Relief from HMDA Requirements May Go Further Than Banks Realize
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.