What You Need To Know About the New HMDA

May 30, 2017 by Ruby Keys

Whether you love it or hate it, HMDA is a reality. The Home Mortgage Disclosure Act requires that banks and lenders gather information about a borrower and provide loan details, including loan terms and conditions, in the form of early disclosures. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Consumer Financial Protection Bureau (CFPB) was tasked with providing a final HMDA rule with further enhancements dictated under the financial reform law.

 

In 2015, the CFPB enacted a final HMDA rule that included many of the enhancements mandated under Dodd-Frank and is scheduled to go into effect next year. However, not all industry stakeholders are excited to implement the new rule. Dan Berger, the President, and CEO of the National Association of Federal Credit Unions (NAFCU), urged CFPB Director to delay the rule’s implementation for one year.

Although Berger praises the new rule as a fix for some of the “various issues” plaguing the lending industry, he also believes that in its current form, the rule will do more harm than good. In a letter to Cordray, Berger wrote, “Credit unions appreciate measures taken by regulators intended to correct errors and offer additional clarifications … That being said, no amount of 11th hour tinkering with technical amendments can offset the tremendous burden being hoisted upon credit unions and their vendors as a result of the Final Rule.”

Mr. Berger also expressed the concern relayed by many credit unions and their vendors over preparing for the Final Rule launch. He believes more time is needed for financial institutions to better prepare for implementing the requirements mandated by the new regulations.

The American Bankers Association (ABA) also voiced its displeasure with the rule’s implementation, writing in a white paper that the CFPB is overreaching with the Final Rule and that the “unnecessary data variables” in HMDA will increase the regulatory burdens for banks and expose consumers’ personal information to potential identity theft.

As it stands, the new HMDA Final Rule will become effective January 1, 2018. The CFPB regulations will expand the amount of data that is required to be collected from borrowers, establish transaction thresholds, and enhance reporting requirements for financial institutions, among other things. As a critical component of its fair lending enforcement, the CFPB hopes that changes within the rule will provide better consumer protection against excessive fees and abusive lending practices.

For over a decade, the federal government has been frustrated with the lack of comprehensive housing data needed to determine predatory lending practices. So, under Dodd-Frank, HMDA was revised to gather more information about lending practices, including detailing those loans with exorbitant fees, high debt-to-income ratios, adjustable-rate loans, payday loans, and other financial products that have a propensity to fail due to their unsustainability.

For all the purported good touted by HMDA supporters, there is an equal amount of “bad” in the new rule. It is estimated that increased cost of compliance to the lending industry will grow to between $177 million to $326 million. Opponents claim that the new implementation costs, which are easily borne by the largest financial institutions, will have a detrimental effect on credit unions and smaller lenders who do not have the proper infrastructure in place needed for compliance.

Any way you slice it, the new HMDA is coming, and you better get prepared. Understanding and being aware of the changes coming your way can be the difference between profitability and disaster. Compliance will not be easy, but it is crucial that you understand what is required by the rule and how best to comply.

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