The Calm After the Storm: Regulatory Relief in the Wake of HMDA
It’s no secret that mortgage regulations impact smaller lenders to a greater degree than they do larger ones. The time and expense of collecting, analyzing and submitting Home Mortgage Disclosure Act (HMDA) data for fewer than 500 loans can negatively impact a smaller lender’s profitability and efficiency.
In recognition of the specific needs of smaller lenders, Congress passed the Economic Growth, Regulatory Relief and Consumer Protection Act, which was signed into law in May. Section 104(a) of the law addresses HMDA compliance, granting institutions originating fewer than 500 closed-end mortgage loans in each of the two preceding calendar years with a partial exemption to reduce the regulatory burden.
Understanding the HMDA Exemptions
At the time mandatory HMDA compliance took effect in January, the number of required data fields more than doubled from 44 to 110.
For smaller banks and credit unions, efficiently managing these requirements can be very tedious, often requiring additional staff and higher compliance technology expenses. The partial exemption reduces the required data fields to be reported by smaller financial institutions, which, in turn, means that freed-up resources can be reallocated to customers.
In all, 26 data points are currently covered by partial exemptions. Because of that, The Bureau of Consumer Financial Protection in August released an interpretive and procedural rule to help affected institutions gain authoritative clarification and guidance regarding how to comply with these changes to HMDA, made by section 104(a) of the act. This rule should allow institutions that have these allowances to decide how to proceed with data collection and reporting.
These allowances should help partially exempt banks and credit unions alleviate the stress that comes with compliance changes, in turn, allowing loan officers to put their members and customers first and eliminate potential delays in the loan process. Note that for non-depository lenders of any size, this bill will not provide any additional relief.
Most Lenders Should Still Track Exempted HMDA Data
Most small credit union and bank lenders will still need to collect the new HMDA data, even if it is not required for the annual submission. One primary reason is that preparations for expanded data collection have already been done. Every major loan origination system has already rewritten their systems to include the new data fields, and vendors won’t create specific versions that exclude those fields.
Smaller banks and credit unions must also realize that while the exempted fields are not required for submission, fair lending reviews may still request all 110 data fields required under the new HMDA rules. Lenders that didn’t collect all the data may find it more time-consuming to verify that information in the heat of an exam than it would have been to collect the data upfront.
Also, if lenders anticipated being under the threshold for the year but end up exceeding 500 loans, they may find it difficult to retroactively obtain the required data fields for reporting.
Another consideration is the possibility of selling loans down the road. Financial institutions are required to report all 110 data fields for all purchased loans, even if the institution closes less than the 500-loan threshold. Therefore, if an institution sells one or more loans to another financial institution, the loan will no longer fall under that exemption rule, and the data that was at one point unnecessary then becomes a requirement for the completion of a HMDA submission.
It may be in the best interest of all parties to continue to collect all 110 data fields even though they may not all be required for the institution originating the loan.
Ultimately, the HMDA exemptions for credit unions and banks that close fewer than 500 loans per year can be beneficial. The submissions will be simpler with fewer data fields to scrub, and institutions can focus their resources on the loan business pipeline.
However, most lenders should still collect the expanded data to assist in fair lending reviews and simplify the sale of loans on the secondary market to investors that will need the additional data for their own compliance.