On October 15, 2015, the Consumer Financial Protection Bureau (CFPB) released a final rule that expands the scope of mandatory reporting under the Home Mortgage Disclosure Act (HMDA). The new rule, which will be implemented in phases between 2017 and 2020, may prove costly for mortgage lenders.

Originally enacted in 1975, HMDA requires lenders to collect and disclose specific data about their mortgage lending practices. In 2010 as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), Congress instructed the CFPB to revise Regulation C, the regulation implementing HMDA, in order to increase transparency in the mortgage industry.  This new 797-page rule, however, significantly exceeds the scope of the required Dodd-Frank amendments and relies heavily on the CFPB’s discretionary regulatory authority.

Perhaps most strikingly, the new rule nearly doubles the amount of information lenders must collect. The rule requires reporting on 25 wide-ranging, new data points in addition to amending existing disclosures.  The topics include specific information about the features of the loan, the property, and the underwriting process.  Several of the new disclosures also focus specifically on the borrower’s characteristics, such as age, credit score, and debt-to-income ratio.  Lenders will even be required to explain how they collected data on ethnicity, race, and sex—whether by visual observation or surname.

The revisions also change both who must report and what type of loans must be reported under Regulation C.   Over the next two years, the rule will gradually narrow the definition of covered institution to exclude lenders with low loan volumes—generally fewer than 25 mortgages a year.  At the same time, the rule expands the types of transactions that are regulated by adopting a dwelling-secured standard.  Starting in 2018, covered lenders will need to report data on all closed-end loans, open-end lines of credit, and reverse mortgages that are secured by a dwelling regardless of the loan’s purpose.

The wealth of new, public information created by this rule could lead to increased lawsuits against lenders. Not only will the CFPB be able to utilize the information for enforcement actions for fair lending violations, but consumers, state, and other federal regulatory authority may also have access to the data.  It is unclear how much of the data will be made public at this point.  The CFPB is developing a balancing test to weigh its desire for transparency against privacy concerns.

In addition to litigation concerns, lenders should be prepared to incur additional costs implementing the new system. The rule is complex, and the transition will be lengthy as the rule is slowly phased in over the next four years. Important dates include:

January 1, 2017

  • A lender will no longer be covered by Regulation C unless it meets specific requirements under the rule and originated 25 home purchase loans in 2015 and 2016.

January 1, 2018

  • A lender will no longer be covered by Regulation C unless it meets specific requirements under the rule and originated at least 25 covered closed-end mortgage loans or 100 covered open-end lines of credit in the previous two years.
  • Lenders must collect and report on the new and amended data points.
  • Lenders must use a new web-based submission tool currently being developed by the CFPB to report their HMDA data.
  • Loans secured by dwelling will now be covered by HMDA regardless of purpose.

March 1, 2019

  • Lenders must submit first data sets under the new standards.

January 1, 2020

  • Each large volume lender reporting at least 60,000 applications and loans must begin submitting quarterly reports.

March 30, 2020

  • Large volume lenders must submit their first quarterly reports.