How Expanded HMDA Data Could Help Banks

WASHINGTON — Banks are looking at a regulatory plan to dramatically expand the data collected on mortgages as a potential ally in their battle to ease separate rules that they say will curb access to credit.

On its face, the Consumer Financial Protection Bureau's announcement that it was considering going beyond Dodd-Frank Act requirements to collect more mortgage data may be viewed by some institutions as burdensome. Yet the data the CFPB will potentially seek — whether a loan meets the criteria to be considered a "qualified mortgage" — could be beneficial as they attempt to prove to the agency that the definition is too stringent. Ultimately, some hope the extra data could force the CFPB to allow more loans to qualify for QM status.

"Having better data that is essential to analyze the process will probably bring greater consensus from a variety of stakeholders about certain changes or adjustments to the mortgage rules that are in the greater benefit of everyone," said Bob Davis, an executive vice president at the American Bankers Association.

The CFPB is in the early stages of making changes to what data it will require under the Home Mortgage Disclosure Act. It will first convene a panel of small businesses, including lenders, to get feedback on how to update the survey that was enacted in 1975 largely to detect mortgage problems that later expanded into preventing discrimination in the mortgage market

Many lenders agree that the survey could use some updating and they were encouraged that the CFPB said it was also looking at how to streamline the reporting to help ease the added burden for banks. However, some say the additional HMDA requirements may be the last straw, particularly for small banks who were already debating leaving the mortgage market after new mortgage rules concerning QM went into effect last month.

"For the regular old run-of-mill community banks, this is just more data that has to be accumulated and I'm just wondering if adding these additional requirements could be tipping the pot for many of these banks that are already thinking of going ahead and exiting the mortgage business," said Joe Goyne, chairman and president of Pegasus Bank in Dallas.

Since the mortgage rules went into effect, "I have heard from different bankers, and some in the $25 billion-asset range even, who said they were giving some thought of just shutting down the mortgage business … I think if the CFPB comes out with more requirements, these bankers are just going to say this is the last straw."

CFPB Director Richard Cordray has told Congress and community bankers that the agency is "sensitive" to the impact the mortgage rules have on access to credit. That's one reason the agency is considering collecting data on QM under HMDA as well as specifics on why lenders rejected a loan application.

"This information would help regulators and the public determine how the bureau's rules are affecting the mortgage market," said Cordray in a call with reporters Thursday.

The agency said it would also look at ways to streamline systems so that HMDA data could be collected at the same time the information is being fed into a bank's core systems. The CFPB said it's also considering whether to require nonbanks to make the same reporting requirements as banks. Cordray said this would "level the playing field" for bank and non-bank lenders.

Most bankers agreed with the CFPB on streamlining the system but there are still concerns that the industry and other groups are likely to raise before a proposal is made public later this year. That includes privacy worries, notably how much of the new information the CFPB will make public. Overall, the agency is considering collecting information on a borrower's age, credit score, debt-to-income ratio, length of the loan and pricing structure.

"If someone wants to work hard, they can reverse engineer the data and figure out who the loan applicants are so if credit score and other information is added to the survey, that really presents privacy concerns," said Richard Andreano, the practice leader of Ballard Spahr's mortgage banking group. "That's probably going to be one of bigger issues raised."

Many lawmakers, particularly the House GOP, have already raised concerns with regard to the agency's massive data collection with regard to credit card and mortgage information.

The CFPB "wants to look at collecting 100% of the loan data on every single loan and there is a cost to doing that," said Ron Haynie, senior vice president of mortgage finance policy for the Independent Community Bankers of America. "My question is for what purpose and can that purpose be done through other means with other resources they already have lined up without bringing more burden to the industry. Again, we have to see how that's playing out. But it is troubling."

The impact of the changes to HMDA may take several years to become clear, however. The CFPB has yet to issue a proposal, and even once it's finalized, there will likely be a lengthy transition period.

"The bureau is likely to be aggressive in getting this finalized but I think the industry will make a really clear point that they're going to need time to implement this because this isn't just a tweak to a system," Andreano said. "It will be a few years out before we start seeing the results of this."