Re­lief from HMDA Re­quire­ments May Go Fur­ther Than Banks Re­al­ize

National Mortgage News - - Compliance & Regulation - By Rachel Witkowski

Fed­eral re­port­ing re­quire­ments for mort­gage data have been a mov­ing target in re­cent years. Just as one set of pol­i­cy­mak­ers ex­pands re­port­ing rules, an­other eases them. But bankers are start­ing to see more signs of clar­ity.

One point of con­fu­sion: Do re­forms en­acted in May re­duc­ing Home Mort­gage Dis­clo­sure Act re­port­ing fields for small lenders mean they still have to col­lect the data?

An of­fi­cial at a re­cent Fed­eral De­posit In­sur­ance Corp. meet­ing sug­gested that banks qual­i­fy­ing for the ex­emp­tion are un­der no obli­ga­tion to col­lect the data in­ter­nally, ex­cept in cer­tain rare cir­cum­stances.

“From our point of view, we do not think the law re­quires you to col­lect the data if you don’t have to re­port it,” said Jonathan Miller, deputy di­rec­tor for the FDIC’s divi­sion of de­pos­i­tor and con­sumer pro­tec­tion, at the meet­ing of the agency’s com­mu­nity bank ad­vi­sory panel. “It’s com­pletely up to you whether you want to do it for what­ever in­ter­nal pur­poses, fair lend­ing or for other pur­poses.”

Banks have been wait­ing for more HMDA guid­ance from the reg­u­la­tors af­ter Congress in May passed a leg­isla­tive pack­age that cur­tailed parts of the Dodd-Frank Act, in­clud­ing ex­empt­ing smaller lenders — about 85% of the in­dus­try — from re­port­ing new data fields that had been re­quired by the 2010 law.

The HMDA data is of­ten used by ex­am­in­ers to iden­tify fair-lend­ing is­sues. Banks have been ques­tion­ing whether they still need to col­lect the data to pro­tect them­selves from po­ten­tial en­force­ment, even if they no longer have to re­port it.

Miller’s com­ments have been seen by some as a sig­nif­i­cant sign of where reg­u­la­tors may be go­ing. Al­though the Con­sumer Fi­nan­cial Pro­tec­tion Bureau writes all the rules and guid­ance re­lated to HMDA, pru­den­tial reg­u­la­tors like the FDIC are tasked with mon­i­tor­ing their banks be­low a $10 bil­lion as­set thresh­old for com­pli­ance.

“It’s sig­nif­i­cant in the sense that it hasn’t been said be­fore but it’s also highly log­i­cal,” said War­ren Traiger, se­nior coun­sel at Buck­ley San­dler LLP. “It would not sur­prise me if the [CFPB] guid­ance adopts what Jonathan Miller said.”

Dodd-Frank had man­dated 14 ad­di­tional data fields for HMDA re­port­ing on top of nine that had al­ready ex­isted, but the new law passed by Pres­i­dent Trump means lenders that orig­i­nate fewer than 500 closed-end mort­gages in each of the two prior cal­en­dar years and in­sti­tu­tions that orig­i­nated fewer than 500 open-end lines of credit over the same pe­riod are ex­empt from re­port­ing the ex­tra HMDA data.

How­ever, that HMDA ex­emp­tion is re­scinded for a bank if it re­ceives a low CRA score twice in a row.

Miller’s com­ments came in re­sponse to a banker at the meet­ing who said his in­sti­tu­tion had been ad­vised by a “na­tional com­pli­ance con­sul­tant” to con­tinue col­lect­ing the data — so it can be shared with reg­u­la­tors in case the bank re­ceived a poor Com­mu­nity Rein­vest­ment Act score on lend­ing to lower-in­come com­mu­ni­ties.

The con­sul­tant said, “‘We’re not so sure you’ve been re­lieved of the col­lec­tion re­quire­ments ... be­cause if you get a needs to im­prove or a sub­stan­tial non­com­pli­ance [grade] in CRA, you bet­ter have that data to re­port,’” said David Han­ra­han, pres­i­dent and CEO of Cap­i­tal Bank of New Jer­sey in Vineland.

Miller re­sponded, “If you are not re­port­ing the data, we would not ex­pect you to col­lect the data.”

“Just avoid get­ting a ‘needs to im­prove’ two times in a row,” he said.

There are con­cerns, how­ever, about whether reg­u­la­tors could still root out the fair- lend­ing vi­o­la­tions with less data be­ing re­ported.

Dur­ing the meet­ing, FDIC Chair­man Je­lena McWilliams asked her own staff to “elab­o­rate” on “how we are go­ing to look at fair-lend­ing is­sues in gen­eral if this data is not col­lected.”

Miller re­sponded that “noth­ing changes for us in how we do any of our ex­ams pre-2018” be­cause new data that had been man­dated by Dodd-Frank and in sep­a­rate CFPB rules was not even re­quired to be re­ported un­til this year.

“We will still be col­lect­ing the old data and we’ll still be do­ing the same kind of anal­y­sis we have al­ways done,” Miller said. “If there is a red flag, we talk to the bank, we col­lect the ad­di­tional data on a case-by-case ba­sis ... and then we do the anal­y­sis.”

On top of the ad­di­tional Dodd-Frank re­port­ing, former CFPB Di­rec­tor Richard Cor­dray moved to add an­other 25 data fields that went into ef­fect in early 2018, but act­ing CFPB Di­rec­tor Mick Mul­vaney has in­di­cated he will re­scind those fields.

Many in­dus­try ob­servers agreed that reg­u­la­tors will not pull back on fair-lend­ing en­force­ment be­cause there is less HMDA data be­ing re­ported by smaller banks.

“I don’t think this has a large ef­fect on CRA or fair lend­ing be­cause ... it doesn’t stop the agen­cies on a case-by-case ba­sis from get­ting what­ever fair-lend­ing data they can get,” said Richard An­dreano, prac­tice leader of the mort­gage bank­ing group at Bal­lard Spahr. “It would just have to be some­thing they would have to com­pile and it would take some time.”

Of the roughly 1,850 FDIC-su­per­vised banks that re­ported HMDA data in 2017, the agency es­ti­mates that 244 will be re­quired to do full HMDA re­port­ing in 2018. These in­sti­tu­tions had roughly 71% of the orig­i­na­tions and 76% of the dol­lar vol­ume re­ported un­der HMDA by FDIC-su­per­vised in­sti­tu­tions in 2017.

Je­lena McWilliams

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