MBBA-NH & MAMP
Compliance Conference
April 19, 2017
Agenda
▪ HMDA Overview
▪ Readiness Steps
▪ HMDA Expansion Fields
2
New HMDA Rule Summary
Changes to Home Mortgage Disclosure: Regulation C
• Types of institutions that are subject to Regulation C;
• Types of transactions that are subject to Regulation C;
• Processes for reporting and disclosing data; and
• Specific information that covered institutions are required to
collect, record, and report.
3
New HMDA Rule Summary
Types of institutions that are subject to Regulation C
• Decreases coverage of depository institutions and expands
coverage of non-depository institutions
• Uniform loan volume test: Originated either:
➢ At least 25 closed-end mortgage loans in each of 2 preceding years
OR
➢ At least 100 open-end lines of credit in each of 2 preceding years
4
5
6
New HMDA Rule Summary
Types of transactions that are subject to Regulation C
Consumer-purpose transactions:
• Dwelling secured, closed or open-end
➢ Ex: consumer purpose home equity, HELOCs, reverse mortgages
• NOT reportable:
➢ Unsecured
➢ Renewals, temporary financing
7
New HMDA Rule Summary
Types of transactions that are subject to Regulation C
Commercial-purpose transactions
• Dwelling-secured closed or open-end extension of credit
➢Ex: commercial revolving line of credit to purchase or
improve a multi-family or single-family investment
property
8
New HMDA Rule Summary
Processes for reporting and disclosing data.
• New web-based electronic data submission process
• File specifications available for LOS development
• Institutions no longer required to provide public
disclosure statement
➢Instead: provide notice that disclosure statement and
modified LAR are available on CFPB web-site
9
New HMDA Rule Summary
Specific information that covered institutions are required to collect,
record, and report
Total of 48 data points (versus 26 data points today)
• 25 NEW data points
➢Pricing Elements: 2 today; 7 tomorrow
➢Underwriting Elements: 5 today; 10 tomorrow
➢Loan Features: 2 today; 9 tomorrow
➢Applicant Information: expansion and addition of Age
• 23 Existing data points
➢14 modified
➢9 existing
10
New HMDA Rule Readiness Steps
▪ Fair Lending Analysis
▪ Fair Lending Training
▪ Systems Evaluation
▪ HMDA Data Integrity Health Check
11
New HMDA Rule Readiness Steps
➢Fair Lending Analysis and Training
▪ What are you doing today?
▪ Analyze new HMDA Fields
▪ Identify gaps and trends
▪ Create Training Plan
12
Why is HMDA important?
 HMDA Data is core of Fair Lending Exams
 Data must be reliable and “validated”
 Regulators follow clear HMDA Data Validation procedures
 Regulators follow clear HMDA Completeness Validation procedures
 Unreliable data results in mandated corrections, re-submissions
and/or monetary penalties
13
New HMDA Rule and FAIR LENDING
Three core purposes of HMDA
1.
To help determine whether financial institutions are serving their
communities’ housing needs;
2.
To assist public officials in distributing public investment to attract
private investment;
3.
To assist in identifying potential discriminatory lending patterns and
enforcing antidiscrimination statutes.
14
Fair Lending Data Analysis Today
Standard HMDA Data Fields:
•
•
•
•
•
•
•
•
•
•
•
Census Tract
Loan Type
Loan Purpose
Occupancy
Loan Amount
Action Type
Applicant Race and Sex
Co-applicant Race and Sex
Applicant Income
Purchase Type
Denial Reason
Enhanced Data Fields:
Note Rate
APR
Loan to Value
Credit Bureau Score
Custom Credit Score
Debt to Income Ratio
Loan Type (Fixed, ARM)
Loan Term
Applicant Age or Birth Date
Pre-paid Finance Charges
Yield Spread Premium (if
applicable)
 Broker Identifier











