By: Bill Elliott, CRCM, Senior Consultant and Manager of Compliance and Adam Witmer, CRCM, Senior Consultant
Beginning in 2018, you will be faced with two major changes to Home Mortgage Disclosure Act (Regulation C 12 CFR § 1003). They are:
- Changes to the existing rules
- Addition of new rules
While the new rules will be challenging to navigate, the changes to the existing rules could prove to be extremely challenging, as long-established procedures and understandings are going to change. The following are a list of some of the biggest modifications.
Loan Volume Test. The new rules have two separate loan volume tests, one for closed-end and one for open-end.
The closed-end test is 25 covered loans. If your bank originates 25 “covered” loans (defined as not excluded closed-end loans or open-end loans), you will then report closed-end loans.
The open-end test is 100 covered loans. If your bank originates 100 open-end covered loans, then you will report open-end loans. There is a regulatory proposal to change this to 500 open-end for a couple of years, and we expect that to occur. The challenge here relates to business purpose loans.
All consumer purpose loans (generally HELOCs) will count, but business purposes loans may also count. Excluded loans will be open-end loans (such as an equity loan for operating expenses) that are not for a purchase, refinance, or home improvement purpose. But open-end loans such as this are refinanced, and will become reportable.
If your financial institution only meets one test, you only report the type of loans for the test you meet. This means some institutions will only report closed-end loans. Some will only report open-end loans. And others will report both.
Dwelling Secured. Under prior HMDA rules, one definition of Home Improvement included loans that were not secured by a dwelling. Under the new rules, only loans secured by a dwelling will be reportable.
Temporary Financing. The rules now only talk about financing that will be replaced by new financing. The old rules specifically excluded construction and bridge loans.
Agricultural Loans. The new rules now exempt all agricultural loans. In the past, the agricultural loan exemption only applied to purchases, which meant that when an agricultural loan was refinanced, it required HMDA reporting. Now, all agricultural purpose loans are exempt.
Preapproval Requests. Preapproval requests that are approved but not accepted are now required reporting rather than optional reporting.
Submission Process. The CFPB is going to use a cloud-based program for HMDA submissions. This means that reporters using the FFIEC software are going to have a much more difficult time. You will want to think about software options. If you are not using third-party software already, you will need to work out logistics of using the new reporting system.
Items to Consider
Our training manual for our live HMDA presentation runs 210 pages, so this is just an overview of some of the items that must be considered. Time is growing short. If your institution is going to be subject to the new rules, then training for everybody involved in the process is necessary. And for most readers, this will include more than one person.
For the future, if you are not subject to the HMDA regulation, be careful of expansion. If you open a branch in an MSA, suddenly HMDA will become part of your life. So beware of a good deal on the land or the lease – the costs of HMDA could easily dwarf the savings. If you are a HMDA reporter already, remember that any compliance requirement only gets paid for one of two ways – the applicants/customers pay for it, or it comes out of the stockholder’s pocket. Fee changes may be in your future.
HMDA Tools – Coming Soon
Young & Associates, Inc. is currently developing a HMDA Toolkit which will be available shortly, as well as a customizable HMDA policy. As there is HMDA text that the CFPB is changing and correcting (due out soon, we hope), we are not ready for release just yet. But we hope to keep the timetable reasonable. The HMDA policy will be available to purchase September 1, 2017.
We will also be offering an off-site HMDA Review beginning in 2018. We will review as many or as few loans as you would like to make sure you are on track. Billing will be based on the number of files reviewed, so you will control your costs.
Detailed information for all of these items will be available soon. If you are interested in the HMDA toolkit, HMDA policy, or HMDA reviews, we will be happy to discuss these products and services with you at any time.
Good luck – we will all need it. For more information on this article or how Young & Associates, Inc. can assist you in this process, contact us at [email protected] or 330.422.3450.