As we have previously reported, in October 2015, the Consumer Financial Protection Bureau (CFPB) issued a sweeping final rule ("2015 Final Rule") to amend Regulation C, which implements the Home Mortgage Disclosure Act (HMDA). The bulk of the 2015 Final Rule will become effective on January 1, 2018. With the effective date drawing nearer, the CFPB has proposed an amendment to the 2015 Final Rule, which would, for calendar years 2018 and 2019, increase the threshold for collecting and reporting data on home equity lines of credit (HELOCs). Specifically, the proposed amendment would require only those institutions originating 500 or more HELOCs in each of the two preceding years to collect and report HMDA data on HELOC originations and applications. Additionally, the CFPB has recently released several new and updated resources for HMDA filers, including an illustrative guide to assist filers in preparing loan/application registers for data collected in 2018 and beyond. This alert summarizes these recent developments.
I. PROPOSED TEMPORARY INCREASE TO HELOC REPORTING THRESHOLD
Currently, Regulation C permits, but does not require, financial institutions to collect and report data on HELOCs that are for home purchase or home improvement purposes.1 As amended by the 2015 Final Rule, Regulation C will require depository and non-depository institutions to collect and report data on HELOCs, irrespective of the purpose of the credit, if the institution originated at least 100 HELOCs in each of the two preceding calendar years (and the institution falls within other applicable coverage criteria).2 The preamble to the 2015 Final Rule included extensive explanation of the CFPB's reasoning in establishing the 100-HELOC threshold. 80 Fed. Reg. at 66,162. Specifically, the CFPB estimated that the threshold would (i) exclude from coverage about 3,000 institutions with low HELOC originations, and (ii) require reporting from only about 750 institutions, the combined originations of which comprise an estimated 88% of the U.S. HELOC market. 80 Fed. Reg. at 66,281-282. Based on these estimates, the CFPB believed the 100-HELOC threshold appropriately balanced the costs and benefits of requiring financial institutions to report HELOC lending activity. The CFPB acknowledged, however, that its estimates were based on limited, imperfect data. 80 Fed. Reg. 66,162.
On July 20, 2017, the CFPB published in the Federal Register a proposed rule ("Proposed Rule") to increase the HELOC coverage threshold, for a period of two years, from 100 HELOC originations in each of the two preceding years to 500 HELOC originations in each of the two preceding years. If made final, the Proposed Rule would become effective contemporaneously with the bulk of the 2015 Final Rule on January 1, 2018. Thus, in effect, the Proposed Rule would, for calendar years 2018 and 2019, exclude institutions originating fewer than 500 HELOCs in either of the two preceding calendar years from the requirement to collect and report HMDA data on HELOC originations and applications. 82 Fed. Reg. 33,455, 33,459.
In the preamble to the Proposed Rule, the CFPB noted that HELOC originations appear to have increased significantly since the agency drafted and issued the 2015 Final Rule. Specifically, the Proposed Rule cited credit union Call Report data, which reflects a 31 percent increase in HELOC originations between 2013 and 2015.3 Assuming other depository and nondepository institutions experienced similar increases in HELOC origination volume during the same period, the CFPB believes that the 100-HELOC coverage threshold may not, in fact, strike the appropriate balance between the costs and benefits of requiring financial institutions to report HELOC lending activity. The CFPB states that its rationale for a temporary increase in the HELOC threshold is to relieve the compliance burden on low-volume originators while the CFPB assesses whether to adjust the threshold permanently and, if so, to what level. 82 Fed. Reg. at 33,458-460.
The increased HELOC threshold would not affect the obligation to collect and report data on closed-end mortgage loans if the institution originated at least 25 closed-end mortgage loans in each of the two preceding calendar years (and the institution falls within other applicable coverage criteria).4
Comments on the Proposed Rule are due July 31, 2017.
II. NEW AND UPDATED RESOURCES FOR HMDA FILERS
Throughout July 2017, the CFPB has released several new and updated resources for HMDA filers. The primary new resource document, entitled "HMDA Loan Scenarios," is an illustrative guide to assist filers in preparing loan/application registers (LARs) for data collected in 2018 and beyond (i.e., data collected after the enhanced collection and reporting requirements in the 2015 Final Rule become effective). As currently drafted, HMDA Loan Scenarios covers three basic hypothetical loans: (1) a fully amortizing, 30-year conventional loan to co-borrower individuals (i.e., natural persons) to purchase a single-family home; (2) a fully amortizing, 30-year conventional loan to a corporation to purchase a multi-family home as an investment property; and (3) an adjustable-rate HELOC with a 10-year term to co-borrower individuals (i.e., natural persons) for home improvement purposes. For each hypothetical loan, the narrative explains the relevant facts (e.g., loan amount, interest rate, costs, and features) and "maps" the facts into a mock LAR record.
Additionally, the CFPB has released updated versions of the "Technology Preview," which explains the basic steps for interacting with the web-based HMDA submission tool currently being developed by the CFPB, and the Filing Instructions Guides (FIGs) for 2017 and 2018, which provide detailed guidance on completing the LAR for data collected in 2017 and 2018, respectively. Revisions to the FIGs are generally technical, not substantive, in nature, and relate to formatting options for specific LAR data fields. For example, according to the updated FIG for 2018, the loan amount data field will permit entry of whole dollars (e.g., $100,000) or dollars and cents ($100,000.00), and the property ZIP code data field will permit entry of a five-digit ZIP code (e.g., 54321) or a nine-digit ZIP code (e.g., 54321-1234).
The new and updated resources are available on the CFPB's HMDA implementation website, under the "Resources for filers" tab.