New HMDA Partial Exclusion Rule

Issue/Inquiry

On August 31, 2018, the CFPB issued a rule to clarify changes made to HMDA by the Economic Growth, Regulatory Relief, and Consumer Protection Act. What does this mean for the Bank? Are there HMDA LAR fields that the Bank will not have to complete?

Response Summary

Under amendments to HMDA by the Economic Growth, Regulatory Relief, and Consumer Protection Act, an insured depository institution or insured credit union is partially exempt from reporting some of the data presently required if the closed-end mortgage loans or open-end lines of credit are below the 500-loan threshold for each of the two preceding calendar years. The CFPB has issued an interpretive and procedural rule to implement these changes, which will become effective upon publication in the Federal Register.

Response Detail

Introduction

On May 24, 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act (“Economic Growth Act”) was signed into law. The Economic Growth Act amended the Home Mortgage Disclosure Act (“HMDA”) by adding partial exemptions from HMDA’s reporting requirements for closed and open-end transactions made by certain insured depository institutions and insured credit unions. It also provides that these partial exemptions are not available to an insured depository institution if it received a rating of “needs to improve record of meeting community credit needs” during each of its two most recent Community Reinvestment Act (“CRA”) examinations, or a rating of “substantial noncompliance in meeting community credit needs” on its most recent CRA examination.

On August 31, 2018, the Bureau of Consumer Financial Protection (“CFPB”) issued an interpretive and procedural rule (the “2018 Rule”) to implement and clarify the changes made by the Economic Growth Act. The 2018 Rule:

• Clarifies which data points in Regulation C are covered by the partial exemptions;
• Clarifies that only loans and lines of credit that are otherwise reportable under Regulation C count towards the thresholds for the partial exemptions;
• Clarifies the exception to partial exemptions for negative CRA examination history;
• Designates a non-universal loan identifier for certain partially exempt transactions; and
• Clarifies that insured depository institutions and insured credit unions that qualify for a partial exemption may optionally report exempt data points so long as they report all data fields that the data point comprises.

An insured depository institution or insured credit union that is eligible for the partial exemption does not need to collect exempt data points on or after May 24, 2018.

The 2018 Rule will become effective immediately upon its publication in the Federal Register.

Partial Exemptions

An insured depository institution or insured credit union must have originated fewer than 500 closed-end mortgage loans in each of the two preceding calendar years in order for its closed-end mortgage loans to qualify for the partial exemption. It must have originated fewer than 500 open-end lines of credit in each of the two preceding calendar years in order for its open-end lines of credit transactions to qualify for a partial exemption.

This means that if it made more than 500 closed-end mortgage loans, but fewer than 500 open-end lines of credit, its open-end lines of credit will be subject to the partial exemption, but its closed-end mortgage loans will not.

A “closed-end mortgage” or “open-end line of credit” is any loan that is not subject to the following exclusions under Regulation C:

• A closed-end mortgage loan or open-end line of credit purchased by a financial institution acting in a fiduciary capacity;
• A closed-end mortgage loan or open-end line of credit secured by a lien on unimproved land;
• Temporary financing;
• The purchase of an interest in a pool of closed-end mortgage loans or open-end lines of credit;
• The sole purchase of the right to service closed-end mortgage loans or open-end lines of credit;
• The purchase of closed-end mortgage loans or open-end lines of credit as part of a merger or acquisition, or as part of the acquisition of all the assets and liabilities of a branch office;
• A closed-end mortgage loan or open-end line of credit, or an application for a closed-end mortgage loan or open-end line of credit, for which the total dollar amount is less than $500;
• The purchase of a partial interest in a closed-end mortgage loan or open-end line of credit;
• A closed-end mortgage loan or open-end line of credit used primarily for agricultural purposes;
• A closed-end mortgage loan or open-end line of credit that is or will be made primarily for a business or commercial purpose, unless the closed-end mortgage loan or open-end line of credit is a home improvement loan, a home purchase loan, or a refinancing;
• A transaction that provided or, in the case of an application, proposed to provide new funds to the applicant or borrower in advance of being consolidated in a New York State consolidation, extension, and modification agreement, classified as a supplemental mortgage under New York Tax Law section 255 (provided that final action on the consolidation was taken in the same calendar year as final action on the new funds transaction).

