Final HMDA Rule Still Too Costly Despite Changes, Industry Warns

WASHINGTON — The Consumer Financial Protection Bureau backed off some of its initial plans in its final rule requiring lenders to collect more data from mortgage borrowers, but industry representatives warned the agency had not gone far enough.

The rule released Thursday adds 25 new data points and modifies 14 others in addition to the existing 9 data fields that lenders were already required to report under the Home Mortgage Disclosure Act. Though the agency dropped some datasets it initially proposed to collect last year, some lenders said the final rule was still going to be overly burdensome, particularly for smaller institutions.

"While NAFCU and our members support HMDA requirements that further the goal of ensuring fair lending and anti-discriminatory practices, we are concerned that some of the additional reporting requirements will not achieve these goals and may only serve to impose significant additional compliance and reporting burdens on responsible lenders like credit unions who work to meet their members' needs with safe, sound and fair products," said Alicia Nealon, director of regulatory affairs at the National Association of Federal Credit Unions.

The CFPB argues that the changes, some of which were required by the Dodd-Frank Act, will help policymakers better evaluate mortgage lending, including detecting potential discrimination.

"This information will enhance the ability to screen for possible fair lending problems, helping both institutions and regulators focus their attention on the riskiest areas where fair lending problems are most likely to exist," the CFPB said in a press release. "This information will also help the bureau and other stakeholders monitor developments in specific markets such as multifamily housing, affordable housing, and manufactured housing."

Among other things, the final rule requires lenders to report specifics on the property value, loan terms, the applicant's debt-to-income ratio, discount points charged on the loan and the duration of any teaser interest rates. It also requires lenders to provide data on other loans tied to a home, such as reverse mortgages and open-end lines of credit, down to the address of the property. (A summary of all the data points can be found here.)

"The final rule requires lenders to disclose the pricing of a home loan down to a level they've never had to disclose before which can be very revealing," said Colgate Selden, a counsel at Alston & Bird's financial services and products group who previously worked in the mortgage rulemaking side of the CFPB. "The pricing details will paint a full picture for regulators when looking for discrimination at institutions and it could affect pricing competition. The new rule also requires some individual loan originator data so you can potentially tie pricing to an individual loan officer which might create other interesting issues if that's tied to particular loan transactions."

When the CFPB first issued a proposal in July 2014, it planned to collect even more data. But in the final rule, it dropped a proposed requirement to detail whether a loan was a qualified mortgage. It also scrapped plans for lenders to report on the initial draw of an open-end line of credit and all dwelling-secured transactions meant for commercial purposes. That may relieve some in the industry who argued that HMDA was meant for assessing the mortgage market, not commercial loans.

The CFPB also added a standardized reporting threshold so small lenders with low loan volumes are exempted from reporting HMDA data. The agency estimates that this new threshold will reduce the number of lenders who have been required to report HMDA data by 22%.

"For small lenders with few staff members, this change could make a significant impact in easing compliance costs," the CFPB said. "However, because those lenders receive a low volume of applications and originate a low volume of mortgage loans, the change will not compromise the usefulness of the dataset."

The rule also retains an existing exemption for small depository institutions located outside of a metropolitan statistical area.

"The final rule does relieve the regulatory burden for small institutions, but I think we're going to need to get underneath the press release and rorschach impression and see where the rule sits when implementing it with other mortgage disclosure rules that recently took effect," said Donald Lampe, a partner in the financial services group at Morrison & Foerster. "As always with an 800-page regulation, we need to get into it, more than just the agency's announcements, to see how it works out in practical application."

Still, some of the initial reaction by lending groups was that the compliance burden remains heavy.

"The CFPB's final rule instead adds to the excessive regulatory burdens for many community banks, which will further restrict access to credit in local communities," said Camden R. Fine, president and chief executive of the Independent Community Bankers of America. "While ICBA appreciates the CFPB's provision of a two-year implementation period and its efforts to exempt some small-volume lenders, the overall costs of the expanded HMDA reporting requirements outweigh the benefits."

There also remains privacy concerns from both industry and consumer groups. Lenders must now report the address of the home, which could pose additional risks, though it's unlikely the CFPB will publicize such details.

"The biggest overriding theme here is what the CFPB is going to disclose to the public," Selden said. "It seems the bureau is still looking at what it might do for data refinement in trying to balance the interest of the public versus protecting consumer privacy."

John Taylor, chief executive of the National Community Reinvestment Coalition, said that the CFPB's final rule will "increase the fairness of mortgage markets for all Americans," and addresses concerns about privacy risk.

"We are particularly pleased that the CFPB has followed NCRC's recommendation to disaggregate the data on race and ethnicity. The CFPB also shown careful consideration of potential privacy issues in this process, which should assuage any concerns surrounding the collection of the data."

The CFPB noted in the press release announcing the final rule that it is "looking at ways to improve public access to HMDA data that has been modified to protect applicant and borrower privacy."

The CFPB has more time to vet privacy concerns now that it's given the industry until January 2018 to begin gathering the data, which would then be reported to regulators the following year, by March 1, 2019.

"The bureau has given an additional year which should be a great help in allowing the industry to prepare to collect the data, as well as a little bit of a wind-up to analyzing the data," said Warren Traiger, counsel in the New York office of BuckleySandler. "Perhaps the bureau feels that another year gives them an opportunity to deal with a very significant question that pits privacy proponents against proponents of public disclosure of fair lending data."

Kate Berry contributed to this story.