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Important changes for HMDA reports imminent
It obliges the FIs it covers to communicate information on their mortgage origination policies to supervisors and the general public. 3. Mortgage credit is not prohibited by HMDA, nor does it prescribe how and when loans may be granted. However, the effects of non-compliance with these HMDAs can be serious. National and state authorities and non-profit watching dogs rely on the provision of consistent, full and accurate information about HMDAs to help supervise and evaluate institutions' adherence to the Equal Credit Opportunity Act, the fair housing act and the Community Reinvestment Act (CRA), as well as state legislation aimed at treating clients fairly and equitably and providing service to the people.
The dependency on HTMLDA information will certainly grow as reports become more in-depth. Given that HHMDA is tightly linked to legislation that serves the common good, breaches of HHMDA pose an increased threat of damage to reputation and systematic failure will lead to an increasing number of injunctions.
The Congress has visited only twice the HMDA since its adoption in 1975. Changes made under the Financial Institutions Reform, Recovery, and Enforcement Act 1989 obliged the relevant institution to gather and declare new "data points" on the borrower's features. The Dodd-Frank Act in 2010 delegated the regulatory power for HMDA to the CFPB, extended the scope of the " credit points " feature reports and authorised the CFPB to establish further notification obligations by amending Regulation C implementing the HMDA.
In October 2015, the CFPB adopted changes to Regulation C with the declared objectives of enhancing the HMDA information gathered and rationalising and modernising the way MFIs reported this information. While most of the amended requirement will come into force on 1 January 2018, changes in custodian cover came into force on 1 January 2017, while other changes will come into force in 2019 and 2020.
The scope and details of the supplementary information that banks will be obliged to gather and notify from 1 January far exceed what is currently necessary, as explained below. Which party declares HMDA data? HMDA's eligibility is determined by an institution's overall assets, site and other terms and circumstances. Guaranteed entities must gather and submit information on their mortgage origination policies to the Federal Audit Council of Financial Institutions which manages the HMDA financial Reporting System (FFIEC).
The FFIEC will publish the Loan Application Register (LAR) files of the affected institutes for error checking on-line and make available a copy on CD-ROM. Institutes are also obliged to make information about loss compensation available to the general public upon demand. From 1 January 2018, institutes will no longer be obliged to disclose information directly to the general public. 1 January 2018 will also see the end of the obligation to disclose information directly to the general public. 1 January 2018 will see the end of the obligation to disclose information.
Rather, individuals looking for information on HMADA are redirected to a CFPB website where the information is available. However, the Regulation changed the elements that are triggered when a creditor falls under the scope of Order C. Under the amended Order, all creditors belong to one of two categories of Guaranteed Institutions:
1. custodian bank (i.e. bank, saving bank and cooperative bank) or 2. non-custodian bank. Prior to 1 January 2017, all depositories were subject to Ordinance C without exceptions. According to the amended Ordinance, a depositary bank is only eligible if (1) it has met the requirements of the Ordinance for property sizes, locations, the federal government and lending activities and (2) it has granted at least 25 housing construction credits (including refinancing) in both 2015 and 2016.
In the case of non-deposits, Order C shall be applicable with effect from 1 January 2018 only if the entity (1) has granted at least 25 secured contracted credits or at least 100 secured open lines of credit in each of the years 2015 and 2016 and (2) fulfils the site test of the Order (i.e. has a house or business establishment in an urban statistics area[MSA] during the reference period).
Due to the clarification of the HMDA Rules of the CFPB of 24 August 2017, the number of home owner occupancy credits triggering the HMDA report for all banks was raised from 100 to 500 credits for the 2018 and 2019 years. The CFPB will either permanently fix the 500 lending thresholds for the reference years after 2019 or launch further regulatory work to fix a different one.
A Loan Application Register (LAR) must be maintained by all institutes included in the coverage. According to the current notification obligations, an institute must provide its LAR with information on the application, granting and purchasing of three mortgage loan categories: 1 ) Housing construction loan, 2) Home improvements loan and 3) Mortgage refinancing. As a result, the amended ordinance more than doubled the number of points to be collected from 23 to 48.
The new or updated points shall comprise, inter alia, the applicant's or borrower's ages, creditworthiness, unambiguous identification, real estate value, claim channels, points and tariffs, borrowing tariffs, discounting points, lending facilities, repayment period, advance payment penalties, non-amortizing characteristics, interest rates and identification. Within the framework of the current Ordinance, the banks concerned must also gather and notify the following information: Pledge situation (first or second lien).
Those current needs have also been changed, and the reviewed regulations and information collection formats on the borrower's racial, ethnic and gender features, referred to in summary as Government Monitoring Information (GMI), are particularly remarkable for their higher degree of detail and higher sophistication. "In this context, the reviewed ordinance does not limit the number of classes and sub-classes that a creditor may reveal.
At present, as is the case when a borrower refuses to make available RMI during a personal credit request, the amended Regulation C allows the credit analyst to capture the borrower's racial or ethnic origin on the basis of optical monitoring. In such cases, however, the credit analyst may not make a note of his visible findings in relation to any of the added sub-categories for racial or ethnic origin.
