Following a lengthy rulemaking process, the Consumer Financial Protection Bureau (CFPB) issued a final rule on October 15 that significantly amends and expands the scope of data reporting requirements under Regulation C and the Home Mortgage Disclosure Act.(1) The rule implements changes to existing Home Mortgage Disclosure Act data reporting required by the Dodd-Frank Wall Street Reform and Consumer Protection Act. It also includes an entirely new set of data points that institutions were not previously required to collect and report.
Together, the final Home Mortgage Disclosure Act rule, official interpretations and supplementary information total almost 800 pages. This update summarises some of their key provisions.
Changes to covered institutions
The final rule adopts a uniform loan-volume threshold for all depository and non-depository institutions. First, the scope of depository institutions covered by the new rule will be narrowed in 2017. Depository institutions – including banks, savings associations and credit unions – will not be subject to Regulation C unless they meet current asset size, location, 'federally related' and loan activity tests and originate at least 25 purchase or refinance transactions per year in 2015 and 2016.
Second, as of January 1 2018, institutions (including depository institutions) that originated at least 25 closed-end mortgage loans or 100 open-end lines of credit in each of the two preceding years will be required to report Home Mortgage Disclosure Act data if they meet other coverage requirements, including the existing location test in the case of non-depository institutions – but not other existing standards, such as asset size.
The practical effect of these uniform threshold requirements is that more non-depository institutions will be subject to Home Mortgage Disclosure Act reporting requirements, while many low-volume depository institutions will not.
Changes to covered transactions
The new rule modifies the transactions covered under the Home Mortgage Disclosure Act by adopting a dwelling-secured standard for coverage, including most closed-end loans and open-end lines of credit secured by a dwelling (eg, home-equity loans and lines of credit and reverse mortgages), thus significantly expanding reporting obligations. As of January 1 2018, data must be collected and reported on all loans and lines of credit secured by a dwelling, regardless of the purpose of the loan. However, business and commercial loans will retain the purpose-based criteria; thus, collection and reporting of Home Mortgage Disclosure Act data for such loans and lines of credit will be required only if secured by a dwelling and made for purposes of home purchase, home improvement or refinancing. The CFPB rejected proposals for all loan modifications on covered transactions to be reportable, but included as extensions of credit loan assumptions and "consolidation, extension and modification" agreements under New York law.
As of January 1 2018, covered institutions will also be required to collect, record and report information for approved but not accepted pre-approval requests for home purchase loans (excluding loans secured by multi-family dwellings, open-end lines of credit, reverse mortgages and occasional ad hoc pre-approvals that are not part of a programme for that purpose).
Institutions covered by the new rule will not be required to report in areas where they do not have sufficient loan volume to be treated as covered. For example, if an otherwise covered institution extends fewer than 100 open-end lines of credit, it will not be required to report that category of loan.
Amended and expanded data points
The Dodd-Frank Act mandated that the CFPB add new data points to Home Mortgage Disclosure Act collection and reporting requirements and authorised the CFPB to include additional data at its discretion. The CFPB exercised its mandated and optional authority under the Home Mortgage Disclosure Act to require the collection and reporting of approximately 25 new data fields, making a total of 48 data elements in the new Home Mortgage Disclosure Act reporting regime (only a handful of the originally proposed new data fields were eliminated). The final rule requires institutions to collect, record and report expanded information in four key areas:
- information about applicants, borrowers and the underwriting process, such as age, credit score, debt-to-income ratio and automated underwriting system results;
- information about the property securing the loan, such as construction method, property value and additional information about manufactured and multi-family housing;
- information about the features of the loan, such as additional pricing information, loan term, points and fees, borrower-paid origination charges, discount points, lender credits, introductory rate period, non-amortising features, pre-payment penalties, application channel and type of loan; and
- certain unique identifiers, such as a universal loan identifier, a property address, a loan originator identifier and a legal entity identifier for the financial institution.
The final rule also modifies several existing data elements. These revised and additional data points apply to Home Mortgage Disclosure Act data collected on or after January 1 2018 and must be reported in 2019 and beyond.
Collection and reporting requirements
The final rule requires institutions to report how they collect required information concerning an applicant's race, ethnicity and sex for data collected on or after January 1 2018. For example, lenders must report whether they collected the information based on visual observation or surname.
Institutions must also allow applicants to self-identify their race and ethnicity using disaggregated categories (eg, sub-categories of Hispanic such as Mexican, Puerto Rican, Cuban and other Hispanic); but when the institution itself identifies applicant ethnicity or race based on visual observation or surname, disaggregation is not permitted. The final rule includes a sample data collection form that sets forth the various required and disaggregated sub-categories for identification of race and ethnicity.
Submission and reporting requirements
The CFPB is developing a web-based submission tool for reporting Home Mortgage Disclosure Act data. In 2018 institutions will begin submitting Home Mortgage Disclosure Act loan/application register (LAR) data collected in 2017 electronically using that tool. On January 1 2019 the CFPB will delete the current instructions for completing the Home Mortgage Disclosure Act LAR and incorporate revised procedures into the electronic submission tool. Beginning in 2019, lenders will be required to submit the new data points collected in the previous year using this tool.
In 2020 institutions that reported at least 60,000 applications and covered loans in the preceding calendar year must submit quarterly reports; loans purchased by institutions should not be included. These large-volume lenders will be required to report Home Mortgage Disclosure Act data within 60 days of the end of a quarter and to include fourth-quarter data with their annual submissions. The first quarterly report is due on or before May 30 2020.
Disclosure and privacy concerns
To address potential privacy issues, the final rule does not require institutions to provide a modified LAR or disclosure statement to the public. Instead, beginning in 2018, institutions must direct the public to the CFPB's website; the final rule includes sample language that institutions can provide in response to requests for Home Mortgage Disclosure Act data. The CFPB will use a 'balancing test' to determine whether and how Home Mortgage Disclosure Act data will be disclosed in light of privacy issues surrounding sensitive applicant data, such as credit scores. The CFPB plans to solicit feedback from the public before making a final determination on disclosure of Home Mortgage Disclosure Act data.
Other changes and clarifications
In addition to the topics referenced above, the final rule includes a raft of modifications and clarifications that will affect reporting obligations. For example, a number of new comments are added to address questions relating to the characterisation of various types of property – such as certain medical facilities or mixed-use properties – as 'dwellings'. Reporting entities will need to sift through these detailed changes for those that will affect their own reporting obligations.
The new Home Mortgage Disclosure Act rule represents a sea change in the collection and reporting of Home Mortgage Disclosure Act data. Institutions should carefully review the new rule and prepare for the substantial operational, systems and compliance changes that will be required to implement its provisions. Just as importantly, mortgage lenders will want to perform their own analyses of the new Home Mortgage Disclosure Act data sets as soon as possible, in order to understand what that data may suggest about lending patterns that may become subject to question.
For further information on this topic please contact James A Huizinga, David E Teitelbaum, John Van De Weert or Maria B Earley at Sidley Austin LLP by telephone (+1 202 736 8000) or email (firstname.lastname@example.org, email@example.com, firstname.lastname@example.org or email@example.com). The Sidley website can be accessed at www.sidley.com.
(1) The final rule and ancillary documentation are available here.