Understanding the Home Mortgage Disclosure Act (HMDA) is crucial for mortgage loan officers because the data required by the law helps the Federal Financial Institutions Examination Council (FFIEC) determine whether lending institutions meet the housing/credit needs of U.S. communities. The data helps uncover discriminatory lending practices and direct community development block grants to specific communities, in order to encourage private investment. FFIEC collects data indicators on race and income distribution of borrowers, denial rates by race and income, and subprime loans/lenders by race.
You probably have a number of questions about HMDA, and the information below aims to provide answers to those questions.
What Is the Home Mortgage Disclosure Act (HMDA)?
HMDA has been around awhile, having passed into U.S. federal law in 1975. The Federal Reserve Board implemented HMDA in Regulation C in 1976. Then, in 2011, the regulatory authority passed from the Federal Reserve Board to the Consumer Financial Protection Bureau (CFPB).
In general, HMDA requires some, but not all, lenders to collect and report on the loans they make, the loan applications they receive, and the loans they buy from other lenders. The law does not apply to all loans, just those that meet the specifications in Regulation C. The lenders must report annually the loan information they collect to the federal government, unless they are large-volume lenders. Large-volume lenders report quarterly.
Depository institutions report to their supervisory agencies, whereas non-depository institutions report to HUD.
What Is the Impact of the Final Regulation?
The CFPB issued a proposed regulation in August of 2014 and then finalized the rule in 2016.
In its original form, HMDA only applied to depository institutions; however, the final rule makes it clear that both depository and non-depository institutions are subject to the rule if they meet certain conditions.
The final rule applies the same loan-volume threshold to both depository and nondepository institutions. Regulation C says that an institution "that originated at least 25 closed-end mortgage loans or at least 100 open-end lines of credit in each of the two preceding calendar years" must report HMDA data if the institution satisfied the criteria for institutional coverage. The conditions for depository institutions are:
- "Satisfy an asset-size threshold
- Have a branch or home office in an Metropolitan Statistical Area (MSA) on the preceding December 31
- Satisfy the current federally related test, and
- Originated at least one first-lien home loan or refinancing loan secured by a one- to four-unit dwelling in the previous calendar year."
The conditions for non-depository institutions are that they satisfy the volume test applicable to both non-depository and depository institutions, and have a branch or home office in a Metropolitan Statistical Area (MSA) on the preceding December 31.
The final rule covers most consumer transactions, such as home-equity lines of credit, closed-end equity loans, and reverse mortgages.
Most commercial transactions are subject to the final regulation only if they are for a personal purpose, like buying, refinancing, or renovating a home. The final rule excludes home improvement loans not secured by the dwelling (or secured by other kinds of collateral) and all agricultural loans and lines of credit.
When Do the Final Regulation C Rules Go Into Effect?
The Final Regulation is generally effective January 1, 2018. However, amendments to 1003.2 (instruction 3) are effective January 1, 2017; amendments to § 1003.5 (instruction 8), amendments to § 1003.6 (instruction 10), amendments to appendix A to part 1003 (instruction 12), and amendments effective to supplement I to part 1003 (instruction 16) are effective on January 1, 2019; and amendments to § 1003.5 (instruction 9) are effective on January 1, 2020.
What Kind of Information Do Financial Institutions Have to Report?
Final Regulation C requires financial institutions to report information in four broad categories, including the following information about:
- Applicants, borrowers, and the underwriting process, such as age, credit score, debt-to-income ratio, and automated underwriting system results
- Construction method of property, property value, and additional information about manufactured and multi-family housing
- Loan features, such as pricing information, loan term, interest rate, introductory rate period, non-amortizing features, and the type of loan
- Universal loan identifier, address, loan originator identifier, and financial institution identifier
- Action taken/date (approved, denied, withdrawn, etc.)
- Whether the loan is under the Home Ownership and Equity Protection Act of 1994 (HOEPA);
- Lien status (first, subordinate, unsecured)
- Loan price information
The final rule does not require reporting on loan modifications, although the CFPB believes there is not enough information made public on such loans. CFPB concluded that requiring reporting on loan modifications would mean a major overhaul of the rule, and as it has no public feedback on the burden such an overhaul might place on institutions, the final rule does not address reporting on loan modifications.
To learn more about the final Regulation C, read the CFPB official interpretations.
HMDA is a complex topic, and while this has been a brief overview, it is always wise to arm yourself with as much information as possible about such regulations. If you would like to talk more about the Home Mortgage Disclosure Act with one of our experts, or if you would like to talk about how our cloud-based MortgageWorkSpace® suite can help you easily comply with mortgage regulations, please contact us. We look forward to helping you grow your business.