Revised HMDA Reporting Overview, Implementation and Planning March 2017 Kathy Keller, Managing Director, Regulatory Compliance, Newbold Advisors, LLC NewboldAdvisors.com
Agenda Overview of the New HMDA Reporting Requirements § Implementation Considerations § Planning for the Change § Summary and Q&A § NewboldAdvisors.com
Overview of the New HMDA Reporting Requirements NewboldAdvisors.com
Overview The Revised HMDA reporting changes impact more than data. It changes the who, what, how & when of HMDA reporting over the course of 4 years… WHY? WHO? WHAT? HOW? WHEN? The change is significant. Your company should be well on its way to implementation by now. NewboldAdvisors.com 2
Overview – Why and Who • Avoid regulatory action and the bad press that comes with it. • Dodd Frank dictates and CFPB desires more information around access to mortgage credit to create transparency for borrowers and accountability for WHY? lenders. • Regulators will use the data to enforce fair lending laws such as the prohibition on disparate impact. • 2017 - Scope of covered institutions has narrowed - A bank, savings association, or credit union will not report unless it meets the asset-size, location, federally related, and loan activity tests under current Regulation C and it originates at least 25 home purchase loans, including refinances, in both WHO? 2015 and 2016. • 2018 - New standard test is primarily volume based. Must report if at least 25 covered closed-end mortgage loans or at least 100 covered open-end lines of credit in each of the two preceding calendar years. NewboldAdvisors.com 2
Overview – What and How • “ Dwelling” secured transactions • In scope: Closed end loans, open ended equity lines of credit, reverse mortgages, chattel, multifamily. • Out of scope: Unsecured home improvement loans and agricultural loans. • Preapprovals • Used to be optional…in 2018, home purchase preapprovals not accepted will be WHAT? required. • Additional and Changed Data • Legal Entity Indicator and Universal Loan Identifier. • Demographic data • Significant amount of additional new data beyond demographic including: credit score, AUS version, ULI, property value, application channel, points and fees, origination fees, MLO number etc. • Changes to definition of some current data. • CFPB implementing a new reporting tool that will use a new LAR file specification HOW? standard for reporting. Pipe-delimited versus comma-delimited. NewboldAdvisors.com 2
Overview - When • The rule is implemented over 4 years. It is critical to ensure that your plans consider these milestones. WHEN? • The plan must consider multiple deliveries of capability. • There are 5 key milestones . Jan 2018 Jan 2019 Jan 2020 Jan 2017 5 4 2 • Institutional 1 Quarterly Coverage Test Report New Report Old Data to For loans that start in 2017 that have a “Last Reporting Starts Changes; Some Data to New New Tool (new Action Date” in 2018, the new data set is for Larger small entities will Tool pipe delimited file reportable except for new demographic Institutions no longer report format) information (GMI). CFPB will allow for collection of the new demographic data, however, it is not required to be reported. 3 Begin Collection of New Data Set Including New Must have strategy for dual tracking for Demographic these loans as it will not be clear under Information which rule they will be reported. NewboldAdvisors.com 7
Revised HMDA Data Application/ Applicant Underwriting Loan Features/ Pricing Property Identifiers Loan Info Information Information Information • • • • Existing Application Income HOEPA Status Property Location Date, • Loan Type • • • • • Modified Loan Purpose Ethnicity Rate Spread Construction Legal Method, Entity • • • Preapproval Race Type of Purchaser Identifier • Occupancy Type • • • Loan Amount Sex Lien Status • Universal • Reason for Loan Denial Identifier • Action Taken/Date New • Application • Age • Credit Score • Loan Term • Property Address • MLO Channel Identifier • DTI Ratio • Total Loan Costs or Points • Property Value • Reverse and Fees • • Combined Manufactured Mortgage • LTV Ratio Origination Charges Home and Chattel • Open-end, Info (Property • • AUS Discount Points Business Type and Land (relied upon • Lender Credits Property Interest) • Business or test) • Interest Rate • Commercial Total Units • Prepayment Penalty Term Purpose • Multifamily • Introductory Rate Period Affordable Units • Non-Amortizing Features NewboldAdvisors.com 8
General Data Considerations • Evaluate every data point, even those noted as “Not Changed” • Be wary of “Updated” data points. Does your organization use them for other purposes? It might necessitate creating a new data element for HMDA reporting. • For “New” data points, do you already have them in your systems? Is your definition consistent with the HMDA definition? • Conditionality creates implementation complexity. Ensure data required for conditionality is available and high quality. • Understand any workarounds you have implemented in your environment and their impact to data. NewboldAdvisors.com 9
Implementation Considerations NewboldAdvisors.com
HMDA Implementation Considerations All regulatory changes require assessment across 4 domains: Process, Systems, Data, Organization. The new HMDA rule is no different. It is not just about data. Rule Analysis Analyze the rule to understand it and its impact on your institution’s business model. PROCESS TECHNOLOGY DATA ORGANIZATION Transactional Transactional Quality Training Business Process Business Process Controls HMDA Data Reporting HMDA Data Communication Process Reporting Process Fair Lending Trends NewboldAdvisors.com
CONSIDERATIONS - PROCESS Not intended to be a complete list PROCESS Transactional Business Process • How is data collected and modified through the business processes? Origination? Servicing? Secondary? • What are the implications of a new definition of an existing data element to the business process? • Are there additional data controls or QC required in the business processes? • What 3 rd parties are creating/changing data? Brokers? Correspondents? Where is the credit decision made? • What does the ULI mean for your business process? What are the downstream impacts on loan sales and purchased loans? • How will data collection be managed during the dual tracking period when it is unclear how the loan will be reported? • Will you collect the new demographic information early? If so, will you report it? • What policy decisions are required? How will your firm define “relied upon”? HMDA Reporting Process • What new data sourcing is required? • What data scrubbing enhancements are needed? Where will those be done? • How will the file format be created? 2017…2018? • What 3 rd party vendors are involved? How are they planning to make the change? • What policies and procedures will require updating? NewboldAdvisors.com 12
Considerations - Systems Not intended to be a complete list SYSTEMS Transactional Systems • What are the data sources for the new data that are required? HELOCS? Do they have all the data needed? • Does the modification of existing elements definition have an impact on how data will be managed in your systems? • What is the impact on upstream and downstream systems? Will reports break? • Are additional automated data controls needed? • Are 3 rd party system vendor tools affected? How are they planning to handle specific issues like the free form entries and relied upon test? • How will the ULI flow through systems? How does it affect purchased loans? HMDA Reporting System • What system changes are required to aggregate new data? Where will that aggregation take place? • Are there additional systems that need to be integrated into the data aggregation process? • Is there a need for additional automated data scrubbing prior to submission? Where will that be done? • How will the file format be created? 2017…2018? • Will third party vendor tools require change? NewboldAdvisors.com 13
Considerations – Data and Organization Not intended to be a complete list DATA Data Quality • What is the quality of the current data that will be in the new data set? Does quality vary by product type…by channel? • Do you have a handle on the conditional data required to select the data set? What is it’s quality? • What additional controls might be needed either in transaction or data reporting process to control quality? Fair Lending Data Assessment • Is there anything in your company’s current data that when aggregated might raise a fair lending concern? • Are there credit policy and/or process issues that need to be reviewed and/or changed? • What needs to be done to remediate any issues? ORGANIZATION (COMMUNICATION & TRAINING IN THIS CASE) • What communications are necessary? Internal/External? • Publications? On line training? Webinars? • Vendor supplied? Help desk? • Loan Officer and other organizational training? NewboldAdvisors.com 14
Planning for the Change NewboldAdvisors.com
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