Even though the amended Regulation C does not oblige banks to use the new GMI capture form by 1 January 2018, banks can use it earlier to help credit handlers get to know it. While in this context the date of most of the amendments to Regulation C is set on the basis of the date on which the lending decisions are taken (e.g. loans submitted at the end of December 2017 can only be dealt with in January), the new GMI rule applies to all requests submitted on or after 1 January.
Pre-authorisation claims relating to (1) claims which have been cancelled or terminated due to incompletion or (2) credits acquired from other entities do not require reportability. With effect from 1 January 2018, the amended Regulation C will explicitly preclude pre-approval for open line of credit, reversed mortgage lending or multi-family home collateral.
Interest spreads - i.e. the differences between the APR and the APOR available on the relevant markets for a similar operation - are another point on which banks will experience significant changes in their notifications. In particular, under the current regulations, banks are obliged to recognise the mark-up only if the APOR is exceeded by a certain margin by the interest per annum on the relevant loans.
From 1 January 2018, the interest spreads for most credits must be announced. Therefore, it is very important to know how the Ratenspread is computed. You can determine the rates spreading either by hand or using the FFIEC's on-line rates spreading calculator. FFIEC's website also offers APOR spreadsheets and a multi-credit calculator to calculate the credit risk.
From 1 January 2018, as mentioned above, Guaranteed Bodies must specify the nature of the buyer for each reporting exposure that has been disposed of after the grant or, if the exposure has not been disposed of, during the year. Specifically, it shall be disclosed whether the loans have been bought by Fannie Mae, Ginnie Mae, Freddie Mac, Farmer Mac, Farmer Mac, Privat Verbriefer, Handelsbank, Sparkasse, Sparkasse, Sparkasse, Sparverein, Kreditgenossenschaft, Hypothekenbank, Finanzgesellschaft, Lebensversicherungsgesellschaft, angeschlossenen Institution or any other kind of buyer.
Although this datapoint is quite simple, there are some subtleties that require further explanations. In case the Institute knows or reasonably thinks that the buyer is securitising the credit, the credit should be declared as having been bought from a "private securitiser". Unless the bank is sufficiently certain that the buyer has securitised the credit, the credit is to be declared as acquired by the respective kind of company.
If so, the credit should be declared as having been bought from a securitiser. Affiliated institution' means an undertaking which the insured person supervises or is supervised by. Where the buyer of the credit is an associated enterprise but also falls into another reporting class, the buyer should be declared as an associated enterprise.
Lastly, in certain conditions, the buyer should be notified as'not applicable', even if the request has been rejected, revoked, shut down for lack of completeness or authorised but not agreed. A further scenario in which "not applicable" should be used is when the bank is selling part of the credit but retaining the controlling interest.
For this purpose, if the bank sells all or the controlling interest in the loans, but to more than one company, the company that acquired the largest interest must be notified as the buyer. According to the current regulations, the amount of the loans is round to the next thousands. Amended Regulation C amends this point and requests the report of the total amount of credit, round to the next whole number.
Please be aware that this datapoint should also be notified if the borrower does not terminate the borrower's borrowing. In the event that the loans are rejected, the amount requested by the claimant is shown. In the event that a counter-offer has been submitted and approved, the amount of the counter-offer will be disclosed. If the counter-offer has been rejected, the amount originally requested by the claimant must be indicated.
From 2019, the FFIEC will only be accepting LAR information that is submitted in electronic form, which is already standard in the sector. Furthermore, from 1 January 2020, the annual coverage of certain major banks will be increased from annual to quarterly. There is a huge amount of revision of current HMDA report standards that will come into force on 1 January 2018, and the above mentioned standards are only part of the forthcoming changes.
Adherence to the new regulations requires thorough design and illustration of the necessary changes to current accounting practice, which is likely to be deep-rooted as it has remained in place for centuries. Mr Hamilton has expertise in providing advice to customers on mortgage-related issues, which includes advice on Mortgage Related Mortgage Services (HMDA). Please address any queries to the author or another member of the Practice Group Financial Services.
The HMDA provides a pane of glass for regulatory authorities and the general public to see how well an institute meets the mortgage credit needs of its communities and complies with equitable credit legislation that prohibits illegal discriminations. There may be significant differences in the profiles of an equitable credit or CRA institute when further detail on its mortgage credit practices is taken into account.
It can be seen, for example, that certain sub-categories within large ethnical groups are not eligible for mortgages. In addition, mortgage credit can be presented within a seemingly racial integration of the population counting wing as clustered within a predominantly whitish district. An analysis of the effect the new HMDA will have on the credit provision process of regulatory authorities and the general public after 1 January 2018 should be carried out by all entities included.
Incorporating the borrower's name, creditworthiness and other information of high sensitivity into your HMDA may require reinforcing your current safeguards to protect your information from the risks of unauthorised disclosure andft. Institutes should consider restricting only those staff members who have a genuine need for knowledge to have direct or indirect contact with information from them.