding calendar years.” For-profit institutions that aren’t depository institutions will be subjected to the new HMDA regulation if they have “originated at least 25 covered closed-end mortgage loans or at least 100 covered open-end lines of credit in each of the two preceding calendar years and it satisfies the existing location test.”
The new HMDA regulations will impact how lenders interact with borrowers during the application and lending process. FICS® is aware of these regulations and is in the process of updating our loan origination software, Loan Producer®, to assist our customers in meeting their obligations under HMDA. For more information about HMDA, please visit CFPB.