15
Fair Lending Data Analysis in the Future
Specific information that covered institutions are required to
collect, record, and report
Total of 48 data points (versus 26 data points today)
• 25 NEW data points
➢Pricing Elements: 2 today; 7 tomorrow
➢Underwriting Elements: 5 today; 10 tomorrow
➢Loan Features: 2 today; 9 tomorrow
➢Applicant Information: expansion and addition of Age
• 23 Existing data points
➢14 modified
➢9 existing
16
New HMDA Rule and FAIR LENDING
Future?
➢ Expect increased fair lending scrutiny and claims
➢ Continued focus on access to credit
➢ Extensive peer data (Pricing)
➢ Examples of “unchartered” territory:
▪ Broker versus Retail
▪ NMLS ID
▪ Lender Credits
▪ Age
▪ HELOCs – extensive data
▪ Property address versus census tract
17
New HMDA Rule and FAIR LENDING
Today:
CFPB/DOJ/HUD – Fair Lending Focus
Bancorp South (June 2016)
➢ Alleged discriminatory practices including redlining/underwriting/pricing
First Citizens Bank & Trust (June 2016)
➢ Alleged discriminatory underwriting practices
Provident Funding (June 2015)
➢ Alleged discriminatory pricing practices for brokered loans
Sage Bank (December 2015)
➢ Alleged discriminatory pricing practices
Hudson City (September 2015)
➢ Redlining: peer analysis was key
18
Fair Lending Action Plan
 Perform Risk Assessment of Fair Lending CMS
 Focus on CFPB Examination Modules and Guidance
 TRAINING – think outside the box
 HMDA Compliance Management System
19
Best Practices of “Well-Developed” Fair Lending
Compliance Systems
• Policies and procedures to address fair lending risks in each
product line, including:
➢An up-to-date fair lending policy statement;
➢Policies and procedures that acknowledge and address
areas of heightened fair lending risk; and
➢Policies that do not contain prohibited basis criteria, such
as impermissible exclusions of public assistance income,
or use of age in credit scoring in a manner that violates
ECOA.
20
Best Practices of “Well-Developed” Fair Lending Compliance
Systems
• Effective monitoring for fair lending risks and violations. Appropriate
measures will vary depending on the size and complexity of the
institution. Where appropriate, monitoring should include regular
analysis of loan data for potential prohibited disparities in pricing,
underwriting, or other aspects of the credit transaction; evaluation of
credit scoring models for potential disparate impact; and review of
marketing practices for fair lending risks.
21
Best Practices of “Well-Developed” Fair Lending
Compliance Systems
• Prompt and full corrective action in response to identified risks
•
•
•
•
and violations, including consumer remuneration when
appropriate.
Regular and up-to-date fair lending training for employees,
officers, and Board members.
Policies and procedures for handling of consumer discrimination
complaints.
A robust fair lending audit function.
Meaningful Board and management oversight of fair lending
compliance.
22
Fair Lending Training
▪ Employee awareness
▪ Needs a fresh approach: FACE TO FACE!!
▪ Get their attention (LO NMLS ID)
23
Types of Lending Discrimination
Three Methods of Lending Discrimination Proof Used by Courts:

Overt evidence of disparate treatment

Comparative evidence of disparate treatment

Evidence of disparate impact
24
Fair Lending Cases/Examples
U.S. v. Midwest Bank Centre (2011) Allegations include:*
 Branches exclusively in white census tracts
 CRA assessment area drawn around African-American communities in the
City of St. Louis
 Fewer applications and originations from African-American census tracts than
peers
* Slides prepared by Department of Justice
25
Fair Lending Cases/Examples
Map of Midwest Bank Centre
CRA Assessment Area (2005 –
2009)
Areas in color are census tracts
with high African- American
population concentrations
26
Fair Lending Cases/Examples
Map of Midwest Bank
Centre CRA Assessment
Area
Distribution of Loan
Originations (2004 –
2008)
27
Fair Lending Cases/Examples
U.S. v. Midwest Bank Centre (2011) Relief includes:
 $900,000 special financing fund, credit repair and access
to low-cost checking accounts for residents of redlined
communities
 Bank will open a branch in previously redlined community
 Bank will engage in affirmative outreach and marketing to
previously redlined communities
28
New HMDA Rule Readiness Steps
Systems and Application Evaluation
• Identify Systems: Residential/Consumer/Commercial
➢Have vendors communicated their dates?
• Create Testing Timeline
➢Expanded fields apply to action taken dates on and after
1/1/2018
➢Need to be finished with testing in 4th quarter
29
Effective/Important Dates for HMDA Final Rule
1/1/2017: Effective date for excluding low volume depository
institutions
1/1/2018:Effective date for most provisions related to
institutional and transactional coverage, data collection,
recording, reporting and disclosure
1/1/2019:
Effective date for changes to enforcement provisions
and additional amendments to reporting provisions
3/1/2019:
Deadline for “first” submission of HMDA LAR with
expanded data fields
1/1/2020:
Effective date for quarterly reporting provisions for large
institutions
30