TheMReport — News and strategies for the evolving mortgage marketplace.
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28 | TH E M R EP O RT FEATURE I n a constantly changing regulatory environment, common goals ring true: It is critical to prepare busi - ness processes to comply with industry changes and to set expectations for staff, as well as consumers. The Home Mortgage Disclosure Act (HMDA) requires many financial institutions to collect and report mortgage data each year. Between now and 2018, additional modifications to HMDA will be implemented, changing the way mortgage and lending data is disclosed and analyzed. The primary goal of HMDA is to create a mechanism to identify and analyze the degree to which lenders are serving the housing needs of their communities, to pro- vide insight into lending patterns that might be discriminatory, and to generate information about the mortgage and lending space that can ultimately assist public officials in shaping future policies. While most financial institutions have historically collected data through lending transactions, many of these companies have not invested the time and resources to analyze their own data or compare them to their peers' data. New updates to HMDA will require not only greater data disclosure but also will give regulators and consumer advocates a deeper understand- ing and ability to ensure financial institutions are lending in accor- dance with existing fair lending standards, thus, establishing a new degree of transparency and, possibly, a more equitable lending environment for borrowers. The updates to HMDA have been a long time coming. Part of the 2010 Dodd-Frank legislation mandated that financial institu- tions report additional data ele- ments in their HMDA reports. So, many lenders might be thinking: Will this be the next TILA-RESPA Integrated Disclosure (TRID) Rule? It is a daunting thought with all of the time and effort spent on preparation, execution, and the long-term effects of TRID to date. However, such fears are unwar- ranted. Although the HMDA updates will require significant preparation, they should not have the impact on operations that TRID continues to have. The good news is that HMDA is aligned with existing regula- tions. For instance, if a data element such as loan costs must be reported, it can be cross-refer- enced to the Closing Disclosure required by TRID in order to make the reporting requirements easier for financial institutions to understand and implement. Many of the definitions in HMDA, such as open-end lines of credit, tie back to the Truth in Lending Act (TILA). Thus, in creating these new regulations, the Consumer Financial Protection Bureau (CFPB) took care to promote consistency, which makes it easier for everyone to understand and implement these rules. Unveiling the Changes and the Motives W ith any regulatory changes, it is difficult to foresee how businesses will be affected. However, it is the responsibility of businesses not just to under - stand new legal processes but also to prepare customers and clients to cope with the changes in a sustainable way. One of the best ways to proceed can be to first gain a complete understand - ing of the changes. In the case of HMDA, updates will include: • Data disclosure: While HMDA has always centered on report- ing data, new requirements prompt the disclosure of data items that have never been re- ported. This could be the most obvious and influential change for businesses and customers alike. For example, personal in- formation, such as credit scores and property addresses, is now required to be submitted directly to the CFPB for review and analysis. But updates to HMDA involve more than a series of new data points that must now be reported—exist- ing data requirements have been modified as well. • New institutional thresholds: These new terms more clearly define and determine which in- stitutions must report HMDA data. For example, institutions of a certain size may not be required to report data begin- ning in 2020. This element will reduce the data gathering and reporting burden felt by smaller organizations that may not have the resources to do so in a frequent and effective way. • Transactional coverage require- ments: New transactional cov- erage requirements will come into play as a result of updates to HMDA. For instance, report- ing of home equity lines of credit used to be optional but is now required. Additionally, all dwelling-secured loans are reportable, including those for apartments and other com- mercial buildings not previously reported. Discovering the Benefits and Challenges A s with any regulatory update, there are benefits and challenges as well as an Pulling Back the Curtain Revisions to the Home Mortgage Disclosure Act Will Offer Valuable Insights to Regulators and Lenders Alike By Melissa Kozicki