Non-Universal Loan Identifier

The 2018 Rule provides that if a transaction qualifies for a partial exemption and the insured depository institution or insured credit union opts not to report a universal loan identifier, it must report a non-universal loan identifier for the loan or application that is composed of up to 22 characters identifying the covered loan or application, which:

• May be letters, numerals, or a combination of letters and numerals;
• Must be unique within the insured depository institution or insured credit union; and
• Must not include any information that could be used to directly identify the applicant or borrower.

Information that could be used to directly identify the applicant or borrower would include the applicant’s or borrower’s name, date of birth, Social Security Number, official government-issued driver’s license or identification number, alien registration number, government passport number, or employer or taxpayer identification number.

CRA

An insured depository institution cannot take advantage of the new partial exemptions if it received a rating of “needs to improve record of meeting community credit needs” during each of its most recent CRA examinations, or a rating of “substantial noncompliance in meeting community credit needs” on its most recent CRA examination. This assessment must be made as of December 31^st of the preceding calendar year.

Voluntary Reporting

Whether a partial exemption applies to an institution’s lending activity for a particular calendar year depends upon its origination activity in each of the preceding two years, which may not be determined until just before data collection must begin for that particular calendar year. For this reason, some insured depository institutions and insured credit unions may find it less burdensome to report all of the data, including the exempt data points, than to separate the exempt data points from the required data points or exclude the exempt data points from their submissions.

Under the 2018 Rule, an insured depository institution or insured credit union has the option to voluntarily report exempt data points for transactions that qualify for a partial exemption. If it does so, it must report all data fields that the specific data point comprises. For example, if a partially exempt institution reports a data field that is part of the property address data point, such as the street address, for a partially exempt loan or application, it will report all other data fields that are part of the property address data point, including ZIP code, city, and state.

HMDA Data Points

Under current Regulation C requirements, there are 48 data points that must be collected and reported. If the transaction qualifies for a partial exemption, 26 of those 48 data points do not need to be collected.

Covered by Partial Exemptions

• Universal Loan Identifier (“ULI”) (note: non-universal loan identifier must still be used)
• Property Address
• Rate Spread
• Credit Score
• Reasons for Denial
• Total Loan Costs or Total Points and Fees
• Origination Charges
• Discount Points
• Lender Credits
• Interest Rate
• Prepayment Penalty Term
• Debt-to-Income Ratio
• Combined Loan-to-Value Ratio
• Loan Term
• Introductory Rate Period
• Non-Amortizing Features
• Property Value
• Manufactured Home Secured Property Type
• Manufactured Home Land Property Interest
• Multifamily Affordable Units
• Application Channel
• Mortgage Loan Originator Identifier
• Automated Underwriting System
• Reverse Mortgage Flag
• Open-End Line of Credit Flag
• Business or Commercial Purpose Flag

Not Covered by Partial Exemption

• Application Date
• Loan Type
• Loan Purpose
• Preapproval
• Construction Method
• Occupancy Type
• Loan Amount
• Action Taken
• Action Taken Date
• State
• County
• Census Tract
• Ethnicity
• Race
• Sex
• Age
• Income
• Type of Purchaser
• HOEPA Status
• Lien Status
• Number of Units
• Legal Entity Identifier

Sources:

CFPB, Partial Exemptions from the Requirements of the Home Mortgage Disclosure Act under the Economic Growth, Regulatory Relief, and Consumer Protection Act (Regulation C)

12 CFR Part 1003, RIN 3170-AA81

CFPB, Executive Summary of the 2018 HMDA Interpretative and Procedural Rule (August 31, 2018)

This entry was posted on Monday, September 10th, 2018 at 6:00 am.